<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1997
REGISTRATION NO. 333-15965
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GOLF TRUST OF AMERICA, INC.
(Exact Name of Registrant as Specified in its Governing Instruments)
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190 King Street
Charleston, South Carolina 29401
(803) 768-8300
(Address of Principal Executive Offices)
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W. Bradley Blair, II
Chief Executive Officer
Golf Trust of America, Inc.
190 King Street
Charleston, South Carolina 29401
(803) 768-8300
(Name and Address of Agent for Service)
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COPIES TO:
PETER T. HEALY, ESQ. DAVID C. WRIGHT, ESQ.
O'Melveny & Myers LLP Hunton & Williams
275 Battery Street 900 South Gay Street
San Francisco, California 94111 Knoxville, Tennessee 37902
(415) 984-8833 (423) 549-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share........................... 3,294,750 Shares $21.00 $69,189,750 $20,967(3)
</TABLE>
(1) Includes 429,750 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated based on a bona fide estimate of the maximum offering price of
$21.00 solely for the purpose of calculating the registration fee pursuant
to Rule 457(a) of the Securities Act of 1933.
(3) The amount of $20,308 was previously paid with the initial filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 501(a) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEMS AND CAPTIONS LOCATION OR HEADING IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Outside Front Cover Page; Prospectus Summary; Risk
Factors; Distribution Policy; The Golf Courses;
Certain Relationships and Transactions
4. Determination of Offering Price................... Underwriting
5. Dilution.......................................... Dilution
6. Selling Security Holders.......................... Not Applicable
7. Plan of Distribution.............................. Underwriting
8. Use of Proceeds................................... Use of Proceeds
9. Selected Financial Data........................... Selected Historical Financial Information
10. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. Management's Discussion and Analysis of Financial
Condition and Results of Operations
11. General Information as to Registrant.............. Prospectus Summary; The Company; The Golf
Industry; The Golf Courses; Management;
Partnership Agreement; Principal Stockholders of
the Company and Principal Partners in the
Operating Partnership
12. Policy with Respect to Certain Activities......... Policies and Objectives With Respect to Certain
Activities
13. Investment Policies of Registrant................. Policies and Objectives With Respect to Certain
Activities
14. Description of Real Estate........................ Management's Discussion and Analysis of Financial
Condition and Results of Operations; The Golf
Courses
15. Operating Data.................................... The Golf Courses
16. Tax Treatment of Registrant and Its Security
Holders.......................................... Federal Income Tax Considerations
17. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters.... Risk Factors; Principal Stockholders of the
Company and Principal Partners in the Operating
Partnership; Distribution Policy; Shares
Available for Future Sale
18. Description of Registrant's Securities............ Capital Stock
19. Legal Proceedings................................. The Golf Courses -- Legal Proceedings
20. Security Ownership of Certain Beneficial Owners
and Management................................... Principal Stockholders of the Company and
Principal Partners in the Operating Partnership
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEMS AND CAPTIONS LOCATION OR HEADING IN PROSPECTUS
- ------------------------------------------------------- --------------------------------------------------
<C> <S> <C>
21. Directors and Executive Officers.................. Management
22. Executive Compensation............................ Management
23. Certain Relationships and Related Transactions.... Risk Factors; The Golf Courses; Management; The
Formation Transactions; Certain Relationships and
Transactions; Partnership Agreement; Principal
Stockholders of the Company and Principal
Partners in the Operating Partnership
24. Selection, Management and Custody of Registrant's
Investments...................................... Risk Factors; Policies and Objectives With Respect
to Certain Activities; The Golf Courses
25. Policies with Respect to Certain Transactions..... Risk Factors; The Golf Courses; Policies and
Objectives with Respect to Certain Activities;
Management; Certain Relationships and
Transactions; Partnership Agreement; Principal
Stockholders of the Company and Principal
Partners in the Operating Partnership
26. Limitations of Liability.......................... Capital Stock -- Limitation of Liability of
Directors; Indemnification Agreements
27. Financial Statements and Information.............. Index to Financial Statements
28. Interests of Named Experts and Counsel............ Experts; Legal Matters
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Management
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 15, 1997
[LOGO]
GOLF TRUST OF AMERICA, INC.
2,865,000 SHARES
COMMON STOCK
Golf Trust of America, Inc. (collectively with its subsidiaries, the
"Company") has been created to capitalize upon consolidation opportunities in
the ownership of golf courses in the United States. The principal business
strategy of the Company, which will be operated as a self-administered real
estate investment trust ("REIT"), will be to acquire high quality golf courses
and to lease the golf courses to multiple independent lessees, including
newly-formed affiliates of the sellers of such courses.
Upon completion of the offering (the "Offering") and the Formation
Transactions (as herein defined), the Company will be one of only two publicly
traded REITs in the United States focused on owning and acquiring golf courses
and will own 10 courses (the "Golf Courses") located in South Carolina (4),
Virginia (2), Alabama, Georgia, North Carolina and Texas. The Golf Courses will
be leased to lessees (the "Initial Lessees") affiliated with the Prior Owners
(as herein defined) under leases ("Participating Leases") which provide for the
payment of fixed base rent and participating rent based on growth in revenue at
the Golf Courses. The Company believes it will benefit from the continuity of
golf course management provided by the Initial Lessees, whose affiliates
developed and have operated each of the Golf Courses since their opening.
Neither the Company nor its executive officers will own any interest in, or
participate in the management of, the Initial Lessees. The Company intends to
make regular quarterly distributions to stockholders beginning with the quarter
ending March 31, 1997.
All of the shares of common stock (the "Common Stock") offered hereby are
being sold by the Company. Upon completion of the Formation Transactions, the
Prior Owners of the Golf Courses will own approximately 59.1% of the Company
through partnership interests redeemable for Common Stock. Prior to the
completion of the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price per
share of Common Stock will be between $19.00 and $21.00. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for listing on the American
Stock Exchange, subject to official notice of issuance, under the symbol "GTA".
SEE "RISK FACTORS" COMMENCING ON PAGE 17 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK INCLUDING:
- On a pro forma basis for the nine months ended September 30, 1996,
operations at four of the Golf Courses, including the two recently opened
Golf Courses, would not have generated net operating income for the
applicable Initial Lessee;
- Risks associated with the fact that two of the Golf Courses recently
opened and have limited operating history;
- Dependence on Lease Payments (as herein defined) from the Initial Lessees
for substantially all of the Company's income;
- Risks associated with the length of the Participating Leases, which with
extensions may have terms of up to 40 years, which may have an adverse
effect on the Company's ability to sell a Golf Course;
- Risks associated with the fact that the holders of at least 66.7% of the
interests in the Operating Partnership (as herein defined), including the
Company, which initially will own only a 40.9% interest in the Operating
Partnership, must approve a sale of all or substantially all of the assets
of the Operating Partnership or a merger or consolidation of the Operating
Partnership;
- The lack of appraisals of the Golf Courses and the possibility that the
purchase prices paid by the Company for the Golf Courses may exceed the
fair market value of one or more of the Golf Courses;
- Risks associated with the Company's limited control over the day-to-day
management and operation of the Golf Courses due to the tax restrictions
that prevent a REIT from operating golf courses; and
- Risks affecting golf course operations generally, including competition,
uninsured losses, increases in operating costs, inclement weather and
seasonality, oversupply and decrease in demand, all of which could
adversely affect an Initial Lessee's ability to make its Lease Payment.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(2)........................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 429,750 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
----------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California on or about , 1997.
ROBERTSON, STEPHENS & COMPANY WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1997
<PAGE>
Inside Front Cover w/ two foldout pages
[Large Photo depicting golf course green and adjacent sandtrap, including a
superimposed medal with the words "Best New Upscale Course, 1996, Golf Digest
Magazine." The caption reads, "Stonehouse Golf Club, Williamsburg, VA."
Map of United States showing the locations of the ten Golf Courses, with
each identified by name, in Texas, Alabama, Georgia, South Carolina, North
Carolina and Virginia.
Large Photo depicting golf course fairway, green, sandtraps, and waterhole.
Small Photo depicting two storey building with three wings behind a golf
course green. The caption reads "Legends Resort, Myrtle Beach, SC."
Small Photo depicting aerial view of golf course including fairways, greens,
trees and water. The caption reads, "Moorland, Myrtle Beach, SC."
Small Photo depicting aerial view of golf course including a green, multiple
sandtraps, a marshy area, and trees. The caption reads, "Parkland, Myrtle Beach,
SC."
Large Photo depicting aerial view of golf course fairway and adjacent lake
and trees. The caption reads, "Oyster Bay, Sunset Beach, NC."
Large Photo depicting aerial view of golf course fairway, golf cart path,
golf cart, golfers and surrounding trees. The caption reads, "Northgate Country
Club, Houston, TX."
Small photo depicting four golfers and two golf carts on a green with water
in foreground and trees in background.
Small photo of the driveway approach to a two storey stone building with a
brick sign in the foreground that reads "Northgate."
Small Photo of water hazard between two golf fairways, one of which is being
traversed by a golf cart, with trees in the background.
Medium size photo of lake and adjacent sandtrap and golf green with an
orange flag. The caption reads "Woodlands, Golf Shores, AL."
Medium size photo depicting golf fairway, sandtraps, water hazards, path and
trees.
Small aerial photo of golf course fairways, paths, sandtraps, rough, and
trees.
[Inside of back cover page]
Large aerial photo of golf course clubhouse surrounded by trees, and
adjacent golf green and water hazard.
Small photo inset of golf clubhouse with trees and bright pink flowering
bushes in the foreground. The caption reads, "Heritage Plantation, Pawleys
Island, SC."
Small photo of yellow flag on golf course green surrounded by tall grass.
The caption reads, "Royal New Kent, Williamsburg, VA."
Small photo of two storey white building with a porch with four columns and
a yard of grass, bushes and flowers.
Small photo of golfers on a green with adjacent water hazard and trees.
Small photo of single storey white building with circular drive.
Photo depicting a building partially obscured by trees, with golf green and
sandtraps in foreground. The caption reads, "Olde Atlanta, Atlanta, GA."]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY................................ 1
The Company..................................... 1
Risk Factors.................................... 2
The Golf Industry............................... 4
The Golf Courses................................ 5
Business Strategies and Objectives.............. 7
The Formation Transactions...................... 9
Benefits to Officers and Directors.............. 10
Distribution Policy............................. 11
Tax Status...................................... 12
The Offering.................................... 12
Summary Financial Data.......................... 13
RISK FACTORS...................................... 17
Initial Lessee Pro Forma Net Income............. 17
Acquisition of Golf Courses with Limited
Operating History.............................. 17
Dependence on Payments under the Participating
Leases......................................... 17
Duration of Lease; No Right to Terminate
Participating Leases on a Sale................. 17
Lack of Appraisals.............................. 17
Lack of Control Over Day-to-Day Operations and
Management of the Golf Courses................. 18
Golf Industry Risks............................. 18
Dependence Upon Key Personnel................... 19
Lack of Operating History....................... 19
Risks Related to the Company's Growth
Strategy....................................... 19
Benefits to Officers and Directors.............. 20
Concentration of Investments.................... 20
Real Estate Investment Risks.................... 20
Immediate and Substantial Dilution.............. 22
Conflicts of Interest........................... 22
Real Estate Investment Trust and Partnership
Qualification.................................. 22
Competition for Management Time for the Initial
Lessees........................................ 23
Risks of Leverage; No Limitations on
Indebtedness................................... 23
Market for Common Stock; Adverse Effect of
Increase in Market Interest Rates.............. 23
<CAPTION>
PAGE
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<S> <C>
Changes in Investment and Financing Policies.... 24
Limits on Changes in Control.................... 24
Dependence on Acquisitions to Increase Cash
Available for Distribution..................... 24
Distribution to Stockholders.................... 24
ERISA Risks..................................... 25
Adverse Effect of Shares Available for Future
Issuance and Sale on Market Price of Common
Stock.......................................... 25
Ownership Limit................................. 25
Anti-takover Effect on Certain Provisions of
Maryland Law and the Company's Charter and
Bylaws......................................... 26
THE COMPANY....................................... 27
Business Strategies and Objectives.............. 28
Acquisitions and Expansions..................... 28
Internal Growth................................. 30
The Operating Partnership....................... 30
USE OF PROCEEDS................................... 31
DISTRIBUTION POLICY............................... 33
CAPITALIZATION.................................... 35
DILUTION.......................................... 36
SELECTED FINANCIAL INFORMATION.................... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............. 40
Overview........................................ 40
The Legends Group Prior Owners.................. 42
Northgate Country Club.......................... 46
The Woodlands................................... 48
Olde Atlanta.................................... 49
Inflation....................................... 50
Seasonality..................................... 50
THE GOLF INDUSTRY................................. 51
Demographics.................................... 51
THE GOLF COURSES.................................. 54
Descriptions of the Golf Courses................ 55
The Participating Leases........................ 58
Competition..................................... 63
Employees....................................... 63
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Legal Proceedings............................... 63
Government Regulation........................... 63
MANAGEMENT........................................ 65
Directors, Proposed Directors and Executive
Officers....................................... 65
Committees of the Board of Directors............ 66
Compensation of Directors....................... 67
Directors and Officers Insurance................ 67
Indemnification................................. 67
Executive Compensation.......................... 67
Stock Incentive Plan............................ 68
Directors' Plan................................. 69
Deferred Compensation Plan...................... 69
Employment Agreements........................... 70
INITIAL LESSEES................................... 70
Golf Course Operations.......................... 71
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN
ACTIVITIES...................................... 71
Investment Objectives and Policies.............. 72
Dispositions.................................... 72
Financing....................................... 72
Working Capital Reserves........................ 73
Conflict of Interest Policies................... 73
Other Policies.................................. 74
THE FORMATION TRANSACTIONS........................ 74
Benefits to Officers and Directors.............. 75
Transfer Documents.............................. 76
CERTAIN RELATIONSHIPS AND TRANSACTIONS............ 77
Relationships Among Officers and Directors...... 77
Acquisition of Interests in Certain of the Golf
Courses........................................ 77
Repayment of Indebtedness....................... 77
Employment Agreements........................... 77
Option to Purchase and Right of First Refusal... 77
PARTNERSHIP AGREEMENT............................. 78
Management...................................... 78
Transferability of OP Units..................... 78
Pledge.......................................... 78
Redemption Rights............................... 78
Capital Contribution............................ 79
<CAPTION>
PAGE
----
<S> <C>
Term............................................ 79
Tax Matters..................................... 80
PRINCIPAL STOCKHOLDERS OF THE COMPANY AND
PRINCIPAL PARTNERS IN THE OPERATING
PARTNERSHIP..................................... 80
CAPITAL STOCK..................................... 81
General......................................... 81
Corporate Governance............................ 81
Restrictions on Ownership....................... 81
Business Combinations........................... 84
Limitations on Changes in Control............... 84
Limitation of Liability of Directors;
Indemnification Agreements..................... 84
Transfer Agent and Registrar.................... 84
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS.................... 85
Maryland Business Combination Law............... 85
Control Share Acquisitions...................... 85
Interested Director Transactions................ 86
Amendments to the Charter and Bylaws............ 86
SHARES AVAILABLE FOR FUTURE SALE.................. 87
Registration Rights............................. 87
FEDERAL INCOME TAX CONSIDERATIONS................. 88
Taxation of the Company......................... 88
Partnership Anti-Abuse Rule..................... 93
Failure to Qualify.............................. 94
Taxation of Taxable Domestic Stockholders....... 94
Backup Withholding.............................. 94
Taxation of Tax-Exempt Stockholders............. 95
Taxation of Foreign Stockholders................ 95
State and Local Taxes........................... 96
Tax Aspects of the Operating Partnership........ 96
UNDERWRITING...................................... 100
EXPERTS........................................... 101
LEGAL MATTERS..................................... 101
ADDITIONAL INFORMATION............................ 102
GLOSSARY.......................................... 103
FINANCIAL STATEMENTS.............................. F-1
</TABLE>
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THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING, WITHOUT LIMITATION, STATEMENTS
CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND WORDS OF SIMILAR
IMPORT. SUCH FORWARD-LOOKING STATEMENTS RELATE TO FUTURE EVENTS, THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY, AND INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY OR INDUSTRY RESULTS TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. PROSPECTIVE INVESTORS SHOULD SPECIFICALLY
CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER, INCLUDING THOSE DISCUSSED IN THE SECTIONS ENTITLED
"PROSPECTUS SUMMARY," "RISK FACTORS," "THE GOLF INDUSTRY," "THE GOLF COURSES"
AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR
TO PUBLICLY ANNOUNCE THE RESULT OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL INFORMATION AND STATEMENTS, AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT (I) THE INITIAL PUBLIC
OFFERING PRICE PER SHARE OF COMMON STOCK WILL BE $20.00 (WHICH IS THE MIDPOINT
OF THE RANGE OF THE ESTIMATED INITIAL PUBLIC OFFERING PRICE SET FORTH ON THE
FRONT COVER OF THIS PROSPECTUS) (THE "OFFERING PRICE"), AND (II) THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERM "COMPANY," AS USED HEREIN, INCLUDES GOLF TRUST OF
AMERICA, INC., GTA GP, INC. ("GTA GP"), GTA LP, INC. ("GTA LP"), EACH OF WHICH
IS A WHOLLY-OWNED SUBSIDIARY OF GOLF TRUST OF AMERICA, INC., AND GOLF TRUST OF
AMERICA, L.P., A DELAWARE LIMITED PARTNERSHIP (THE "OPERATING PARTNERSHIP"). THE
TERM "OP UNITS" MEANS UNITS OF LIMITED PARTNERSHIP INTEREST IN THE OPERATING
PARTNERSHIP WHICH ARE REDEEMABLE AT THE ELECTION OF THE HOLDER FOR CASH OR, AT
THE ELECTION OF THE COMPANY, FOR SHARES OF COMMON STOCK ON A ONE-FOR-ONE BASIS.
SEE "GLOSSARY" FOR THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company has been created as a self-administered real estate investment
trust ("REIT") to capitalize upon consolidation opportunities in the ownership
of golf courses in the United States. The principal business strategy of the
Company will be to acquire high quality golf courses and to lease the golf
courses to qualified third party operators, including newly-formed affiliates of
the sellers of such courses. The Company believes its utilization of a multiple
independent lessee structure, together with the substantial industry knowledge,
experience and relationships within the golf community of its senior management
and of management of the Initial Lessees (affiliates of whom collectively will
own an initial 59.1% equity interest in the Company upon completion of the
Formation Transactions (as herein defined)) will provide it with a distinct
competitive advantage in the acquisition of high quality golf courses, including
some which might not otherwise be available for purchase.
Upon completion of the offering of the Common Stock (the "Offering") and the
Formation Transactions, the Company will be one of only two publicly traded
REITs in the United States focused on owning and acquiring golf courses and will
own 10 courses (the "Golf Courses") located in South Carolina (4), Virginia (2),
Alabama, Georgia, North Carolina and Texas. See "The Golf Courses -- Description
of the Golf Courses." The Golf Courses will be leased to lessees (the "Initial
Lessees") affiliated with the Prior Owners (as herein defined) under leases (the
"Participating Leases") which provide for the payment of fixed base rent ("Base
Rent") and participating rent based on growth in revenue at the Golf Courses
("Participating Rent" and, together with Base Rent, the "Lease Payment"). See
"The Golf Courses -- The Participating Leases." The Company believes it will
benefit from the continuity of golf course management provided by the Initial
Lessees, whose affiliates developed and have operated each of the Golf Courses
since its opening. See "Initial Lessees." Neither the Company nor its executive
officers will own any interest in or participate in the management of the
Initial Lessees.
The Company's goal is to increase cash available for distribution and to
enhance stockholder value by becoming a leading owner of, and participating in
increased revenue from, nationally or regionally recognized high quality golf
courses. Four of the Golf Courses were ranked among the Top Ten New Courses by
either GOLF DIGEST or GOLF MAGAZINE in the year the Golf Course opened,
including the recently opened Stonehouse Golf Club, which in November 1996 was
named the Best New Upscale Course of 1996 by GOLF DIGEST. See "The Golf
Courses." The Company believes that the quality of the Golf Courses is further
reflected in the average green fees at the Golf Courses, which significantly
exceed national industry averages. All of the Golf Courses were developed and
have been continuously operated by the entities contributing the Golf Courses to
the Company (the "Prior Owners"). The Initial Lessees will be newly-formed
special purpose entities affiliated with the Prior Owners, and will lease the
Golf Courses from the Company pursuant to the Participating Leases. The Company
believes the continuity of management provided by these experienced operators
will facilitate the Company's growth and profitability. The Company believes
that the substantial ownership interest of affiliates of the Initial Lessees in
the Company will align the interests of the Initial Lessees with those of the
stockholders of the
1
<PAGE>
Company. As security for its affiliated Initial Lessee's obligations under the
Participating Lease, each Prior Owner will pledge to the Company for a minimum
of two years OP Units having a value, based on the Offering Price, equal to 15%
of the Company's purchase price for the Golf Course, which approximates 16
months of initial Base Rent under the applicable Participating Lease. See "The
Golf Courses -- The Participating Leases."
The Chairman of the Board, Chief Executive Officer and President of the
Company, W. Bradley Blair, II, currently serves as the Executive Vice President
and Chief Operating Officer of Legends Group Ltd. (together with its affiliates,
"The Legends Group"), a leading golf course owner, developer and operator in the
southeast and mid-Atlantic regions of the United States. After the Offering, Mr.
Blair will not have any interest in the golf operations of The Legends Group.
Seven of the eight golf courses currently owned by The Legends Group are being
contributed to the Company. The one course not being contributed is owned by The
Legends Group pursuant to a ground lease with a short remaining term, which does
not presently meet the Company's investment criteria. The Company will have an
option and right of first refusal to acquire any golf courses owned, developed
or acquired by The Legends Group. See "Certain Relationships and Transactions --
Option to Purchase and Right of First Refusal." The initial Participating Leases
with affiliates of The Legends Group (the "Legends Lessees") will be
cross-collateralized and cross-defaulted.
The Company will acquire the Golf Courses from the Prior Owners, and expects
to acquire additional golf courses from other owners utilizing an innovative
lease structure. The lease structure, including the Lessee Performance Option,
is designed to encourage aggressive growth in revenue at the Golf Courses as
well as to facilitate the Company's consolidation strategy within the golf
industry by allowing the Company to acquire golf courses which it believes have
high growth potential and which might not otherwise be available for purchase.
During years three through five of each Participating Lease, the applicable
Prior Owner, subject to certain qualifications and restrictions, may elect one
time to increase the Base Rent payable under such Participating Lease in order
to receive additional OP Units (the "Lessee Performance Option"). A Prior Owner
may exercise the Lessee Performance Option only if the current year net
operating income of the applicable Initial Lessee, inclusive of a 113.5% lease
payment coverage ratio, exceeds such Initial Lessee's then current year Lease
Payment obligation. The Lessee Performance Option is designed to be accretive to
the Company's Funds From Operations (as herein defined) on a per share basis.
See "The Company -- Business Strategies and Objectives."
Following completion of the Offering, the Company expects to have access to
a variety of debt and equity financing sources to fund acquisitions, including
the ability to issue OP Units, which can provide deferral of gain recognition
for sellers of golf courses. The Company expects to have a $75 million line of
credit (the "Line of Credit") which will be used primarily for the acquisition
of additional golf courses. The Company has not, however, finalized negotiations
on the Line of Credit and there can be no assurance that the Company will have
access to sufficient debt and equity financing to allow it to successfully
pursue its acquisition strategy. The Company will have approximately $4.3
million of outstanding indebtedness upon completion of the Offering, which will
be incurred in connection with the acquisition of one of the Golf Courses. The
Company believes its initial low level of debt, coupled with the Line of Credit,
will provide the Company with significant financial flexibility in pursuing golf
course acquisition opportunities. The Company intends to maintain a capital
structure which limits consolidated indebtedness to no more than 50% of its
total market capitalization. See "Policies and Objectives with Respect to
Certain Activities -- Financing."
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK
FACTORS" PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE COMMON STOCK
OFFERED HEREBY. SUCH RISKS INCLUDE:
- On a pro forma basis for the nine months ended September 30, 1996,
operations at four of the Golf Courses, including the two recently opened
Golf Courses, would not have generated pro forma net operating income for
the applicable Initial Lessee.
- Two of the Golf Courses recently opened, have limited operating history
and may not achieve sufficient revenue to enable the Initial Lessee to pay
the initial Base Rent for such Golf Courses.
2
<PAGE>
- Dependence on Lease Payments from the Initial Lessees for substantially
all of the Company's income.
- Risks associated with the length of the Participating Leases, which, with
extensions, may have terms of up to 40 years, which may have an adverse
effect on the Company's ability to sell a Golf Course.
- Risks associated with the fact that the holders of at least 66.7% of the
interests in the Operating Partnership, including the Company, which
initially will own only a 40.9% interest in the Operating Partnership,
must approve a sale of all or substantially all of the assets of the
Operating Partnership or a merger or consolidation of the Operating
Partnership.
- The lack of appraisals for the Golf Courses and the possibility that the
purchase prices paid by the Company for the Golf Courses may exceed the
fair market value of one or more of the Golf Courses.
- Risks associated with the Company's limited control over the day-to-day
management and operation of the Golf Courses due to the tax restrictions
that prevent a REIT from operating golf courses.
- Risks associated with a substantial number of OP Units becoming
redeemable, at the option of the holder, beginning one year following the
Offering, for cash or, at the election of the Company shares of Common
Stock on a one-for-one basis and the risks associated with a substantial
increase in the number of shares of Common Stock available for future
sale.
- Risks affecting golf course operations generally, including competition,
uninsured casualties, increases in operating costs, inclement weather and
seasonality and decrease in demand, all of which could adversely affect an
Initial Lessee's ability to make its Lease Payments.
- Risks associated with the Company's dependence upon key personnel,
including W. Bradley Blair, II, the Company's Chief Executive Officer and
President, David J. Dick, its Executive Vice President, and Scott D.
Peters, its Senior Vice President and Chief Financial Officer.
- The lack of an operating history for the Company and the fact that
management has no experience operating a public company or a REIT and
limited experience working together as a management team.
- Risks associated with rapid growth and the implementation of the Company's
growth strategy, including competition for acquisitions from
well-established owners and operators.
- Risks associated with the substantial number of new golf courses opened in
recent years and currently under development or planned for development,
which could increase competition for golfers at the Golf Courses and
adversely affect the number of rounds played and an Initial Lessee's
ability to make its Lease Payments.
- Receipt by executive officers and one of the directors of the Company of
material benefits from the Formation Transactions.
- Risks associated with the concentration of five of the Golf Courses in the
Myrtle Beach, South Carolina vicinity and two of the Golf Courses in the
Williamsburg, Virginia area.
- Taxation of the Company as a regular corporation if it fails to qualify as
a REIT, treatment of the Operating Partnership as an association taxable
as a corporation if it fails to qualify as a partnership, and the
resulting decrease in cash available to pay dividends as a result thereof.
- Risks normally associated with debt financing and the fact that there is
no limitation on the amount of debt the Company may incur.
- The restrictions on the ownership of outstanding shares of Common Stock
intended to ensure compliance with certain requirements related to
qualification of the Company as a REIT and certain other provisions in the
Company's Charter and Bylaws (as herein defined), which may inhibit a
change in control of the Company even where such a change in control might
be beneficial to the Company's stockholders.
3
<PAGE>
- The lack of a prior market for the Common Stock, the potential impact of
market interest rate increases and other factors on the trading price of
the Common Stock and the ability of the Company to maintain or increase
its initial estimated distribution rate.
- Immediate and substantial dilution of $11.60 per share in the net tangible
book value of the Common Stock purchased from the Offering Price.
THE GOLF INDUSTRY
UNLESS OTHERWISE NOTED, REFERENCES HEREIN TO NATIONAL INDUSTRY STATISTICS
AND AVERAGES ARE BASED ON REPORTS OF THE NATIONAL GOLF FOUNDATION ("NGF"), AN
INDUSTRY TRADE ASSOCIATION NOT AFFILIATED WITH THE COMPANY.
The Company believes the United States golf industry is entering a period of
significant growth. This belief is based, in part, on the fact that people over
the age of 50 play more golf than younger people, and over the next several
years the number of people aged 50 and older is expected to increase
significantly. See "The Golf Industry -- Demographics." The Company expects that
this growth will contribute to an increase in the number of rounds played and
Gross Golf Revenues (as herein defined) at the Golf Courses and golf courses
subsequently acquired by the Company. Golf course ownership in the United States
is highly fragmented. There are approximately 15,400 golf courses in the United
States which the Company believes are owned by approximately 11,000 different
entities. The Company believes there are relatively few owners of more than one
course. The Company believes that the 15 largest golf course owners in the
United States collectively own or lease fewer than 5% of the total number of
golf courses and that fewer than 10 golf course owners own more than 10 golf
courses. The Company believes that this fragmented ownership provides it an
excellent opportunity for consolidation of the ownership of high quality golf
courses. See "The Golf Industry."
The Company believes the current fragmentation of the ownership of golf
courses has resulted from a variety of factors, including scarcity of capital,
the entrepreneurial nature of many golf course owners and operators and the
associated pride of ownership. The Company believes that the economies of scale
in owning and operating multiple golf courses, the growing significance of
professional financial management in the operation of golf courses and the
desire for liquidity by golf course owners will lead to consolidation of golf
course ownership. Following completion of the offering, the Company believes it
will be well positioned to pursue opportunities to acquire high-quality courses,
because of its multiple independent lessee structure and financial flexibility.
See "The Company -- Business Strategies and Objectives -- Acquisitions and
Expansions."
Largely in response to the increasing popularity of golf, the construction
of golf courses in the United States has increased significantly in recent
years. New golf course openings from the mid-1970's through 1987 averaged
approximately 150 golf courses per year. For the period 1987 through 1995 an
average of 275 new golf courses were opened each year, with a high of 336 new
golf course openings in 1995.
The golf industry generated approximately $15 billion in revenues in the
United States in 1995. The Company believes the game of golf has exhibited
strong growth in popularity in the past 15 years as illustrated below:
<TABLE>
<CAPTION>
1980 1995 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Number of golfers............. 15 25 67%
Rounds played................. 358 490 37%
</TABLE>
Additionally, the Company believes the game of golf will benefit from
favorable demographic trends. The United States Census Bureau estimates that the
population age 50 and over will increase by 39% between 1996 and 2010, from 69.3
million to 96.3 million. The average number of rounds played per golfer on an
annual basis increases significantly as the golfer ages. Golfers in their 50's
play nearly twice as many rounds annually as golfers in their 30's, and golfers
age 65 and older generally play three times as many rounds annually as golfers
in their 30's. The Company believes that the number of golfers as well as the
total number of rounds played will increase significantly as the average age of
the population continues to increase. The Company believes that
4
<PAGE>
"baby boomers," the oldest of whom are in their early 50's today, will
contribute to the growth in total rounds played due to growing wealth and
leisure time as well as the suitability of golf as a sport for an aging
population. See "The Golf Industry -- Demographics."
THE GOLF COURSES
The Golf Courses consist of 10 nationally or regionally recognized high
quality courses located in the mid-Atlantic, southeastern and southwestern
United States. Four of the Golf Courses were ranked among the Top Ten New
Courses by either GOLF DIGEST or GOLF MAGAZINE in the year opened, including the
recently opened Stonehouse Golf Club, which was named the Best New Upscale
Course of 1996 by GOLF DIGEST. Two of the established courses (Oyster Bay and
Heritage Golf Club) have been ranked in the Top 50 Public Golf Courses by GOLF
DIGEST.
The Golf Courses include nine high quality Daily Fee courses (including six
Resort Courses) and one private country club. "Daily Fee" courses are open to
the public and generate revenues principally through green fees, golf cart
rentals, food and beverage operations, merchandise sales and driving range
charges. "Resort Courses" are Daily Fee golf courses that attract a significant
percentage of players from outside the immediate area in which the golf course
is located and generate a significant amount of revenue from golf vacation
packages. The Company considers the Daily Fee and Resort Courses to be high-end
golf courses because of the quality and maintenance of each golf course and the
average green fees, which are significantly above the averages for golf courses
in their respective geographic markets. Private country clubs are generally
closed to the public and derive revenues principally from membership dues,
initiation fees, transfer fees, golf cart rentals, guest fees, food and beverage
operations and merchandise sales.
The Company believes that the overall quality of the Golf Courses is
reflected in the green fees charged at each Golf Course, which significantly
exceed national averages. The Company believes its focus on high quality Daily
Fee golf courses and private country clubs, which attract golfers with
attractive demographic and economic profiles, will result in stronger and less
cyclical revenue growth in comparison to golf courses with lower green fees.
Five of the Golf Courses are located in the Myrtle Beach, South Carolina
vicinity, a popular year-round golf destination area. Myrtle Beach is considered
one of the nation's premier golf resort locations with nearly 100 golf courses
and more than 3.9 million rounds played in 1995, according to the MYRTLE BEACH
GOLF HOLIDAY-TM-. In addition to golf courses, Myrtle Beach offers a mix of
entertainment, shopping and dining, as well as proximity to beaches. All of the
Golf Courses located in the Myrtle Beach vicinity were developed and are
currently owned and operated by The Legends Group.
Two of the Golf Courses are located in the Williamsburg, Virginia area and
were opened in June and August, 1996. Williamsburg is a leading tourist
destination and an emerging golf resort location, with a population of
approximately 2.6 million within a 60 mile radius, providing the area with an
opportunity to attract both resort and local golfers. Since 1995, five new
courses have opened in the Williamsburg vicinity, including two of the Golf
Courses. In addition to golf, Williamsburg and the surrounding area offer
shopping, dining, entertainment and historical attractions. Both of the Golf
Courses located in Williamsburg were developed and currently are owned and
operated by The Legends Group.
One of the Golf Courses is located in Gulf Shores, Alabama, a popular golf
and vacation destination area located near the Florida panhandle. In addition to
six area golf clubs, Gulf Shores offers 32 miles of beaches, historic sites and
water sports. The remaining two Golf Courses are located within upscale master
planned communities in Houston, Texas and Atlanta, Georgia.
The Company will acquire a 100% interest in each of the Golf Courses.
Certain information respecting each of the Golf Courses is set forth on the
following page.
5
<PAGE>
<TABLE>
<CAPTION>
ROUNDS
------------------------
TWELVE
MONTHS
ENDED
SEPT.
YARDAGE TYPE OF YEAR 30,
NAME LOCATION (1) COURSE OPENED 1994 1995 1996
- ---------------- ------------------ ------- ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Heritage Golf
Club........... Pawleys Island, SC 7,040 Resort 1986 59,524 55,094 51,108
Heathland....... Myrtle Beach, SC 6,785 Resort 1990 55,393 49,312 48,728
Moorland........ Myrtle Beach, SC 6,799 Resort 1990 54,383 49,590 49,293
Parkland........ Myrtle Beach, SC 7,170 Resort 1992 50,508 46,564 46,314
Oyster Bay...... Sunset Beach, NC 6,685 Resort 1983 62,962 62,141 55,567
The
Woodlands
(6)............ Gulf Shores, AL 6,584 Resort 1994 13,490 43,459 41,120
Royal New Providence Forge, Daily
Kent (7)....... VA 7,291 Fee 1996 -- -- 2,724
Stonehouse Golf Daily
Club (8)....... Williamsburg, VA 6,963 Fee 1996 -- -- 2,227
Olde Atlanta.... Daily
Atlanta, GA 6,789 Fee 1993 43,415 41,195 40,007
Northgate
Country Club
(9)............ Houston, TX 6,540 Private 1984 44,370 46,600 45,680
Total..................................................................................
<CAPTION>
REVENUE PER PLAYER (2)
-------------------------- GROSS GOLF REVENUE (3)
TWELVE -------------------------------------
MONTHS TWELVE
ENDED MONTHS
SEPT. ENDED
30, SEPT. 30, INITIAL BASE
NAME 1994 1995 1996 1994 1995 1996 RENT (4)
- ---------------- ------- ------- -------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Heritage Golf
Club........... $ 51.89 $ 57.28 $ 60.62 $ 3,088,000 $ 3,156,000 $ 3,098,000 $ 1,825,000
Heathland....... $ 50.12 $ 55.03 $ 55.32 2,776,000 2,714,000 2,695,000 1,556,000(5)
Moorland........ $ 50.12 $ 55.03 $ 55.70 2,726,000 2,729,000 2,746,000 1,556,000(5)
Parkland........ $ 50.12 $ 55.03 $ 55.29 2,532,000 2,561,000 2,561,000 1,557,000(5)
Oyster Bay...... $ 51.60 $ 55.66 $ 58.90 3,249,000 3,459,000 3,273,000 1,856,000
The
Woodlands
(6)............ $ 28.43 $ 33.49 $ 35.17 384,000 1,455,000 1,446,000 679,000
Royal New
Kent (7)....... -- -- $ 66.08 -- -- 180,000 1,817,000
Stonehouse Golf
Club (8)....... -- -- $ 65.08 -- -- 145,000 1,890,000
Olde Atlanta....
$ 37.39 $ 38.06 $ 40.97 1,623,000 1,568,000 1,639,000 845,000
Northgate
Country Club
(9)............ $ 58.46 $ 59.40 $ 64.21 2,594,000 2,768,000 2,933,000 1,407,000
----------- ----------- ----------- ---------------
Total......... $18,972,000 $20,410,000 $20,716,000 $14,988,000
----------- ----------- ----------- ---------------
----------- ----------- ----------- ---------------
</TABLE>
- ---------------
(1) Yardage is calculated from the championship tees.
(2) "Revenue Per Player" is calculated by dividing Gross Golf Revenue at the
applicable Golf Course by the number of rounds played at the applicable Golf
Course.
(3) Gross Golf Revenue is defined as all revenues from a golf course, including
green fees, golf cart rentals, range fees, membership dues, member
initiation fees and transfer fees, but excluding food and beverage and
merchandise revenue. See "Glossary."
(4) Participating Rent is calculated based on increases in the Gross Golf
Revenue from a base year of 1996, as adjusted. Consequently, no
Participating Rent is payable on a pro forma basis for 1996.
(5) The Heathland, Moorland and Parkland Golf Courses are subject to a single
Participating Lease, and the Base Rent is equally allocated among these Golf
Courses.
(6) Opened in August 1994. The Company expects to acquire, upon completion, a
clubhouse at this Golf Course. See "The Company -- Business Strategies and
Objectives -- Acquisitions and Expansions -- Expansions."
(7) Opened in August 1996.
(8) Opened in June 1996.
(9) The Company expects to acquire, upon completion, an additional nine holes at
this Golf Course. See "The Company -- Business Strategies and Objectives --
Acquisitions and Expansions -- Expansions."
6
<PAGE>
BUSINESS STRATEGIES AND OBJECTIVES
The Company's primary objective will be to increase Cash Available for
Distribution to stockholders and enhance stockholder value by acquiring
additional golf courses that meet the Company's investment criteria and by
participating in increased revenue from the Golf Courses and any subsequently
acquired golf courses through the Participating Leases.
ACQUISITIONS AND EXPANSIONS
ACQUISITIONS. The Company intends to acquire additional golf courses,
including multi-course portfolios, that meet one or more of its investment
criteria as generally described below. The Company believes its multiple
independent lessee structure and the Lessee Performance Option, together with
the industry knowledge, experience and relationships of management of the
Company and the Initial Lessees, will permit the Company to acquire high quality
golf courses, including those which might not otherwise be available for
purchase. The Company expects to have access to a variety of debt and equity
financing sources to fund acquisitions, including the Line of Credit and the
ability to issue OP Units, which can provide a means of deferring recognition of
gain for certain sellers. OP Units are redeemable for cash, or at the Company's
option, shares of Common Stock on a one-for-one basis. See "Partnership
Agreement -- Redemption Rights." The Company's structure is designed to offer
sellers of golf courses the following benefits: (i) tax deferral and increased
liquidity associated with owning OP Units; (ii) the ability to continue to
operate the golf courses by leasing the golf course from the Company; (iii) the
ability to obtain additional OP Units through the Lessee Performance Option;
(iv) marketing and purchasing economies of scale gained from participation in
the Advisory Association (as herein defined); and (v) the ability to diversify a
seller's investment in golf courses by participating as an equity owner in the
Company's portfolio of golf courses.
The Company intends to concentrate its investment activities on golf courses
available at attractive prices that meet one or more of the following criteria:
- high quality Daily Fee courses that target avid golfers, who the Company
believes generally are willing to pay the higher green fees associated
with high quality golf courses;
- resort courses that offer superior facilities and service and attract a
relatively high number of affluent destination golfers;
- courses owned by multi-course owners and operators who have a strong
regional presence and afford the Company the opportunity to expand in a
particular region;
- private golf courses with proven operating histories;
- newly developed, well-designed golf courses with high growth potential;
and
- high quality, well-maintained golf courses with proven operating histories
located in areas where significant barriers to entry exist.
The Company has recently entered into a non-binding letter of intent to
enter into a strategic alliance with Troon Management Company ("Troon
Management"), an affiliate of Starwood Capital Group, LLC ("Starwood"). The
Company believes Troon Management is one of the United States' leading golf
course management, development and consulting companies. The non-binding letter
of intent provides that the Company will enter into purchase agreements to
acquire certain golf courses which Troon Management is currently negotiating to
acquire. Any such agreements would be subject to customary due diligence and
closing conditions and would provide that such courses be acquired on
substantially the same terms and conditions as the Company's acquisition of the
Golf Courses. The letter of intent provides that, subject to the consummation of
the Company's acquisition of courses from Troon Management, Starwood will have
the right to nominate one member of the Company's Board of Directors. Pursuant
to the proposed alliance, the Company would be granted a limited right of first
offer to acquire golf courses identified by Troon Management in the future,
which courses would be leased to Troon Management under Participating Leases. In
addition, the Company would
7
<PAGE>
grant Troon Management a limited right of first offer to lease newly-acquired
courses that the Company does not intend to lease to affiliates of the sellers.
However, the Company and Troon Management have not entered into any definitive
agreements with respect to the terms of the strategic alliance or the
acquisition of golf courses and there can be no assurances that the Company and
Troon Management will consummate any transactions contemplated by the
non-binding letter of intent.
The Company's ability to make acquisitions will depend on its access to
financing. Although as a public company the Company expects to have access to
several sources of financing, no commitments relating to such financing have
been finalized. There can be no assurance that the Company will be able to
acquire golf courses that meet its investment criteria. Moreover, acquisitions
entail risks that acquired courses will fail to perform in accordance with
expectations. See "Risk Factors -- Real Estate Investment Risks -- General" and
"Dependence on Acquisitions to Increase Cash Available for Distribution."
EXPANSIONS. The Prior Owner of Northgate Country Club currently plans to
add nine holes to that Golf Course, and the Prior Owner of The Woodlands
currently intends to build a new clubhouse (collectively, the "Expansion
Facilities"). Subject to satisfaction of certain conditions, the Company has
agreed that it will acquire the Expansion Facilities when fully completed and
operational. The Company will acquire each Expansion Facility for a price equal
to the cost of construction, which cost must be approved in advance by the
Company and which may include an allowance for land. No development fee will be
paid to the Prior Owners of Northgate or the Woodlands or any affiliate thereof
in connection with the construction of the Expansion Facilities.
Upon the Company's acquisition of the respective Expansion Facilities, the
Participating Leases for Northgate Country Club and The Woodlands will be
amended to include the applicable Expansion Facility, to increase the Base Rent
in an amount designed to be accretive to the Company's Funds From Operations per
share, and the Prior Owner will be required to pledge additional OP Units (or
cash or other security acceptable to the Company) equal to 15% of the purchase
price paid by the Company for the applicable Expansion Facility. See "The
Company -- Business Strategies and Objectives -- Acquisitions and Expansions."
INTERNAL GROWTH
Based on the experience of its management, the Company believes the Golf
Courses offer opportunities for revenue growth through effective marketing and
efficient operations. See "The Golf Courses -- The Participating Leases --
Advisory Association." The Participating Leases have been structured to provide
the Initial Lessees with incentives to operate and maintain the Golf Courses in
a manner designed to increase revenue and, as a result, increase Lease Payments
to the Company under the Participating Leases. The Company believes that
management of the Initial Lessees has demonstrated expertise in the operation of
the Golf Courses and that the Golf Courses are positioned to benefit from
favorable trends in the golf industry. See "Initial Lessees" and "The Golf
Industry."
PARTICIPATING LEASES. The Participating Leases provide that for any
calendar year, the Company will receive with respect to each Golf Course, the
greater of Base Rent or an amount equal to Participating Rent plus the initial
Base Rent payable at the Golf Course. Participating Rent is equal to 33 1/3% of
any increase in Gross Golf Revenue over Gross Golf Revenue at the Golf Course in
1996, as adjusted in determining the initial Base Rent. Base Rent under each
Participating Lease will increase annually by the lesser of (i) 3% or (ii) 200%
of the change in the Consumer Price Index ("CPI") for the prior year (the "Base
Rent Escalator") during each of the first five years of the Participating Lease
and, if the Lessee Performance Option is exercised, for an additional five years
thereafter. Annual increases in Lease Payments are limited to 5% during the
first five years of the initial lease terms. "Gross Golf Revenue" is generally
defined as all revenues from a Golf Course including green fees, golf cart
rentals, range fees, membership dues, member initiation fees and transfer fees,
excluding, however, food and beverage and merchandise revenue. Gross Golf
Revenue is affected in part by the number of rounds played at a Golf Course,
which decreased from 1994 to 1995 at six of the seven Golf Courses that had a
full year of operations in 1994. However, Revenue Per Player increased at each
of the Golf Courses during the
8
<PAGE>
same period as a result of green fee increases, and Gross Golf Revenue increased
from 1994 to 1995 at five of the seven Golf Courses that had a full year of
operations in 1994. See "The Golf Courses" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
LESSEE PERFORMANCE OPTION. The Company will acquire the Golf Courses from
the Prior Owners, and expects to acquire additional golf courses from other
owners, utilizing an innovative lease structure. The lease structure, including
the Lessee Performance Option, is designed to encourage aggressive growth in
revenue at the Golf Courses as well as to facilitate the Company's acquisition
of golf courses by allowing the Company to acquire golf courses which it
believes have high growth potential and which might not otherwise be available
for purchase. Under the Lessee Performance Option, during years three through
five of each Participating Lease, the applicable Prior Owner, subject to certain
qualifications and restrictions, may elect one time to increase the Base Rent
payable in order to receive additional OP Units. The Prior Owner of the
Northgate Country Club will have an additional two-year period to exercise the
Lessee Performance Option if it elects to construct the planned nine hole
expansion. A Prior Owner may exercise the Lessee Performance Option only if the
current year net operating income of the applicable Initial Lessee, inclusive of
a 113.5% lease payment coverage ratio, exceeds such Initial Lessee's then
current year Lease Payment obligation. The Lessee Performance Option is designed
to be accretive to the Company's Funds From Operations on a per share basis.
Following exercise of the Lessee Performance Option, the adjusted Base Rent will
be increased by the Base Rent Escalator each year for a period of five years.
THE FORMATION TRANSACTIONS
Prior to or simultaneously with the completion of the Offering, the Company,
the Operating Partnership, the Prior Owners and the Initial Lessees will engage
in a series of transactions (collectively, the "Formation Transactions")
described below.
- The Company, which was incorporated in Maryland in November 1996, will
sell 2,865,000 shares of Common Stock in the Offering and will contribute
all of the net proceeds thereof, estimated to be $49.9 million based on
the Offering Price, to its wholly-owned subsidiaries, GTA GP and GTA LP,
which will in turn contribute such net proceeds to the Operating
Partnership. Upon completion of the Offering and the Formation
Transactions, the Company will, through GTA GP and GTA LP, own an
approximately 40.9% ownership interest in the Operating Partnership. GTA
GP will be the sole general partner of the Operating Partnership.
- The Prior Owners will contribute 100% of the assets related to each of the
Golf Courses to the Company in exchange for an aggregate of 4,106,606 OP
Units, approximately $6.2 million in cash and the repayment of
approximately $47.4 million in existing indebtedness at the Golf Courses
as follows:
-The Company will acquire seven of the Golf Courses from The Legends
Group for an aggregate of 3,738,556 OP Units, the assumption and
repayment of approximately $34.8 million in existing indebtedness and
the reimbursement of approximately $522,500 of out-of-pocket expenses.
-The Company will acquire three of the Golf Courses from parties
unaffiliated with the Company or The Legends Group for an aggregate of
368,050 OP Units, $6.2 million in cash and the repayment of
approximately $12.7 million in existing indebtedness.
- The Company, as lessor, will lease the Golf Courses to the Initial
Lessees, which are newly-formed entities affiliated with the Prior Owners,
pursuant to the Participating Leases for initial terms of ten years each,
with each Initial Lessee having the right to extend the term of its
Participating Lease for up to six renewal terms of five years each. See
"The Golf Courses -- Participating Leases."
- Each Prior Owner will be granted the right to receive additional OP Units
pursuant to the Lessee Performance Option. See "The Company -- Business
Strategies and Objectives -- Internal Growth."
9
<PAGE>
- The Company will enter into employment agreements with its executive
officers, including Mr. Blair, who currently serves as the Executive Vice
President and Chief Operating Officer of Legends Group Ltd., an affiliate
of certain of the Prior Owners and the Legends Lessees. See "Management --
Employment Agreements."
- The Company will enter into the Option Agreement (as herein defined) with
The Legends Group pursuant to which the Company will be granted the option
and right of first refusal to acquire golf courses currently owned or
subsequently acquired or developed by The Legends Group. See "Certain
Relationships and Transactions -- Option to Purchase and Right of First
Refusal."
OWNERSHIP STRUCTURE
Following completion of the Formation Transactions, the structure and
relationships of the Company, the Operating Partnership, the Prior Owners,
management and the Initial Lessees will be as follows:
[CHART]
[Chart including four boxes. The top box reads "Golf Trust of America, Inc. (the
"Company") 40.9% General and Limited Partner Interest." That box is connected by
one line to a lower box which reads "Golf Trust of America, L.P. (the "Operating
Partnership") (10 Golf Courses)." This second box is connected by a single line
to a third box on the right which reads "Prior Owners and Management (1) 59.1%
Limited Partner Interest." The second box is also connected by two arrows, one
running in each direction, to a fourth box which reads "Affiliates of the Prior
Owners (the "Initial Lessees")(2)." The arrow running to the fourth box has a
caption which reads "Participating Leases." The arrow running back to the second
box has a caption which reads "Lease Payments."]
(1) The percentage interest of the Prior Owners and management may be increased
upon exercise of the Lessee Performance Option by one or more Prior Owners.
Mr. Young, a director of the Company and majority owner of The Legends
Group, will initially own a 53.4% interest in the Operating Partnership. Mr.
Blair and Mr. Dick, collectively, will own a 0.6% interest in the Operating
Partnership.
(2) Mr. Young and his affiliates will own the Legends Lessees, which will lease
seven of the Golf Courses.
BENEFITS TO OFFICERS AND DIRECTORS
As a result of the Formation Transactions, executive officers and directors
of the Company and certain of their affiliates will receive the following
benefits:
10
<PAGE>
- Larry D. Young, a director of the Company and majority owner of The
Legends Group, and his affiliates will receive 3,738,556 OP Units, as
consideration for their interests in the Golf Courses owned by The Legends
Group. The OP Units to be received by Mr. Young and his affiliates (which
are redeemable for cash or, at the Company's option, Common Stock on a
one-for-one basis, beginning one year after the completion of the
Offering) will be worth approximately $74.8 million (based on the Offering
Price) and will be more liquid than their interests in the Golf Courses
once a public trading market for the Common Stock commences. As of
September 30, 1996, the aggregate book value of the interests to be
contributed by The Legends Group was approximately $36.3 million.
- The 12,500 OP Units owned by each of Mr. Blair, Chairman of the Board of
Directors, Chief Executive Officer and President of the Company, and David
J. Dick, Executive Vice President and a director of the Company, will be
worth $500,000, based on the Offering Price, a substantial increase over
the nominal purchase price paid by Messrs. Blair and Dick for such OP
Units.
- Mr. Blair, Mr. Dick and Scott D. Peters, Senior Vice President and Chief
Financial Officer of the Company, will be granted options to acquire
150,000, 125,000 and 40,000 shares of Common Stock, respectively, at the
Offering Price. The options vest ratably over three years commencing on
the first anniversary of the date of grant.
- Each Independent Director (as herein defined) will receive options to
acquire 5,000 shares of Common Stock at the Offering Price.
- In connection with the acquisition of the Golf Courses owned by The
Legends Group, the Company will repay approximately $26.5 million of debt
personally guaranteed by Mr. Young.
- The Company will pay to Mr. Young's affiliates approximately $8.2 million
in repayment of loans made by such affiliates to Legends of Virginia, LC
in connection with the development of the two recently opened Golf
Courses.
- The Company will reimburse The Legends Group $522,500 and Mr. Dick $62,000
for direct out-of-pocket expenses incurred in connection with the
Formation Transactions.
- Through the operation of seven of the Golf Courses, the Legends Lessees,
which are owned by Mr. Young and his affiliates, will be entitled to all
cash flow from such Golf Courses after payment of the Lease Payments under
the applicable Participating Leases and other operating expenses.
- Mr. Young and his affiliates will be entitled to receive additional OP
Units pursuant to the Lessee Performance Option. See "The Company --
Business Strategy -- Internal Growth."
- Certain tax consequences to Mr. Young and his affiliates from the
contribution by The Legends Group of certain of the Golf Courses will be
deferred.
- The Company will enter into employment agreements with Mr. Blair, Mr. Dick
and Mr. Peters providing for annual base salaries of $250,000, $150,000
and $125,000, respectively, and the possibility of cash performance
bonuses.
DISTRIBUTION POLICY
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to its stockholders. The Board of Directors, in
its sole discretion, will determine the actual distribution rate based on the
Company's actual results of operations, economic conditions, tax considerations
(including those related to REITs) and other factors. The Company's first
distribution, for the period from the completion of the Offering to March 31,
1997, is expected to equal a pro rata share of the anticipated initial quarterly
distribution of $.40625 per share of Common Stock, which, on an annualized
basis, will represent a distribution rate of $1.625 per share, or 8.125% of the
Offering Price. The Company estimates that none of the initial annual
distribution will represent a return of capital for federal income tax purposes
since 100% of the expected
11
<PAGE>
distribution will be paid out of current earnings and profits. In order to
maintain its status as a REIT for federal income tax purposes, the Company is
currently required to distribute at least 95% of its annual taxable income.
Based on the Company's pro forma results of operations for the twelve months
ended September 30, 1996, the Company would have been required to distribute
approximately $4.0 million, or $1.44 per share to maintain its REIT tax status.
On a pro forma basis for the twelve months ended September 30, 1996, the
estimated initial distribution represents 91.9% of estimated Cash Available for
Distribution (as defined herein). Holders of OP Units will receive distributions
on a per unit basis equal to the per share distributions to owners of Common
Stock. See "Partnership Agreement." The Company does not expect to adjust the
estimated initial distribution rate if the Underwriters' over-allotment option
is exercised.
The Company has established the initial distribution rate based upon the
Company's estimate of Cash Available for Distribution, which has been derived
from the pro forma condensed statement of operations of the Company for the
twelve months ended September 30, 1996. The Company believes the pro forma
financial information for the twelve months ended September 30, 1996 constitutes
a reasonable basis for setting the initial distribution rate.
TAX STATUS
The Company will elect to be taxed as a REIT under sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ending December 31, 1997. If the Company qualifies for taxation
as a REIT, with certain exceptions, the Company will not be subject to federal
income tax at the corporate level on its taxable income that is distributed to
its stockholders. A REIT is subject to a number of organizational and
operational requirements, including a requirement that it distribute at least
95% of its annual taxable income. Failure to qualify as a REIT will render the
Company subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates and distributions
to the stockholders in any such year will not be deductible by the Company.
Although the Company does not intend to request a ruling from the Internal
Revenue Service (the "Service") as to its REIT status, the Company will receive
at the completion of the Offering the opinion of its legal counsel, O'Melveny &
Myers LLP, as to its REIT status, which opinion will be based on certain
assumptions and representations and will not be binding on the Service or any
court. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property. In
connection with the Company's election to be taxed as a REIT, the Company's
Charter will impose restrictions on the transfer of shares of Common Stock. The
Company will adopt the calendar year as its taxable year. See "Risk Factors --
Real Estate Investment Trust and Partnership Qualification", "-- Limits on
Changes in Control" and "-- Ownership Limit" and "Federal Income Tax
Considerations" and "Capital Stock -- Restrictions on Ownership."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company.......................... 2,865,000 shares (1)(2)
Common Stock and OP Units to be
outstanding after completion of
the Offering..................... 7,000,356 shares (1)(2)
Use of Proceeds................... To repay mortgage and other existing indebtedness in
connection with the acquisition of the Golf Courses, to
pay the cash portion of the purchase price for the Golf
Courses and certain closing costs, and for working
capital.
Proposed American Stock Exchange
Symbol........................... GTA
</TABLE>
- ------------
(1) Assumes no exercise of the Underwriters' overallotment option. See
"Underwriting."
12
<PAGE>
(2) Does not include an aggregate of 600,000 shares reserved for issuance
pursuant to the Company's Stock Incentive Plan and the Directors' Plan (each
as herein defined). See "Management -- Stock Incentive Plan" and "Management
-- Directors' Plan." Also does not include additional OP Units that may be
issued pursuant to the Lessee Performance Option. See "The Company --
Business Strategies and Objectives -- Internal Growth -- Lessee Performance
Option."
13
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth (i) unaudited selected consolidated pro forma
financial information for the Company and (ii) selected historical financial
information for the Prior Owners. The pro forma operating information is
presented as if the Formation Transactions had occurred as of the beginning of
the periods indicated and therefore incorporates certain assumptions that are
included in the Notes to Pro Forma Condensed Statements of Operations included
elsewhere in this Prospectus. The pro forma balance sheet information is
presented as if the Formation Transactions had occurred on September 30, 1996.
The pro forma information does not purport to represent what the Company's or
the Initial Lessees' financial position or results of operations actually would
have been had the Formation Transactions, in fact, occurred on such date or at
the beginning of the period indicated, or to project the Company's or the
Initial Lessees' financial position or results of operations at any future date
or any future period.
GOLF TRUST OF AMERICA, INC.
UNAUDITED SUMMARY CONSOLIDATED PRO FORMA FINANCIAL DATA
(in thousands, except per share and footnote data)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
OPERATING DATA:
Participating Lease revenue (1)...................................................... $ 14,988 $ 11,241
------------- -------------
Depreciation and amortization........................................................ 3,126 2,345
General and administrative (2)....................................................... 1,639 1,229
Interest expense..................................................................... 366 275
------------- -------------
Total expenses....................................................................... 5,131 3,849
------------- -------------
Income before minority interest...................................................... 9,857 7,392
Minority interest (3)................................................................ 5,823 4,367
------------- -------------
Net income applicable to common shareholders......................................... $ 4,034 $ 3,025
------------- -------------
------------- -------------
Net income per share of Common Stock................................................. $ 1.41 $ 1.06
Shares of Common Stock outstanding................................................... 2,865 2,865
CASH FLOW DATA:
Cash flows from operating activities (4)............................................. $ 13,003 $ 9,752
Cash flows used in investing activities (5).......................................... 609 457
Cash flows used in financing activities (6).......................................... 7,050 4,206
OTHER DATA:
Funds From Operations (7)............................................................ $ 12,983 $ 9,737
Cash Available for Distribution (8).................................................. 12,374 9,281
Common Stock and OP Units outstanding................................................ 7,000 7,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Investment in Golf Courses......................................................................... $ 62,532
Mortgages and notes payable........................................................................ 4,325
Minority interest in Operating Partnership......................................................... 34,730
Total stockholders' equity......................................................................... 24,061
</TABLE>
(NOTES ON PAGE 16)
13
<PAGE>
THE LEGENDS GROUP AND ACQUIRED GOLF COURSE OPERATIONS
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA (9)
(in thousands)
<TABLE>
<CAPTION>
SEASIDE
RESORTS LEGENDS OF TOTAL NORTHGATE
GOLF HERITAGE (OYSTER VIRGINIA LEGENDS COUNTRY THE OLDE
LEGENDS GOLF CLUB BAY) (10) GOLF CLUB WOODLANDS ATLANTA TOTAL
------- --------- ------- ------------ --------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
OPERATING DATA:
Revenue from golf course
operations.............. $8,003 $3,156 $3,459 -- $ 14,619 $ 2,803 $1,455 $1,568 $20,445
Other revenue............ 2,177 782 865 -- 3,823 1,763 291 466 6,343
------- --------- ------- ------------ --------- ---------- --------- ------- -------
Total revenue............ 10,180 3,938 4,324 -- 18,442 4,566 1,746 2,034 26,788
Participating Lease
payments (1)............ 4,670 1,825 1,856 -- 8,351 1,407 679 845 11,282
Other operating
expenses(11)............ 5,372 2,300 2,173 15 9,860 3,124 1,074 1,442 15,500
------- --------- ------- ------------ --------- ---------- --------- ------- -------
Net income (loss)........ $ 138 $ (187) $ 295 $ (15) $ 231 $ 35 $ (7) $ (253) $ 6
------- --------- ------- ------------ --------- ---------- --------- ------- -------
------- --------- ------- ------------ --------- ---------- --------- ------- -------
CASH FLOW DATA:
Cash flows from (used in)
operating activities
(12).................... $ 307 $ (126) $ 348 $ (15) $ 514 $ 60 $ (7) $ (253) $ 314
Cash flows from investing
activities (13)......... -- -- -- -- -- -- -- -- --
Cash flows from financing
activities (14)......... -- -- -- -- -- -- -- -- --
OTHER DATA:
EBITDA (15).............. $ 359 $ (111) $ 362 $ (15) $ 595 $ 60 $ (7) $ (253) $ 395
NINE MONTHS ENDED
SEPTEMBER 30, 1996
OPERATING DATA:
Revenue from golf course
operations.............. $6,126 $2,413 $2,490 $ 325 $ 11,354 $ 2,214 $1,206 $1,362 $16,136
Other revenue............ 1,888 555 591 62 3,095 1,215 244 402 4,956
------- --------- ------- ------------ --------- ---------- --------- ------- -------
Total revenue............ 8,014 2,968 3,081 387 14,449 3,429 1,450 1,764 21,092
Participating Lease
payments................ 3,503 1,369 1,392 933 7,197 1,055 509 634 9,395
Other operating
expenses(11)............ 4,499 1,543 1,679 1,746 9,466 2,469 841 1,221 13,997
------- --------- ------- ------------ --------- ---------- --------- ------- -------
Net income (loss)........ $ 12 $ 56 $ 10 ($2,292) $ (2,214) $ (95) $ 100 $ (91) $(2,300)
------- --------- ------- ------------ --------- ---------- --------- ------- -------
------- --------- ------- ------------ --------- ---------- --------- ------- -------
CASH FLOW DATA:
Cash flows from (used in)
operating activities
(12).................... $ 131 $ 94 $ 106 ($2,292) $ (1,961) $ (77) $ 100 $ (91) $(2,030)
Cash flows from investing
activities (13)......... -- -- -- -- -- -- -- -- --
Cash flows from financing
activities (14)......... -- -- -- -- -- -- -- -- --
OTHER DATA:
EBITDA (15).............. $ 155 $ 101 $ 116 ($2,292) $ (1,920) $ (77) $ 100 $ (91) $(1,988)
</TABLE>
LEGENDS GOLF
SUMMARY COMBINED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(UNAUD.)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenue from golf course operations............. $10,373 $11,724 $13,455 $14,371 $14,619 $11,276 $11,354
Other revenue................................... 2,647 2,931 3,438 3,724 3,823 2,881 3,095
------- ------- ------- ------- ------- ------- -------
Total revenue................................... 13,020 14,655 16,893 18,095 18,442 14,157 14,449
Operating expenses (11)......................... 7,702 8,895 9,882 10,082 10,322 7,841 9,800
Depreciation and amortization................... 1,253 1,406 1,564 1,830 1,791 1,303 1,579
Interest expense................................ 892 648 619 998 1,017 759 883
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $ 3,173 $ 3,706 $ 4,828 $ 5,185 $ 5,312 $4,254 $ 2,187
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
BALANCE SHEET DATA:
Investment in Golf Courses and related
equipment...................................... $14,917 $17,425 $16,663 $18,301 $32,099 $33,989
Total assets.................................... 20,853 20,484 22,719 23,649 41,300 48,905
Mortgages, notes payable and advances from
affiliates and stockholders.................... 12,944 16,293 19,285 18,638 35,163 39,243
Capital lease obligations....................... 850 332 -- -- -- --
Total owners' equity............................ 5,199 2,086 2,263 2,772 5,328 6,494
</TABLE>
(NOTES ON PAGE 16)
14
<PAGE>
THE GOLF COURSES
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
HERITAGE
GOLF LEGENDS GOLF CLUB OYSTER BAY
--------------------- --------------------- ---------------------
YEAR ENDED YEAR ENDED YEAR ENDED
--------------------- --------------------- ---------------------
12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf operations...................... $ 8,034 $ 8,003 $ 3,088 $ 3,156 $ 3,249 $ 3,459
Other revenue..................................... 2,012 2,177 847 782 866 865
--------- --------- --------- --------- --------- ---------
Total revenue..................................... 10,046 10,180 3,935 3,938 4,115 4,324
--------- --------- --------- --------- --------- ---------
Operating expenses................................ 5,707 5,739 2,411 2,442 1,965 2,126
Depreciation and amortization..................... 1,291 1,256 358 319 181 187
Interest.......................................... 857 877 63 63 78 77
--------- --------- --------- --------- --------- ---------
Total expenses.................................... 7,855 7,872 2,832 2,824 2,224 2,390
--------- --------- --------- --------- --------- ---------
Net income (loss)................................. $ 2,191 $ 2,308 $ 1,103 $ 1,114 $ 1,891 $ 1,934
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating activities............ $ 4,312 $ 3,537 $ 1,814 $ 969 $ 2,218 $ 2,080
Cash Flows from investing activities............ $ (1,633) $ (3,372) $ (92) $ (913) $ (20) $ (1,207)
Cash Flows from financing activities............ $ (2,753) $ (164) $ (1,689) $ (133) $ (2,169) $ (902)
OTHER DATA:
EBITDA (15)..................................... $ 4,339 $ 4,441 $ 1,524 $ 1,496 $ 2,150 $ 2,198
<CAPTION>
LEGENDS
OF
VIRGINIA (10) NORTHGATE COUNTRY
--------- TOTAL LEGENDS GOLF CLUB
--------------------- ---------------------
YEAR
ENDED YEAR ENDED YEAR ENDED
--------- --------------------- ---------------------
12/31/95 12/31/94 12/31/95 12/20/94 12/20/95
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf operations...................... -- $ 14,371 $ 14,619 $ 2,594 $ 2,768
Other revenue..................................... -- 3,725 3,823 1,568 1,798
--------- --------- --------- --------- ---------
Total revenue..................................... -- 18,096 18,442 4,162 4,566
--------- --------- --------- --------- ---------
Operating expenses................................ $ 15 10,083 10,322 3,114 3,140
Depreciation and amortization..................... 29 1,830 1,791 401 323
Interest.......................................... -- 998 1,017 475 485
--------- --------- --------- --------- ---------
Total expenses.................................... 44 12,911 13,130 3,990 3,948
--------- --------- --------- --------- ---------
Net income (loss)................................. $ (44) $ 5,185 $ 5,312 $ 172 $ 618
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating activities............ $ (15) $ 8,345 $ 6,570 $ 584 $ 543
Cash Flows from investing activities............ $(11,443) $ (1,747) $ (16,932) $ (81) $ (347)
Cash Flows from financing activities............ $ 11,458 $ (6,610) $ (10,257) $ (506) $ (273)
OTHER DATA:
EBITDA (15)..................................... $ (15) $ 8,013 $ 8,120 $ 1,048 $ 1,426
<CAPTION>
THE WOODLANDS (16) OLDE ATLANTA
--------------------- ---------------------
YEAR ENDED YEAR ENDED
--------------------- ---------------------
12/31/94 12/31/95 12/31/94 12/31/95
--------- --------- --------- ---------
OPERATING DATA:
Revenue from golf operations...................... $ 384 $ 1,455 $ 1,623 $ 1,568
Other revenue..................................... 80 291 442 466
--------- --------- --------- ---------
Total revenue..................................... 464 1,746 2,065 2,034
--------- --------- --------- ---------
Operating expenses................................ 363 1,074 1,398 1,434
Depreciation and amortization..................... 104 247 443 375
Interest.......................................... 134 424 143 202
--------- --------- --------- ---------
Total expenses.................................... 601 1,745 1,984 2,011
--------- --------- --------- ---------
Net income (loss)................................. $ (137) $ 1 $ 81 $ 23
--------- --------- --------- ---------
--------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating activities............ $ (26) $ 220 $ 320 $ 375
Cash Flows from investing activities............ $ (4,330) $ (5) $ (196) $ (53)
Cash Flows from financing activities............ $ 4,382 $ (190) $ (72) $ (391)
OTHER DATA:
EBITDA (15)..................................... $ 101 $ 672 $ 667 $ 600
</TABLE>
<TABLE>
<CAPTION>
HERITAGE
GOLF LEGENDS GOLF CLUB OYSTER BAY
--------------------- --------------------- ---------------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
--------------------- --------------------- ---------------------
9/30/95 9/30/95 9/30/95
(UNAUD.) 9/30/96 (UNAUD.) 9/30/96 (UNAUD.) 9/30/96
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf operations...................... $ 6,128 $ 6,126 $ 2,472 $ 2,413 $ 2,676 $ 2,490
Other revenue..................................... 1,615 1,888 599 555 667 591
--------- --------- --------- --------- --------- ---------
Total revenue..................................... 7,743 8,014 3,071 2,968 3,343 3,081
--------- --------- --------- --------- --------- ---------
Operating expenses................................ 4,303 4,805 1,866 1,662 1,672 1,588
Depreciation and amortization..................... 928 945 238 225 137 137
Interest.......................................... 654 602 47 41 58 52
--------- --------- --------- --------- --------- ---------
Total expenses.................................... 5,885 6,352 2,151 1,928 1,867 1,777
--------- --------- --------- --------- --------- ---------
Net income (loss)................................. $ 1,858 $ 1,662 $ 920 $ 1,040 $ 1,476 $ 1,304
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating activities............ $ 1,710 $ 3,121 $ 711 $ 1,516 $ 1,629 $ 1,591
Cash Flows from investing activities............ $ (1,744) $ (2,742) $ (888) $ (1,371) $ (939) $ (956)
Cash Flows from financing activities............ $ (135) $ (533) $ 85 $ (181) $ (804) $ (718)
OTHER DATA:
EBITDA (15)..................................... $ 3,440 $ 3,209 $ 1,205 $ 1,306 $ 1,671 $ 1,493
<CAPTION>
LEGENDS
OF NORTHGATE
VIRGINIA (10) TOTAL LEGENDS GOLF COUNTRY CLUB
--------- --------------------- ---------------------
NINE NINE MONTHS NINE MONTHS
MONTHS ENDED ENDED
ENDED --------------------- ---------------------
--------- 9/30/95 9/30/95
9/30/96 (UNAUD.) 9/30/96 (UNAUD.) 9/20/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf operations...................... $ 325 $ 11,276 $ 11,354 $ 2,060 $ 2,190
Other revenue..................................... 62 2,881 3,095 1,193 1,239
--------- --------- --------- --------- ---------
Total revenue..................................... 387 14,157 14,449 3,253 3,429
--------- --------- --------- --------- ---------
Operating expenses................................ 1,746 7,841 9,800 2,360 2,482
Depreciation and amortization..................... 272 1,303 1,579 245 241
Interest.......................................... 188 759 883 356 389
--------- --------- --------- --------- ---------
Total expenses.................................... 2,206 9,903 12,262 2,961 3,112
--------- --------- --------- --------- ---------
Net income (loss)................................. $ (1,819) $ 4,254 $ 2,187 $ 292 $ 317
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating activities............ $ (1,054) $ 4,041 $ 5,174 $ 211 $ 573
Cash Flows from investing activities............ $ (36) $ (3,563) $ 5,105 $ (129) $ (155)
Cash Flows from financing activities............ $ 1,188 $ (854) $ (244) $ (178) $ (423)
OTHER DATA:
EBITDA (15)..................................... ($ 1,359) $ 6,316 $ 4,649 893 $ 947
<CAPTION>
THE WOODLANDS OLDE ATLANTA
--------------------- ---------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
--------------------- ---------------------
9/30/95 9/30/95
(UNAUD.) 9/30/96 (UNAUD.) 9/30/96
--------- --------- --------- ---------
OPERATING DATA:
Revenue from golf operations...................... $ 1,215 $ 1,206 $ 1,290 $ 1,362
Other revenue..................................... 236 244 351 402
--------- --------- --------- ---------
Total revenue..................................... 1,451 1,450 1,641 1,764
--------- --------- --------- ---------
Operating expenses................................ 795 841 1,035 1,298
Depreciation and amortization..................... 184 186 284 243
Interest.......................................... 320 274 145 167
--------- --------- --------- ---------
Total expenses.................................... 1,299 1,301 1,464 1,708
--------- --------- --------- ---------
Net income (loss)................................. $ 152 $ 149 $ 177 $ 56
--------- --------- --------- ---------
--------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating activities............ $ 365 $ 334 $ 401 $ 252
Cash Flows from investing activities............ $ (3) $ (29) $ (64) $ (19)
Cash Flows from financing activities............ $ (214) $ (301) $ (318) $ (200)
OTHER DATA:
EBITDA (15)..................................... $ 656 609 $ 606 $ 466
</TABLE>
(NOTES ON PAGE 16)
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(1) Represents payments of Base Rent from the Initial Lessees to the Company
calculated on a pro forma basis as if the beginning of the period presented
was the beginning of a lease year.
(2) Represents legal, audit, office, franchise taxes, salaries and other
general and administrative expenses to be paid by the Company.
(3) Calculated as approximately 59.1% of the Operating Partnership's net
income.
(4) Represents the Company's income before minority interest adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe these
excluded items are material to cash flows from operating activities.
(5) Represents the amount of the reserve which the Company will be required to
make available annually under the Participating Leases to fund capital
expenditures, calculated as 2.0% to 3.0% of Gross Golf Revenue at the Golf
Courses.
(6) Represents estimated initial distributions to be paid based on the
anticipated initial annual dividend rate of $1.625 per share of Common Stock
and OP Unit and an aggregate of 7,000,356 shares of Common Stock and OP
Units outstanding and initial debt of $4,325,000.
(7) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
Funds From Operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships and joint
ventures. Funds From Operations should not be considered as an alternative
to net income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows from
operating, investing or financial activities as a measure of liquidity.
Funds From Operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on indebtedness.
Under the Participating Leases, the Company is obligated to establish a
reserve for capital expenditures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an
equity REIT, because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. Compliance with the NAREIT definition of Funds
From Operations is voluntary. Accordingly, the Company's calculation of
Funds From Operations in accordance with the NAREIT definition may be
different than similarly titled measures used by other REITs. See
"Distribution Policy."
(8) Cash Available for Distribution represents Funds From Operations, less pro
forma reserves for capital expenditures under the Participating Leases.
(9) Pro forma amounts are presented as if the Formation Transactions occurred
as of the beginning of the periods presented.
(10) Legends of Virginia financial data reflects partial period operations at
both Stonehouse Golf Club and Royal New Kent, which opened in June 1996 and
August 1996, respectively. Participating Lease payments reflect the periods
in which the Golf Courses were actually operating.
(11) Represents operating costs and expenses, general and administrative,
repairs and maintenance, utilities, marketing and management fees.
(12) Represents the Initial Lessees' pro forma income adjusted for non-cash
depreciation and amortization. Estimated pro forma cash flows from operating
activities excludes cash provided by (used in) operating activities due to
changes in working capital resulting from changes in current assets and
current liabilities. The Initial Lessees are newly formed entities, and the
Company does not believe these excluded items are material to cash flows
from operating activities.
(13) Cash flows from investing activities would consist principally of capital
improvements to the Golf Courses. As such improvements are expected to be
funded through a capital expenditure reserve funded by the Company, cash
flows from investing activities funded by the Initial Lessees are not
expected to be material.
(14) Cash flows from financing activities would primarily include transactions
with the Initial Lessees' owners and borrowings and repayments on loans.
Such cash flows have been excluded in the determination of cash flows from
financing activities as the Company does not believe these excluded items
are material to cash flows from financing activities.
(15) EBITDA is defined as operating income before interest, income taxes,
depreciation and amortization. EBITDA does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and should not be considered as an alternative to net income as
an indication of financial performance or to cash flows from operating
activities as a measure of liquidity.
(16) The Woodlands commenced operations in August 1994.
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RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES VARIOUS RISKS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONJUNCTION
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING SHARES
OF COMMON STOCK IN THE OFFERING.
INITIAL LESSEE PRO FORMA NET INCOME
On a pro forma basis for the nine months ended September 30, 1996,
operations at four of the Golf Courses, including the two recently opened Golf
Courses, would not have generated net operating income for the applicable
Initial Lessee. If an Initial Lessee is unable to generate an operating profit
on a consolidated basis, taking into account all Golf Courses leased by that
Initial Lessee or its affiliates, and if it is unlikely to generate an operating
profit in the future, then it is likely that such Initial Lessee will default on
its obligations under the applicable Participating Lease. In that event, the
Company's Cash Available for Distribution to its stockholders will be adversely
affected. Operations at the Olde Atlanta Golf Course were significantly impacted
by an unusually severe series of winter storms in 1995 and 1996 which damaged
the golf course and resulted in lost revenue. The pro forma loss for the nine
months ended September 30, 1996 at Northgate Country Club reflects, in part, the
fact that the Golf Course generally experiences stronger results in the fourth
quarter of each year.
ACQUISITION OF GOLF COURSES WITH LIMITED OPERATING HISTORY
Two of the Golf Courses recently opened and have limited operating history.
The Base Rent for these Golf Courses is based on the Company's and the Initial
Lessee's estimates of Gross Golf Revenue and net operating income and
constitutes a substantial portion of the Company's pro forma Lease revenue. The
Company will be subject to risks that these Golf Courses will not achieve
anticipated Gross Golf Revenues or net operating income and, therefore, that the
Initial Lessees of such Golf Courses will be unable to make the Lease Payments.
DEPENDENCE ON PAYMENTS UNDER THE PARTICIPATING LEASES
The Company's ability to make distributions to stockholders will depend
solely upon the ability of the Initial Lessees to make Lease Payments under
Participating Leases (which will be dependent primarily on the Initial Lessees'
ability to generate sufficient revenues in excess of operating expenses from the
Golf Courses). Any failure or delay by an Initial Lessee in making Lease
Payments may adversely affect the Company's ability to make anticipated
distributions to stockholders. Such failure or delay may be caused by reductions
in revenue from the Golf Courses or in the net operating income of an Initial
Lessee or otherwise. In addition, the Initial Lessees are newly-organized
limited purpose entities and have nominal capitalization. Although failure on
the part of an Initial Lessee materially to comply with the terms of its
Participating Lease would give the Company the right to terminate such
Participating Lease, recover any OP Units pledged as a security deposit,
repossess the applicable Golf Course and enforce the Lease Payment obligations
under the Participating Lease, the Company would then be required to find
another lessee to lease such Golf Course or risk losing its ability to elect or
maintain REIT status, as applicable. There can be no assurance that the Company
would be able to find another lessee or that, if another lessee were found, the
Company would be able to enter into a new lease on favorable terms.
DURATION OF LEASE; NO RIGHT TO TERMINATE PARTICIPATING LEASES ON A SALE
The Participating Leases, which, with extensions, may have terms of up to 40
years, do not terminate when a Golf Course is sold. It may therefore be more
difficult to sell a Golf Course, and the value to a prospective buyer, and
therefore the price paid to the Company for a Golf Course, may be less than if
the Participating Leases were to terminate upon a sale. See "The Golf Courses --
The Participating Leases."
LACK OF APPRAISALS
No third-party valuations of the Golf Courses were obtained in connection
with the Formation Transactions. The valuation of the Company is based upon the
capitalization of the Company's estimated Cash Available for Distribution and
the factors set forth in this Prospectus in the section "Underwriting." There
can be no assurance that the price paid by the Company for the Golf Courses does
not exceed the fair market value of one or more of the Golf Courses. With
respect to the Golf Courses contributed by the Legends Group, the affiliation
with The Legends Group of Mr. Blair, the President of the Company, and Mr.
Young, a director of the Company, may have affected the valuation of such
courses. See "-- Conflicts of Interest."
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LACK OF CONTROL OVER DAY-TO-DAY OPERATIONS AND MANAGEMENT OF THE GOLF COURSES
In order to qualify as a REIT for federal income tax purposes, the Company
may not operate the Golf Courses or participate in the decisions affecting the
operations of the Golf Courses. Each Initial Lessee will control the operations
of the Golf Courses it leases under the Participating Leases, which have initial
terms of 10 years and may be extended at the option of each Initial Lessee for
up to six five-year renewal terms. The Company will not have the authority to
require any Initial Lessee to operate the Golf Courses in a particular manner,
or to govern any particular aspect of their operation (e.g., setting green
fees), except as set forth in the Participating Leases. Thus, even if the
Company believes an Initial Lessee is operating the Golf Courses it leases
inefficiently or in a manner that does not result in a maximization of
Participating Rent to the Company under the Participating Leases and, therefore,
does not increase Cash Available for Distribution to the stockholders, the
Company may not require an Initial Lessee to change its method of operation. The
Company is limited to seeking redress only if an Initial Lessee violates the
terms of the Participating Lease, in which case the Company's primary remedy is
to terminate one or more of the Participating Leases and seek to recover damages
from such Initial Lessee. If a Participating Lease is terminated, the Company
will be required to find another lessee or risk losing its ability to elect or
maintain REIT status, as applicable. See "The Golf Courses -- The Participating
Leases."
GOLF INDUSTRY RISKS
OPERATING RISKS
The Golf Courses will be subject to all operating risks common to the golf
industry. These risks include, among other things (i) increases in operating
costs due to inflation and other factors, which increases may not be offset by
increased dues and fees; (ii) dependence on tourism, particularly for the Resort
Courses, which may fluctuate and be seasonal; and (iii) adverse effects of
general and local economic conditions. These factors could adversely affect an
Initial Lessee's ability to generate revenues and to make Lease Payments and,
therefore, the Company's ability to make expected distributions to the Company's
stockholders.
SUPPLY OF GOLF COURSES
There have been a substantial number of new golf courses opened in recent
years and a number of new courses currently are under development or planned for
development including golf courses located near the Golf Courses. These new golf
courses could increase the competition faced by one or more of the Golf Courses
and reduce the rounds played and revenues associated with one or more of the
Golf Courses. Any such decrease in revenues may adversely affect the net
operating income of an Initial Lessee and, therefore, its ability to make its
Lease Payments.
INVESTMENT IN SINGLE INDUSTRY
The Company's current strategy is to acquire only golf courses and related
facilities. As a result, the Company will be subject to risks inherent in
investments in a single industry. The effects on Cash Available for Distribution
to stockholders resulting from a downturn in the golf industry will be more
pronounced than if the Company had diversified its investments.
SEASONALITY
The golf industry is seasonal. Seasonal variations in revenue at the Golf
Courses may require the Initial Lessees to supplement revenue at the applicable
Golf Course to pay Base Rent. Failure of an Initial Lessee to properly manage
its cash flow may result in an Initial Lessee having insufficient cash to make
its Lease Payments during low seasons and, therefore, adversely affect Cash
Available for Distribution to stockholders.
ADVERSE WEATHER CONDITIONS
Several climatological factors beyond the control of the Initial Lessees may
influence the revenues at the Golf Courses, including adverse weather such as
hurricanes, heat waves, frosts and floods. In the event of adverse weather or
destruction of the turf grass at a Golf Course, the number of rounds played at
such Golf Course could decrease, which could have a negative impact on any
Participating Rent received from the affected Golf Course and the ability of the
applicable Initial Lessee to make its Lease Payment. The six Golf Courses in the
Myrtle Beach and Gulf Shores areas are susceptible to damage from hurricanes,
which damage (including loss of revenue) is not generally insurable at
commercially reasonable rates. Consequently, a hurricane may
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<PAGE>
adversely affect both the value of the Company's investment in a particular Golf
Course as well as the ability of the Initial Lessee of such Golf Course to make
Lease Payments. Additionally, hurricanes may damage local accommodations such as
hotels and condominiums, thereby limiting play, particularly at Resort Courses.
FACTORS AFFECTING GOLF PARTICIPATION
The success of efforts to attract and retain members at private country
clubs and the number of rounds played at public golf courses historically has
been dependent upon discretionary spending by consumers, which may be adversely
affected by regional and economic conditions. A decrease in the number of
golfers or their rates of participation or in consumer spending on golf could
have an adverse effect on the Gross Golf Revenue generated per Golf Course and,
therefore, the Lease Payments to be paid under the Participating Leases.
COURSE CONDITIONS
General turf grass conditions must be satisfactory to attract play on the
Golf Courses. Severe weather or other factors, including disease and insect
infestation, could adversely affect the turf grass conditions at the Golf
Courses. Turf grass conditions at the Golf Courses also depend to a large extent
on the quality and quantity of water available. The availability and quantity of
water available is affected by various factors, many of which are beyond the
control of the Company. There can be no assurance that certain conditions,
including drought, governmental regulation or environmental concerns, which
could adversely affect the supply of water to a particular Golf Course, may not
arise in the future.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of its founders W. Bradley Blair, II, who will serve as the Company's
Chief Executive Officer and President, David J. Dick, who will serve as
Executive Vice President, and Scott D. Peters, who will serve as Senior Vice
President and Chief Financial Officer. See "Management -- Directors, Proposed
Directors and Executive Officers." The loss of the services of any of these
individuals could have a material adverse effect on the Company, its operations
and its business prospects. See "Certain Relationships and Transactions --
Employment Agreements." The Company's success is also dependent upon its ability
to attract and maintain qualified personnel.
LACK OF OPERATING HISTORY
The Company has been recently organized and has no operating history. There
can be no assurance that the Company will be able to generate sufficient revenue
from operations to make anticipated distributions. The Company also will be
subject to the risks generally associated with the formation of any new
business. The Company's management has no experience operating a public company
or a REIT and limited experience working together.
RISKS RELATED TO THE COMPANY'S GROWTH STRATEGY
COMPETITION FOR ACQUISITIONS
The Company will compete for golf course acquisition opportunities with
entities organized for purposes substantially similar to the Company's
objectives as well as other purchasers of golf courses. The Company may be
competing for such golf course acquisition opportunities with entities which
have substantially greater financial resources than the Company and a broader
geographic knowledge base. These entities may also generally be able to accept
more risk than the Company prudently can manage. Thus, competition may generally
reduce the number of suitable golf course acquisition opportunities available to
the Company. See "The Golf Courses -- Competition."
POSSIBLE UNAVAILABILITY OF CAPITAL
The success of the Company's growth strategy will, in part, depend upon its
access to capital necessary to acquire additional golf courses through use of
excess cash flow, borrowings or subsequent issuances of Common Stock, OP Units
or other securities.
INABILITY TO MANAGE GROWTH EFFECTIVELY
The Company's success will depend upon the ability of each Initial Lessee
effectively to operate all of the Golf Courses it leases, as well as the ability
of the Company to continue to select an appropriate lessee for each additional
Golf Course it acquires. There can be no assurance that the Company will have
access to capital or
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<PAGE>
that an Initial Lessee or other future lessees will effectively operate the Golf
Courses it leases. In the event the Company fails to obtain access to capital or
an Initial Lessee fails effectively to operate the Golf Courses it leases, Cash
Available for Distribution to stockholders could be adversely affected.
RISKS RELATED TO EXPANSION OPPORTUNITIES
The Company is obligated under certain conditions to acquire additional
facilities to be developed at two of the Golf Courses. See "The Company --
Business Strategies and Objectives -- Acquisitions and Expansions." Such
acquisitions will be subject to risks associated with any newly acquired project
without an operating history, including the ability of the additional facilities
to generate the expected revenues.
BENEFITS TO OFFICERS AND DIRECTORS
The Company's officers and directors will receive material benefits from the
Formation Transactions that will not be received by purchasers of Common Stock
in the Offering. Such benefits include (i) receipt by Mr. Young, one of the
Company's directors, and his affiliates of 3,738,556 OP Units (valued at
approximately $74.8 million based on the Offering Price) in exchange for their
interests in the Golf Courses contributed by The Legends Group, (ii) a
substantial increase in the value of the OP Units held by Mr. Blair and Mr. Dick
over the nominal purchase price paid for such OP Units prior to the commencement
of the Offering, which OP Units will be worth $500,000 based on the Offering
Price, (iii) repayment of approximately $27.0 million of indebtedness personally
guaranteed by Mr. Young, (iv) receipt by the executive officers of options to
acquire 315,000 shares of Common Stock at the Offering Price, (v) receipt by
each Independent Director of options to acquire 5,000 shares of Common Stock at
the Offering Price, and (vi) payment to affiliates of Mr. Young of approximately
$8.2 million in repayment of an outstanding loan to Legends of Virginia, LC
incurred in connection with the development of the two recently opened Golf
Courses. The OP Units issued to officers and directors are redeemable, at the
election of the holder, for cash or, at the Company's option, Common Stock on a
one-for-one basis beginning one year after completion of the Offering. In
addition, the Prior Owners affiliated with Mr. Young may receive additional OP
Units upon exercise of the Lessee Performance Option. The Legends Lessees, which
will lease the Golf Courses contributed by The Legends Group and which are owned
by Mr. Young and his affiliates, will be entitled to all cash flow from the Golf
Courses leased to the Legends Lessees after payment of the Lease Payments and
other operating expenses. Thus, the Company's officers and certain of its
directors may have interests that conflict with the interests of persons
acquiring Common Stock in the Offering. See "The Formation Transactions."
CONCENTRATION OF INVESTMENTS
Five of the Golf Courses are located in the Myrtle Beach, South Carolina
area and two of the Golf Courses are located in the Williamsburg, Virginia area.
The concentration of the Company's investments in these areas could result in
adverse events or conditions which affect those areas in particular, such as
competition, hurricanes and other weather conditions, overbuilding, and economic
recession which affect that area in particular, having a more significant
negative impact on the operations of the Golf Courses located there, and
ultimately Cash Available for Distribution to the Company's stockholders, than
if the Company's investments were more geographically diverse.
REAL ESTATE INVESTMENT RISKS
GENERAL
Acquisitions of the Golf Courses and any additional golf courses in which
the Company may invest in the future are subject to risks typically associated
with investments in real estate. Such risks include the possibility that the
Golf Courses and any additional golf courses will generate rent and capital
appreciation, if any, at rates lower than those anticipated or will yield
returns lower than those available through other investments. Income from the
Golf Courses may be affected by many factors, including changes in government
regulation, general or local economic conditions, the available local supply of
golf courses, a decrease in the number of golfers, adverse weather conditions or
other factors.
ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions is
limited. The ground lessor of the Oyster Bay Golf Course and the prior owner of
the land on which Stonehouse Golf Club and Royal New Kent are located each have
a right of first
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refusal to acquire such Golf Courses upon any proposed sale of such Golf Courses
by the Company. The rights of first refusal affecting Stonehouse Golf Club and
Royal New Kent run for a period of five years following the completion of the
respective Golf Courses. The Initial Lessee of Stonehouse Golf Club and Royal
New Kent has agreed with the developer of the communities surrounding such Golf
Courses to construct and complete a clubhouse at each such Golf Course by
December 31, 1997. Under the terms of the applicable Participating Lease, the
Initial Lessee for such Golf Courses is responsible for constructing the
necessary clubhouses. Failure of such Initial Lessee to complete the clubhouse
by such date could result in the Company losing its investment in the applicable
Golf Course. In addition, each of the Initial Lessees has a right of first offer
to acquire the Golf Course(s) leased by it in the event of a proposed sale by
the Company. The three courses located at the Legends Resort -- Heathland,
Moorland and Parkland -- are subject to conservatory easements that prohibit
developments other than golf courses on the property, limit the ability to
materially modify the existing layouts at such Golf Courses and require that
such Golf Courses be open for public play. In the event that a sale of a Golf
Course will result in a taxable gain to the Prior Owner thereof, the Company has
agreed to use reasonable efforts to structure such a sale as a tax-deferred
exchange. All of these factors may make it more difficult to transfer a Golf
Course even where such transfer may be in the best interests of the Company.
ENVIRONMENTAL MATTERS
Operations at the Golf Courses involve the use and storage of various
hazardous materials such as herbicides, pesticides, fertilizers, motor oil and
gasoline. 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 certain hazardous substances released on or
in its property. Such laws often impose such liability without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous substances. The presence of such substances, or the failure to
remediate such substances properly, may adversely affect the owner's ability to
sell such real estate or to borrow using such real estate as collateral.
Although all of the Golf Courses have been subjected to a Phase I environmental
audit (which does not involve invasive procedures, such as soil sampling or
ground water analysis) by an independent environmental consultant, no assurance
can be given that these reports reveal all potential environmental liabilities,
that no prior or adjacent owner created any material environmental condition not
known to the Company or the independent consultant or that future uses or
conditions (including, without limitation, changes in applicable environmental
laws and regulations) will not result in imposition of environmental liability
to the Company. While the Participating Leases provide that the Initial Lessees
will indemnify the Company for certain potential environmental liabilities at
the Golf Courses, the Initial Lessees are newly-formed entities with nominal
capitalization. See "The Golf Courses -- Government Regulation."
UNINSURED LOSSES
The Participating Leases require that each Initial Lessee maintain insurance
with respect to each of the Golf Courses it leases, including comprehensive
liability, fire, flood (but only to the extent comparable golf courses in the
area carry such insurance and such insurance is available at commercially
reasonable rates) and extended coverage insurance. There are, however, certain
types of losses (such as from hurricanes, floods or earthquakes) which may be
either uninsurable or not economically insurable. Should an uninsured loss
occur, the Company could lose both its invested capital in and anticipated
profits from the applicable golf course. See "The Golf Courses -- The
Participating Leases."
GROUND LEASE
One of the Golf Courses, Oyster Bay, is operated pursuant to a ground lease
with a remaining term of 35 years. The ground lessor may terminate the ground
lease in accordance with its terms or may choose not to renew such ground lease.
If the ground lease is terminated or is not renewed, the Company would lose its
investment in the Oyster Bay Golf Course.
CERTAIN MATTERS REGARDING STONEHOUSE GOLF CLUB AND ROYAL NEW KENT
The Prior Owner of Stonehouse Golf Club and Royal New Kent has advised the
Company that it is involved in discussions with the third party developer of the
communities surrounding such Golf Courses regarding alleged encroachments by
such Prior Owner on property owned by such developer. If such discussions are
not satisfactorily resolved, the operations at such Golf Courses, as well as the
ability of the Initial Lessee of such Golf Courses to make its Lease Payments
under the Participating Lease, could be adversely affected.
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IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in the Offering will experience
immediate and substantial dilution of $11.60 per share in the net tangible book
value of the shares of Common Stock from the Offering Price. See "Dilution."
CONFLICTS OF INTEREST
VALUATION OF THE GOLF COURSES
The valuation of the Golf Courses, including the seven Golf Courses to be
contributed by The Legends Group, was determined by management of the Company,
including Mr. Blair, currently the Executive Vice President and Chief Operating
Officer of Legends Group Ltd., and Mr. Young, a director of the Company and the
majority owner of The Legends Group. Had such agreements been negotiated on an
arm's length basis, the price paid for such Golf Courses, as well as the terms
of such agreements, may have been more favorable to the Company.
SALE OF GOLF COURSES
One of the directors of the Company and his affiliates will have unrealized
gain in their interests in certain of the Golf Courses transferred to the
Company. The sale of such courses by the Company may cause adverse tax
consequences to such director and his affiliates. See "Federal Income Tax
Considerations -- Tax Aspects of the Operating Partnership -- Tax Allocations
with Respect to the Golf Courses." Therefore, the interests of the Company and
such director and his affiliates could be different in connection with the
disposition of such Golf Courses.
RISK OF ENFORCEMENT OF TERMS OF CONTRIBUTION, LEASE AND OTHER AGREEMENTS.
Because Mr. Young, a director of the Company, is the principal owner of The
Legends Group, which is contributing seven of the Golf Courses to the Company,
there may be a conflict of interest with respect to the enforcement of the
Contribution Agreement executed by The Legends Group, as well as with respect to
enforcement and termination of the Participating Leases respecting the Golf
Courses leased to the Legends Lessees.
COMPETITION FROM OTHER GOLF COURSES OPERATED BY THE INITIAL LESSEES
Excluding the Golf Courses, affiliates of the Initial Lessees currently own
and/or manage five golf courses and related facilities. Some of these golf
courses and related facilities are located in the same geographic areas as the
Golf Courses and may compete with the Golf Courses. In particular, affiliates of
the Initial Lessee of The Woodlands will continue to own and operate a 27-hole
golf facility near The Woodlands. Affiliates of any Initial Lessee may continue
to acquire, develop or manage golf courses that compete with the Company's golf
courses. Accordingly, an Initial Lessee's decisions relating to the operation of
a Golf Course that is in competition with other golf courses managed by it may
be adverse to the interests of the Company.
OTHER POSSIBLE CONFLICTS
Other transactions involving the Company and affiliates of the Initial
Lessees may also give rise to possible conflicts of interest, such as future
acquisitions of golf courses and selection of operators for such golf courses.
REAL ESTATE INVESTMENT TRUST AND PARTNERSHIP QUALIFICATION
The Company intends to operate so as to qualify as a REIT under the Code.
Although the Company believes that it will be so organized and will operate in
such a manner and has received an opinion of its legal counsel, O'Melveny &
Myers LLP, as to its REIT status (which opinion is based on certain assumptions
and representations), no assurance can be given that the Company will qualify or
remain qualified as a REIT. Qualification as a REIT involves the application of
highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations. The complexity of these provisions
and of the applicable income tax regulations that have been promulgated under
the Code (the "Treasury Regulations") is greater in the case of a REIT that
holds its assets in partnership form. The determination of various factual
matters and circumstances not entirely within the Company's control may affect
its ability to qualify as a REIT. In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. See "Federal
Income Tax Considerations."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to stockholders in
computing taxable income and would be subject to federal income
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tax on its taxable income at regular corporate rates. Unless entitled to relief
under certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the funds available for distribution to the
Company's stockholders would be reduced for each of the years involved. Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Company to fail to qualify as a REIT or may cause
the Board of Directors to revoke the REIT election. See "Federal Income Tax
Considerations."
The Operating Partnership has been structured to be classified as a
partnership for federal income tax purposes. If the Service were to challenge
successfully the tax status of the Operating Partnership as a partnership for
federal income tax purposes, the Operating Partnership would be treated as an
association taxable as a corporation. In such event, the character of the
Company's assets and items of gross income would change and preclude the Company
from satisfying the asset tests and possibly the income tests (imposed by the
Code as discussed below) and, in turn, would prevent the Company from qualifying
as a REIT. See "Federal Income Tax Considerations -- Taxation of the Company --
Requirements for Qualification." In addition, the imposition of a corporate tax
on the Operating Partnership would reduce the amount of Funds From Operations
available for distribution to the Company and its stockholders. See "Federal
Income Tax Considerations -- Tax Aspects of the Operating Partnership."
COMPETITION FOR MANAGEMENT TIME FOR THE INITIAL LESSEES
Management of the Initial Lessees will continue to devote significant time
to other business interests, including in many instances resort and residential
development on property adjacent to the Golf Courses and the operation of golf
courses not being contributed to the Company. As a result, management of the
Initial Lessees may be subject to competing demands on their time, and may not
devote sufficient time to the operations of the Golf Courses, which may result
in less revenue being generated from the Golf Courses.
RISKS OF LEVERAGE; NO LIMITATIONS ON INDEBTEDNESS
Upon completion of the Offering, the Company will have outstanding
indebtedness of approximately $4.3 million incurred in connection with the
acquisition of one of the Golf Courses and expects to have a $75 million Line of
Credit. The Company's Charter does not limit its ability to incur indebtedness.
The Company may borrow under the Line of Credit or from other lenders in the
future, or may issue corporate debt securities in public or private offerings.
Certain of such additional borrowings may be secured by the Golf Courses owned
by the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Policies and
Objectives with Respect to Certain Activities -- Financing." The Company has
agreed to maintain up to $4.3 million of indebtedness for a period of up to 10
years following the completion of the Offering to accommodate a Prior Owner's
efforts to minimize certain adverse tax consequences. In the event that the
Company fails to maintain such indebtedness, the Company will be liable for any
resulting income tax liabilities to the Prior Owner.
There can be no assurance that the Company, upon the incurrence of debt,
will be able to meet its debt service obligations and, to the extent that it
cannot, the Company risks the loss of some or all of its assets, including any
Golf Courses securing such debt, to foreclosure, which could result in a
financial loss to the Company. Adverse economic conditions could result in
higher interest rates on variable rate debt, including borrowings under the Line
of Credit, which could decrease Cash Available for Distribution and increase the
risk of loss upon a sale or from a foreclosure.
MARKET FOR COMMON STOCK; ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES
Prior to the completion of the Offering, there has been no public market for
the Common Stock, and there can be no assurance that an active trading market
will develop or be sustained or that the Common Stock may be resold at or above
the Offering Price. The Offering Price will be determined through negotiations
between the Company and the Underwriters and may not be indicative of the market
price for the Common Stock after the completion of the Offering. See
"Underwriting."
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In addition, one of the factors that may influence the price of the Common
Stock in public trading markets will be the annual yield from distributions by
the Company on the Common Stock as compared to yields on other financial
instruments. Thus, an increase in market interest rates will result in higher
yields on other financial instruments, which could adversely affect the market
price of the Common Stock.
CHANGES IN INVESTMENT AND FINANCING POLICIES
The Board of Directors of the Company (the "Board of Directors") determines
the Company's investment and financing policies and policies with respect to
certain other activities, including its growth, capitalization, distributions
and operating policies. Although the Board of Directors has no present intention
to amend or revise these policies, the Board of Directors may do so at any time
without a vote of the Company's stockholders. See "Policies and Objectives With
Respect to Certain Activities -- Investment Objectives and Policies."
LIMITS ON CHANGES IN CONTROL
The restrictions on the ownership of outstanding shares of Common Stock
intended to ensure compliance with certain requirements related to continued
qualification of the Company as a REIT and restrictions on changes in control
contained in the Company's Charter and Bylaws, including a staggered Board of
Directors and the ability of the Board of Directors to issue preferred stock
without stockholder approval, may have the effect of inhibiting a change in
control of the Company, even where such a change of control could be beneficial
to the Company's stockholders. See also "-- Anti-takeover Effect of Certain
Provisions of Maryland Law and the Company's Charter and Bylaws."
DEPENDENCE ON ACQUISITIONS TO INCREASE CASH AVAILABLE FOR DISTRIBUTION
The Company's success in implementing its growth plan will depend
significantly on the Company's ability to acquire additional golf courses at
attractive prices. Because of the structure of the Participating Leases, which
limit increases in Lease Payments to 5% annually for the first five years,
internal growth through increases in revenues of the Golf Courses is not
expected to provide as much growth in Cash Available for Distribution to
stockholders as will the acquisition of additional golf courses. See " -- Risks
of Leverage; No Limitation on Indebtedness" and "-- Risks Related to the
Company's Growth Strategy." If the Company is unable to acquire additional golf
courses at attractive prices, the Company's ability to grow and maintain or
increase Cash Available for Distribution per share may be adversely affected.
DISTRIBUTION TO STOCKHOLDERS
The Company's ability to make distributions to its stockholders will be
based principally on Lease Payments under the Participating Leases. In the event
of a default by an Initial Lessee under its Participating Lease, there could be
a decrease or cessation of Lease Payments from such Initial Lessee. In addition,
the amount available to the Company to make distributions to its stockholders
may decrease on a per share basis if golf courses acquired in the future yield
lower than expected revenues. In addition, if the Company incurs additional
indebtedness in the future, it will require additional funds to service such
indebtedness and Cash Available for Distribution may decrease. Distributions by
the Company will also be dependent on a number of other factors, including the
amount of Funds From Operations available for distribution, the Company's
financial condition, any decision to reinvest funds rather than to distribute
such funds, capital expenditures, the annual distribution requirements under the
REIT provisions of the Code (see "Federal Income Tax Considerations -- Taxation
of the Company -- Requirements for Qualifications -- Annual Distribution
Requirements") and such other factors as the Company deems relevant.
In order to qualify as a REIT, the Company generally will be required to
distribute to its stockholders at least 95% of its net taxable income each year.
In addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and undistributed income from prior years.
The Company intends to make distributions to its stockholders to comply with
the 95% distribution requirements of the Code and to avoid the nondeductible
excise tax. The Company's income and cash flow will consist primarily of rent
payments under the Participating Leases. Differences in timing between the
receipt of
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income and the payment of expenses in arriving at taxable income and the effect
of required debt amortization payments could require the Company to borrow funds
on a short-term basis to meet the distribution requirements that are necessary
to achieve the tax benefits associated with qualifying as a REIT.
ERISA RISKS
Depending upon the particular circumstances of the plan, an investment in
Common Stock may not be an appropriate investment for an ERISA plan, a qualified
plan or an IRA. In deciding whether to purchase Common Stock, a fiduciary of an
ERISA plan, in consultation with its advisors, should carefully consider its
fiduciary responsibilities under ERISA, the prohibited transaction rules of
ERISA and the Code, and the effect of the "plan asset" regulations issued by the
U.S. Department of Labor.
ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE ISSUANCE AND SALE ON MARKET PRICE
OF COMMON STOCK
Sales of a substantial number of shares of Common Stock or the perception
that such sales could occur, may adversely affect prevailing market prices for
the Common Stock. In addition to the shares of Common Stock offered by the
Company in the Offering, an aggregate of 4,135,356 OP Units will be outstanding
upon completion of the Formation Transactions. See "The Formation Transactions".
Fifty percent of the OP Units may be redeemed by the holders of such OP Units at
any time after the first anniversary of the completion of the Offering and the
remaining 50% of such OP Units may be redeemed at any time after the second
anniversary of the completion of the Offering for cash, or at the Company's
option, for shares of Common Stock on a one-for-one basis. See "Shares Available
for Future Sale." At the conclusion of the periods described above, the shares
of Common Stock issuable upon redemption of the OP Units may be sold in the
public market pursuant to a shelf registration statement which the Company is
obligated to file with respect to the issuance of such shares, or pursuant to
any available exemptions from registration. The Company also has granted the
Prior Owners certain "piggyback" registration rights commencing on the first
anniversary of the completion of the Offering (see "Shares Available for Future
Sale -- Registration Rights").
The Company's acquisition strategy will depend in part on access to
additional capital through sales and issuances of equity securities, including
OP Units. The market price of the Common Stock may be adversely affected by the
availability for future sale and issuance of shares of Common Stock that may be
issued upon redemption of the OP Units as well as any additional OP Units issued
in future acquisitions or in connection with an Initial Lessee's exercise of the
Lessee Performance Option. See "The Company -- Acquisitions and Expansions." No
predictions can be made as to the effect, if any, that future sales of shares,
or the perception that such sales could occur will have on the price of the
Common Stock.
OWNERSHIP LIMIT
In order for the Company to qualify and to maintain its qualification as a
REIT, not more than 50% in value of its outstanding stock may be owned, directly
or constructively, by five or fewer individuals (as defined in the Code). In
addition, rent from related party tenants is not qualifying income for purposes
of the gross income tests under the Code. See "Federal Income Tax Considerations
- -- Taxation of the Company." Two sets of constructive ownership rules (one to
determine whether a REIT is closely held and one to determine whether rent is
from a related party tenant) apply in determining whether these requirements are
met. For the purpose of preserving the Company's REIT qualification, the Charter
prohibits direct or constructive ownership of more than 9.8% of the lesser of
the total number or value of the outstanding shares of the Common Stock or more
than 9.8% of the outstanding preferred stock (if any) of the Company (the
"Ownership Limit"). The constructive ownership rules are complex and may cause
Common Stock owned, directly or constructively, by a group of related
individuals and/or entities to be deemed to be constructively owned by one
individual or entity. As a result, the acquisition of less than 9.8% of the
Common Stock (or the acquisition of an interest in an entity which owns Common
Stock) by an individual or entity could cause that individual or entity (or
another individual or entity) to own constructively in excess of 9.8% of the
Common Stock, and thus subject such Common Stock to the Ownership Limit. See
"Capital Stock -- Restrictions on Ownership." Direct or constructive ownership
of shares of Common Stock in excess of the Ownership Limit would cause the
violative transfer or ownership to be void, or cause such shares to be
designated as "Shares-in-Trust", as herein defined. See "Capital Stock --
Restrictions on Ownership."
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ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation (the
"Charter") and bylaws (the "Bylaws"), as well as Maryland corporate law, may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that might be in the stockholders' best interest. For example, such
provisions may (i) defer tender offers for Common Stock, which offers may be
beneficial to stockholders or (ii) defer purchases of large blocks of Common
Stock, thereby limiting the opportunity for stockholders to receive a premium
for their Common Stock over then-prevailing market prices. These provisions
include the following:
PREFERRED SHARES.
The Charter authorizes the Board of Directors to issue Preferred Stock in
one or more classes and to establish the preferences and rights (including the
right to vote and the right to convert into Common Stock) of any class of
Preferred Stock issued. No Preferred Stock will be issued or outstanding as of
the closing of the Offering. See "Description of General Stock -- Preferred
Stock."
STAGGERED BOARD.
The Board of Directors of the Company will have three classes of directors.
The terms of the first, second and third classes will expire in 1998, 1999 and
2000, respectively. Directors for each class will be chosen for a three-year
term upon the expiration of the term of the current class, beginning in 1997.
The affirmative vote of two-thirds of the outstanding Common Stock is required
to remove a director. See "Policies and Objectives With Respect to Certain
Activities -- Charter and Bylaw Provisions."
MARYLAND BUSINESS COMBINATION STATUTE.
Under the Maryland General Corporation Law ("MCGL"), certain "business
combinations" (including the issuance of equity securities) between a Maryland
corporation and any person who owns, directly or indirectly, 10% or more of the
voting power of the corporation's shares of capital stock (an "Interested
Stockholder") must be approved by 80% of voting shares. In addition, an
Interested Stockholder may not engage in a business combination with the
Maryland corporation for five years following the date he or she became an
Interested Stockholder. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws -- Maryland business Combination Law."
MARYLAND CONTROL SHARE ACQUISITION.
Maryland law provides that "Control Shares" of a corporation acquired in a
"Control Share Acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes eligible under the statute to be cast on
the manner. "Control Shares" are voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously acquired
by the acquiror, would entitle the acquiror directly or indirectly to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more but
less than a majority or (iii) a majority of all voting powers. Control Shares do
not include shares of beneficial interest the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. A
"Control Share Acquisition" means the acquisition of Control Shares, subject to
certain exceptions.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares of beneficial interest entitled to vote, all other stockholders may
exercise appraisal rights. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws."
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Common Stock. There can be no assurance that such provision will not
be amended or eliminated at any time in the future.
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THE COMPANY
The Company has been created as a self-administered REIT to capitalize upon
consolidation opportunities in the ownership of golf courses in the United
States. The principal business strategy of the Company will be to acquire high
quality golf courses and to lease the golf courses to qualified third-party
operators, including affiliates of the sellers of such courses. The Company
believes its utilization of a multiple independent lessee structure and the
Lessee Performance Option, together with the substantial industry knowledge,
experience and relationships within the golf community of its senior management
and of management of the Initial Lessees (affiliates of whom collectively will
own an initial 59.1% equity interest in the Company upon completion of the
Formation Transactions) will provide it with a distinct competitive advantage in
the acquisition of high quality golf courses, including some which might not
otherwise be available for purchase.
Upon completion of the Offering and the Formation Transactions, the Company
will be one of only two publicly traded REITs in the United States focused on
owning and acquiring golf courses and will own 10 courses located in South
Carolina (4), Virginia (2), Alabama, Georgia, North Carolina and Texas. See "The
Golf Courses -- Description of the Golf Courses." The Golf Courses will be
leased to the Initial Lessees affiliated with the Prior Owners under the
Participating Leases, which provide for the payment of fixed Base Rent and
Participating Rent based on growth in revenue at the Golf Courses. See "The Golf
Courses -- The Participating Leases." The Company believes it will benefit from
the continuity of golf course management provided by the Initial Lessees, whose
affiliates developed and have operated each of the Golf Courses since their
opening. See "Initial Lessees." Neither the Company nor its executive officers
will own any interest in or participate in the management of the Initial
Lessees.
The Company's goal is to generate cash available for distribution and to
enhance stockholder value by becoming a leading owner of, and participating in
increased revenue from, nationally or regionally recognized high quality golf
courses. Four of the Golf Courses were ranked among the Top Ten New Courses by
either GOLF DIGEST or GOLF MAGAZINE in the year the Golf Course opened,
including the recently opened Stonehouse Golf Club, which in November 1996 was
named the Best New Upscale Course of 1996 by GOLF DIGEST. Two of the established
courses (Oyster Bay and Heritage Club) have been ranked in the Top 50 Public
Golf Courses by Golf Digest. The Company believes that the quality of the Golf
Courses is further reflected in their average green fees, which significantly
exceed national industry averages. All of the Golf Courses were developed and
have been continuously operated by the Prior Owners. The Initial Lessees will be
newly-formed special purpose entities affiliated with the Prior Owners, and will
lease the Golf Courses from the Company pursuant to the Participating Leases.
The Company believes the continuity of management provided by these experienced
operators will facilitate the Company's growth and profitability. The Company
believes that the substantial ownership interest of affiliates of the Initial
Lessees in the Company will align the interests of the Initial Lessees with
those of the stockholders of the Company. As security for its affiliated Initial
Lessee's obligations under the Participating Lease, each Prior Owner will pledge
to the Company for a minimum of two years OP Units having a value, based on the
Offering Price, equal to 15% of the purchase price for the Golf Course, which
approximates 16 months of initial Base Rent under the applicable Participating
Lease. See "The Golf Courses -- The Participating Leases."
The Chairman of the Board, Chief Executive Officer and President of the
Company, W. Bradley Blair, II, currently serves as the Executive Vice President
and Chief Operating Officer of Legends Group Ltd., a leading golf course owner,
developer and operator in the southeast and mid-Atlantic regions of the United
States. After the Offering, Mr. Blair will not have any interest in the golf
operations of The Legends Group. Seven of the eight golf courses currently owned
by The Legends Group are being contributed to the Company. The one course not
being contributed is owned by The Legends Group pursuant to a ground lease with
a short remaining term which does not presently meet the Company's investment
criteria. The Company will have an option and right of first refusal to acquire
any golf courses owned, developed or acquired by The Legends Group pursuant to
the Option Agreement. See "Certain Relationships and Transactions -- Option to
Purchase and Right of First Refusal." The initial Participating Leases with the
Legends Lessees will be cross-collateralized and cross-defaulted.
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Following completion of the Offering, the Company expects to have access to
a variety of debt and equity financing sources to fund acquisitions, including
the ability to issue OP Units, which can provide deferral of gain recognition
for sellers of golf courses. The Company expects to have a $75 million line of
credit which will be used primarily for the acquisition of additional golf
courses. The Company has not, however, finalized negotiations on the Line of
Credit and there can be no assurance that the Company will have access to
sufficient debt and equity financing to allow it to successfully pursue its
acquisition strategy. The Company will have approximately $4.3 million of
outstanding indebtedness upon completion of the Offering, which will be incurred
in connection with the acquisition of one of the Golf Courses. The Company
believes its initial low level of debt, coupled with the Line of Credit will
provide the Company with significant financial flexibility in pursuing golf
course acquisition opportunities. The Company intends to maintain a capital
structure which limits consolidated indebtedness to no more than 50% of its
total market capitalization. See "Policies and Objectives with Respect to
Certain Activities -- Financing."
The Company's executive offices are located at 190 King Street, Charleston,
South Carolina 29401 and its telephone number is (803) 768-8300.
BUSINESS STRATEGIES AND OBJECTIVES
The Company will seek to maximize its Cash Available for Distribution to
stockholders and enhance stockholder value by acquiring additional golf courses
that meet one or more of the Company's investment criteria and by participating
in increased revenue from the Golf Courses and any subsequently acquired golf
courses through the Participating Leases.
ACQUISITIONS AND EXPANSIONS
ACQUISITIONS. The Company intends to acquire additional golf courses,
including multi-course portfolios, that meet one or more of its investment
criteria as generally described below. The Company believes its multiple
independent lessee structure, together with the industry knowledge, experience
and relationships of management of the Company and the Initial Lessees, will
permit the Company to acquire high quality golf courses, including those which
might not otherwise be available for purchase. The Company expects to have
access to a variety of debt and equity financing sources to fund acquisitions,
including the Line of Credit and the ability to issue OP Units, which can
provide a means of deferring recognition of gain for certain sellers. OP Units
are redeemable, at the election of the holder, for cash, or at the Company's
option, shares of Common Stock on a one-for-one basis under certain conditions.
See "Partnership Agreement -- Redemption Rights." The Company believes its
structure offers sellers of golf courses the following benefits: (i) tax
deferral and increased liquidity associated with owning OP Units; (ii) the
ability to continue to operate of the golf course by leasing the golf course
from the Company; (iii) the ability to obtain additional OP Units through the
Lessee Performance Option; (iv) marketing and purchasing economies of scale
gained from participation in the Advisory Association; and (v) the ability to
diversify a seller's investment in Golf Courses by participating as an equity
owner in the Company's portfolio of golf courses.
The Company intends to concentrate its investment activities on golf courses
available at attractive prices that meet one or more of the following criteria:
- high quality Daily Fee courses that target avid golfers, who the Company
believes are generally willing to pay the higher green fees associated
with high quality golf courses;
- courses that offer superior facilities and service and attract a
relatively high number of affluent destination golfers;
- courses owned by multi-course owners and operators who have a strong
regional presence and afford the Company the opportunity to expand in a
particular region;
- private or semi-private golf courses with proven operating histories;
- newly developed, well-designed courses with high growth potential; and
- high quality, well-maintained golf courses with proven operating histories
located in areas where significant barriers to entry exist.
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The Company will undertake a sophisticated analysis with respect to golf
courses to be considered for acquisition, including an evaluation of the
following:
- condition of course and agronomy review;
- competitive position in market;
- barriers to entry in development of new golf courses;
- irrigation -- quantity, quality and cost (watershed, wells, etc.);
- strength of the lodging industry, including hotels and condominiums, in
destination golf areas; and
- product and service differentiation.
The Company has recently entered into a non-binding letter of intent to
enter into a strategic allegiance with Troon Management, an affiliate of
Starwood Capital Group LLC. The Company believes Troon Management is one of the
United States' leading golf course management, development and consulting
companies. The non-binding letter of intent provides that the Company will enter
into purchase agreements to acquire certain golf courses which Troon Management
is presently negotiating to acquire. Any such agreements would be subject to
customary due diligence and closing conditions and would provide that such
courses be acquired on substantially the same terms and conditions as the
acquisition of the Golf Courses. The letter of intent provides that, subject to
the consummation of the Company's acquisition of courses from Troon Management,
Starwood will have the right to nominate one member of the Company's Board of
Directors. Pursuant to the proposed alliance, the Company would be granted a
limited right of first offer to acquire golf courses identified by Troon
Management in the future, which courses would be leased to Troon Management
under Participating Leases. In addition, the Company would grant Troon
Management a limited right of first offer to lease newly-acquired courses that
the Company does not intend to lease to affiliates of the sellers. However, the
Company and Troon Management have not entered into any definitive agreements
with respect to the terms of the strategic alliance or the acquisition of golf
courses, and there can be no assurances that the Company and Troon Management
will consummate the transactions contemplated by the non-binding letter of
intent.
The Company's ability to make acquisitions will depend on its access to
financing. Although as a public company the Company expects to have access to
several sources of financing, no commitments relating to such financing have
been finalized. There can be no assurance that the Company will be able to
acquire courses that meet its investment criteria. Moreover, acquisitions entail
risks that acquired courses will fail to perform in accordance with
expectations. See "Risk Factors -- Real Estate Investment Risks -- General" and
"-- Dependence on Acquisitions to Increase Cash Available for Distribution."
EXPANSIONS. The Prior Owner of Northgate Country Club currently plans to
add nine holes to that Golf Course, and the Prior Owner of The Woodlands
currently intends to build a new clubhouse. Subject to satisfaction of certain
conditions, the Company has agreed that it will acquire the Expansion Facilities
when fully completed and operational. The Company will acquire each Expansion
Facility for a price equal to the cost of construction, which cost must be
approved in advance by the Company and which may include an allowance for land.
No development fee will be paid to the Prior Owners of Northgate or The
Woodlands or any affiliate thereof in connection with the construction of the
Expansion Facilities.
Upon the Company's acquisition of the respective Expansion Facilities, the
Participating Leases for Northgate Country Club and The Woodlands will be
amended to include the applicable Expansion Facility, to increase the Base Rent
in an amount designed to be accretive to the Company's Funds From Operations per
share, and the applicable Prior Owner will be required to pledge for a minimum
of two years additional OP Units (or cash or security acceptable to the Company)
equal to 15% of the purchase price paid by the Company for the applicable
Expansion Facility.
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INTERNAL GROWTH
Based on the experience of its management, the Company believes the Golf
Courses offer opportunities for revenue growth through continued effective
marketing and efficient operations. See "The Golf Courses -- The Participating
Leases -- Advisory Association." The Participating Leases have been structured
to provide the Initial Lessees with incentives to operate and maintain the Golf
Courses in a manner designed to increase revenue and, as a result, increase
Lease Payments to the Company under the Participating Leases. The Company
believes that management of the Initial Lessees has demonstrated expertise in
the operation of the Golf Courses and that the Golf Courses are positioned to
benefit from favorable trends in the golf industry. See "Initial Lessees" and
"The Golf Industry."
PARTICIPATING LEASES. The Participating Leases provide that for any
calendar year, the Company will receive with respect to each Golf Course, the
greater of Base Rent or an amount equal to Participating Rent plus the initial
Base Rent payable at the Golf Course. Participating Rent is equal to 33 1/3% of
any increase in Gross Golf Revenue over Gross Golf Revenue at the Golf Course in
1996, as adjusted in determining the initial Base Rent. Base Rent under each
Participating Lease will increase annually by the Base Rent Escalator (i.e. the
lesser of (i) 3% or (ii) 200% of the change in the CPI for the prior year)
during each of the first five years of such Participating Lease and, if the
Lessee Performance Option is exercised, for an additional five years thereafter.
Annual increases in Lease Payments are limited to 5% during the first five years
of the initial lease terms. Gross Golf Revenue is affected in part by the number
of rounds played at a Golf Course, which decreased from 1994 to 1995 at six of
the seven Golf Courses that had a full year of operations in 1994. However,
Revenue Per Player increased at each of the Golf Courses during the same period
as a result of green fees increases, and Gross Golf Revenue increased from 1994
to 1995 at five of the seven Golf Courses that had a full year of operations in
1994. "Gross Golf Revenue" is generally defined as all revenues from a Golf
Course including green fees, golf cart rental fees, range fees, membership dues,
member initiation fees and transfer fees, excluding, however, food and beverage
and merchandise revenue. See "The Golf Courses" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
LESSEE PERFORMANCE OPTION. The Company will acquire the Golf Courses from
the Prior Owners, and expects to acquire additional golf courses from other
owners, utilizing an innovative lease structure. The Company's lease structure,
including the Lessee Performance Option, is designed to encourage aggressive
growth in revenue at the Golf Courses as well as to facilitate the Company's
acquisition of golf courses by allowing the Company to acquire golf courses
which it believes have high growth potential and which might not otherwise be
available for purchase. Under the Lessee Performance Option, during years three
through five of each Participating Lease, the applicable Prior Owner, subject to
certain qualifications and restrictions, may elect one time to increase the Base
Rent payable in order to receive additional OP Units. The Prior Owner of the
Northgate Country Club will have an additional two-year period to exercise the
Lessee Performance Option if it elects to construct the planned nine hole
expansion at that course. OP Units issued pursuant to the exercise of a Lessee
Performance Option will be redeemable at the election of the holder for cash or,
at the Company's election, Common Stock on a one-for-one basis, beginning one
year after their issuance. See "Partnership Agreement -- Redemption Rights." A
Prior Owner may exercise the Lessee Performance Option only if the current year
net operating income of the applicable Initial Lessee, inclusive of a 113.5%
coverage ratio, exceeds such Initial Lessee's then current year Lease Payment
obligation. Each Prior Owner may only increase the Base Rent payable by the
applicable Initial Lessee up to the incremental positive difference between such
Initial Lessee's net operating income (inclusive of 113.5% coverage ratio) and
its total lease payment obligation. The Lessee Performance Option is designed to
be accretive to the Company's Funds From Operations on a per share basis.
Following exercise of the Lessee Performance Option, the adjusted Base Rent will
be increased by the Base Rent Escalator each year for a period of five years.
THE OPERATING PARTNERSHIP
Upon contribution of the net proceeds of the Offering to the Operating
Partnership, the Company, through GTA GP and GTA LP, will acquire an
approximately 40.9% interest in the Operating Partnership, a Delaware limited
partnership. The Operating Partnership will own all of the Golf Courses and will
lease the Golf Courses
30
<PAGE>
to the Initial Lessees pursuant to the Participating Leases. GTA GP will be the
sole general partner of the Operating Partnership and will own a 0.2% general
partnership interest in the Operating Partnership. GTA LP will be one of the
Operating Partnership's limited partners and will own an approximately 40.7%
limited partnership interest in the Operating Partnership. The other Limited
Partners of the Operating Partnership will include the Prior Owners and Messrs.
Blair and Dick. In their capacity as such, the Limited Partners will have
limited authority to transact business for, or participate in the management,
activities or decisions of, the Operating Partnership. The Limited Partners
(other than GTA LP) will be entitled to vote on certain matters, including the
sale of all or substantially all the Company's assets or the merger or
consolidation of the Partnership, which will require the approval of the holders
of at least 66.7% of the interests in the Operating Partnership. The OP Units
held by the Limited Partners other than GTA LP are redeemable 50% beginning one
year after completion of the Offering and 50% beginning two years after
completion of the Offering for cash or, at the election of the Company, for
shares of Common Stock on a one-for-one basis.
USE OF PROCEEDS
Based on the Offering Price, the net proceeds to the Company from the
Offering, after payment of estimated expenses of $3.4 million incurred in
connection with the Offering, are estimated to be approximately $49.9 million.
The Company intends to apply the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
DOLLARS IN
THOUSANDS
-----------
<S> <C>
Repayment of existing third-party mortgages and other indebtedness (net of cash proceeds from
initial borrowing of $4.3 million).......................................................... $ 34,936
Repayment of indebtedness to affiliates (1).................................................. 8,200
Payment of cash portion of the purchase price for the Golf Courses, and related closing costs
(2)......................................................................................... 6,187
Working capital.............................................................................. 544
-----------
Total........................................................................................ $ 49,867
-----------
-----------
</TABLE>
- ------------
(1) This amount represents repayment of a loan made by Mr. Young's affiliates in
connection with the development of the two recently opened Golf Courses.
(2) Includes payment of a $120,000 prepayment penalty.
Offering expenses include approximately $522,500 that will be used to
reimburse The Legends Group and $62,000 to reimburse Mr. Dick for direct
out-of-pocket expenses incurred in connection with the Formation Transactions.
The balance of the purchase price for the Golf Courses will be paid with the
issuance of 4,106,606 OP Units. For a discussion of the redemption rights of
holders of the OP Units, see "Partnership Agreement -- Redemption Rights." If
the Underwriters' over-allotment option is exercised, the Company intends to use
the additional net proceeds of approximately $8.0 million for the acquisition of
additional golf courses and for working capital. The Company has entered into a
non-binding letter of intent to enter into a strategic alliance with Troon
Management which is expected to provide the Company with additional acquisition
opportunities. See "The Company -- Business Strategies and Objectives --
Acquisitions and Expansions." However, as of the date hereof there are no
binding commitments to acquire any golf courses other than the Golf Courses.
Pending the uses described above, the net proceeds will be invested in
interest-bearing accounts and short-term, interest-bearing securities, which are
consistent with the Company's intention to qualify for taxation as a REIT. Such
investments may include, for example, government and government agency
securities, certificates of deposit and interest bearing bank deposits.
31
<PAGE>
Third-party mortgages and other indebtedness to be repaid with the net
proceeds of the Offering is as follows (dollars in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMOUNT
GOLF COURSE BALANCE (1) RATE DATE REPAID (2)
- ------------------------------------------------------ ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
Heathland, Moorland and Parkland...................... $ 12,414 Prime rate Oct. 1999
Heritage Golf Club.................................... 736 Prime rate Oct. 1999
Oyster Bay............................................ 960 Prime rate Oct. 1999
Stonehouse Golf Club and Royal New Kent (3)........... 12,646 Prime rate Oct. 1999
-----------
Total Legends Golf Courses............................ $ 26,756 $ 26,560
-----------
-----------
Northgate Country Club (4)............................ $ 6,092 LIBOR + 4.5% Feb. 2000 6,117
The Woodlands......................................... $ 3,878 Prime rate +.5% Nov. 2000 3,838
Olde Atlanta Golf Club................................ $ 1,735 8.00% Apr. 1999
875 9.25% Apr. 1999
-----------
Total Olde Atlanta Golf Club.......................... $ 2,610 2,706
----------- -----------
-----------
Total debt payoff..................................... 39,221
Less: net proceeds from initial borrowing............. 4,285
-----------
Debt payoff, net of proceeds from initial borrowing... $ 34,936
-----------
-----------
</TABLE>
- ------------
(1) As of September 30, 1996.
(2) Estimated payoff, including accrued interest, as of consummation of
Formation Transactions.
(3) Approximately $1.2 million of such indebtedness was incurred by Legends of
Virginia, LC in the past year and used to fund a portion of the development
of the two recently opened Golf Courses (Stonehouse Golf Club and Royal New
Kent).
(4) Payment of a $120,000 prepayment penalty is included in "Payment of cash
portion of the purchase price for the Golf Courses."
32
<PAGE>
DISTRIBUTION POLICY
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to its stockholders. The Board of Directors, in
its sole discretion, will determine the actual distribution rate based on the
Company's actual results of operations, economic conditions, tax considerations
(including those related to REITs) and other factors that the Board deems
relevant. The Company's first distribution, for the period from the completion
of the Offering to March 31, 1997, is expected to equal a pro rata share of the
estimated initial quarterly distribution of $.40625 per share of Common Stock,
which, on an annualized basis, will represent a distribution rate of $1.625 per
share, or 8.125% of the Offering Price. On a pro forma basis for the twelve
months ended September 30, 1996, the estimated initial distribution represents
91.9% of estimated Cash Available for Distribution. Holders of OP Units will
receive distributions on a per unit basis equal to the per share distributions
to owners of Common Stock. The Company does not expect to adjust the estimated
initial distribution rate if the Underwriters' over-allotment option is
exercised. See "Partnership Agreement."
The Company has established the initial distribution rate based upon the
Company's estimate of Cash Available for Distribution, which has been derived
from the pro forma condensed statement of operations of the Company for the
twelve months ended September 30, 1996. The Company has no operating history and
the Company's operations will commence following the consummation of the
Formation Transactions. Accordingly, because of the foregoing and the fact that
the Company will not receive any Participating Rent on a pro forma basis, the
pro forma condensed statement of operations for any twelve month period prior to
the consummation of the Formation Transactions will reflect the same amounts of
pro forma revenues and expenses as the year ended December 31, 1995. The Company
believes the pro forma financial information for the twelve months ended
September 30, 1996 constitutes a reasonable basis for setting the initial
distribution rate.
The following table sets forth certain financial information for the twelve
months ended September 30, 1996, which has been used to establish the expected
initial distribution per share of Common Stock.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SEPTEMBER 30, 1996
-------------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
Pro forma income before minority interest (1)................................................ $ 9,857
Pro forma depreciation....................................................................... 3,126
-------
Pro forma Funds From Operations (2) 12,983
Adjustments:
Estimated capital expenditures (3)......................................................... (609)
-------
Estimated Cash Available for Distribution.................................................... 12,374
-------
-------
Expected initial annual distribution (4)..................................................... 11,375
Expected initial distribution per OP Unit and per share of Common Stock...................... $ 1.625
Expected payout ratio based on estimated Cash Available for Distribution (5)................. 91.9%
</TABLE>
- ---------------
(1) Minority interest in pro forma income for the twelve months ended September
30, 1996 is approximately $5.8 million (approximately 59.1%).
(2) Management and industry analysts generally consider Funds From Operations to
be one measure of the financial performance of an equity REIT that provides
a relevant basis for comparison among REITs and it is presented to assist
investors in analyzing the performance of the Company. "Funds From
Operations" is defined as income before minority interest (computed in
accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring and sales of property and real estate
related depreciation and amortization (excluding amortization of financing
costs). Funds From Operations does not represent cash generated from
operating activities in accordance with generally accepted account
principles and is not necessarily indicative of cash available to fund cash
needs. Funds From Operations should not be considered an alternative to net
income as an indication of the Company's financial performance or as an
alternative to cash flows from operating activities as a measure of
liquidity and may be determined differently from similarly titled measures
used by other REITs.
(3) The Participating Leases require the Company to reserve annually between 2%
and 3% of the Gross Golf Revenues of the Golf Courses to fund capital
expenditures. Any capital expenditures in excess of such amounts will be
funded by the Initial Lessees.
(4) Represents expected initial annual distribution per share of Common Stock
and OP Unit times the 7,000,356 shares of Common Stock and OP Units to be
outstanding upon completion of the Formation Transactions.
(5) Represents the anticipated initial aggregate annual distribution divided by
Cash Available for Distribution. The expected payout ratio based upon
estimated pro forma Funds From Operations is approximately 87.6%.
33
<PAGE>
The Company expects to maintain its initial distribution rate unless actual
results of operations, economic conditions or other factors differ from the pro
forma results for the twelve months ended September 30, 1996. The Company's
actual Cash Available for Distribution will be affected by a number of factors,
including Gross Golf Revenues generated at the Golf Courses. The Company
anticipates that Cash Available for Distribution will not exceed earnings and
profits because the Company's non-cash expenses, primarily depreciation and
amortization, are not expected to be significant due to the long depreciation
life assigned to the Golf Courses for earnings and profits purposes by the
Company. Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes, other than
capital gain dividends, will be taxable to stockholders as ordinary dividend
income. Any dividends designated by the Company as capital gain dividends
generally will give rise to capital gain for stockholders. Distributions in
excess of the Company's current and accumulated earnings and profits generally
will be treated as a non-taxable reduction of a stockholder's basis in the
Common Stock to the extent thereof, and thereafter as capital gain.
Distributions treated as non-taxable reduction in basis will have the effect of
deferring taxation until the sale of a stockholder's Common Stock or future
distributions in excess of the stockholder's basis in the Common Stock. Based
upon the total estimated Cash Available for Distribution set forth in the table
above, the Company believes that none of the Company's expected annual
distribution would represent a return of capital for federal income tax
purposes. See "Federal Income Tax Considerations -- Taxation of the Company --
Annual Distribution Requirements." If actual Cash Available for Distribution or
taxable income vary from these amounts, or if the Company is not treated as the
owner of one or more of the Golf Courses, the percentage of distributions which
represents a return of capital may be materially different.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its stockholders of at least 95% of its annual taxable
income (excluding net capital gains). Based on the Company's pro forma results
of operations for the twelve months ended September 30, 1996, the Company would
have been required to distribute approximately $4.0 million, or approximately
$1.44 per share, in order to maintain its status as a REIT. Under certain
circumstances, the Company may be required to make distributions in excess of
Cash Available for Distribution in order to meet such distribution requirements.
In such event, the Company would seek to borrow the amount of the deficiency or
sell assets to obtain the cash necessary to make distributions to retain its
qualification as a REIT for federal income tax purposes.
The Board of Directors, in its sole discretion, will determine the actual
distribution rate based on a number of factors, including the amount of Cash
Available for Distribution, the Company's financial condition, capital
expenditure requirements for the Company's properties, the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
Board of Directors deems relevant. For a discussion of the tax treatment of
distributions to holders of Common Stock, see "Federal Income Tax
Considerations."
34
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of The Legends
Group and the pro forma capitalization of the Company as of September 30, 1996,
assuming completion of the Offering and Formation Transactions and use of the
proceeds from the Offering as described in "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
THE LEGENDS GROUP COMPANY PRO
HISTORICAL (1) FORMA
------------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Mortgages notes payable and due to affiliates........................ $ 39,243 $ 4,325
Minority interest in Operating Partnership........................... -- 34,730
Stockholders' equity:
Preferred Stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued and outstanding..................................... -- --
Common Stock, $0.01 par value per share, 90,000,000 shares
authorized, 2,865,000 shares issued and outstanding, as adjusted
(2)............................................................... 4 27
Additional paid in capital......................................... 300 24,034
Accumulated earnings............................................... 6,190
------- ------------
Total stockholders' equity......................................... 6,355 24,061
------- ------------
Total capitalization............................................. $ 45,737 $ 63,116
------- ------------
------- ------------
</TABLE>
- ------------
(1) Reflects The Legends Group prior to the Formation Transactions.
(2) Excludes 4,135,356 shares issuable upon redemption of OP Units outstanding
prior to the Offering and issued in connection with the Formation
Transactions.
35
<PAGE>
DILUTION
The initial price per share to the public of Common Stock offered hereby
exceeds the net tangible book value per share. Therefore, purchasers of Common
Stock in the Offering will realize an immediate and substantial dilution of the
net tangible book value of their shares. Net pro forma tangible book value is
determined by subtracting total liabilities from total tangible assets and
dividing the remainder by the number of shares of Common Stock and OP Units that
will be outstanding after the Offering. The following table illustrates the
dilution to purchasers of Common Stock sold in the Offering, based on the
Offering Price.
<TABLE>
<S> <C> <C>
Offering Price (1).................................................... $ 20.00
Pro forma net tangible book value prior to the Offering (2)........... 2.16
Increase in net tangible book value attributable to shares issued in
the Offering......................................................... 6.24
---
Pro forma net tangible book value after Formation Transactions (3).... 8.40
---------
Dilution per share purchased in the Offering.......................... $ 11.60
---------
---------
</TABLE>
- ------------
(1) Before deducting underwriting discount and estimated expenses of the
Offering.
(2) Pro forma net tangible book value prior to the Offering is determined by
subtracting total liabilities from total tangible assets of Operating
Partnership prior to the Company's contribution, divided by the total number
of shares of Common Stock and OP Units to be issued by the Operating
Partnership in the Formation Transactions.
(3) Based on the total pro forma net tangible book value of the Company,
including minority interest, of $58,791,000, divided by the sum of the pro
forma total shares of Common Stock (2,865,000) and OP Units (4,135,356)
outstanding (total shares and OP Units of 7,000,356). These totals include
28,750 OP Units to be issued to Company management as part of the Formation
Transactions. This does not include shares of Common Stock related to stock
options to be granted to the Company's executive officers and directors.
The following table summarizes, as of September 30, 1996, the difference
between contributions to be made to the Company by purchasers of shares in the
Offering (before deducting expenses of the Offering) and the OP Units to be
issued by the Operating Partnership in the Formation Transactions:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
ISSUED BY THE COMPANY
AND OP UNITS ISSUED BY
THE OPERATING TOTAL CONTRIBUTIONS TO
PARTNERSHIP THE COMPANY
---------------------- ------------------------- AVERAGE PRICE PER
NUMBER PERCENT PERCENT SHARE/OP UNIT
---------- ---------- AMOUNT ---------- ------------------
-------------
(IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
Shares of Common Stock sold by the Company in
the Offering................................ 2,865,000 40.9% $ 57,300 86.5% $ 20.00(1)
OP Units issued in the Formation
Transactions................................ 4,135,356 59.1% 8,924 13.5% 2.16(2)
---------- ----- ------------- ----------
Total........................................ 7,000,356 100.0% $ 66,224 100.0%
---------- ----- ------------- ----------
---------- ----- ------------- ----------
</TABLE>
- ------------
(1) Based on the Offering Price before deducting underwriting discount and
estimated expenses of the Offering.
(2) Based on the value of assets to be contributed to the Operating Partnership
in the Formation Transactions.
36
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth (i) unaudited selected consolidated pro forma
financial information for the Company and (ii) selected historical financial
information for the Prior Owners. The pro forma operating information is
presented as if the Formation Transactions had occurred as of the beginning of
the periods indicated and therefore incorporates certain assumptions that are
included in the Notes to Pro Forma Condensed Statements of Operations included
elsewhere in this Prospectus. The pro forma balance sheet information is
presented as if the Formation Transactions had occurred on September 30, 1996.
The pro forma information does not purport to represent what the Company's
financial position or results of operations actually would have been had the
Formation Transactions, in fact, occurred on such date or at the beginning of
the period indicated, or to project the Company's financial position or results
of operations at any future date or any future period.
The following selected historical financial information for the Prior
Owners, insofar as it relates to each of the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996, has been derived from annual
audited financial statements of the Prior Owners, including the consolidated
balance sheets at December 31, 1994 and 1995 and at September 30, 1996 and the
related consolidated statements of income and of cash flows for the years ended
December 31, 1994 and 1995 and the nine months ended September 30, 1996, and
notes thereto appearing elsewhere herein. The data for the nine months ended
September 30, 1995 has been derived from unaudited financial statements also
appearing herein and which, in the opinion of management of the Prior Owners,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the unaudited interim periods.
GOLF TRUST OF AMERICA, INC.
UNAUDITED SELECTED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(in thousands, except per share and footnote data)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
OPERATING DATA:
Participating Lease revenue (1)...................................................... $ 14,988 $ 11,241
------------- -------------
Depreciation and amortization........................................................ 3,126 2,345
General and administrative (2)....................................................... 1,639 1,229
Interest expense..................................................................... 366 275
------------- -------------
Total expenses....................................................................... 5,131 3,849
------------- -------------
Income before minority interest...................................................... 9,857 7,392
Minority interest (3)................................................................ 5,823 4,367
------------- -------------
Net income applicable to common shareholders......................................... $ 4,034 $ 3,025
------------- -------------
------------- -------------
Net income per share of Common Stock................................................. $ 1.41 $ 1.06
Shares of Common Stock outstanding................................................... 2,865 2,865
CASH FLOW DATA:
Cash flows from operating activities (4)............................................. $ 13,003 $ 9,752
Cash flows used in investing activities (5).......................................... 609 457
Cash flows used in financing activities (6).......................................... 7,050 4,206
OTHER DATA:
Funds From Operations (7)............................................................ $ 12,983 $ 9,737
Cash Available for Distribution (8).................................................. 12,374 9,281
Common Stock and OP Units outstanding................................................ 7,000 7,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Investment in Golf Courses......................................................................... $ 62,532
Mortgages and notes payable........................................................................ 4,325
Minority interest in Operating Partnership......................................................... 34,730
Total stockholders' equity......................................................................... 24,061
</TABLE>
(NOTES ON PAGE 39)
37
<PAGE>
THE PRIOR OWNERS AND GOLF COURSES
SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
HERITAGE
GOLF LEGENDS GOLF CLUB OYSTER BAY
--------------------- --------------------- ---------------------
YEAR ENDED YEAR ENDED YEAR ENDED
--------------------- --------------------- ---------------------
12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf
operations................... $ 8,034 $ 8,003 $ 3,088 $ 3,156 $ 3,249 $ 3,459
Other revenue................. 2,012 2,177 847 782 866 865
--------- --------- --------- --------- --------- ---------
Total revenue................. 10,046 10,180 3,935 3,938 4,115 4,324
--------- --------- --------- --------- --------- ---------
Operating expenses............ 5,707 5,739 2,411 2,442 1,965 2,126
Depreciation and
amortization................. 1,291 1,256 358 319 181 187
Interest...................... 857 877 63 63 78 77
--------- --------- --------- --------- --------- ---------
Total expenses................ 7,855 7,872 2,832 2,824 2,224 2,390
--------- --------- --------- --------- --------- ---------
Net income (loss)............. $ 2,191 $ 2,308 $ 1,103 $ 1,114 $ 1,891 $ 1,934
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating
activities................. $ 4,312 $ 3,537 $ 1,814 $ 969 $ 2,218 $ 2,080
Cash Flows from investing
activities................. $ (1,633) $ (3,372) $ (92) $ (913) $ (20) $ (1,207)
Cash Flows from financing
activities................. $ (2,753) $ (164) $ (1,689) $ (133) $ (2,169) $ (902)
OTHER DATA:
EBITDA (11)................. $ 4,339 $ 4,441 $ 1,524 $ 1,496 $ 2,150 $ 2,198
<CAPTION>
LEGENDS
OF
VIRGINIA (10) NORTHGATE
--------- TOTAL LEGENDS GOLF COUNTRY CLUB
--------------------- ---------------------
YEAR
ENDED YEAR ENDED YEAR ENDED
--------- --------------------- ---------------------
12/31/95 12/31/94 12/31/95 12/20/94 12/20/95
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf
operations................... -- $ 14,371 $ 14,619 $ 2,594 $ 2,768
Other revenue................. -- 3,725 3,823 1,568 1,798
--------- --------- --------- --------- ---------
Total revenue................. -- 18,096 18,442 4,162 4,566
--------- --------- --------- --------- ---------
Operating expenses............ $ 15 10,083 10,322 3,114 3,140
Depreciation and
amortization................. 29 1,830 1,791 401 323
Interest...................... -- 998 1,017 475 485
--------- --------- --------- --------- ---------
Total expenses................ 44 12,911 13,130 3,990 3,948
--------- --------- --------- --------- ---------
Net income (loss)............. $ (44) $ 5,185 $ 5,312 $ 172 $ 618
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating
activities................. $ (15) $ 8,345 $ 6,570 $ 584 $ 543
Cash Flows from investing
activities................. $(11,443) $ (1,747) $ (16,932) $ (81) $ (347)
Cash Flows from financing
activities................. $ 11,458 $ (6,610) $ (10,257) $ (506) $ (273)
OTHER DATA:
EBITDA (11)................. $ (15) $ 8,013 $ 8,120 $ 1,048 $ 1,426
<CAPTION>
THE WOODLANDS (12) OLDE ATLANTA
--------------------- ---------------------
YEAR ENDED YEAR ENDED
--------------------- ---------------------
12/31/94 12/31/95 12/31/94 12/31/95
--------- --------- --------- ---------
OPERATING DATA:
Revenue from golf
operations................... $ 384 $ 1,455 $ 1,623 $ 1,568
Other revenue................. 80 291 442 466
--------- --------- --------- ---------
Total revenue................. 464 1,746 2,065 2,034
--------- --------- --------- ---------
Operating expenses............ 363 1,074 1,398 1,434
Depreciation and
amortization................. 104 247 443 375
Interest...................... 134 424 143 202
--------- --------- --------- ---------
Total expenses................ 601 1,745 1,984 2,011
--------- --------- --------- ---------
Net income (loss)............. $ (137) $ 1 $ 81 $ 23
--------- --------- --------- ---------
--------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating
activities................. $ (26) $ 220 $ 320 $ 375
Cash Flows from investing
activities................. $ (4,330) $ (5) $ (196) $ (53)
Cash Flows from financing
activities................. $ 4,382 $ (190) $ (72) $ (391)
OTHER DATA:
EBITDA (11)................. $ 101 $ 672 $ 667 $ 600
</TABLE>
<TABLE>
<CAPTION>
HERITAGE
GOLF LEGENDS GOLF CLUB OYSTER BAY
--------------------- --------------------- ---------------------
NINE MONTHS ENDED NINE MONTHS HENDED NINE MONTHS ENDED
--------------------- --------------------- ---------------------
9/30/95 9/30/95 9/30/95
(UNAUD.) 9/30/96 (UNAUD.) 9/30/96 (UNAUD.) 9/30/96
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf
operations................... $ 6,128 $ 6,126 $ 2,472 $ 2,413 $ 2,676 $ 2,490
Other revenue................. 1,615 1,888 599 555 667 591
--------- --------- --------- --------- --------- ---------
Total revenue................. 7,743 8,014 3,071 2,968 3,343 3,081
--------- --------- --------- --------- --------- ---------
Operating expenses............ 4,303 4,805 1,866 1,662 1,672 1,588
Depreciation and
amortization................. 928 945 238 225 137 137
Interest...................... 654 602 47 41 58 52
--------- --------- --------- --------- --------- ---------
Total expenses................ 5,885 6,352 2,151 1,928 1,867 1,777
--------- --------- --------- --------- --------- ---------
Net income (loss)............. $ 1,858 $ 1,662 $ 920 $ 1,040 $ 1,476 $ 1,304
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating
activities................. $ 1,710 $ 3,121 $ 711 $ 1,516 $ 1,629 $ 1,591
Cash Flows from investing
activities................. $ (1,744) $ (2,742) $ (888) $ (1,371) $ (939) $ (956)
Cash Flows from financing
activities................. $ (135) $ (533) $ 85 $ (181) $ (804) $ (718)
OTHER DATA:
EBITDA (11)................. $ 3,440 $ 3,209 $ 1,205 $ 1,306 $ 1,671 $ 1,493
<CAPTION>
LEGENDS
OF
VIRGINIA (10) NORTHGATE
--------- TOTAL LEGENDS GOLF COUNTRY CLUB
--------------------- ---------------------
NINE
MONTHS NINE MONTHS ENDED NINE MONTHS ENDED
ENDED --------------------- ---------------------
--------- 9/30/95 9/30/95
9/30/96 (UNAUD.) 9/30/96 (UNAUD.) 9/20/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue from golf
operations................... $ 325 $ 11,276 $ 11,354 $ 2,060 $ 2,190
Other revenue................. 62 2,881 3,095 1,193 1,239
--------- --------- --------- --------- ---------
Total revenue................. 387 14,157 14,449 3,253 3,429
--------- --------- --------- --------- ---------
Operating expenses............ 1,746 7,841 9,800 2,360 2,482
Depreciation and
amortization................. 272 1,303 1,579 245 241
Interest...................... 188 759 883 356 389
--------- --------- --------- --------- ---------
Total expenses................ 2,206 9,903 12,262 2,961 3,112
--------- --------- --------- --------- ---------
Net income (loss)............. $ (1,819) $ 4,254 $ 2,187 $ 292 $ 317
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating
activities................. $ (1,054) $ 4,041 $ 5,174 $ 211 $ 573
Cash Flows from investing
activities................. $ (36) $ (3,563) $ (5,105) $ (129) $ (155)
Cash Flows from financing
activities................. $ 1,188 $ (854) $ (244) $ (178) $ (423)
OTHER DATA:
EBITDA (11)................. $ (1,359) $ 6,316 $ 4,649 893 $ 947
<CAPTION>
THE WOODLANDS (12) OLDE ATLANTA
--------------------- ---------------------
NINE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
9/30/95 9/30/95
(UNAUD.) 9/30/96 (UNAUD.) 9/30/96
--------- --------- --------- ---------
OPERATING DATA:
Revenue from golf
operations................... $ 1,215 $ 1,206 $ 1,290 $ 1,362
Other revenue................. 236 244 351 402
--------- --------- --------- ---------
Total revenue................. 1,451 1,450 1,641 1,764
--------- --------- --------- ---------
Operating expenses............ 795 841 1,035 1,298
Depreciation and
amortization................. 184 186 284 243
Interest...................... 320 274 145 167
--------- --------- --------- ---------
Total expenses................ 1,299 1,301 1,464 1,708
--------- --------- --------- ---------
Net income (loss)............. $ 152 $ 149 $ 177 $ 56
--------- --------- --------- ---------
--------- --------- --------- ---------
CASH FLOW DATA:
Cash Flows from operating
activities................. $ 365 $ 334 $ 401 $ 252
Cash Flows from investing
activities................. $ (3) $ (29) $ (64) $ (19)
Cash Flows from financing
activities................. $ (214) $ (301) $ (318) $ (200)
OTHER DATA:
EBITDA (11)................. $ 656 609 $ 606 $ 466
</TABLE>
(NOTES ON PAGE 39)
38
<PAGE>
- ---------------
(1) Represents payments of Base Rent from the Initial Lessees to the Company
calculated on a pro forma basis as if the beginning of the period presented
was the beginning of a lease year.
(2) Represents legal, audit, office, franchise taxes, salaries and other
general and administrative expenses to be paid by the Company.
(3) Calculated as approximately 59.1% of the Operating Partnership's net
income.
(4) Represents the Company's income before minority interest adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe these
excluded items are material to cash flows from operating activities.
(5) Represents the amount of the reserve which the Company will be required to
make available annually under the Participating Leases to fund capital
expenditures, calculated as 2.0% to 3.0% of Gross Golf Revenue at the Golf
Courses.
(6) Represents estimated initial distributions to be paid based on the
anticipated initial annual dividend rate of $1.625 per share of Common Stock
and OP Unit and an aggregate of 7,000,356 shares of Common Stock and OP
Units outstanding and initial debt of $4,325,000.
(7) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
Funds From Operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships and joint
ventures. Funds From Operations should not be considered as an alternative
to net income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows from
operating, investing or financial activities as a measure of liquidity.
Funds From Operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on indebtedness.
Under the Participating Leases, the Company is obligated to establish a
reserve for capital expenditures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an
equity REIT, because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. Compliance with the NAREIT definition of Funds
From Operations is voluntary. Accordingly, the Company's calculation of
Funds From Operations in accordance with the NAREIT definition may be
different than similarly titled measures used by other REITs. See
"Distribution Policy."
(8) Cash Available for Distribution represents Funds From Operations, less pro
forma reserves for capital expenditures under the Participating Leases.
(9) Pro forma amounts are presented as if the Formation Transactions occurred
as of the beginning of the periods presented.
(10) Legends of Virginia financial data reflects partial period operations at
both Stonehouse Golf Club and Royal New Kent, which opened in June 1996 and
August 1996, respectively.
(11) EBITDA is defined as operating income before interest, income taxes,
depreciation and amortization. EBITDA does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and should not be considered as an alternative to net income as
an indication of financial performance or to cash flows from operating
activities as a measure of liquidity.
(12) The Woodlands commenced operations in August 1994.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Upon completion of the Offering and the Formation Transactions, the
Operating Partnership will own the Golf Courses, and the Company, through its
wholly owned subsidiaries, GTA GP and GTA LP, will own an approximately 40.9%
interest in the Operating Partnership. GTA GP will be the sole general partner
of the Operating Partnership. The Company's primary source of revenue will be
the Lease Payments under the Participating Leases. Each Initial Lessee will have
nominal capitalization and an Initial Lessee's ability to make the Lease
Payments to the Company under the Participating Leases will be dependent upon
the Initial Lessee's ability to generate sufficient cash flow from the operation
of the Golf Course(s) leased by it. Each Golf Course will be leased by a
separate Initial Lessee except for the Heathland, Moorland and Parkland courses
(collectively, the "Legends Resort Courses"), which share a common clubhouse,
driving range, golf carts and other facilities, and Royal New Kent and
Stonehouse Golf Club, both of which were recently opened and are located in
close proximity to each other. Each of these two groups of courses will be
leased by a single Legends Lessee pursuant to a single Participating Lease. The
Participating Leases provide for the Company to receive the greater of Base Rent
or an amount equal to Participating Rent plus the initial Base Rent payable
under each Participating Lease. Participating Rent is equal to 33 1/3% of the
increase in Gross Golf Revenues over the Gross Golf Revenues for the Golf Course
for the year ended December 31, 1996, as adjusted by the Company in determining
the initial Base Rent. Base Rent will increase each year by the Base Rent
Escalator during the first five years of the lease term (and for an additional
five years thereafter following an exercise of the Lessee Performance Option).
The Base Rent Escalator for a given year equals the lesser of (i) 3% or (ii)
200% of the change in the CPI over the prior year. Annual increases in Lease
Payments are limited to a maximum of 5% for the first five years of the lease
terms.
As a result of the Formation Transactions, substantially all of the
indebtedness of the Prior Owners related to the Golf Courses will be repaid, the
Golf Courses will be contributed to the Company and the Company and the Initial
Lessees will enter into the Participating Leases providing for the Lease
Payments to the Company. In addition, depreciation of the Golf Courses will be
reflected in the results of operations of the Company following completion of
the Formation Transactions. In addition to the repayment of debt, the Initial
Lessees are expected to benefit from economies of scale resulting from their
affiliation with the Company and their participation in the Advisory
Association. Consequently, the results of operations for the Initial Lessees
following the Formation Transactions will differ significantly from the
historical results for the Prior Owners.
Management believes the principal source of growth in Gross Golf Revenues at
the Golf Courses will be increased green fees, cart fees and other related fees
(revenues per player). In order to achieve higher revenues per player,
management believes the Initial Lessees will need to continue to offer golfers a
high quality golf experience as it relates to the pace of play, condition of the
Golf Course and overall quality of the facilities.
The Company intends to acquire additional golf courses that meet one or more
of its investment criteria. The Company believes its multiple independent lessee
structure, together with the industry knowledge, experience and relationships of
management of the Company and the Initial Lessees will permit the Company to
acquire high quality golf courses. See "The Company -- Acquisitions and
Expansions -- Acquisitions." The Company expects to have access to a variety of
debt and equity financing sources to fund acquisitions, including the Line of
Credit and the ability to issue OP Units. See " -- Pro Forma Liquidity and
Capital Resources of the Company." OP Units represent limited partnership
interests in the Operating Partnership. When a golf course owner contributes a
golf course in exchange for OP Units, the owner does not recognize ordinary
income or capital gain (or loss) for federal income tax purposes until the
exercise of the OP Units' Redemption Rights. See "Partnership Agreement --
Redemption Rights." The Company believes its ability to issue OP Units will
facilitate the acquisition of quality golf courses that might not otherwise be
available for purchase.
The following discussion and analysis of financial condition and pro forma
results of operations of the Company, the Prior Owners and the Initial Lessees
is based upon the pro forma consolidated financial
40
<PAGE>
statements of the Company and the Initial Lessees which are presented elsewhere
in this Prospectus, and the historical financial statements of the Prior Owners.
In establishing the Base Rent for the Golf Courses, in addition to actual
historical results of operations the Company and the Initial Lessees considered
a number of other factors which, under the accounting rules of the Securities
and Exchange Commission, cannot be reflected in the pro forma financial
information for the Initial Lessees. Such factors include (i) declines in
revenues at certain of the Golf Courses in 1995 as a result of unusually severe
weather conditions (affecting Olde Atlanta and The Woodlands), (ii) cost savings
expected to be achieved by the Initial Lessees as a result of operational
changes following completion of the Formation Transactions (affecting The
Legends Group courses and Olde Atlanta), (iii) revenue enhancing programs which
certain Initial Lessees intend to implement following completion of the
Formation Transactions (affecting the Legends Resort Courses, Oyster Bay and
Heritage Golf Club, and (iv) estimated revenues and expenses at the two recently
opened Golf Courses (Royal New Kent and Stonehouse Golf Club). The pro forma
financial information for the Company and the Initial Lessees reflects initial
Base Rent and no Participating Rent.
PRO FORMA RESULTS OF OPERATIONS OF THE COMPANY
On a pro forma basis for the year ended December 31, 1995, the Company would
have received $14,988,000 in revenue from the Participating Leases for the Golf
Courses, assuming a full year's operation for all courses. The pro forma
condensed consolidated statement of operations reflects annual payments of
initial Base Rent from each Initial Lessee.
Total pro forma expenses before minority interest, totaling $5,131,000 for
the year ended December 31, 1995, reflect depreciation and amortization, general
and administrative expenses and interest expense. Depreciation expense is based
on the Company's cost of acquiring the Golf Courses, except for the seven Golf
Courses acquired by the Company from The Legends Group. The contribution of
these seven Golf Courses is treated for accounting purposes as a reorganization
of the interests of The Legends Group in the contributed Golf Courses and has
been accounted for at historical cost.
Minority interest, totaling $5,823,000 for the year ended December 31, 1995,
reflects the 59.1% interest in the pro forma net income of the Operating
Partnership of the Prior Owners and management.
Pro forma revenues, expenses and minority interest for the nine months ended
September 30, 1996 are based upon the same assumptions underlying the pro forma
revenues, expenses and minority interest presented for the year ended December
31, 1995.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
On a pro forma basis, cash flow from operating activities for the year ended
December 31, 1995, excluding changes in working capital, would have been
$13,003,000. This reflects net income before minority interest, plus non-cash
charges to income for depreciation and loan fee amortization. Cash flows used in
investing activities reflects capital expenditures of $609,000, calculated based
upon the Company's capital expenditure reserves required by the terms of the
Participating Leases. Cash flows used in financing activities, totaling
$7,050,000, represents distributions (based upon an initial estimated per share
and OP Unit distribution rate of $1.625) to holders of the Common Stock and OP
Units and the amount of the initial borrowing of $4,325,000.
The Company's principal source of cash to meet its cash requirements,
including distributions to its stockholders, will be its share of the Operating
Partnership's cash flow. The Operating Partnership's sole source of revenue will
be Lease Payments under the Participating Leases. The Initial Lessees have
nominal capitalization and the ability of the Initial Lessees to make Lease
Payments to the Operating Partnership and, therefore, the Company's liquidity,
including the ability to make distributions to its stockholders, will depend
upon the Initial Lessees' ability to generate sufficient cash flow from their
operations at their respective Golf Courses.
Concurrent with the completion of the Formation Transactions, the Company
will borrow approximately $4,325,000 which, together with the net proceeds of
the Offering, will be used to retire mortgage indebtedness and other debt, to
fund the cash portion of the purchase of the Golf Courses and to provide
approximately $544,000 in initial working capital ($8,537,000 if the
underwriters' overallotment option is exercised). The
41
<PAGE>
Company has agreed to maintain approximately $4,325,000 of indebtedness for up
to 10 years to accommodate a Prior Owner's efforts to seek to minimize certain
adverse tax consequences from the contribution of one of the Golf Courses to the
Company. Subsequent to the closing of the Offering, the Company expects to have
a $75 million Line of Credit, which will be used primarily for the acquisition
of additional golf courses. The Company has not, however, finalized negotiations
on the Line of Credit and there can be no assurance that the Company will have
access to sufficient debt and equity financing to allow it successfully to
pursue its acquisition strategy. The Company anticipates that the terms of the
Line of Credit will impose certain conditions on the Company's ability to draw
on the Line of Credit. Such conditions may include borrowing base limitations,
which initially could limit the availability of funds under the Line of Credit,
a requirement that draws be used primarily to fund acquisitions and a
requirement that the lender be granted a security interest in any golf courses
acquired with proceeds from borrowings under of the Line of Credit as well as
other Golf Courses owned by the Company. If the Company is not able to
successfully finalize the Line of Credit, the Company anticipates that future
acquisitions would be funded with debt financing to be secured by the particular
acquisition property or with proceeds of additional equity offerings. In the
future, the Company may negotiate additional credit facilities or issue
corporate debt instruments. Any debt issued or incurred by the Company may be
secured or unsecured, long-term or short-term, fixed or variable interest rate
and may be subject to such other terms as the Board of Directors deems prudent.
The Company believes its acquisition capabilities will be enhanced by its
initial capital structure. Upon completion of the Offering and the Formation
Transactions, consolidated indebtedness will comprise approximately 3% of the
total market capitalization of the Company on a pro forma basis. The Company
intends to maintain a capital structure with consolidated indebtedness
representing no more than 50% of its total market capitalization.
The Company will invest in additional golf courses as suitable opportunities
arise, and the Company will not undertake investments unless adequate sources of
financing are available. Future acquisitions of golf courses will be financed,
in whole or in part, with proceeds from the Line of Credit, additional issuances
of OP Units or shares of Common Stock, borrowings under financing arrangements
or other securities issuances. The Company currently has no binding agreement to
acquire any golf course, other than the Golf Courses, and there can be no
assurance that the Company will make any acquisitions of any other golf courses.
Pursuant to the Participating Leases, the Company is obligated to reserve
annually an amount equal to between 2% and 3% of Gross Golf Revenue at each Golf
Course to fund capital expenditures approved by the Company, including the
periodic replacement or refurbishment of improvements and equipment. Capital
expenditures in excess of that reserve are required to be funded by the Initial
Lessees. The Company anticipates entering into similar arrangements with respect
to golf courses it acquires in the future.
THE LEGENDS GROUP PRIOR OWNERS
Pursuant to the Formation Transactions, the Company will acquire the
following seven Golf Courses from The Legends Group: Heritage Golf Club,
Heathland, Moorland, Parkland, Oyster Bay, Royal New Kent and Stonehouse Golf
Club. These seven Golf Courses will be operated by four Legends Lessees. The
Legends Resort Courses -- Heathland, Moorland and Parkland -- share a common
clubhouse, driving range, golf carts and other facilities and will be leased by
a single Legends Lessee pursuant to a single Participating Lease. The
newly-opened Golf Courses -- Royal New Kent and Stonehouse Golf Club -- are in
similar stages of operation and will be leased by a single Legends Lessee
pursuant to a single Participating Lease. Each of the two other Legends Golf
Courses will be leased by a separate Legends Lessee. Aggregate Base Rent under
the Participating Leases with the Legends Lessees represents approximately 80.4%
of the Company's pro forma revenue under the Participating Leases for the year
ended December 31, 1995. The Legends Group Prior Owners will receive OP Units
representing approximately 53.4% of the outstanding Common Stock and OP Units
upon completion of the Formation Transactions.
The following discussion and analysis addresses the combined historical
results of operations of the Golf Courses being contributed by The Legends
Group. However, the results of operations of such Golf Courses do
42
<PAGE>
not purport to represent the pro forma results of operations of the Legends
Lessees or the Company and should not be used to assess the operating
performance of the Legends Lessees or the Company. Two of the Golf Courses being
contributed by The Legends Group, Stonehouse Golf Club and Royal New Kent,
opened in June and August 1996, respectively.
The Legends Group markets its courses through media advertising (primarily
in golf publications) and various other promotional arrangements (generally
discounted green fees) provided to guests of local hotels in the markets where
its Golf Courses are located. In addition, in 1995, affiliated entities began
constructing, selling and renting golf villas as part of a resort/residential
development at the Legends Resort, site of the Legends Resort Courses,
Heathland, Moorland and Parkland. This development eventually is expected to
include 204 golf villas with over 800 beds. The Company believes that this
resort/residential development helped contribute to the number of rounds played
at the Legends Resort Courses in 1995 and 1996 to date and is expected to
continue to be a source of rounds played as the development is completed.
For purposes of financial presentations, the term "Legends Golf" refers to
the combined operations of all seven Golf Courses being contributed by The
Legends Group, and the term "Golf Legends" refers to operations of the three
Golf Courses located at the Legends Resort.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue from golf operations increased 0.7% to $11,354,000 from $11,278,000.
Revenue per player increased 4.0% to $57.93 from $55.69, principally as a result
of increased green fees and golf cart rentals. Total rounds played decreased
3.3% from 202,500 to 196,000. In January and February 1996, management reduced
available tee times and increased green and cart fees over the prior period's
winter rates in an effort to enhance the quality of the golf experience during
the slower time of the year. The Company believes that the late, harsh winter of
1996 in the midwest and northeastern United States reduced vacation golfers'
travel from these areas, and contributed to the decrease in the number of rounds
played. Rounds played were also adversely affected by two hurricanes during the
summer of 1996 that resulted in minimal damage to the Golf Courses but reduced
vacation golf travel to the area.
Other revenue sources, including food and beverage and merchandise sales are
significantly influenced by the number of rounds played. Despite the decrease in
the number of rounds played, other revenue increased 7.5% to $3,095,000 from
$2,879,000 principally due to a 18.9% increase in food and beverage sales
resulting from additional demand created by occupants of the newly constructed
golf villas at the Legends Resort. The rental units recently opened and
additional units are being developed. Management is unable to estimate the
future impact on food and beverage sales. However, food and beverage revenues
are not included in the calculation of Gross Golf Revenue and therefore do not
affect Participating Rent payments.
Operating expenses increased 24.4% to $11,379,000 from $9,144,000. Principal
components of the $2,235,000 increase were initial operating costs of
approximately $2,018,000 associated with the two recently opened Golf Courses,
(ii) a one time increase in chemicals and fertilizer expense of approximately
$90,000, (iii) periodic resurfacing of cart paths totaling $50,000, and (iv)
food and beverage costs attributed to an increase in revenues.
Interest expense increased 16.3% to $883,000 from $759,000 as a result of
higher borrowings incurred in connection with the completion and pre-opening
costs of the two recently opened Golf Courses.
Net income decreased 54.4% from $4,491,000 to $2,187,000 primarily as a
result of the additional $2,018,000 of expenses associated with the two recently
opened Golf Courses.
43
<PAGE>
YEAR ENDED DECEMBER 31, 1995 AND 1994
Revenue from golf operations increased 1.7% to $14,619,000 from $14,371,000.
The increase resulted primarily from a 9.5% increase in revenue per player
(principally as a result of increased green fees and golf cart rentals) from
$50.82 to $55.65. During this same period rounds played decreased 7.1% from
282,800 to 262,700 as a result of the Company's focus on increasing green fees.
Other revenue increased 2.6% to $3,823,000 from $3,725,000 principally due
to increased food and beverage and merchandise sales. The increase in revenue
was primarily the result of improved merchandising
efforts in the pro shop.
Operating expenses increased 1.7% to $12,113,000 from $11,913,000, primarily
as a result of normal wage and other operating cost increases.
Interest expense increased 1.9% to $1,017,000 from $998,000 primarily due to
financing costs incurred in connection with the purchase of maintenance
equipment.
Net income increased 2.4% to $5,312,000 from $5,185,000.
YEAR ENDED DECEMBER 31, 1994 AND 1993
Revenue from golf operations increased 6.8% to $14,371,000 from $13,455,000.
The increase resulted primarily from a 1.8% increase in the number of rounds
played, from 277,700 to 282,800, and a 4.6% increase in revenue per player
(principally as a result of increased green fees and golf cart rentals), from
$48.32 to $50.55. The growth in the number of rounds played, as well as the
increase in the revenue per player, reflected the general growth in total rounds
played in the Myrtle Beach area. New golf courses continued to open in the
region reflecting the expansion of Myrtle Beach as a golf destination resort
area.
Operating expenses increased 4.1% to $11,913,000 from $11,446,000. Repairs
and maintenance costs and depreciation and amortization expenses increased as a
result of full stabilization of operations at the Parkland course, which opened
in 1992. Offsetting these increases was a decline in general and administrative
costs in early 1993 due to the elimination of costs associated with the start-up
of operations at Parkland.
Interest expense increased 61.2% to $998,000 from $619,000. The increase
resulted from higher levels of borrowing incurred in connection with the
commencement of construction of the two recently opened Golf Courses.
Net income increased 7.4% to $5,185,000 from $4,828,000.
44
<PAGE>
LEGENDS LESSEES
On a pro forma basis, assuming the Formation Transactions had occurred as of
the beginning of the respective periods, the pro forma results of operations of
the Legends Lessees for the year ended December 31, 1995 and the nine months
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
GOLF COURSES DECEMBER 31, 1995 SEPTEMBER 30, 1996
- ------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
GOLF LEGENDS
(Heathland, Moorland and Parkland)
Total revenue....................................... $ 10,180 $ 8,014
Participating Lease payment......................... 4,670 3,503
Net income (loss)................................... 138 12
Cash flows from operating activities (1)............ 307 131
Cash flows from investing activities (2)............ -- --
Cash flows from financing activities (3)............ -- --
EBITDA (4).......................................... 359 155
HERITAGE GOLF CLUB
Total revenue....................................... $ 3,938 $ 2,968
Participating Lease payment......................... 1,825 1,369
Net income (loss)................................... (187) 56
Cash flows from operating activities (1)............ (126) 94
Cash flows from investing activities (2)............ -- --
Cash flows from financing activities (3)............ -- --
EBITDA (4).......................................... (111) 101
OYSTER BAY
Total revenue....................................... $ 4,324 $ 3,081
Participating Lease payment......................... 1,856 1,392
Net income (loss)................................... 295 10
Cash flows from operating activities (1)............ 348 106
Cash flows from investing activities (2)............ -- --
Cash flows from financing activities (3)............ -- --
EBITDA (4).......................................... 362 116
LEGENDS OF VIRGINIA (5)
(Royal New Kent and Stonehouse Golf Club)
Total revenue....................................... $ -- $ 387
Participating Lease payment......................... -- 933
Net loss............................................ (15) (2,292)
Cash flows from operating activities (1)............ (15) (2,292)
Cash flows from investing activities (2)............ -- --
Cash flows from financing activities (3)............ -- --
EBITDA (4).......................................... (15) (2,292)
LEGENDS GOLF
(Totals for above seven courses)
Total revenue....................................... $ 18,442 $ 14,449
Participating Lease payment......................... 8,351 7,197
Net income (loss)................................... 231 (2,214)
Cash flows from operating activities (1)............ 514 (1,961)
Cash flows from investing activities (2)............ -- --
Cash flows from financing activities (3)............ -- --
EBITDA (4).......................................... 595 (1,920)
</TABLE>
(NOTES ON PAGE 46)
45
<PAGE>
- ------------
(1) Represents the applicable Initial Lessee's pro forma income adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and liabilities. The Initial Lessees are newly formed
entities, and the Company does not believe these excluded items are material
to cash flows from operating activities.
(2) Cash flows from investing activities would consist principally of capital
improvements to the Golf Courses. As such improvements are expected to be
funded through a capital expenditure reserve funded by the Company, cash
flows from investing activities funded by the Initial Lessees are not
expected to be material.
(3) Cash flows from financing activities would primarily include transactions
with the Initial Lessees' owners and borrowings and repayments on loans.
Such cash flows have been excluded in the determination of cash flows from
financing activities as the Company does not believe these excluded items
are material to cash flows from financing activities.
(4) EBITDA is defined as operating income before interest, income taxes,
depreciation and amortization. Management considers EBITDA to be an
important measure of the cash flows from operations of the Initial Lessees
(before payment of debt service obligations and non-cash depreciation
charges). EBITDA does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not to be
considered as an alternative to net income as an indication of financial
performance or to cash flows from operating activities as a measure of
liquidity.
(5) Reflects four months of operations for the Stonehouse Golf Club and two
months of operations for Royal New Kent for the period ended September 30,
1996. Annual initial Base Rent for Royal New Kent and Stonehouse Golf Club
is $3,706,000. Royal New Kent and Stonehouse Golf Club opened in June and
August 1996, respectively.
NORTHGATE COUNTRY CLUB
In 1982, an affiliate of the Prior Owner of Northgate Country Club began
development of the 430 acres of Northgate Forest as a master planned, upscale
country club residential subdivision. The Golf Course opened in 1984. When
completed, the development is expected to contain approximately 310 homesites,
approximately 30 acres of complementary commercial development, and Northgate
Country Club, which ultimately will have 27 holes of golf. Currently, the Golf
Course has 18 holes. To date, approximately one-fourth of the residential
building sites in the Northgate Forest development have homes constructed on
them. Management believes that revenue growth at the Northgate Golf Course will
come from both future Northgate Forest residents, as well as from non-Northgate
residents who are attracted to the Northgate Country Club because of the quality
of the golf experience as well as because of the exclusive and upscale quality
of the development that surrounds the clubhouse and Golf Course.
Northgate is a private country club. Besides revenue generated by full
country club members, Northgate generates revenues from golf tournaments,
private parties and non-golf club memberships.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 20, 1996 AND 1995
Golf revenues increased 6.3% to $2,190,000 from $2,060,000. The growth in
revenues was primarily a result of an increase in fees from club membership
sales and annual membership renewal fees and private golf outing events. The
Company believes that the additional memberships are attributable to concerted
marketing efforts to sell full and special purpose memberships. The enhanced
usage of the club is attributable to intensified sales and service efforts, as
well as the construction of an additional restaurant and a tennis center. The
Company believes that the new restaurant and tennis center are partially
responsible for the increase in memberships and anticipates that they will
continue to have a positive impact on operations. Other revenue increased 3.9%
to $1,239,000 from $1,193,000 which reflects increased usage of the club.
Operating costs and expenses increased 4.5% to $2,723,000 from $2,605,000.
This increase resulted from an increase in food and beverage costs as well as
the increase in non-golf course facilities maintenance and repair costs.
Interest expense increased 9.3% to $389,000 from $356,000 primarily as a
result of increasing interest rates and average outstanding balances.
Net income increased 8.6% to $317,000 from $292,000.
46
<PAGE>
YEAR ENDED DECEMBER 20, 1995 AND 1994
Golf revenues increased 6.7% to $2,768,000 from $2,594,000. The increase is
primarily attributable to a net gain in club membership and usage of the club by
the new members, as well as rate increases in major fee categories (monthly
dues, guest fees, golf cart rentals) imposed in 1995. Revenue per player
increased 1.6% to $59.40 from $58.46. Other revenue increased 14.7% to
$1,798,000 from $1,568,000 due to increases in food and beverage revenue
resulting from growth in rounds played and banquet functions.
Operating costs and expenses decreased 1.5% to $3,463,000 from $3,515,000
primarily due to improved operating efficiencies.
Interest expense increased 2.1% to $485,000 from $475,000.
Net income increased 259.3% to $618,000 from $172,000.
YEAR ENDED DECEMBER 20, 1994 AND 1993
Golf revenues increased by 5.4% to $2,594,000 from $2,461,000, primarily as
a result of a net gain in club members, and usage of the club by the new
members. The additional memberships are attributable to increased marketing
efforts to sell full and special purpose memberships. Other revenue increased
1.1% to $1,568,000 from $1,551,000.
Operating costs and expenses increased 4.0% to $3,515,000 from $3,379,000,
consistent with the increase in club usage.
Interest expense declined 48.0% to $475,000 from $914,000 primarily as a
result of $462,000 of lender participation fees incurred in 1993. No lender
participation fees were incurred in 1994.
Net income increased to $172,000 from a net loss of $281,000.
NORTHGATE LESSEE
On a pro forma basis, assuming the Formation Transactions had occurred as of
the beginning of the respective periods, the pro forma results of operations of
the Initial Lessee for Northgate Country Club were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 20, 1995 SEPTEMBER 20, 1996
------------------- -------------------
<S> <C> <C>
Total revenue......................................... $ 4,566 $ 3,429
Participating Lease payment........................... 1,407 1,055
Net income (loss)..................................... 35 (95)
Cash flows from operating activities (1).............. 60 (77)
Cash flows from investing activities (2).............. -- --
Cash flows from financing activities (3).............. -- --
EBITDA (4)............................................ 60 (77)
</TABLE>
- ---------------
(1) Represents the Northgate Initial Lessee's pro forma income adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. As the Northgate Initial Lessee will
be a newly formed entity, the Company does not believe these excluded items
are material to cash flows from operating activities.
(2) Cash flows from investing activities would primarily include capital
improvements to the Golf Course. As such improvements will generally be
funded through a capital expenditure reserve funded by the Company, cash
flows from investing activities funded by the Northgate Initial Lessee are
not expected to be material.
(3) Cash flows from financing activities would primarily include transactions
with the Northgate Initial Lessee's owners and borrowings and repayments on
loans. Such cash flows have been excluded in the determination of cash flows
from financing activities as the Company does not believe these excluded
items are material to cash flows from financing activities.
(4) EBITDA is defined as operating income before interest, income taxes,
depreciation and amortization. Management considers EBITDA to be an
important measure of the cash flows from operations of the Initial Lessees
(before payment of debt service obligations and non-cash depreciation
charges). EBITDA does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not to be
considered as an alternative to net income as an indication of financial
performance or to cash flows from operating activities as a measure of
liquidity.
47
<PAGE>
THE WOODLANDS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Golf revenues decreased 0.7% to $1,206,000 from $1,215,000, primarily as a
result of a 6.4% decrease in rounds played from 36,431 to 34,087. The decline in
rounds played resulted primarly from the closure of nine holes for 16 days
during June 1996 due to unusually harsh winter weather and resulting turf
damage. Prior to the closing of the Golf Course, revenues had increased $24,204
or 3.8% through the first five months of the year as compared to the same period
in 1995. Since the reopening of the nine holes, revenues for the third quarter
of 1996 increased $22,820 or 5.6% as compared to the same period in 1995.
Revenue per player increased 6.0% to $34.71 from $32.75 as a result of a
6.0% increase in daily golf fees. Management believes that golf revenues will
continue to be favorably impacted by the formation in 1995 of the Gulf Shores
Golf Association, an association of golf course owners in the Gulf Shores area.
The Association's goal is to promote Gulf Shores as a golf destination.
Food and beverage revenues decreased 8.5% to $130,000 from $142,000 as a
result of the decrease in rounds played during the period. The Company believes
food and beverage revenues per golfer at The Woodlands are lower than the Gulf
Shores market average principally because of the temporary clubhouse facility
which the Woodlands Initial Lessee plans to replace with a new permanent
facility in 1997. See "The Company -- Acquisitions and Expansions --
Expansions."
Despite the decrease in rounds played, merchandise revenues increased 10.7%
to $103,000 from $93,000. This increase is due largely to discount sales of
merchandise. Management of The Woodlands also hired an assistant director of
golf in 1995 whose focus is largely merchandising inventory.
Operating costs and expenses increased 4.9% to $1,027,000 from $979,000
principally as a result of an increase in maintenance expenses resulting from an
unusually cold winter that significantly damaged the greens at the course.
Additional fertilizer and topdressing expenses were incurred to reestablish the
damaged greens.
Interest expense decreased 14.4% to $274,000 from $320,000 due to a
reduction in outstanding borrowings.
Net income decreased 2.0% to $149,000 from $152,000.
YEAR ENDED DECEMBER 31, 1995
Comparisons between the years ended December 31, 1995 and 1994 are not
meaningful since the course opened in August 1994.
Total rounds played during the year were 43,459. Golf revenues were
$1,455,000. The Company believes revenues were favorably impacted by marketing
efforts of the recently formed Gulf Shores Golf Association. Revenue per player
increased 17.8% to $33.49 from $28.43.
Food and beverage revenues were $169,000. Merchandise revenues were
$116,000.
Operating costs and expenses were $1,321,000. Interest expense was $424,000
and net income was $1,000 after depreciation of $247,000 for the first full year
of operations.
YEAR ENDED DECEMBER 31, 1994
The course opened in August 1994. Total rounds played were 13,490. Golf
revenues for 1994 were $384,000 or an average of $28.43 per player. Management
of the course priced golf fees $6 to $10 below the market average to encourage
golfers to try the new facility. Golf fees were increased in 1995. Food and
beverage revenues were $56,000. Merchandise revenues were $23,000.
48
<PAGE>
Operating costs and expenses were $467,000, primarily due to costs
associated with the opening of the golf course. Start-up costs included expenses
incurred for operating supplies, increased labor and increased maintenance.
Fertilization and turf grass replacement expenses were above normal daily
maintenance due to immature turf grass at the course. The course also had
extensive irrigation and drainage work performed after it was opened.
A net loss of $137,000 was recognized after depreciation of $104,000.
THE WOODLANDS LESSEE
On a pro forma basis, assuming the Formation Transactions had occurred as of
the beginning of the respective periods, the pro forma results of operations of
the Initial Lessee for The Woodlands were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Total revenue......................................... $ 1,746 $ 1,450
Participating Lease payment........................... 679 509
Net income (loss)..................................... (7) 100
Cash flows from operating activities (1).............. (7) 100
Cash flows from investing activities (2).............. -- --
Cash flows from financing activities (3).............. -- --
EBITDA (4)............................................ (7) 100
</TABLE>
- ---------------
(1) Represents The Woodlands Initial Lessee's pro forma income adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. As The Woodlands Initial Lessee will
be a newly formed entity, the Company does not believe these excluded items
are material to cash flows from operating activities.
(2) Cash flows from investing activities would primarily include capital
improvements to the Golf Course. As such improvements will generally be
funded through a capital expenditure reserve funded by the Company, cash
flows from investing activities funded by The Woodlands Initial Lessee are
not expected to be material.
(3) Cash flows from financing activities would primarily include transactions
with The Woodlands Initial Lessee's owners and borrowings and repayments on
loans. Such cash flows have been excluded in the determination of cash flows
from financing activities as the Company does not believe these excluded
items are material to cash flows from financing activities.
(4) EBITDA is defined as operating income before interest, income taxes,
depreciation and amortization. Management considers EBITDA to be an
important measure of the cash flows from operations of the Initial Lessees
(before payment of debt service obligations and non-cash depreciation
charges). EBITDA does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not to be
considered as an alternative to net income as an indication of financial
performance or to cash flows from operating activities as a measure of
liquidity.
OLDE ATLANTA
Olde Atlanta, a high-end daily fee course that sells a significant number of
annual memberships, was opened in late 1993 and as of September 30, 1996 had
approximately 375 active annual memberships. Revenues at Olde Atlanta include
membership fees and dues as well as daily fees. Olde Atlanta was built in
conjunction with a 615 homesite planned community which is approximately 80%
completed.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Golf revenues increased 5.6% to $1,362,000 from $1,290,000, despite
unusually severe winter weather which resulted in approximately 1,800 fewer
rounds played. Other revenue increased 14.5% or $51,000. Total revenues
increased 7.5% or $123,000.
Operating costs and expenses increased 16.8% to $1,541,000 from $1,319,000
primarily reflecting an increase in the number of employees as operations at the
Golf Course stabilized. The remaining expense increases included legal, survey,
accounting and other costs attributable to efforts to market the course for sale
and increased promotional, incentive compensation and management fees.
Interest expense increased 15.2% or $22,000 as outstanding mortgage debt was
increased in 1995.
Net income declined 68.4% to $56,000 from $177,000.
49
<PAGE>
YEAR ENDED DECEMBER 31, 1995 AND 1994
Golf Revenues declined 3.4%, to $1,568,000 from $1,623,000. During 1994,
which was the course's first full year of operation, Olde Atlanta received
$233,000 of non-resident initiation fees. Non-resident initiation fees decreased
to $52,000 in 1995. Despite the expected decline in initiation fees, revenue per
player grew from $37.39 to $38.06 as member dues offset the initiation fees
decline. Other revenue increased 5.4% to $466,000 from $442,000.
Rounds played declined 5.1% to 41,195 from 43,415. Such decline was
attributable to poor weather in the first and fourth quarters of 1995 which
reduced the number of playable days. Rounds played increased during the second
and third quarters from the prior year's period.
Operating costs and expenses decreased by 1.7% to $1,809,000 from $1,841,000
primarily as a result of lower depreciation and amortization. Interest expense
increased 41.3% to $202,000 from $143,000 due to an increase in outstanding
borrowings to $2,656,000 from 1,808,000.
Net income declined to $23,000 from $81,000.
OLDE ATLANTA LESSEE
On a pro forma basis, assuming the Formation Transactions had occurred as of
the beginning of the respective periods, the pro forma results of operations of
the Initial Lessee for Olde Atlanta were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Total revenue......................................... $ 2,034 $ 1,764
Participating Lease payment........................... 845 634
Net loss.............................................. (253) (91)
Cash flows from operating activities (1).............. (253) (91)
Cash flows from investing activities (2).............. -- --
Cash flows from financing activities (3).............. -- --
EBITDA (4)............................................ (253) (91)
</TABLE>
- ---------------
(1) Represents the Olde Atlanta Initial Lessee's pro forma income adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. As the Olde Atlanta Initial Lessee
will be a newly formed entity, the Company does not believe these excluded
items are material to cash flows from operating activities.
(2) Cash flows from investing activities would primarily include capital
improvements to the Golf Course. As such improvements will generally be
funded through a capital expenditure reserve funded by the Company, cash
flows from investing activities funded by the Olde Atlanta Initial Lessee
are not expected to be material.
(3) Cash flows from financing activities would primarily include transactions
with the Olde Atlanta Initial Lessee's owners and borrowings and repayments
on loans. Such cash flows have been excluded in the determination of cash
flows from financing activities as the Company does not believe these
excluded items are material to cash flows from financing activities.
(4) EBITDA is defined as operating income before interest, income taxes,
depreciation and amortization. Management considers EBITDA to be an
important measure of the cash flows from operations of the Initial Lessees
(before payment of debt service obligations and non-cash depreciation
charges). EBITDA does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not to be
considered as an alternative to net income as an indication of financial
performance or to cash flows from operating activities as a measure of
liquidity.
INFLATION
All of the Participating Leases provide for initial terms of 10 years with
Base Rent and Participating Rent features. Base Rent will increase by the Base
Rent Escalator for each year during the first five years of the term of each
Participating Lease (and for an additional five years if the Lessee Performance
Option is exercised). All of such leases are triple net leases requiring the
Initial Lessees to pay for all maintenance and repair, insurance, utilities and
services, thereby minimizing the effect of inflation on the Company.
SEASONALITY
The golf industry is seasonal in nature based on weather conditions and
fewer available tee times in the rainy season and the winter months. Each of the
Initial Lessees operating a Daily Fee course may vary green fees based on
changes in demand.
50
<PAGE>
THE GOLF INDUSTRY
The Company believes the United States golf industry is entering a period of
significant growth. As described below, the number of golfers in the United
States increased by 67% between 1980 and 1995, from 15 million to 25 million
golfers. The Company expects that this growth will contribute to an increase in
the number of rounds played and Gross Golf Revenues at the Golf Courses and golf
courses subsequently acquired by the Company. Golf course ownership in the
United States is highly fragmented. There are approximately 15,400 golf courses
in the United States which the Company believes are owned by approximately
11,000 different entities. The Company believes there are relatively few owners
of more than one course. The Company believes that the 15 largest golf course
owners in the United States collectively own or lease fewer than 5% of the total
number of golf courses and that fewer than 10 golf course owners own more than
10 golf courses. The Company believes that this fragmented ownership provides an
excellent opportunity for consolidation of the ownership of high quality golf
courses.
The Company believes the current lack of consolidation in the golf course
industry has resulted from a variety of factors, including scarcity of capital,
the entrepreneurial nature of many golf course owners and operators and the
associated pride of ownership. The Company believes that the economies of scale
in owning and operating multiple golf courses, the growing significance of
professional financial management in the operation of golf courses and the
desire for liquidity by golf course owners will gradually lead to consolidation
of golf course ownership. Following the Offering, the Company believes it will
be well positioned to take advantage of opportunities to acquire select
high-quality courses because of its multiple independent lessee format, lease
structure and financial flexibility. See "The Company -- Business Strategies and
Objectives -- Acquisitions and Expansions."
Largely in response to the increasing popularity of golf, the construction
of golf courses in the United States has increased significantly in recent
years. New golf course openings from the mid 1970's through 1987 averaged
approximately 150 golf courses per year. For the period 1987 through 1995 an
average of 275 new golf courses were opened each year, with a high of 336 new
golf course openings in 1995.
The golf industry generated approximately $15 billion in revenues in the
United States in 1995. The Company believes the game of golf has exhibited
strong growth in popularity in the past 15 years as shown below:
<TABLE>
<CAPTION>
1980 1995 % CHANGE
---(MILLIONS)--- -------------
<S> <C> <C> <C>
Number of golfers.................................................... 15 25 67%
Rounds played........................................................ 358 490 37%
</TABLE>
DEMOGRAPHICS
Additionally, the Company believes the game of golf will benefit from
favorable demographic trends. The United States Census Bureau estimates that the
population age 50 and over will increase by 39% between 1996 and 2010, from 69.3
million to 96.3 million. The average number of rounds played per golfer on an
annual basis increases significantly as the golfer ages. Golfers in their 50's
play nearly twice as many rounds annually as golfers in their 30's, and golfers
age 65 and older generally play three times as many rounds annually as golfers
in their 30's. The Company believes that the number of golfers, as well as the
total number of rounds played, will increase significantly as the average age of
the population continues to increase. The Company anticipates that the number of
golfers, as well as the total number of rounds played, will increase as the
average age of the population continues to increase. The Company believes that
the "baby boomers," the oldest of whom are in their early 50's today, will
contribute to the growth in total rounds played due to growing wealth and
leisure time as well as the suitability of golf as a sport for an aging
population.
51
<PAGE>
The following graph sets forth the difference in age dispersion in the
United States between 1996 and 2010 and the effect on the number of golf rounds
played as an individual ages.
DEMOGRAPHICS
Columns Represent Average Annual Rounds/Golfer per Age Group
Graph depicting the average number of rounds of golf played in different age
groups. Graph also depicts the age dispersion in the United States between 1996
and 2010.
52
<PAGE>
The following table illustrates the growth in demand in the United States at
Daily Fee courses, as compared to municipal courses, which tend to be of lesser
quality, and private country clubs.
<TABLE>
<CAPTION>
ROUNDS PLAYED
(IN MILLIONS)
-------------------- PERCENT
1994 1995 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
Daily Fee........................................................... 194.1 220.2 13.4%
Municipal........................................................... 143.7 144.1 0.3%
Private............................................................. 127.0 125.9 (0.9%)
--------- --------- ---
Total............................................................. 464.8 490.2 5.4%
</TABLE>
The Company believes that high quality Daily Fee courses (including Resort
Courses), similar to those targeted by the Company, are well situated to take
advantage of the changing demographics. High quality golf courses have generated
increased revenues by charging higher green fees in response to golfer demand.
The following table illustrates the percentage increase in weekend green fees at
Daily Fee courses.
<TABLE>
<CAPTION>
DAILY FEE GREEN FEES --
WEEKEND
------------ PERCENT ANNUAL
1993 1995 CHANGE CHANGE
--- --- ----------- -----------
<S> <C> <C> <C> <C>
Median....................................................... $ 18 $ 21 16.7% 8.0%
Top 25%...................................................... $ 25 $ 30 20.0% 9.5%
Top 5%....................................................... $ 53 $ 65 22.6% 10.7%
</TABLE>
53
<PAGE>
THE GOLF COURSES
The Golf Courses consist of 10 nationally or regionally recognized high
quality courses located in the mid-Atlantic, southeastern and southwestern
United States. Four of the Golf Courses were ranked among the Top Ten New
Courses by either GOLF DIGEST OR GOLF MAGAZINE in the year opened, including the
recently opened Stonehouse Golf Club, which in November 1996 was named the Best
New Upscale Course of 1996 by GOLF DIGEST. Two of the established courses
(Oyster Bay and Heritage Golf Club) have been ranked in the Top 50 Public Golf
Courses by GOLF DIGEST.
The Golf Courses include nine high quality Daily Fee courses (including six
Resort Courses) and one private country club. "Daily Fee" courses are open to
the public and generate revenues principally through green fees, golf cart
rentals, food and beverage operations, merchandise sales and driving range
charges. "Resort Courses" are Daily Fee golf courses that attract a significant
percentage of players from outside the immediate area in which the golf course
is located and generate a significant amount of revenue from golf vacation
packages. The Company considers the Daily Fee and Resort Courses to be high-end
golf courses because of the quality and maintenance of each golf course and the
average green fees, which are significantly above the averages for golf courses
in their respective geographic markets. Private country clubs are generally
closed to the public and derive revenues principally from membership dues,
initiation fees, transfer fees, golf cart rentals, guest fees, food and beverage
operations and merchandise sales.
The Company believes that the overall quality of the Golf Courses is
reflected in the green fees charged at each Golf Course, which significantly
exceed national averages. The Company believes its focus on high quality Daily
Fee golf courses and private country clubs, which attract golfers with
attractive demographic and economic profiles, will result in stronger and less
cyclical revenue growth in comparison to golf courses with lower green fees.
Five of the Golf Courses are located in the Myrtle Beach, South Carolina
vicinity, a popular year-round golf destination area. Myrtle Beach is considered
one of the nation's premier golf resort locations with nearly 100 golf courses
and more than 3.9 million rounds played in 1995, according to the MYRTLE BEACH
GOLF HOLIDAY-TM-. In addition to golf courses, Myrtle Beach offers a mix of
entertainment, shopping and dining, as well as proximity to beaches. All of the
Golf Courses located in the Myrtle Beach vicinity (Heritage Golf Club,
Heathland, Moorland, Parkland and Oyster Bay) were developed and are currently
owned and operated by The Legends Group.
Two of the Golf Courses, Stonehouse Golf Club and Royal New Kent, are
located in the Williamsburg, Virginia area and were opened in June and August of
1996, respectively. Williamsburg is a leading tourist destination and an
emerging golf resort location, with a population of approximately 2.6 million
within a 60 mile radius, providing the area with an opportunity to attract both
resort and local golfers. Since 1995, five new courses have opened in the
Williamsburg vicinity, including two of the Golf Courses. In addition to golf,
Williamsburg and the surrounding area offer shopping, dining, entertainment and
historical attractions. Both of the Golf Courses located in Williamsburg were
developed and currently are owned and operated by The Legends Group.
One of the Golf Courses, The Woodlands, is located in Gulf Shores, Alabama,
a popular golf and vacation destination located near the Florida panhandle. In
addition to six area golf clubs, Gulf Shores offers 32 miles of sandy beaches,
historic sites and water sports. The remaining two Golf Courses, Northgate
Country Club and Olde Atlanta, are located within upscale master planned
communities in Houston, Texas and Atlanta, Georgia.
54
<PAGE>
The Company will acquire a 100% interest in each of the Golf Courses.
Certain information respecting each of the Golf Courses is set forth below:
<TABLE>
<CAPTION>
REVENUE PER
ROUNDS PLAYER (2)
--------------------------------- --------------------
TWELVE
MONTHS
TYPE OF YEAR ENDED SEPT.
LOCATION YARDAGE (1) COURSE OPENED 1994 1995 30, 1996 1994 1995
----------------- ------------- --------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Golf Pawleys Island,
Club.............. SC 7,040 Resort 1986 59,524 55,094 51,108 $ 51.89 $ 57.28
Heathland.......... Myrtle Beach, SC 6,785 Resort 1990 55,393 49,312 48,728 $ 50.12 $ 55.03
Moorland........... Myrtle Beach, SC 6,799 Resort 1990 54,383 49,590 49,293 $ 50.12 $ 55.03
Parkland........... Myrtle Beach, SC 7,170 Resort 1992 50,508 46,564 46,314 $ 50.12 $ 55.03
Oyster Bay......... Sunset Beach, NC 6,685 Resort 1983 62,962 62,141 55,567 $ 51.60 $ 55.66
The Woodlands Gulf Shores, AL
(6)............... 6,584 Resort 1994 13,490 43,459 41,120 $ 28.43 $ 33.49
Royal New Kent Providence Forge,
(7)............... VA 7,291 Daily Fee 1996 -- -- 2,724 -- --
Stonehouse Golf Williamsburg, VA
Club (8).......... 6,963 Daily Fee 1996 -- -- 2,227 -- --
Olde Atlanta....... Atlanta, GA 6,789 Daily Fee 1993 43,415 41,195 40,007 $ 37.39 $ 38.06
Northgate Country Houston, TX
Club (9).......... 6,540 Private 1984 44,370 46,600 45,680 $ 58.46 $ 59.40
Total ..........................................................................................................................
<CAPTION>
GROSS GOLF REVENUE (3)
----------------------------------
TWELVE
TWELVE MONTHS
MONTHS ENDED
ENDED SEPT. SEPT. 30, INITIAL BASE
30, 1996 1994 1995 1996 RENT(4)
----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Heritage Golf
Club.............. $ 60.62 $3,088,000 $3,156,000 $3,098,000 $1,825,000
Heathland.......... $ 55.22 2,776,000 2,714,000 2,695,000 1,556,000(5)
Moorland........... $ 55.70 2,726,000 2,729,000 2,746,000 1,556,000(5)
Parkland........... $ 55.29 2,532,000 2,561,000 2,561,000 1,557,000(5)
Oyster Bay......... $ 58.90 3,249,000 3,459,000 3,273,000 1,856,000
The Woodlands
(6)............... $ 35.17 384,000 1,455,000 1,446,000 679,000
Royal New Kent
(7)............... $ 66.08 -- -- 180,000 1,817,000
Stonehouse Golf
Club (8).......... $ 65.08 -- -- 145,000 1,890,000
Olde Atlanta....... $ 40.97 1,623,000 1,568,000 1,639,000 845,000
Northgate Country
Club (9).......... $ 64.21 2,594,000 2,768,000 2,933,000 1,407,000
---------- ---------- ---------- ------------
Total ......... $18,972,000 $20,410,000 $20,716,000 $14,988,000
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
- ---------------
(1) Yardage is calculated from the championship tees.
(2) "Revenue Per Player" is calculated by dividing Gross Golf Revenue at the
applicable Golf Course by the number of rounds played at the applicable Golf
Course.
(3) Gross Golf Revenue is defined as all revenues from a golf course, including
green fees, golf cart rentals, range fees, membership dues, member
initiation fees and transfer fees, but excluding food and beverage and
merchandise revenue. See "Glossary."
(4) Participating Rent is calculated based on increases in the Gross Golf
Revenue from a base year of 1996, as adjusted. Consequently, no
Participating Rent is payable on a pro forma basis for 1996.
(5) The Heathland, Moorland and Parkland Golf Courses are subject to a single
Participating Lease, and the Base Rent is equally allocated among these Golf
Courses.
(6) Opened in August 1994. The Company expects to acquire, upon completion, a
clubhouse at this Golf Course. See "The Company -- Business Strategies and
Objectives -- Acquisitions and Expansions -- Expansions."
(7) Opened in August of 1996.
(8) Opened in June of 1996.
(9) The Company expects to acquire, upon completion, an additional nine holes at
this Golf Course. See "The Company -- Business Strategies and Objectives --
Acquisitions and Expansions -- Expansions."
DESCRIPTIONS OF THE GOLF COURSES
GENERAL
Set forth below are brief descriptions of each of the Golf Courses. Unless
otherwise noted, the Company will own fee title to the Golf Courses, free and
clear of any material liens.
RESORT COURSES
Resort Courses are Daily Fee golf courses that draw a high percentage of
players from outside the immediate area in which the course is located and
generate a significant amount of revenue from golf vacation packages. Some
Resort Courses are semi-private, in that they offer membership packages that
allow members special privileges at the golf course, but also allow public play.
HEATHLAND -- MYRTLE BEACH, SOUTH CAROLINA. Heathland, a Resort Course
developed and currently managed by The Legends Group, opened in 1990 and was
named by GOLF MAGAZINE as one of the United States' Top 10 New Courses that
year. The Heathland course has been molded in the image of the British Isles
links courses and most of its holes are without trees or vegetation,
providing a spectacular visual presentation. Heathland is part of the
Legends Resort that consists of a 42,000 square foot clubhouse on a 1,300
acre
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<PAGE>
development, along with the Moorland and Parkland courses described below.
This Scottish style resort includes various amenities such as a pub adorned
with Scottish memorabilia and the sounds of Scottish bagpipes at sunset.
MOORLAND -- MYRTLE BEACH, SOUTH CAROLINA. Moorland, a Resort Course
developed and currently managed by The Legends Group, opened in 1990 and was
named by GOLF DIGEST as one of the United States' Top 5 New Courses in 1990.
Moorland is part of the Legends Resort and was designed by P.B. Dye.
Moorland consists of large expanses of natural growth, sand and water that
combine with undulations and bulkheaded areas to present a challenging
"target style" course.
PARKLAND -- MYRTLE BEACH, SOUTH CAROLINA. Parkland, a Resort Course
developed and currently managed by The Legends Group, opened in 1992 and is
the last golf course that was opened at the Legends Resort. Parkland
demonstrates the diversity and beauty of the local natural terrain by its
combination of tree-lined fairways, vast natural areas, deep-faced bunkers
and massive multi-level greens.
HERITAGE GOLF CLUB -- PAWLEYS ISLAND, SOUTH CAROLINA. Heritage Club was
developed and is currently managed by The Legends Group. It opened in 1986
and was named to GOLF DIGEST'S Top 50 Public Courses in the United States in
1992. Heritage Club is a semi-private resort consisting of over 600 acres of
giant magnolias and oaks, fresh water lakes and marshes. Heritage Club is
built on the site of two plantations and retains an historic atmosphere with
facilities designed in a traditional plantation architectural style,
including the southern style Colonial Clubhouse.
OYSTER BAY -- SUNSET BEACH, NORTH CAROLINA. Oyster Bay, developed and
currently managed by The Legends Group, opened in 1983 and was named by GOLF
DIGEST as its Best New Resort Course in the United States in 1983 and was
named to GOLF DIGEST'S Top 50 Public Courses in the United States in 1992.
Oyster Bay is operated pursuant to a ground lease with a remaining term of
35 years. Oyster Bay consists of several marsh-oriented holes, two island
greens and strategic fresh water lakes. Over half of the holes are situated
so that water hazards add an additional challenge.
THE WOODLANDS -- GULF SHORES, ALABAMA. The Woodlands is a 6,600-yard par 72
course which opened in 1994. The course, featuring lakes, marshes and
tree-lined fairways, was designed by Larry Nelson, former United States Open
champion and two-time PGA Championship winner. It is owned and currently
managed by Bright's Creek Development, LLC. Gulf Shores, Alabama, located
near the Florida panhandle, is an emerging golf course destination area that
includes 10 golf courses in the immediate area. Gulf Shores includes over 30
miles of white sand beaches and the historical Civil War outposts of Fort
Morgan and Fort Gaines.
Subject to certain conditions, the Company has agreed to acquire a
clubhouse to be constructed at the course by the Initial Lessee of The
Woodlands (See "The Company -- Business Strategies and Objectives --
Acquisitions and Expansions"). The Company believes that the construction of
the clubhouse will permit the Initial Lessee to attract more group and
tournament play and also permit an increase in green fees.
The Company has agreed to reconvey to the Prior Owner of The Woodlands
the land on which a portion of certain of the existing holes are located at
such time as the Prior Owner is prepared to contribute comparable
replacement golf holes at the Woodlands to the Company. All costs associated
with such exchange shall be paid for by the Prior Owner.
HIGH-END DAILY FEE COURSES
The Company considers its Daily Fee courses to be high-end courses,
reflected in the quality and maintenance standards of the golf courses, and the
green fees, which are generally higher than other golf courses in their market.
STONEHOUSE GOLF CLUB -- WILLIAMSBURG, VIRGINIA. Located within a 10,000
acre master planned community under development by a third party, Stonehouse
Golf Club was developed and is currently managed by
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The Legends Group. Stonehouse Golf Club opened in June 1996 and was named by
GOLF DIGEST as the Best New Upscale Course for 1996. Stonehouse Golf Club
was designed by Mike Strantz (formerly an understudy of Tom Fazio) and
constructed in a densely forested area that includes tall hardwood trees and
deep ravines. One of the holes at Stonehouse Golf Club features a spring-fed
waterfall behind the green while another requires players to hit over a
wide, plunging ravine to a green on a cliff-like setting. Stonehouse Golf
Club features large greens and wide fairways despite the nearby trees. The
Initial Lessee of this Golf Course is obligated to complete construction of
a clubhouse at the Golf Course by December 31, 1997. See "Risk Factors --
Real Estate Investment Risks -- Illiquidity of Real Estate" and "-- Certain
Matters Regarding Stonehouse Golf Club and Royal New Kent."
ROYAL NEW KENT -- PROVIDENCE FORGE, VIRGINIA. Located within a third party
owned master planned community outside Williamsburg, Virginia, Royal New
Kent was developed and is currently managed by The Legends Group. It opened
in August, 1996. Royal New Kent is located adjacent to Colonial Downs, which
is scheduled to open in 1997 and will be the only pari-mutual horse racing
facility in Virginia. Royal New Kent also was designed by Mike Strantz and
includes five sets of tees, including the "Invicta" (which is Latin for
"unconquerable") tees to accommodate the nearly 7,300 yards of the course.
Royal New Kent was fashioned after traditional links-style Irish courses.
The Initial Lessee of this Golf Course is obligated to complete construction
of a clubhouse at the Golf Course by December 31, 1997. See "Risk Factors --
Real Estate Investment Risks -- Illiquidity of Real Estate" and "-- Certain
Matters Regarding Stonehouse Golf Club and Royal New Kent."
OLDE ATLANTA GOLF CLUB -- ATLANTA, GEORGIA. Olde Atlanta Golf Club ("Olde
Atlanta") is open for public play as well as for member play. Olde Atlanta
was designed by Arthur Hills and located in Suwanee, Georgia (a northeast
Atlanta suburb), in the foothills of north Georgia within a 594 acre master
planned community consisting of 645 homesites. This geographic setting
allows for multiple changes in terrain and elevation throughout the course.
Olde Atlanta's course layout includes three lakes, clustered mounds, grass
and sand bunkers and grassy hollows. Olde Atlanta's facilities include a
6,000 square foot clubhouse, which includes a pro shop and a dining room
that can seat up to 100 persons. Currently, Olde Atlanta is owned by Olde
Atlanta Golf Club Limited Partnership and managed by The Crescent Company.
PRIVATE COUNTRY CLUB COURSES
Private country clubs are generally closed to the public and generate
revenue principally through initiation fees and membership dues, golf cart
rentals and guest green fees. Initiation fees and membership dues are determined
according to the particular market segment in which the club operates.
Revenue and cash flows of private country clubs are generally more stable
and predictable than those of public courses because the receipt of membership
dues generally is independent of the level of course utilization.
NORTHGATE COUNTRY CLUB -- HOUSTON, TEXAS. Northgate Country Club
("Northgate"), is a full service upscale country club with a championship
golf course designed by Robert von Haggie and Bruce Devlin, which opened in
1984. An additional nine holes are expected to open at the course in 1998.
The Company has agreed to acquire such additional holes, subject to certain
conditions. See "The Company -- Acquisitions and Expansions -- Expansions."
The Golf Course is located in a forested area north of Houston within a 440
acre high-end master planned community. Northgate is currently owned and
managed by Northgate Partnership.
Northgate recently completed the construction of a tennis center
building which includes a restaurant cafe. The improvements provide
Northgate greater utilization of its facilities, which the Company believes
have produced a sustainable increase in new membership sales. The adjacent
country club community of Northgate Forest presently comprises 177 developed
homesites with completed homes situated on 83 of these homesites. It is
anticipated that 128 more homesites will be developed with approximately 80%
of these new homesites to be situated on the additional nine hole expansion
referred to above, which is expected to provide Northgate with a sustainable
source of future members.
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The following table sets forth certain information regarding the Golf
Courses.
THE GOLF COURSES -- RESORT COURSES
<TABLE>
<CAPTION>
FACILITIES AND SERVICES
---------------------------------------
LOCATION NO. OF YEAR PRACTICE
COURSE NAME CITY, STATE HOLES YARDAGE OPENED FACILITIES CART RENTAL CLUBHOUSE
- ------------------------- --------------------------- ----------- ----------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Heathland................ Myrtle Beach, South 18 6,785 1990 Yes Yes Yes
Carolina
Parkland................. Myrtle Beach, South 18 7,170 1992 Yes Yes Yes
Carolina
Moorland................. Myrtle Beach, South 18 6,799 1990 Yes Yes Yes
Carolina
Heritage Golf Club....... Pawleys Island, South 18 7,040 1986 Yes Yes Yes
Carolina
Oyster Bay............... Sunset Beach, North 18 6,685 1983 Yes Yes Yes
Carolina
The Woodlands............ Gulf Shores, Alabama 18 6,584 1994 Yes Yes Yes(1)
<CAPTION>
FOOD &
COURSE NAME BEVERAGE PRO SHOP
- ------------------------- --------- ---------
<S> <C> <C>
Heathland................ Yes Yes
Parkland................. Yes Yes
Moorland................. Yes Yes
Heritage Golf Club....... Yes Yes
Oyster Bay............... Yes Yes
The Woodlands............ Yes Yes
</TABLE>
- ---------------
(1) The Woodlands has a temporary clubhouse which the Company expects will be
replaced with a permanent facility. See "The Company -- Business Stategies
and Objectives -- Acquisitions and Expansions -- Expansions."
THE GOLF COURSES -- HIGH-END DAILY FEE COURSES
<TABLE>
<CAPTION>
FACILITIES AND SERVICES
---------------------------------------
LOCATION NO. OF YEAR PRACTICE
COURSE NAME CITY, STATE HOLES YARDAGE OPENED FACILITIES CART RENTAL CLUBHOUSE
- ----------------------------- ----------------------- ----------- ----------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Royal New Kent............... Providence Forge, 18 7,291 1996 Yes Yes Yes(1)
Virginia
Stonehouse Golf Club......... Williamsburg, Virginia 18 6,963 1996 Yes Yes Yes(1)
Olde Atlanta................. Atlanta, Georgia 18 6,789 1993 Yes Yes Yes
<CAPTION>
FOOD &
COURSE NAME BEVERAGE PRO SHOP
- ----------------------------- --------- ---------
<S> <C> <C>
Royal New Kent............... Yes Yes
Stonehouse Golf Club......... Yes Yes
Olde Atlanta................. Yes Yes
</TABLE>
- ---------------
(1) These courses each have a temporary clubhouse which the Initial Lessee for
such courses is obligated to replace with a permanent facility by December
31, 1997. The construction of the permanent facilities will be at the sole
cost and expense of the applicable Initial Lessee.
THE GOLF COURSES -- PRIVATE COUNTRY CLUB COURSE
<TABLE>
<CAPTION>
FACILITIES AND SERVICES
---------------------------------------
LOCATION NO. OF YEAR PRACTICE
COURSE NAME CITY, STATE HOLES YARDAGE OPENED FACILITIES CART RENTAL CLUBHOUSE
- --------------------------------- ------------------ ----------- ----------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Northgate Country Club........... Houston, Texas 18(1) 6,540 1984 Yes Yes Yes
<CAPTION>
FOOD &
COURSE NAME BEVERAGE PRO SHOP
- --------------------------------- --------- ---------
<S> <C> <C>
Northgate Country Club........... Yes Yes
</TABLE>
- ---------------
(1) Nine additional holes are expected to open in 1998. The Company has agreed
to acquire such additional holes subject to certain conditions. See "The
Company -- Business Stategies and Objectives -- Acquisitions and Expansions
-- Expansions."
THE PARTICIPATING LEASES
THE FOLLOWING SUMMARY OF THE PARTICIPATING LEASES BETWEEN THE COMPANY AND
THE INITIAL LESSEES (THE "PARTICIPATING LEASES") IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PARTICIPATING LEASES, A FORM OF WHICH IS FILED AS AN EXHIBIT TO
THE REGISTRATION STATEMENT, OF WHICH THIS PROSPECTUS IS A PART. THE FOLLOWING
DESCRIPTION OF THE PARTICIPATING LEASES DOES NOT PURPORT TO BE COMPLETE BUT
CONTAINS A SUMMARY OF THE MATERIAL PROVISIONS THEREOF.
All of the Participating Leases will contain the same basic provisions
described below. The leases for any golf course properties acquired by the
Company in the future will contain such terms and conditions as may be agreed
upon between the lessee and the Company at the time of such acquisitions, and
such terms and conditions may vary from the terms and conditions described
herein with respect to the Participating Leases. The Company anticipates that
any new leases will be with either existing Initial Lessees, affiliates of
sellers of courses or unaffiliated third parties experienced in the operation of
similar courses.
LEASE TERM. The Participating Leases will be entered into upon the
conveyance to the Company of the Golf Courses. The Company's interest in each
Golf Course includes the land, buildings and improvements, related easements and
rights, and fixtures (collectively, the "Leased Property"). Each Golf Course
will be leased to the respective Initial Lessee under a Participating Lease
which will have a primary term of 10 years ending on December 31, 2006 (the
"Fixed Term"). In addition, each Initial Lessee will have options to extend the
term of
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<PAGE>
each Participating Lease (the "Extended Terms") for six terms of five years
each, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Lease. (The term of the
Participating Lease for Oyster Bay, which is leased pursuant to a ground lease
with 35 years remaining, will have four extension terms of five years each.)
In addition, at the expiration of the Fixed Term and the Extended Terms, the
Initial Lessee will have a right of first offer to continue to lease the Golf
Course on the terms and conditions pursuant to which the Company intends to
lease the Golf Course to a third party.
USE OF THE GOLF COURSES. Each Participating Lease permits the Initial
Lessee 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 and other facilities located at the golf course, including,
where applicable, swim and tennis operations. Operations may include sale or
rental of golf-related merchandise, sale of memberships, furnishing of lessons,
operation of practice facilities, and sales of food and beverages, including
liquor sales.
BASE RENT; PARTICIPATING RENT. The initial Base Rent for each of the Golf
Courses is set forth below:
<TABLE>
<CAPTION>
INITIAL
NAME LOCATION BASE RENT (1)
- -------------------------------------------------- ------------------------ ---------------
<S> <C> <C>
Heritage Golf Club................................ Pawleys Island, SC $ 1,824,980
Heathland......................................... Myrtle Beach, SC 1,556,635(2)
Moorland.......................................... Myrtle Beach, SC 1,556,635(2)
Parkland.......................................... Myrtle Beach, SC 1,556,635(2)
Oyster Bay........................................ Sunset Beach, NC 1,855,979
The Woodlands..................................... Gulf Shores, AL 679,029
Royal New Kent.................................... Providence Forge, VA 1,816,501
Stonehouse Golf Club.............................. Williamsburg, VA 1,889,835
Olde Atlanta...................................... Atlanta, GA 845,058
Northgate Country Club............................ Houston, TX 1,406,843
---------------
Total......................................... $ 14,988,130
---------------
---------------
</TABLE>
- ---------------
(1) In addition to Base Rent, beginning in 1997 Participating Rent may be
payable by the Initial Lessees. Participating Rent is calculated based on
increases in the Gross Golf Revenue from a base year of 1996 as adjusted.
Consequently, no calculation of Participating Rent is included above.
(2) The Heathland, Moorland and Parkland courses are subject to a single
Participating Lease providing for gross Base Rent of $4,669,905, and the
Base Rent is allocated equally among these three courses.
The Participating Leases provide for the Company to receive, with respect to
each Golf Course, the greater of Base Rent or an amount equal to Participating
Rent plus the initial Base Rent payable under each Participating Lease.
Participating Rent is equal to 33 1/3% of any increase in Gross Golf Revenue
over Gross Golf Revenue for the 1996 base year, as adjusted in determining the
initial Base Rent, which base year will be reset to the year immediately
preceding the date on which the Prior Owner exercises the Lessee Performance
Option, if applicable. Base Rent will increase annually by the Base Rent
Escalator (i.e. the lesser of (i) 3% or (ii) 200% of the change in CPI for the
prior year) during the first five years of each Participating Lease term and, if
the Lessee Performance Option is exercised, an additional five years thereafter
from the date of exercise. Annual increases in Lease Payments are limited to 5%
during the first five years of the initial lease terms. "Gross Golf Revenue" is
generally defined as all revenues from a Golf Course including green fees, golf
cart rentals, range fees, membership dues, membership initiation fees and
transfer fees, excluding, however, food and beverage and merchandise revenue.
For the recently opened Golf Courses, the base year Gross Golf Revenue is based
on an estimate by the Company and the Initial Lessee of such courses, which
estimate was also the basis for the valuation of those Golf Courses. Increases
in the Lease Payments under the Participating Leases are limited to 5% during
the first five years. Base Rent is required to be paid monthly in arrears on the
first day of each calendar month and Participating Rent is payable quarterly in
arrears. The Company believes that Gross Golf
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<PAGE>
Revenue, and hence the amount of any Participating Rent, will be favorably
impacted by any significant capital improvements undertaken by an Initial
Lessee, such as the planned clubhouses at The Woodlands, Stonehouse Golf Club
and Royal New Kent. See "The Company -- Business Strategies and Objectives --
Acquisitions and Expansions -- Expansions."
TRIPLE NET LEASES. The Participating Leases are structured as triple net
leases under which each Initial Lessee will be required to pay all real estate
and personal property taxes, insurance, utilities and services and other
operating expenses. See "-- Maintenance and Modifications."
SECURITY DEPOSIT. As security for an Initial Lessee's obligations under the
Participating Leases, each prior owner of each Golf Course will pledge, on
behalf of its affiliated Initial Lessee, OP Units (or cash or other collateral
acceptable to the Company) with a value initially equal to 15% of the purchase
price for the applicable Golf Course, which approximates 16 months of the
initial Base Rent (with OP Units valued at the Offering Price). The security
deposit will not be released for two years. Beginning in the third year and any
time thereafter, one-third of pledged OP Units will be released if the net
operating income to lease payment coverage ratio (the "Coverage Ratio") of the
Initial Lessee for the two prior fiscal years equals or exceeds 120%, 130% and
140%, respectively. If the Coverage Ratio falls below 120% at any time following
the release of pledged collateral, then the Initial Lessee shall be required to
retain and not distribute profits until such time as the Initial Lessee has
retained cash equal to at least six months of then current Base Rent. In
addition, the Participating Leases with the Legends Lessees will be
cross-collateralized and cross-defaulted.
The security deposit will be increased following the exercise of any Lessee
Performance Option to equal approximately 15% of the sum of the initial purchase
price of such Golf Course and the value of any additional OP Units issued in
connection with the exercise of the Lessee Performance Option. If the Company
acquires any Expansion Facility, the security deposit also will be increased by
an amount equal to approximately 15% of the purchase price of the Expansion
Facility.
ADVISORY ASSOCIATION. Each Initial Lessee will be a member of the Advisory
Association, which will participate in cross-marketing of the Golf Courses and
will identify each Golf Course as owned by the Company, thereby increasing the
golfing consumer's brand name awareness of the Company. Membership in the
Advisory Association also is designed to provide the Initial Lessees greater
purchasing power with vendors than individual Initial Lessees. The Advisory
Association is expected to provide a means of ensuring a consistent, high-
quality product at each of the Golf Courses. In conjunction with management of
the Company, the Advisory Association will review and analyze any disputes
between the Company and an Initial Lessee concerning annual capital and
operating budgets and will also, in conjunction with the Company, confirm each
Initial Lessee's compliance with its repair and maintenance obligations under
each Participating Lease.
MAINTENANCE AND MODIFICATIONS. Each Initial Lessee will, at its sole cost
and expense, maintain and operate its respective Leased Property in good order,
repair and appearance and will make structural and non-structural, interior and
exterior foreseen and unforeseen, and ordinary and extraordinary repairs which
may be necessary and appropriate to keep such Leased Property in good order,
repair and appearance. Each Initial Lessee will also maintain each Golf Course
it leases in accordance with the condition of the Golf Course at the
commencement of the Participating Lease and otherwise in a condition comparable
to other comparable golf courses in the vicinity of that Golf Course. If the
Company, in consultation with the Advisory Association, determines that an
Initial Lessee has failed to comply with its maintenance and operation
obligations, then the Company shall provide a written list to the Initial Lessee
setting forth a list of remedial work and/or steps to be performed. If the
Initial Lessee disputes the Company's assertions, then the matter shall be
handled by a committee composed of members of the Advisory Association and
representatives of the Company.
Out of the payment of Base Rent, the Company will establish and maintain
with respect to each Golf Course a capital replacement reserve (a "Capital
Replacement Fund") in an amount equal to between 2% and 3% of Gross Golf Revenue
at such Golf Course, depending on certain factors, including the condition of
the structures and the age and condition of the Golf Course. The Company and
each Initial Lessee will agree on the use of funds in these reserves and the
Company has the right to approve each Initial Lessee's annual and long-
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<PAGE>
term capital expenditure budgets. Funds in the Capital Replacement Fund shall be
paid to an Initial Lessee to reimburse such Initial Lessee for expenditures made
in connection with capital replacements. Amounts in the Capital Replacement Fund
will be deemed to accrue interest at a money market rate. Any amounts in the
Capital Replacement Fund at the expiration of the applicable Participating Lease
will be retained by the Company.
Except for its obligation to fund the Capital Replacement Fund, the Company
will not be required to build or rebuild any improvements on any Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to any Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, in connection with any
Participating Lease, or to maintain any Leased Property in any way. In the event
that the Company elects to fund additional capital improvements on a Golf
Course, the Company will generally condition such election on an increase in
minimum rent under the Participating Lease with respect to such Golf Course to
reflect such expenditures.
During the Fixed Term and each Extended Term, each Initial Lessee, at its
sole cost and expense, may make alterations, additions, changes and/or
improvements ("Initial Lessee Improvements") to each Leased Property, without
the Company's prior written consent, provided such alterations do not diminish
the value or appearance of the Golf Course. All such Initial Lessee Improvements
will be subject to all the terms and provisions of each applicable Lease and
will become the property of the Company upon termination of such Participating
Lease.
At the end of the Participating Lease, all remaining personal property at
each Leased Property will become the property of the Company.
INSURANCE. Each Initial Lessee will maintain insurance on each Leased
Property it leases under insurance policies providing for all-risk, liability,
flood (if carried by comparable golf course facilities in the area and is
otherwise available at commercially reasonable rates) and worker's compensation,
which at the time is usual and commonly obtained in connection with the
properties similar in type of building size and use to the Leased Property and
located in the geographic area where the Leased Property is located. Each
insurance policy will name the Company as additional insured or loss payee, as
applicable.
ASSIGNMENT AND SUBLETTING. An Initial Lessee may not, without the prior
written consent of the Company (which consent may be withheld by the Company in
its sole discretion, except in limited instances), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer any Participating Lease or any
interest therein, all or any part of the Leased Property or suffer or permit any
lease or the leasehold estate created thereby or any other rights arising under
any Participating Lease to be assigned, transferred, mortgaged, pledged,
hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law. An assignment of a Participating Lease
will be deemed to include any change of control of such Initial Lessee, as if
such change of control were an assignment of the Participating Lease. Each
Initial Lessee shall have the right to assign its Participating Lease to its
affiliates.
Each Prior Owner shall retain the right to use the existing office
facilities in any club house or other improvements on a Golf Course for its
continued business operations not associated with the Golf Course.
Each Initial Lessee may, with the Company's prior approval, which approval
the Company may withhold in its discretion, be permitted to sublease portions of
any Leased Property to sublessees to operate portions (but not the entirety) of
the operations customarily associated with or incidental to the operation of a
golf course (e.g., driving range, restaurant, etc.).
COMPANY'S RIGHT OF FIRST OFFER. In the event the Initial Lessee desires to
sell its interest in its Participating Lease to an unaffiliated third party, it
must first offer the Company or its designee the right to purchase such
interest. The Initial Lessee must give the Company written notice of its intent
to sell, which shall indicate the terms and conditions upon which such Initial
Lessee intends to sell its interest in the Participating Lease. The Company or
its designee shall thereafter have a period of 60 days to elect to purchase the
leasehold interest on the terms and conditions at which such Initial Lessee
proposes to sell its interest. If the Company or its designee elects not to
purchase the interest of the Initial Lessee, then such Initial Lessee shall be
free to sell its interest to
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<PAGE>
a third party, subject to the Company's approval as described above (see "--
Assignment and Subletting"). However, if the terms on which the Initial Lessee
intends to sell its interest are reduced by 5% or more then such Initial Lessee
shall again offer the Company the right to acquire its interest, provided the
Company shall have only 15 days to accept such offer.
INITIAL LESSEE'S RIGHT OF FIRST OFFER. The Company may sell a Golf Course,
but must first offer the Initial Lessee of such course the right to purchase the
Golf Course. The Company must give the relevant Initial Lessee written notice of
its intent to sell, which shall indicate the terms and conditions upon which the
Company intends to sell such Golf Course. Such Initial Lessee shall thereafter
have a period of 60 days to elect to purchase the Golf Course on the terms and
conditions at which the Company proposes to sell the Golf Course. If such
Initial Lessee elects not to purchase the Golf Course, then the Company shall be
free to sell the Golf Course to a third party. However, if the price at which
the Company intends to sell the Golf Course is reduced by 5% or more from the
price offered to the Initial Lessee, then the Company shall again offer such
Initial Lessee the right to acquire the Golf Course at the reduced price
provided that such Initial Lessee shall have only 15 days to accept such offer.
DAMAGE TO, OR CONDEMNATION OF, A LEASED PROPERTY. In the event of damage to
or destruction of any Leased Property which is caused by an insured risk, the
Initial Lessee will be obligated to diligently restore the Leased Property to
substantially the same condition as existed immediately prior to such damage or
destruction and, to the extent the insurance proceeds and the Capital
Replacement Fund are insufficient to do so, such Initial Lessee will be
obligated to contribute the excess funds needed to restore the Leased Property.
Any excess insurance proceeds will be paid to the Company. Notwithstanding the
foregoing, in the event the damage or destruction of the Leased Property renders
the Leased Property unsuitable for use as a golf course for a period of 12
months or more, the Initial Lessee may terminate the Participating Lease.
INDEMNIFICATION GENERALLY. Under each Participating Lease, the Initial
Lessee will agree to indemnify, and is obligated to hold harmless, the Company
from and against all liabilities, obligations, claims, actual or consequential
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses) imposed upon or asserted against the Company as
owner of the applicable Leased Property on account of, among other things, (i)
any accident, injury to or death of a person or loss of or damage to property on
or about the Leased Property, (ii) any use, non-use, condition, maintenance or
repair misuse, by such Initial Lessee of the Leased Property, (iii) any
impositions (which are the obligations of the relevant Initial Lessee to pay
pursuant to the applicable provisions of such Participating Lease) or the
operations thereon, (iv) any failure on the part of the Initial Lessee to
perform or comply with any of the terms of the Participating Lease or any
sublease, (v) any taxes levied against the Leased Property, and (vi) any
liability the Company may incur or suffer as a result of any permitted contest
by the Initial Lessee under any Participating Lease.
EVENTS OF DEFAULT. Events of Default are defined in each Participating
Lease to include, among others, the following:
(i) if an Initial Lessee fails to make a rent payment when such payment
becomes due and payable and such failure is not cured by such Initial Lessee
within a period of 10 days after receipt of written notice thereof from the
Company;
(ii) if an Initial Lessee fails to observe or perform any material term,
covenant or condition of a Participating Lease and such failure is not cured
by such Initial Lessee within a period of 30 days after receipt by such
Initial Lessee of written notice thereof from the Company, unless such
failure cannot with due diligence be cured within a period of 30 days, in
which case such failure will not constitute an Event of Default if such
Initial Lessee proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof, within 120 days;
(iii) if an Initial Lessee: (a) admits in writing its inability to pay
its debts generally as they become due, (b) files a petition in bankruptcy
or a petition to take advantage of any insolvency act, (c) makes an
assignment for the benefit of its creditors, (d) is unable to pay its debts
as they mature, (e) consents to the
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appointment of a receiver for itself or of the whole or any substantial part
of its property, or (f) files a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof;
(iv) if the Initial Lessee is liquidated or dissolved;
(v) if the Initial Lessee voluntarily ceases operations on the Leased
Property, except as a result of damage, destruction or a partial or complete
condemnation or other unavoidable delays; or
(vi) if the Initial Lessee or an affiliate thereof is in default under
any other Participating Lease with the Company.
If an Event of Default occurs and is continuing under a Participating Lease,
then the Company may terminate the Participating Lease by giving the Initial
Lessee not less than 10 days notice (only if required by the Participating
Lease) of such termination and upon the expiration of such time, the Fixed or
Extended Term, as the case may be, will terminate and all rights of the Initial
Lessee under the Participating Lease shall cease.
GOVERNING LAW. The Participating Leases will be governed by and construed
in accordance with the law of the state where the Golf Course is located.
Because the Golf Courses are located in various states, the Participating Leases
may be subject to restrictions imposed by applicable local law.
COMPETITION
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 geographic areas. The number and
quality of golf courses in a particular area could have a material effect on the
revenues of the Golf Courses. In addition, revenues of the Golf Courses will be
affected by a number of factors including the demand for golf and general
economic conditions. In addition, the Company will be subject to competition for
the acquisition of golf courses and related facilities with other purchasers of
golf courses, including other golf course acquisition companies.
EMPLOYEES
The Company will be self-administered and will have eight full-time
employees, three of which will be devoted primarily to acquisitions.
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. Each of the Prior Owners has represented to the
Company that the Golf Course(s) contributed by it currently is not subject to
any material legal proceedings. The Participating Leases provide that the each
Initial Lessee is responsible for claims based on personal injury and property
damage at the Golf Courses it leases and require each Initial Lessee to maintain
insurance for such purposes. See "Participating Leases" and "Risk Factors --
Real Estate Investment Risks -- Uninsured Losses."
GOVERNMENT REGULATION
ENVIRONMENTAL MATTERS. Operations of the Golf Courses involve the use and
storage of various hazardous materials such as herbicides, pesticides,
fertilizers, motor oils and gasoline. 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 certain hazardous
substances released on or in its property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. The presence of such substances, or
the failure to remediate such substances properly when released, may adversely
affect the owner's ability to sell 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 and the Company is not aware of
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any other environmental condition with respect to any of the Golf Courses that
is likely to be material for which the Company is being indemnified by the
Initial Lessees or Prior Owners. All of the Golf Courses have been subjected to
a Phase I environmental audit (which does not involve invasive procedures, such
as soil sampling or ground water analysis) by an independent environmental
consultant. Based on the results of the Phase I environmental audits, the
Company is not aware of any existing environmental liabilities. No assurance,
however, can be given that these reports reveal all potential environmental
liabilities, that no prior or adjacent owner created any material environmental
condition not known to the Company or the independent consultant or that future
uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability. The Participating Leases provide that the Initial
Lessees will indemnify the Company for certain potential environmental
liabilities at the Golf Courses. See "Participating Leases."
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. These requirements became
effective in 1992. Compliance with the ADA requirements could require removal of
access barriers and other capital improvements at the Golf Courses.
Noncompliance could result in imposition of fines or an award of damages to
private litigants. Under the Participating Leases, the Initial Lessees will be
responsible for any costs associated with ADA compliance.
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MANAGEMENT
DIRECTORS, PROPOSED DIRECTORS AND EXECUTIVE OFFICERS
Upon completion of the Offering, the Board of Directors will consist of 7
members. The directors include W. Bradley Blair II, Chairman, Chief Executive
Officer and President, David J. Dick, Executive Vice President and Larry D.
Young, founder of The Legends Group. The remaining initial directors will be
independent directors who are neither employees of the Company nor affiliates of
any Prior Owner or Initial Lessee (the "Independent Directors"). See
"Partnership Agreement -- Management" and "Capital Stock -- Corporate
Governance." Subject to severance compensation rights pursuant to any employment
agreements, officers of the Company serve at the pleasure of the Board of
Directors.
Set forth below is information with respect to directors and executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ---------------------------------------------------------
<S> <C> <C>
W. Bradley Blair, II 53 Chairman of the Board of Directors, Chief Executive
Officer and President of the Company
David J. Dick 37 Executive Vice President, Director
Scott D. Peters 38 Senior Vice President and Chief Financial Officer
Larry D. Young 55 Director
Roy C. Chapman 55 Proposed Director
Raymond V. Jones 49 Proposed Director
Fred W. Reams 53 Proposed Director
Edward L. Wax 60 Proposed Director
</TABLE>
W. Bradley Blair, II is the Chairman of the Board, Chief Executive Officer
and President of the Company. Prior to the completion of the Offering Mr. Blair
served as Executive Vice President, Chief Operating Officer and General Counsel
for The Legends Group since 1993. As an officer of Legends Group Ltd., Mr. Blair
was responsible for all aspects of operations, including acquisitions,
development and marketing. From 1978 to 1993, Mr. Blair was the managing partner
and currently is of counsel at Blair, Conaway Bograd & Martin, P.A., a law firm,
specializing in real estate, finance, taxation and acquisitions. Several clients
of Blair, Conaway Bograd and Martin are golf course owners, operators and
developers as well as companies involved in golf course financing. Mr. Blair
received a Bachelor of Science Degree in Business from Indiana University and a
Juris Doctorate from the University of North Carolina at Chapel Hill Law School.
David J. Dick is Executive Vice President of the Company. Since 1993 Mr.
Dick has worked with the Inland Group, Inc. as a consultant specializing in real
estate investment banking and golf course finance. From 1983 to 1992 Mr. Dick
served as Vice President of Development and Asset/Portfolio Management for
Thoner & Birmingham Development Corporation, a golf and country club community
developer that is affiliated with the owner of Northgate Country Club. While
with Thoner & Birmingham Development Corporation, Mr. Dick's responsibilities
included many aspects of golf course and country club development, finance,
operations and management. Mr. Dick received a Bachelor of Science in Business
Administration from Central Missouri State University. Mr. Dick is a Certified
Commercial Investment Member.
Scott D. Peters is Senior Vice President and Chief Financial Officer of the
Company. From 1992 through 1996, Mr. Peters served as Senior Vice President and
Chief Financial Officer of the Pacific Holding Company in Los Angeles, where he
participated in the management of a 4,000 acre real estate portfolio consisting
of residential, commercial and country club properties focusing on
master-planned golf communities. From 1988 to 1992, Mr. Peters served as Senior
Vice President and Chief Financial Officer of Castle & Cooke Homes, Inc; and
during 1990 and 1991 lectured on Real Estate Finance and Asset Management at
California State University at Bakersfield. Mr. Peters is a certified public
accountant and worked with Arthur Andersen & Co. and Laventhol & Horwath from
1981 to 1985. From 1986 to 1988, Mr. Peters worked with a general partnership
that
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managed the construction of the Scottsdale Princess Resort. He received a
Bachelor of Arts degree in Accounting and Finance with honors from Kent State
University and a Masters Degree in Taxation from the University of Akron, Ohio.
Larry D. Young is a director of the Company and is the founder of The
Legends Group. Mr. Young has been involved in the golf business for 25 years,
and for 21 of those years in Myrtle Beach. In 1975 he moved to Myrtle Beach,
South Carolina, where he started what became The Legends Group, a leading golf
course owner, developer and operator in the southeast and Mid-Atlantic regions
of the United States. Mr. Young has developed ten courses during that time,
three of which were rated the best new course in their respective category in
the year developed by GOLF DIGEST. Mr. Young has served in numerous capacities
in golf industry related non-profit organizations.
Roy C. Chapman has consented to become a director of the Company upon
completion of the Offering. He is the Chairman, Chief Executive Officer and
principal shareholder of Human Capital Resources, Inc., which was formed to
assist students to finance higher education. From 1987 until his retirement in
February 1993, he was Chairman and Chief Executive Officer of Cache, Inc., the
owner and operator of a nationwide chain of upscale women's apparel stores. He
has served as the Chief Financial and Administrative Officer of Brooks Fashion
Stores and was a partner in the international accounting and consulting firm of
Coopers & Lybrand LLP. Mr. Chapman has also served as a member of the staff of
the Division of Market Regulation of the Securities and Exchange Commission and
acted as a consultant to the Special Task Force to Overhaul the Securities
Investors Protection Act.
Raymond V. Jones has consented to become a director of the Company upon the
completion of the Offering. Mr. Jones is the Executive Vice President of Summit
Properties Inc., where he has been employed since 1984. Summit Properties Inc.
is a publicly traded REIT listed on the New York Stock Exchange that is one of
the largest developers and operators of luxury garden multifamily apartment
communities in the southeastern United States. While at Summit Properties Inc.,
Mr Jones has overseen the development of twenty-six communities comprising
nearly 6,500 apartment homes in Georgia, North Carolina, South Carolina and
Ohio. Prior to 1984, Mr. Jones served as General Operations Manager for both the
Charlotte and Houston divisions of Ryan Homes, Inc. Mr. Jones earned a B.A. in
Political Science from George Washington University.
Fred W. Reams has consented to become a director of the Company upon
completion of the Offering. Since 1981 he has served as the President of Reams
Asset Management Company, LLC ("Reams Management"), an independent private
investment firm, which he co-founded. Reams Management employs a staff of 20
persons and manages approximately $2.5 billion in assets. In addition, Mr. Reams
has served as President of the Board of Directors of the Otter Creek Golf Course
since 1991. Otter Creek, located in Indiana and rated in the top 25 public
courses by GOLF DIGEST in 1990, recently expanded to 27 holes and has hosted
several noteworthy tournaments including multiple U.S. Open and U.S. Senior Open
Qualifiers and four American Junior Golf Association Championships.
Edward L. Wax has consented to become director of the Company upon
completion of the Offering. Since 1992 he has served as Chairman and Chief
Executive Officer of Saatchi & Saatchi Advertising Worldwide. There, Mr. Wax is
responsible for the operations of 143 offices, in 87 countries. Mr. Wax has been
employed by Saatchi & Saatchi since 1982. Mr. Wax was formerly Chairman of The
American Association of Advertising Agencies as well as a director of both the
Ad Council and the Advertising Educational Foundation. Mr. Wax holds an M.B.A.
from the Wharton Graduate School of Business and an undergraduate degree from
Northeastern University.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. Promptly following the Offering, the Board of Directors
will establish an audit committee that will consist of three Independent
Directors (the "Audit Committee"). The Audit Committee will make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accounts, consider the range
of audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.
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COMPENSATION COMMITTEE. Promptly following the Offering, the Board of
Directors will establish a compensation committee (the "Compensation Committee")
to determine compensation, including awards under the Company's Stock Incentive
Plan, for the Company's executive officers. The Company expects that the
Compensation Committee will consist of three Independent Directors.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
COMPENSATION OF DIRECTORS
The Company intends to pay its Independent Directors fees for their services
as directors. Directors will receive annual compensation of $10,000 plus a fee
of $1,000 for attendance at each meeting of the Board of Directors, but not
committee meetings. Directors who are not Independent Directors will not be paid
any director fees. The Company will reimburse directors for their out-of-pocket
travel expenses.
DIRECTORS AND OFFICERS INSURANCE
The Company will have directors and officers liability insurance. Directors
and officers liability insurance insures (i) the officers and directors of the
Company from any claim arising out of an alleged wrongful act by such persons
while acting as directors and officers of the Company, and (ii) the Company to
the extent that it has indemnified the directors and officers for such loss.
INDEMNIFICATION
The Charter provides for the indemnification of the Company's officers and
directors against certain liabilities to the fullest extent permitted under
applicable law. The Charter also provides that the directors and officers of the
Company be exculpated from monetary damages to the fullest extent permitted
under applicable law. In addition, pursuant to the Underwriting Agreement, the
officers, directors and controlling persons of the Company will be indemnified
against certain liabilities by the Underwriters, and the Underwriters will be
indemnified against certain liabilities by the Company. See "Underwriting."
EXECUTIVE COMPENSATION
To date, the Company has not paid any compensation to its executive
officers. The following table sets forth the estimated 1997 compensation, on an
annualized basis, expected to be paid to the most highly compensated executive
officers of the Company (I.E. those whose cash compensation from the Company in
1997 on an annualized basis is expected to exceed $100,000.)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR (1) SALARY OPTIONS/SARS (2)
- ----------------------------------------------------------- --------- ---------- ---------------
<S> <C> <C> <C>
W. Bradley Blair, II....................................... 1997 $ 250,000 150,000
Chairman of the Board of Directors/Chief Executive
Officer/President
David J. Dick.............................................. 1997 $ 150,000 125,000
Executive Vice President
Scott D. Peters............................................ 1997 $ 125,000 40,000
Senior Vice President/Chief Financial Officer
</TABLE>
- ------------
(1) Amounts given are annualized projections for the year ending December 31,
1997.
(2) Options to purchase an aggregate of 335,000 shares of Common Stock will be
granted to directors and executive officers of the Company effective upon
closing of the Offering. See "-- Stock Incentive Plan."
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STOCK INCENTIVE PLAN
The Company intends to establish a stock incentive plan (the "Plan") to
enable executive officers and other key employees of the Company to participate
in the ownership of the Company. The Plan is designed to attract and retain
executive officers and other key employees of the Company and to provide
incentives to such persons to maximize the Company's cash flow available for
distribution. The Plan provides for the award to executive officers and other
key employees of the Company (subject to the Ownership Limit) of a broad variety
of stock-based compensation alternatives such as nonqualified stock options,
incentive stock options, restricted stock and performance awards.
The Plan will be administered by the Compensation Committee, which is
authorized to select from among the eligible employees of the Company the
individuals to whom options, restricted stock purchase rights and performance
awards are to be granted and to determine the number of shares to be subject
thereto and the terms and conditions thereof. The Compensation Committee will
select the individuals to whom nonqualified stock options are to be granted and
will determine the number of shares to be subject thereto and the terms and
conditions thereof. The Compensation Committee is also authorized to adopt,
amend and rescind rules relating to the administration of the Plan. No member of
the Compensation Committee will be eligible to participate in the Plan following
completion of the Offering.
AWARDS UNDER THE PLAN
NONQUALIFIED STOCK OPTIONS will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the date
of grant (but not less than par value), and usually will become exercisable in
installments after the grant date. Nonqualified stock options may be granted for
any reasonable term.
INCENTIVE STOCK OPTIONS will be designed to comply with the provisions of
the Code and will be subject to restrictions contained in the Code, including
exercise prices equal to at least 100% of fair market value of the Common Stock
on the grant date and a ten year restriction on their term, but may be
subsequently modified to disqualify them from treatment as an incentive stock
option.
RESTRICTED STOCK may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Consideration for restricted stock may include notes
and past services. Restricted stock, typically, may be repurchased by the
Company at the original purchase price if the conditions or restrictions are not
met. In general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of restricted
stock, unlike recipients of options, will have voting rights and will receive
dividends prior to the time when the restrictions lapse.
PERFORMANCE AWARDS may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Company's
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Compensation Committee on an individual or
group basis and which may be payable in cash or in Common Stock or in a
combination of cash and Common Stock.
The Board of Directors will approve prior to the completion of the Offering
the grant of options to Messrs. Blair, Dick and Peters to purchase up to
150,000, 125,000 and 40,000 shares of Common Stock, respectively at the Offering
Price. The options will become exercisable in three equal installments,
commencing upon the first anniversary of the date of grant and each of the two
years thereafter. The options will be exercisable for 10 years from the date of
grant.
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A maximum of 185,000 additional shares of Common Stock will be reserved for
issuance under the Plan. There is no limit on the number of awards that may be
granted to any one individual so long as the grant does not violate the
Ownership Limit or cause the Company to fail to qualify as a REIT for federal
income tax purposes. See "Capital Stock -- Restrictions on Ownership."
DIRECTORS' PLAN
SHARE AUTHORIZATION. A maximum of 100,000 shares of Common Stock may be
issued under the Company's Non-Employee Directors' Plan (the "Directors' Plan").
The share limitation and terms of outstanding awards shall be adjusted, as the
Compensation Committee deems appropriate, in the event of a stock dividend,
stock split, combination, reclassification, recapitalization or other similar
event.
ELIGIBILITY. The Directors' Plan provides for the grant of options to
purchase Common Stock to each eligible director of the Company. No director who
is an employee of the Company or a Prior Owner is eligible to participate in the
Directors' Plan.
OPTIONS. The Directors' Plan provides that each eligible director who is a
member of the Board of Directors as of the date that the registration statement
relating to the Offering is declared effective by the SEC will be awarded
nonqualified options to purchase 5,000 shares of Common Stock on that date (each
such director, a "Founding Director"). Each eligible director who is not a
Founding Director (a "Non-Founding Director") will receive nonqualified options
to purchase 5,000 shares of Common Stock on the date the Non-Founding Director
is first elected or appointed to the Board of Directors. The options granted to
Founding Directors upon effectiveness of the registration statement relating to
the Offering will have an exercise price equal to the initial public Offering
Price and will vest on the date of grant. The exercise price of options under
future grants will be 100% of the fair market value of the Common Stock on the
date of grant and will vest in the same manner. The exercise price may be paid
in cash, cash equivalents, Common Stock or a combination thereof acceptable to
the Compensation Committee. Options granted under the Directors' Plan are
exercisable for 10 years from the date of grant.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO OPTIONS. Generally, an
eligible director does not recognize any taxable income, and the Company is not
entitled to a deduction upon the grant of an option. Upon the exercise of an
option the eligible director recognizes ordinary income equal to the excess of
the fair market value of the shares acquired over the option exercise price, if
any. Special rules may apply as a result of Section 16 of the Exchange Act. The
Company is generally entitled to a deduction equal to the compensation taxable
to the eligible director as ordinary income. Eligible directors may be subject
to backup withholding requirements for federal income tax.
AMENDMENT AND TERMINATION. The Directors' Plan provides that the Board may
amend or terminate the Plan, but the terms of the Plan relating to the amount,
price and timing of awards under the Plan may not be amended more than once
every six months other than to comport with changes in the Code, or the rules
and regulations thereunder. An amendment will not become effective without
stockholder approval if the amendment materially (i) increases the number of
shares that may be issued under the Directors' Plan, (ii) changes the
eligibility requirements, or (iii) increases the benefits that may be provided
under the Directors' Plan. No options may be granted under the Directors' Plan
after December 31, 2006.
DEFERRED COMPENSATION PLAN
The Company intends to establish a deferred compensation plan under which
executive officers of the Company may elect to defer receiving a portion of
their cash compensation otherwise payable in one tax year until a later tax year
and thereby postpone payment of tax on the deferred amount. Prior to the
beginning of any taxable year, such executive officers may elect to defer
receipt of such amount of cash compensation until a future date or until an
event selected by such persons pursuant to the terms of the plan. Deferred
compensation will be invested in a separate trust account.
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EMPLOYMENT AGREEMENTS
The Company will enter into written employment agreements with W. Bradley
Blair, II, David J. Dick and Scott D. Peters. The employment agreement for Mr.
Blair will have a term of four years, the employment agreement for Mr. Dick will
have a term of three years and the employment agreement with Mr. Peters will
have a term of one year. The employment agreements will provide for an annual
salary of $250,000, $150,000 and $125,000 for Messrs. Blair, Dick and Peters,
respectively, with annual performance bonuses determined by the Compensation
Committee in connection with the achievement of performance criteria to be
determined by the Compensation Committee. In addition, each of Messrs. Blair,
Dick and Peters have received options to purchase shares of Common Stock as
described above under the heading "Stock Incentive Plan." Each of Messrs. Blair,
Dick and Peters shall receive severance payments upon the death, disability,
termination or resignation of such executive, unless such executive resigns
without "good cause" or unless the Company terminates such executive with "good
reason," i.e. as a result of gross negligence, willful misconduct, fraud or a
material breach of the employment agreement. Each such executive will have "good
cause" to terminate his employment with the Company in the event of any material
reduction in his compensation or benefits, material breach or material default
by the Company under his employment agreement or following a change in control
of the Company. The severance payments of Messrs. Blair and Dick would be equal
to base compensation plus bonus at the most recent annual amount for the longer
of the balance of the employment term or two years. The severance payments of
Mr. Peters would be equal to base compensation for a period which varies from
four months to one year depending upon the time and cause of termination.
Following the completion of the Offering, the Compensation Committee may
establish incentive compensation arrangements for its executive officers and
certain key employees.
COVENANTS NOT TO COMPETE. Messrs. Blair, Dick and Peters have agreed to
devote substantially all of their time to the business of the Company and not to
engage in any competitive business. They have further agreed not to compete
directly with the Company in a business similar to that of the Company for a
period of one year following any termination of employment. Mr. Blair may
continue to invest with Mr. Young and his affiliates in certain residential real
estate developments and resort operations.
INITIAL LESSEES
The Initial Lessees, each of which will be owned by an affiliate of the
Prior Owners will lease the Golf Courses under triple net leases. The Initial
Lessees will derive revenues from the operation of golf courses principally
through receipt of green fees, membership initiation fees, food and beverage
operations, sale of merchandise, membership dues, golf cart rentals and driving
range charges. Each Initial Lessee will be a single purpose entity with nominal
assets.
THE LEGENDS LESSEES
The four Legends Lessees will lease the seven golf courses contributed by
The Legends Group. The three Legends Resort Courses will be leased pursuant to a
single Participating Lease, as will the two recently opened Golf Courses. Each
of the other Golf Courses will be leased to individual Initial Lessees pursuant
to separate Participating Leases. Each Participating Lease with the Legends
Lessees will be cross-defaulted and cross-collateralized. Mr. Young and his
affiliates will own each of the Legends Lessees. The Legends Group is
contributing seven of the eight courses it currently operates. The course not
being contributed did not meet the Company's investment criteria because it is
subject to a ground lease with a short remaining term. That course may be
acquired by the Company at a later date should the ground lease be extended. See
"Certain Transactions -- Option to Purchase and Right of First Refusal."
Mr. Young, who is a director of the Company and majority owner of The
Legends Group, has owned and managed golf courses for 25 years. During such
time, Mr. Young has also been involved in the design and development of 11 golf
courses, eight of which have been nationally recognized and three of which were
rated the best new course in their respective category in the year developed by
GOLF DIGEST. In 1975, he moved to
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Myrtle Beach, South Carolina, where he started what was to become The Legends
Group, a company specializing in development, construction, management and
ownership of golf courses. Mr. Young has served in numerous capacities in golf
industry related non-profit organizations.
THE WOODLANDS
The Woodlands was developed, is currently owned, and will be leased to an
affiliate of Craft Farms. Craft Farms is operated by the father and son team of
R.C. and Robert Craft, longtime residents of Gulf Shores, Alabama. In addition
to developing Craft Farms, a successful golf community encompassing both resort
and residential properties, the Crafts operate a successful turf grass farm.
R.C. and Robert Craft have a total of approximately 20 years experience in the
golf industry and own and operate another golf course located near The
Woodlands.
Mr. R. C. Craft has approximately 50 years of experience in real estate
ownership and management and, together with his son Mr. Robert S. Craft, has
over 10 years' experience in golf course development and management in a resort
market. Mr. Robert S. Craft is the Chairman of the Board of Colonial Bank (Gulf
Coast Region), a member of the Board of Directors of the Colonial Bank Holding
Company and the President and founder of the Gulf Shores Golf Association, a
cooperative golf marketing network.
OLDE ATLANTA GOLF CLUB
Olde Atlanta Golf Club will be conveyed to the Company by Olde Atlanta Golf
Club Limited Partnership, a partnership in which The Crescent Company is the
general partner. Olde Atlanta Golf Club Limited Partnership developed the course
in 1993, and the course will be leased to an affiliate thereof. Senior
management at The Crescent Company, including its president E. Neal Trogdon,
have a combined 30 years of experience in the golf industry and affiliates of
The Crescent Company currently own and manage three other golf courses.
Mr. Trogdon is the President of The Crescent Company. Since his first golf
course acquisition in 1989, Mr. Trogdon has served as managing general partner
for the four Daily Fee golf courses now managed by The Crescent Company
including Olde Atlanta. The golf courses are located in the Atlanta, Georgia
suburbs (2) and Augusta, Georgia area (2). Mr. Trogdon was previously an
Executive Vice President at The First National Bank of Chicago and a senior
officer at NationsBank.
NORTHGATE COUNTRY CLUB
Northgate Country Club was developed, is currently owned and will be leased
to an affiliate of Jack Thoner. Mr. Thoner has over 35 years of experience in
real estate development and has owned and operated Northgate Country Club for 12
years. Mr. Thoner's real estate development includes the construction of over
5,000 multi-family units, as well as hotel and office properties.
GOLF COURSE OPERATIONS
Prior to the completion of the Offering, the Golf Courses were owned (or
leased pursuant to long-term ground leases) and operated by the Prior Owners,
all of which are affiliates of the Initial Lessees. The Initial Lessees will
operate the Golf Courses under the Participating Leases with the Company. See
"The Golf Courses -- The Participating Leases." Each Initial Lessee has
developed sophisticated operating systems and procedures in all areas of golf
course operations that the Company believes enable it to provide high quality
service and products to its customers.
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
Set forth below is a discussion of the Company's investment objectives and
policies, financing policies and policies with respect to certain other
activities. These policies are determined by the Board of Directors and may be
amended or revised from time to time at the discretion of the Board of Directors
without a vote of the Company's stockholders.
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As the sole general partner of the Operating Partnership, the Company also
will determine the investment policies of the Operating Partnership. Under the
Partnership Agreement, all future investments generally must be made through the
Operating Partnership. See "Partnership Agreement -- Management."
INVESTMENT OBJECTIVES AND POLICIES
The Company's investment objective is to maximize both current income and
long-term growth in income. The Company will seek to accomplish its objective
through its ownership of the Golf Courses and selective acquisitions of
additional golf courses and related facilities.
The Company may purchase or lease properties for long-term investment,
expand and improve the Golf Courses presently owned or sell such properties, in
whole or in part, when circumstances warrant. The Company also may participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness that have priority over the equity interest of
the Company.
While the Company intends to emphasize equity real estate investments, it
may, in its discretion, invest in mortgages, stock of other REITs, partnerships
and other real estate interests. Such mortgage investments may include
participating or convertible mortgages.
There are no limitations on the percentage of the Company's assets that may
be invested in any one property or venture. The Board of Directors may establish
limitations as it deems appropriate from time to time. No limitations have been
set on the number of properties in which the Company will seek to invest or on
the concentration of investments in any one geographic region.
DISPOSITIONS
The Company has no current intention to cause the disposition of any of the
Golf Courses, although it reserves the right to do so if the Board of Directors
determines that such action would be in the best interests of the Company. The
Company has agreed to use reasonable efforts to structure the sale of any Golf
Course as a tax deferred like-kind exchange if the contributing Prior Owner
would incur an adverse tax liability upon such sale. The Participating Leases
impose restrictions on the Company's ability to sell the Golf Courses. See "The
Golf Courses -- The Participating Leases -- Initial Lessee Right of First
Offer".
FINANCING
The Company presently intends to maintain a ratio of debt-to-total market
capitalization of 50% or less. Following the completion of the Offering and the
use of net proceeds therefrom, the Company will have approximately $4.3 million
of indebtedness, which constitutes approximately 3% of its total market
capitalization. The Board of Directors may, however, from time to time
re-evaluate this policy and decrease or increase such ratio accordingly. The
Company will determine its financing policies in light of then current economic
conditions, relative costs of debt and equity capital, market values of
properties, growth and acquisition opportunities and other factors. If the Board
of Directors determines that additional funding is desirable, the Company may
raise such funds through additional equity offerings, debt financing or
retention of cash flow (subject to provisions in the Code concerning taxability
of undistributed REIT income and REIT qualification), or a combination of these
methods.
In connection with the acquisition of one of the Golf Courses, the Company
has agreed to maintain, for a period of 10 years following the completion of the
Offering, at least $4.3 million of indebtedness to accommodate the effort to
minimize certain adverse tax consequences of the Prior Owner of such Golf
Course. Such indebtedness may be reduced upon certain taxable events relating to
the disposition of the OP Units to be held by the Prior Owner of such Golf
Course. In the event that the Company fails to maintain such indebtedness, the
Company will be liable for any resulting income tax liabilities incurred by the
Prior Owner of such Golf Course.
It is anticipated that borrowings will be made through the Operating
Partnership, although the Company may also incur indebtedness that may be
re-loaned to the Operating Partnership on the same terms and
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conditions as are applicable to the Company's borrowing of such funds. See
"Partnership Agreement." Indebtedness may be in the form of purchase money
obligations to the Prior Owners, publicly or privately placed debt instruments,
or financing from banks, institutional investors or other lenders, any of which
indebtedness may be unsecured or may be secured by mortgages or other interests
in the property owned by the Company. There are no limits on the number or
amount of mortgages or other interests which may be placed on any one property.
In addition, such indebtedness may be recourse to all or any part of the
property of the Company or may be limited to the particular property to which
the indebtedness relates. The proceeds from any borrowings may be used for the
payment of distributions, working capital, to redeem OP Units, to refinance
indebtedness or to finance acquisitions, expansions or development of new
properties.
In the event that the Board of Directors determines to raise additional
equity capital, the Board has the authority, without stockholder approval, to
issue additional shares of authorized Common Stock or other capital stock
(including securities senior to the Common Stock) of the Company in any manner
(and on such terms and for such consideration) it deems appropriate, including
in exchange for property. Existing stockholders would have no preemptive right
to purchase shares issued in any offering, and any such offering might cause a
dilution of a stockholder's investment in the Company. If the Board of Directors
determines to raise additional equity capital to fund investments by the
Operating Partnership, the Company will contribute such funds to the Operating
Partnership as a contribution to capital and purchase of additional OP Units. In
addition, the Company may issue additional shares of Common Stock in connection
with the exchange of OP Units for shares of Common Stock pursuant to the
exercise of Redemption Rights. See "Partnership Agreement."
The Board of Directors also has the authority to cause the Operating
Partnership to issue additional OP Units in any manner (and on such terms and
for such consideration) as it deems appropriate, including in exchange for
property. See "Partnership Agreement -- Capital Contribution."
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves (and when not sufficient,
access to borrowings) in amounts that the Board of Directors determines to be
adequate to meet normal contingencies in connection with the operation of the
Company's business and investments.
CONFLICT OF INTEREST POLICIES
The Company will adopt certain policies and enter into certain agreements
designed to minimize potential conflicts of interest. The Company's Board of
Directors is subject to certain provisions of Maryland law, which are designed
to eliminate or minimize certain potential conflicts of interest. However, there
can be no assurance that these policies always will be successful in eliminating
the influence of such conflicts, and if they are not successful, decisions could
be made that might fail to reflect fully the interests of all stockholders.
CHARTER AND BYLAW PROVISIONS
The Company's Charter, with limited exceptions, requires that a majority of
the Company's Board of Directors be comprised of persons who are not officers or
employees of the Company or Affiliates of any advisor to the Company under an
advisory agreement, any lessee or management company operating any property of
the Company, any subsidiary of the Company or any partnership that is an
Affiliate of the Company (each such person, an "Independent Director"). The
Charter provides that such provisions relating to Independent Directors may not
be amended, altered or repealed without the affirmative vote of two-thirds of
all the votes entitled to be cast on the matter. In addition, the Company's
Bylaws provide that any purchase, sale, lease or mortgage involving the Company
in which a director or officer of the Company or any affiliate of the foregoing
has any direct or indirect interest, other than solely as a result of his status
as a director, officer or shareholder of the Company, must be approved by a
majority of the directors, including a majority of the Independent Directors.
PROVISIONS OF MARYLAND LAW
Pursuant to Maryland law (the jurisdiction under which the Company is
organized), each director is required to discharge his duties in good faith,
with the care an ordinarily prudent person in a like position would
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exercise under similar circumstances and in a manner he reasonably believes to
be in the best interest of the Company. In addition, under Maryland law, a
contract or transaction between the Company and any of its directors or between
the Company and a corporation, firm or other entity in which a director is a
director or has a material financial interest is not void or voidable solely
because of (a) the common directorship or interest, (b) the presence of the
director at the meeting of the Board or a committee of the Board that authorizes
or approves or ratifies the contract or transaction or (c) the counting of the
vote of the director for the authorization, approval or ratification of the
contract or transaction if (i) after disclosure of the interest, the transaction
is authorized, approved or ratified, by the affirmative vote of a majority of
the disinterested directors, or by the affirmative vote of a majority of the
votes cast by stockholders entitled to vote other than the votes of shares owned
of record or beneficially by the interested director or corporation, firm or
other entity, or (ii) the transaction is fair and reasonable to the Company.
OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
(i) to invest in the securities of other issuers (other than the Operating
Partnership) for the purpose of exercising control over such issuer, (ii) to
underwrite securities of other issuers or (iii) to trade actively in loans or
other investments.
The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
repurchase or otherwise reacquire Common Stock or any other securities it may
issue and may engage in such activities in the future. The Board of Directors
has no present intention of causing the Company to repurchase any of the shares
of Common Stock, and any such action would be taken only in conformity with
applicable federal and state laws and the requirements for qualifying as a REIT
under the Code and the Treasury Regulations. Although it may do so in the
future, except in connection with the Formation Transactions, the Company has
not issued Common Stock or any other securities in exchange for property, nor
has it reacquired any of its Common Stock or any other securities. See "The
Formation Transactions." The Company may make loans to third parties, including,
without limitation, to its officers and to joint ventures in which it decides to
participate. The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers, nor has the Company
invested in the securities of other issuers other than the Operating Partnership
for the purpose of exercising control.
THE FORMATION TRANSACTIONS
Prior to or simultaneously with the completion of the Offering, the Company,
the Operating Partnership, the Prior Owners and the Initial Lessees will engage
in the Formation Transactions described below.
- The Company, which was incorporated in Maryland in November 1996, will
sell 2,865,000 shares of Common Stock in the Offering and will contribute
all of the net proceeds thereof, estimated to be $49.9 million based on
the Offering Price, to GTA GP and GTA LP, which will in turn contribute
such net proceeds to the Operating Partnership. Upon completion of the
Offering and the Formation Transactions, the Company will, through GTA GP
and GTA LP, own an approximately 40.9% ownership interest in the Operating
Partnership. GTA GP will be the sole general partner of the Operating
Partnership.
- The Prior Owners will contribute 100% of the assets related to each of the
Golf Courses to the Company in exchange for an aggregate of 4,106,606 OP
Units, approximately $6.2 million in cash and the repayment of
approximately $47.4 million of existing mortgages and other indebtedness
at the Golf Courses as follows:
- The Company will acquire seven of the Golf Courses from The
Legends Group for an aggregate of 3,738,556 OP Units, the
assumption and repayment of approximately $34.8 million in
existing indebtedness and the reimbursement of approximately
$522,500 of out-of-pocket expenses incurred in connection with
the Formation Transactions.
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- The Company will acquire three of the Golf Courses from parties
unaffiliated with the Company or The Legends Group for an
aggregate amount of 368,050 OP Units, $6.2 million in cash and
the repayment of approximately $12.7 million in existing
indebtedness.
- The Company, as lessor, will lease the Golf Courses to the Initial
Lessees, which are newly-formed entities affiliated with the Prior Owners,
pursuant to the Participating Leases for initial terms of ten years each,
with each Initial Lessee having the right to extend the term of its
Participating Lease for up to six renewal terms of five years each. See
"The Golf Courses -- The Participating Leases."
- Each Prior Owner will be granted the right to receive additional OP Units
pursuant to the Lessee Performance Option. See "The Company -- Business
Strategy -- Internal Growth." OP Units will be redeemable for cash or, at
the Company's election, Common Stock on a one-for-one basis, beginning one
year after the completion of the offering. See "The Partnership Agreement
-- Redemption Rights."
- The Company will enter into employment agreements with its executive
officers, including Mr. Blair, who currently serves as the Executive Vice
President of Legends Group Ltd. (an affiliate of certain of the Prior
Owners and Initial Lessees), which will include the grant of stock
options. See "Management -- Employment Agreements."
- The Company will enter into the Option Agreement with The Legends Group
pursuant to which the Company will be granted the option and right of
first refusal to acquire golf courses currently owned or subsequently
acquired or developed by The Legends Group. See "Certain Relationships and
Transactions -- Option to Purchase and Right of First Refusal."
BENEFITS TO OFFICERS AND DIRECTORS
As a result of the Formation Transactions, executive officers and directors
of the Company and certain of their affiliates will receive the following
benefits:
- Larry D. Young, a director of the Company and majority owner of The
Legends Group, and his affiliates will receive 3,738,556 OP Units, as
consideration for their interests in the Golf Courses owned by The Legends
Group. The OP Units to be received by Mr. Young and his affiliates (which
are redeemable for cash or, at the Company's option, Common Stock on a
one-for-one basis, beginning one year after the completion of the
Offering) will be worth approximately $74.8 million (based on the Offering
Price) and will be more liquid than their interests in the Golf Courses
once a public trading market for the Common Stock commences. As of
September 30, 1996, the aggregate book value of the interests to be
contributed by The Legends Group was approximately $36.3 million.
- The 12,500 OP Units owned by each of Mr. Blair and Mr. Dick will be worth
$500,000, based on the Offering Price, a substantial increase over the
nominal purchase price paid by Messrs. Blair and Dick for such OP Units.
- Messrs. Blair, Dick and Peters, will be granted options to acquire
150,000, 125,000 and 40,000 shares of Common Stock, respectively, at the
Offering Price. The options vest ratably over three years commencing on
the first anniversary of the date of grant.
- Each Independent Director will receive options to acquire 5,000 shares of
Common Stock at the Offering Price.
- In connection with the acquisition of the Golf Courses owned by The
Legends Group, the Company will repay approximately $26.5 million of debt
personally guaranteed by Mr. Young.
- The Company will pay to Mr. Young and his affiliates approximately $8.2
million in repayment of a loan made by such affiliates to Legends of
Virginia, LC in connection with the development of the two recently opened
Golf Courses.
- The Company will reimburse The Legends Group $522,500 and Mr. Dick $62,000
for direct out-of-pocket expenses incurred in connection with the
Formation Transactions.
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- Mr. Young and his affiliates will be entitled to receive additional OP
Units pursuant to the Lessee Performance Option. See "The Company --
Business Strategies and Objectives -- Internal Growth."
- Through the operation of seven of the Golf Courses, the Legends Lessees,
which are owned by Mr. Young or his affiliates, will be entitled to all
cash flow from such Golf Courses after payment of the Lease Payments under
the applicable Participating Leases and other operating expenses.
- Certain tax consequences to Mr. Young and his Affiliates from the
contribution of their interests in the Golf Courses will be deferred.
- The Company will enter into employment agreements with Messrs. Blair, Dick
and Peters providing for annual base salaries of $250,000, $150,000 and
$125,000, respectively, and the possibility of cash performance bonuses.
See "Management -- Employment Agreements."
TRANSFER DOCUMENTS
The transfer of the Golf Courses is subject to the completion of the
Offering as well as the normal and customary conditions to the closing of real
estate transactions. The Company will assume certain past obligations and all
obligations arising after the transfer of the Golf Courses to the Company. The
agreements to transfer the Golf Courses will contain representations and
warranties to the Company concerning the Golf Courses customarily found in
agreements of such type. Such representations and warranties will generally
survive the closing of the transfer of title to the Golf Courses for one year.
The obligations of the Prior Owners to indemnify the Company for breaches of
their representations and warranties will be secured by a pledge of OP Units
from each Prior Owner for a period of one year, which OP Units will also secure
the obligations of the related Initial Lessee under the applicable Participating
Lease.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
RELATIONSHIPS AMONG OFFICERS AND DIRECTORS
Larry Young is a director of the Company and the majority owner of The
Legends Group and the Legends Lessees. Mr. Blair, upon completion of the
Offering, will resign as Executive Vice President and Chief Operating Officer of
Legends Group Ltd. and will not have any continuing affiliation or interest in
the golf operations of The Legends Group.
ACQUISITION OF INTERESTS IN CERTAIN OF THE GOLF COURSES
Mr. Young and his affiliates will receive 3,738,556 OP Units in exchange for
their interests in certain of the Golf Courses. Upon exercise of his right to
redeem such OP Units (which rights are not exercisable until beginning one year
after the completion of the Offering), such persons and entities may receive an
aggregate of 3,738,556 shares of Common Stock or, at the Company's option, cash
(approximately $74.8 million based on the Offering Price). See "Partnership
Agreement -- Redemption Rights."
REPAYMENT OF INDEBTEDNESS
The Company will repay approximately $26.5 million of indebtedness
guaranteed by Mr. Young. The Company also will pay to Mr. Young's affiliates
approximately $8.2 million in repayment of a loan made to The Legends Group in
connection with the development of the two recently opened Golf Courses.
Additionally, the Company will reimburse The Legends Group $522,500 and Mr. Dick
$62,000 for direct out-of-pocket expenses incurred in connection with the
Formation Transactions.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with W. Bradley Blair, II,
David J. Dick and Scott D. Peters, pursuant to which Mr. Blair will serve as
Chairman of the Board, Chief Executive Officer and President, Mr. Dick will
serve as Executive Vice President and Mr. Peters will serve as Senior Vice
President and Chief Financial Officer of the Company for a term of four years,
three years and one year, respectively, at an initial annual base compensation
of $250,000, $150,000 and $125,000, respectively, subject to any increases in
base compensation approved by the Compensation Committee. Upon termination of
the employments other than for cause, Messrs. Blair, Dick and Peters will be
entitled to receive severance benefits. See "Management -- Employment
Agreements."
OPTION TO PURCHASE AND RIGHT OF FIRST REFUSAL
The Legends Group currently owns a golf course that is not being contributed
to the Company, because it is subject to a ground lease with a short remaining
term, and may acquire or develop additional golf courses in the future. The
Company will have an option and right of first refusal to acquire all such golf
courses, pursuant to an Option to Purchase and Right of First Refusal Agreement
(the "Option Agreement"). Commencing four years after the public opening of a
golf course developed by The Legends Group, or 24 months after the acquisition
of an established operating golf course, the Company may purchase the applicable
golf course under the Option Agreement for a purchase price based on the net
operating income of the golf course, subject to adjustments agreed upon by the
parties, divided by a capitalization rate equal to the Company's cost of equity
capital plus 200 basis points. For purposes of this calculation, the Company's
cost of equity capital is deemed to equal the Company's Funds From Operations
yield for the then current fiscal year as published by First Call, less reserves
for capital expenditures. In the event The Legends Group receives a bona fide
third party offer to acquire a developed golf course, the option will not be
effective pending the acquisition by the third party, in which case the Company
shall have the right to purchase the developed golf course pursuant to the right
of first refusal described below. The Company anticipates that any such
developed golf course will have achieved stabilized operating revenues before
the Company would consider purchasing such developed golf course from The
Legends Group or any affiliate of The Legends Group.
If the Company does not elect to exercise its option to acquire a golf
course owned, acquired or developed by The Legends Group, or if the parties are
unable to agree on the adjustments to net operating income for purposes of the
pricing formula, then the Company will have a right of first refusal under the
Option Agreement
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with respect to such golf course. The right of first refusal will obligate The
Legends Group to offer the Company the right to buy any such golf course on the
same terms and conditions as The Legends Group intends to offer to any third
party. If the Company does not exercise its right to acquire such golf course,
The Legends Group will be free to sell to a third party, provided if The Legends
Group either opts not to sell the golf course within nine months or reduces the
purchase price by 5% or more, The Legends Group must again offer the golf course
to the Company. The Option Agreement shall generally run for a period of 10
years after the Offering.
PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE PARTNERSHIP AGREEMENT, INCLUDING THE
DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTNERSHIP AGREEMENT, WHICH IS
FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART.
MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. Pursuant to the Partnership
Agreement, the Company, as the sole general partner of the Operating
Partnership, will have, subject to certain protective rights of the Limited
Partners described below, full, exclusive and complete responsibility and
discretion in the management and unilateral control of the Operating Partnership
including the ability to cause the Operating Partnership to enter into certain
major transactions including acquisitions, dispositions, refinancings and
selection of golf course operators and to cause changes in the Operating
Partnership's line of business and distribution policies. If the Company elects
to sell a golf course contributed by a Limited Partner, then the Company will be
obligated to use reasonable efforts to structure the sale as tax deferred
exchange, subject to limited exceptions.
The consent of Limited Partners (other than GTA LP) holding 66.67% of the
interests in the Operating Partnership is required with respect to certain
amendments to the Partnership Agreement, including amendments which (i)
adversely affect the Limited Partners' rights to redeem their OP Units, (ii)
adversely affect the Limited Partners' rights to receive cash distributions,
(iii) alter the Operating Partnership's allocation of income, or (iv) impose on
the Limited Partners the obligation to make capital contributions. In addition,
the affirmative vote of Limited Partners (including GTA LP) holding 66.67% of
the interests in the Operating Partnership is required for a sale of all or
substantially all of the assets of the Operating Partnership, or to approve a
merger or consolidation of the Operating Partnership.
TRANSFERABILITY OF OP UNITS
The Partnership Agreement generally provides that Limited Partners may not
transfer their OP Units without the consent of the Company.
PLEDGE
Each Limited Partner may pledge up to 85% of its OP Units as collateral to
institutional third party lenders. In addition, for a period of at least two
years, each Prior Owner will pledge to the Company OP Units having a value based
on the Offering Price equal to 15% of the purchase price of the Golf Course
contributed by it (approximately 16 months of initial Base Rent, at the Offering
Price) as collateral for the Participating Lease of its affiliated Initial
Lessee, see "Percentage Lease -- Security Deposit," and to secure its obligation
to indemnify the Company for representations and warranties made in connection
with the contribution of the Golf Courses. In addition, the OP Units pledged to
the Company will also secure indemnification obligations of the Prior Owner in
connection with the Formation Transactions for a period of one year. See "The
Formation Transactions."
REDEMPTION RIGHTS
Pursuant to the Partnership Agreement, the Limited Partners, other than GTA
LP, will receive rights which will enable them to cause the Operating
Partnership to redeem each OP Unit for cash equal to the value of a share of
Common Stock (or, at the Company's election, the Company may purchase each OP
Unit offered for redemption for one share of Common Stock) (the "Redemption
Rights"). The Company may not make such election unless a registration statement
is effective with respect to the issuance of such shares. Further, the
Redemption Rights may
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not be exercised if and to the extent that the delivery of Common Stock upon
exercise of such rights (regardless of whether the Company would exercise its
rights to deliver Common Stock) would (i) result in any person owning, directly
or indirectly, shares of Common Stock in excess of the Ownership Limit, (ii)
result in shares of capital stock of the Company being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii) result
in the Company being "closely held" within the meaning of section 856(h) of the
Code, (iv) cause the Company to own, actually or constructively, 10% or more of
the ownership interests in a tenant of the Company's or the Operating
Partnership's real property, within the meaning of section 856(d)(2)(B) of the
Code, or (v) cause the acquisition of shares of Common Stock by such redeeming
Limited Partner to be "integrated" with any other distribution of shares of
Common Stock for purposes of complying with the Securities Act. The Redemption
Rights may be exercised (subject to certain lock-up agreements described in
"Underwriting") with respect to 50% of each Limited Partner's OP Units, at any
time after one year following the completion of the Offering and with respect to
the other 50% of each Limited Partner's OP Units at any time after two years
following the completion of the Offering, provided that not more than four
redemptions by any Limited Partner may occur during each calendar year, and each
Limited Partner may not exercise the Redemption Right for less than 1,000 OP
Units or, if such Limited Partner holds less than 1,000 OP Units, all of the OP
Units held by such Limited Partner. Prior to the expiration of such one year
period, the Redemption Right may be exercised (but only for cash) by a lender to
which any OP Units may have been pledged, provided that such pledge was
permissible in light of the lock-up agreements described in "Underwriting." In
the future, it may become necessary to place additional restrictions on the
exercise of Redemption Rights in order to assure that the Operating Partnership
does not become a "publicly traded partnership" that is treated as a corporation
for federal income tax purposes. See "Federal Income Tax Considerations -- Tax
Aspects of the Operating Partnership and the Subsidiary Partnerships." The
aggregate number of shares of Common Stock initially issuable upon exercise of
the Redemption Rights will be 4,135,365. The number of shares of Common Stock
issuable upon exercise of the Redemption Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions, which otherwise would have the effect of diluting the ownership
interests of the Limited Partners or the stockholders of the Company. See
"Shares Available for Future Sale."
CAPITAL CONTRIBUTION
The Company, through GTA GP and GTA LP, will contribute to the Operating
Partnership substantially all of the net proceeds of the Offering, in
consideration of which GTA GP will receive a 0.2% general partnership interest
and GTA LP will receive an approximate 40.7% limited partnership interest in the
Operating Partnership. The Partnership Agreement provides that if the Operating
Partnership requires additional funds at any time or from time to time in excess
of funds available to the Operating Partnership from borrowing or capital
contributions, the Company may borrow such funds from a financial institution or
other lender and lend such funds to the Operating Partnership on the same terms
and conditions as are applicable to the Company's borrowing of such funds. Under
the Partnership Agreement, the Company generally is obligated to contribute,
through GTA GP and GTA LP, the proceeds of a share offering as additional
capital to the Operating Partnership in exchange for additional interests in the
Operating Partnership. Moreover, the Company is authorized, through GTA GP and
GTA LP, to cause the Operating Partnership to issue partnership interests for
less than fair market value if the Company has concluded in good faith that such
issuance is in the best interests of the Company and the Operating Partnership.
If the Company so contributes additional capital to the Operating Partnership,
GTA GP and GTA LP will receive additional OP Units and their percentage
interests in the Operating Partnership will be increased on a proportionate
basis based upon the amount of such additional capital contributions and the
value of the Operating Partnership at the time of such contributions.
Conversely, the percentage interests of the Limited Partners, other than GTA LP,
will be decreased on a proportionate basis in the event of additional capital
contributions by the Company.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2071, or until sooner dissolved pursuant to the terms of the
Partnership Agreement.
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TAX MATTERS
Pursuant to the Partnership Agreement, the general partner will be the tax
matters partner of the Operating Partnership and, as such, will have authority
to handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.
PRINCIPAL STOCKHOLDERS OF THE COMPANY AND
PRINCIPAL PARTNERS IN THE OPERATING PARTNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Common Stock and OP Units by each director, by each named executive
officer of the Company, by all directors and officers of the Company as a group
and by each person who is expected to be the beneficial owner of 5% or more of
the outstanding Common Stock immediately following the completion of the
Offering. As of the date of this Prospectus each person named in the table has
sole voting and investment power with respect to all of the shares of Common
Stock or OP Units shown as beneficially owned by such person, except as
otherwise set forth in the notes to the table.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES OF PERCENTAGE INTEREST
NUMBER OF SHARES OF COMMON STOCK NUMBER OF OP IN OPERATING
NAME AND ADDRESS OF BENEFICIAL OFFICER COMMON STOCK OUTSTANDING UNITS (2) PARTNERSHIP
- --------------------------------------- --------------------- ----------------------- ------------- -------------------
<S> <C> <C> <C> <C>
W. Bradley Blair....................... -- -- 12,500 *
David J. Dick.......................... -- -- 12,500 *
Scott D. Peters........................ -- -- -- --
Larry D. Young (1)..................... -- -- 3,738,556 53.4%
Directors and officers
as a group (8 persons)................ -- -- 3,763,556 53.8%
</TABLE>
- ------------
* Less than 1%.
(1) Address is The Legends Group, 1500 Legends Drive, Myrtle Beach, South
Carolina 29577.
(2) The Operating Partnership will have 7,000,356 OP Units outstanding as of the
Offering, of which 2,865,000 will be owned by the Company. The numbers and
percentages set forth in this table assume that all outstanding OP Units are
redeemed for shares of Common Stock. The OP Units (other than those owned by
the Company) may be redeemed as follows: 50% after the first anniversary of
the completion of the Offering and 50% after the second anniversary of the
completion of the Offering.
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CAPITAL STOCK
GENERAL
Under the Charter, the total number of shares of all classes of stock that
the Company has authority to issue is 100,000,000 consisting of 90,000,000
shares of Common Stock and 10,000,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"). No shares of Preferred Stock are outstanding
or will be outstanding immediately after completion of the Offering.
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of Preferred Stock establishing the
powers, designations, preferences and relative, participating, option or other
special rights of such series, the holders of such shares of Common Stock
exclusively possess all voting power. The Charter does not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of Preferred Stock, the holders of Common Stock
are entitled to such distributions as may be declared from time to time by the
Board of Directors from funds available therefor, and upon liquidation are
entitled to receive PRO RATA all assets of the Company available for
distributions to such holders. All shares of Common Stock issued in the Offering
will be fully paid and nonassessable and the holders thereof will not have
preemptive rights.
The Charter provides for a staggered Board of Directors consisting of three
classes as nearly equal in size as practicable. Each class holds office until
the third annual meeting for selection of directors following the election of
such class, except that the initial terms of the three classes expire in 1998,
1999 and 2000, respectively. The provisions relating to the staggered board may
be amended only upon the vote of the holders of at least 66.67% of the capital
stock entitled to vote for the election of directors.
The Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof. The
Company has no present intention to issue shares of Preferred Stock.
CORPORATE GOVERNANCE
Certain significant actions will require stockholder approval, including
certain amendments to the Charter or the Bylaws including provisions relating to
cumulative voting and indemnification. In addition, certain actions relating to
the Operating Partnership and the Company's interest therein require approval of
the Limited Partners. See "Partnership Agreement -- Management."
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of the Company's outstanding
shares of capital stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year, and the Company must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations -- Requirements for Qualification." In addition, the Company must
meet certain requirements regarding the nature of its gross income in order to
qualify as a REIT. One such requirement is that at least 75% of the Company's
gross income for each year must consist of rents from real property and income
from certain other real property investments. The rents received by the
Operating Partnership from an Initial Lessee would not qualify as rents from
real property, which would likely result in loss of REIT status for the Company,
if the Company were at any time to own, directly or constructively, 10% or more
of the ownership interests in an Initial Lessee within the meaning of Section
856(d)(2)(B) of the Code. See "Federal Income Tax Considerations -- Requirements
for Qualification -- Income Tests."
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Charter, subject to certain exceptions described below,
provides that no person may own, or be deemed to own by virtue
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of the constructive ownership provisions of the Code, more than 9.8% of the
lesser in value of the total number or value of the outstanding shares of Common
Stock or more than 9.8% of the outstanding shares of Preferred Stock (the
"Ownership Limit"). The constructive ownership rules of the Code are complex and
may cause shares owned actually or constructively by two or more related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the outstanding shares
of Common Stock or 9.8% of the shares of Preferred Stock (or the acquisition of
an interest in an entity which owns the shares) by an individual or entity could
cause that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the outstanding shares of Common Stock or
9.8% of the outstanding shares of Preferred Stock, and thus subject such shares
to the Ownership Limit provisions of the Charter. The Ownership Limit also
prohibits any transfer of Common or Preferred Stock that would (i) result in the
Common and Preferred Stock being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (ii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, or (iii) cause
the Company to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the Company's real property, within the meaning of
Section 856(d)(2)(B) of the Code. Except as otherwise provided below, any such
acquisition or transfer of the Company's capital stock (including any
constructive acquisition or transfer of ownership) shall be null and void, and
the intended transferee or owner will acquire no rights to, or economic
interests in, the shares.
Subject to certain exceptions described below, any purported transfer of
Common or Preferred Stock that would (i) result in any person owning, directly
or indirectly, Common or Preferred Stock in excess of the Ownership Limit, (ii)
result in the Common and Preferred Stock being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Code,
or (iv) cause the Company to own, directly or constructively, 10.0% or more of
the ownership interests in a tenant of the Company's or the Partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, will be
designated as "Shares-in-Trust" and transferred automatically to a trust (the
"Share Trust") effective on the day before the purported transfer of such Common
or Preferred Stock. The record holder of the Common or Preferred Stock that are
designated as Shares in Trust (the "Prohibited Owner") will be required to
submit such number of Common or Preferred Stock to the Share Trust for
designation in the name of the Share Trustee. The Share Trustee will be
designated by the Company. The beneficiary of the Share Trust (the
"Beneficiary") will be one or more charitable organizations that are named by
the Company.
Shares-in-Trust will remain issued and outstanding Common or Preferred Stock
and will be entitled to the same rights and privileges as all other shares of
the same class or series. The Share Trust will receive all dividends and
distributions on the Shares-in-Trust and will hold such dividends or
distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust. The Share Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Share Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) that the record date of which was on or after the date that such shares
became Shares-in-Trust. The Prohibited Owner generally will receive from the
Share Trustee the lesser of (i) the price per share such Prohibited Owner paid
for the Common or Preferred Stock that were designated as Shares-in-Trust (or,
in the case of a gift or devise, the Market Price (as defined below) per share
on the date of such transfer) and (ii) the price per share received by the Share
Trustee from the sale or other disposition of such Shares-in-Trust. Any amounts
received by the Share Trustee in excess of the amounts to be paid to the
Prohibited Owner will be distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per
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share on the date that the Company, or its designee, accepts such offer. The
Company will have the right to accept such offer for a period of 90 days after
the later of (i) the date of the purported transfer which resulted in such
Shares-in-Trust and (ii) the date the Company determines in good faith that a
transfer resulting in such Shares-in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
or Preferred Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares of Common or Preferred Stock are listed or admitted to
trading or, if the shares of Common or Preferred Stock are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the shares of Common or Preferred Stock are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common or Preferred Stock as selected by the
Board of Directors. "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common or Preferred Stock
are listed or admitted to trading is open for the transaction of business or, if
the shares of Common or Preferred Stock are not listed or admitted to trading on
any national securities exchange, shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
Any person who acquires or attempts to acquire Common or Preferred Stock in
violation of the foregoing restrictions, or any person who owned shares of
Common or Preferred Stock that were transferred to a Share Trust, will be
required (i) to give immediately written notice to the Company of such event and
(ii) to provide to the Company such other information as the Company may request
in order to determine the effect, if any, of such transfer on the Company's
status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common and Preferred Stock must within 30 days after
January 1 of each year, provide to the Company a written statement or affidavit
stating the name and address of such direct or indirect owner, the number of
shares of Common and Preferred Stock owned directly or indirectly, and a
description of how such shares are held. In addition, each direct or indirect
stockholder shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such ownership
on the Company's status as a REIT and to ensure compliance with the Ownership
Limit.
The Ownership Limit generally will not apply to the acquisitions of shares
of Common or Preferred Stock by an underwriter that participates in a public
offering of such shares. In addition, the Board of Directors, upon receipt of a
ruling from the Service or an opinion of counsel and upon such other conditions
as the Board of Directors may direct, may exempt a person from the Ownership
Limit under certain circumstances. The foregoing restrictions will continue to
apply until the Board of Directors, with the approval of the holders of at least
two-thirds of the outstanding shares of all votes entitled to vote on such
matter at a regular or special meeting of the stockholders of the Company,
determines to terminate its status as a REIT.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to remove any ownership concentration
limitation. Any change of the Ownership Limit would require an amendment to the
Charter. Such amendment requires the affirmative vote of holders holding at
least
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two-thirds of the outstanding shares entitled to vote on the matter. In addition
to preserving the Company's status as a REIT, the Ownership Limit may have the
effect of delaying, deferring, discouraging or preventing an acquisition of
control of the Company without the approval of the Board of Directors.
All certificates representing shares of Common or Preferred Stock will bear
a legend referring to the restrictions described above.
BUSINESS COMBINATIONS
The Charter requires that business combinations (as defined) involving the
Company be approved by the affirmative vote of a majority of the voting
stockholders of the Company. A business combination is defined in the Charter as
(i) any merger or consolidation of the Company with or into another entity, (ii)
any share exchange; or (iii) any sale of all or substantially all of the assets
of the Company.
LIMITATIONS ON CHANGES IN CONTROL
The provisions of the Charter and the Bylaws providing for ownership
limitations, a staggered Board of Directors and the authorization of the Board
of Directors to issue Preferred Stock without stockholder approval could have
the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management, and as a result could prevent the
stockholders of the Company from being paid a premium for their shares of Common
Stock.
LIMITATION OF LIABILITY OF DIRECTORS; INDEMNIFICATION AGREEMENTS
The Charter provides that a director will not be personally liable for
monetary damages to the Company or its stockholders for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) for any transaction from which the director derived an improper
personal benefit.
The Company's Charter and Bylaws require the Company to indemnify its
directors, officers and certain other parties to the fullest extent permitted by
law, and advance to the officers and directors all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company must also indemnify and advance all expenses incurred by
officers and directors seeking to enforce their rights under the indemnification
agreements, and cover officers and directors under the Company's directors' and
officers' liability insurance.
It is the position of the Securities and Exchange Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and unenforceable pursuant to Section 14
of the Securities Act.
TRANSFER AGENT AND REGISTRAR
The Company intends to appoint First Union National Bank as transfer agent
and registrar prior to the completion of the Offering.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the Charter
and Bylaws of the Company. Copies of the Charter and Bylaws may be obtained as
described under "Available Information."
MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain issuances
of equity securities) between a Maryland corporation and any Interested
Stockholder or an affiliate thereof are prohibited for five years after the date
on which the Interested Stockholder becomes an Interested Stockholder unless
approved by two super-majority votes of the stockholders. Under the MGCL, an
"Interested Stockholder" includes any individual or entity owning 10% or more of
a corporation's outstanding stock which is entitled to vote generally in the
election of directors ("Voting Stock"). However, as permitted by the statute,
the Board of Directors has elected to exempt the Company from the business
combination provision of the MGCL and, therefore, unless such exemption is
amended or repealed by the Board of Directors, the five-year prohibition and the
super-majority vote requirements described above will not apply to any business
combination between any Interested Stockholder and the Company.
Although the Board of Directors has voted to exempt any business combination
with an Interested Stockholder from the provisions of the business combination
provisions of the MGCL, such exemption may be amended or repealed by the Board
of Directors at any time, except that the exemption may not be repealed or
amended with respect to the Prior Owners and their affiliates. Such action by
the Board of Directors would impose the restrictions of the business combination
provisions of the MGCL on the Company, which could delay, defer or prevent a
transaction or change in control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interest of the
stockholders or that could otherwise adversely affect the interests of the
stockholders.
CONTROL SHARE ACQUISITIONS
The MGCL also provides that "control shares" (defined below) of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror, by
officers or by directors who are employees of the corporation. The control share
provisions of the MGCL do not apply (a) to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the transaction
or (b) to acquisitions approved or exempted by the corporation's charter or
bylaws. The Bylaws of the Company currently contain a provision exempting from
the control share provisions of the MGCL any and all acquisitions by any person
of the Company's shares of stock and, as a result, the control share provisions
currently do not apply to the Company. There can be no assurance, however, that
such provisions will not be amended or eliminated by the Board of Directors at
any time in the future.
"Control Shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Thus, if an acquisition of control shares within one range is approved by
stockholders and is followed by an acquisition of additional control shares by
the same person that results in the total number of control shares owned by that
person being in a higher range, then voting rights for the additional shares in
excess of the previously approved range would also have to be approved by the
stockholders. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain limitations, the corporation may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of the stockholders meeting at which the voting
rights of such shares were considered and not approved. If voting rights for
control shares are approved at the stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.
As stated above, the control share provisions of the MGCL do not currently
apply to the Company because the Bylaws of the Company contain a provision
exempting from the control share provisions of the MGCL any and all acquisitions
by any person of the Company's shares of stock. There can be no assurance,
however, that such provision will not be amended or eliminated by the Board of
Directors at any time in the future. Moreover, any amendment or elimination of
such provision of the Bylaws may result in the application of the control share
provisions of the MGCL not only to shares which may be acquired in any future
control share acquisitions, but also to shares acquired in prior control share
acquisitions. The potential for such application of the control share provisions
of the MGCL could delay, defer or prevent a transaction or change in control of
the Company that might involve a premium price for the Company's stock or
otherwise be in the best interest of the stockholders.
INTERESTED DIRECTOR TRANSACTIONS
The MGCL provides that a contract or other transaction between a corporation
and any of its directors or between a corporation and any other entity in which
any of its directors is a director or has a material financial interest is not
void or voidable by reason of such common directorship or interest if: (i) the
fact of the common directorship or interest is disclosed or known to the board
of directors and the board of directors ratifies or approves the contract or
transaction by the affirmative vote of a majority of its disinterested
directors; (ii) the fact of the common directorship or interest is disclosed or
known to the stockholders entitled to vote, and the contract or transaction is
authorized, approved or ratified by a majority of the votes cast by the
stockholders entitled to vote, other than the votes of shares owned of record or
beneficially by the interested director or corporation; or (iii) the contract or
transaction is fair and reasonable to the corporation. In addition, the
Company's Charter contains a provision for approval by the disinterested
directors that is substantially similar to the provision of the MGCL referred to
in clause (i) of the preceding sentence.
AMENDMENTS TO THE CHARTER AND BYLAWS
The Charter provides generally that its provisions may be amended only by
the affirmative vote of a majority of all the votes entitled to be cast on the
matter.
The Bylaws provide that the Board of Directors has the exclusive power to
adopt, alter or repeal any provision of the Bylaws and to make new Bylaws,
except as provided with respect to the provision regarding the exemption from
the control share provision of the MGCL.
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SHARES AVAILABLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
2,865,000 shares of Common Stock. The shares of Common Stock issued in the
Offering will be freely tradeable by persons other than "affiliates" of the
Company without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), subject to the limitations on ownership set forth in the
Charter. See "Capital Stock -- Restrictions on Ownership." In addition to the
shares of Common Stock issued in the Offering, the Company may issue additional
shares of Common Stock if the Prior Owners exercise their Redemption Rights.
Under the Partnership Agreement, the Prior Owners will have the right to cause
the Operating Partnership to redeem 50% of their OP Units for cash or, at the
Company's election, Common Stock on a one-for-one basis, beginning one year
after the completion of the Offering. The other 50% of their OP Units may be
redeemed at any time after two years following the completion of the Offering.
See "The Partnership Agreement -- Redemption Rights." The Company may not make
an election to redeem OP Units for Common Stock unless a registration statement
is effective with respect to the issuance of such shares. Certain of the shares
of Common Stock owned by the Prior Owners may be subject to limitations on
resale under Rule 145 promulgated under the Securities Act. As described below,
the Company has granted certain registration rights and "piggyback" rights to
the Prior Owners with respect to shares of Common Stock issuable upon the
redemption of their OP Units.
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. The Common Stock has been approved for listing on the American
Stock Exchange subject to official notice of issuance. No prediction can be made
as to the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price prevailing from time to
time. Sales of substantial amounts of Common Stock or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Stock. See "Risk Factors -- Adverse effect of Shares Available for Future Sale
on Market Price of Common Stock."
For a description of certain restrictions on transfers of Common Stock held
by certain stockholders of the Company, see "Underwriting" and "Capital Stock --
Restrictions on Ownership."
REGISTRATION RIGHTS
Under the Partnership Agreement, the Company may elect to purchase OP Units
offered for redemption with shares of Common Stock only pursuant to an effective
registration statement with respect to the issuance of such shares. To
facilitate such election, the Company has agreed to register one year from the
completion of the Offering all of the shares of Common Stock issuable to Prior
Owners upon redemption of their OP Units pursuant to the exercise of their
Redemption Rights. The Company will be obligated to maintain the effectiveness
of such registration statement until a date to be agreed upon or until such time
as all of the shares registered pursuant to such registration statement (i) have
been disposed of pursuant to such registration statement, (ii) have been
otherwise distributed pursuant to Rule 144 promulgated under the Securities Act
("Rule 144"), or (iii) have been otherwise transferred in a transaction
resulting in the transferee receiving Common Stock not deemed to be "restricted
securities" under Rule 144. The Company has the right to delay the filing of the
shelf registration statement for a period of 120 days in the exercise of its
reasonable discretion. The Company must bear the expenses of satisfying the
registration requirements, except that the expenses shall not include any
underwriting discounts or commissions, Blue Sky registration fees, or transfer
taxes relating to the shares.
Under the Partnership Agreement, the Prior Owners will be entitled to
include within any registration statement under the Securities Act filed by the
Company with respect to any underwritten public offering of Common Stock (either
of its own account or the account of other security holders) at any time the
shares held by such holders upon exercise of their Redemption Rights, subject to
certain conditions and restrictions. The existence of such agreement to the
Company may adversely affect the terms upon which the Company can obtain
additional equity financing in the future.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding the Offering that may be relevant to a prospective holder of Common
Stock in the Company is based on current law. This discussion does not purport
to deal with all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws.
The statements in this discussion and the opinion of O'Melveny & Myers LLP
are based on current provisions of the Code, existing, temporary, and currently
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, existing administrative rulings and practices of the
Service, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company currently has in effect an election to be taxed as a
pass-through entity under subchapter S of the Code, but intends to revoke its S
election on the day prior to the completion of the Offering. The Company plans
to make an election to be taxed as a REIT under Sections 856 through 860 of the
Code, commencing with its short taxable year beginning on the day prior to the
completion of the Offering and ending on December 31, 1997. The Company believes
that, commencing with its initial taxable year, it will be organized and will
operate in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to operate in such a manner, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified as a
REIT.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof. O'Melveny &
Myers LLP has acted as tax counsel to the Company in connection with the
Offering.
In the opinion of O'Melveny & Myers LLP, commencing with the Company's
taxable year ending December 31, 1997, the Company will be organized in
conformity with the requirements for qualification as a REIT, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Code. It must be emphasized that this opinion
is based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters. In addition, this opinion is based
upon the factual representations of the Company concerning its business and
properties as set forth in this Prospectus and assumes that the actions
described in this Prospectus are completed in a timely fashion. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels, diversity of stock
ownership, and the various other qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by O'Melveny & Myers
LLP. Accordingly, no assurance can be given that the actual results of the
Company's operation for any particular taxable year will satisfy such
requirements. See "-- Failure to Qualify."
In any year in which the Company qualifies as a REIT, in general it will not
be subject to federal income tax on that portion of its taxable income or
capital gain which is distributed to stockholders. The Company will, however, be
subject to tax at normal corporate rates upon any taxable income or capital gain
not distributed.
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Notwithstanding its qualification as a REIT, the Company may also be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability. The Company will
also be subject to a tax of 100% on net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property) and, if the Company has (i) net income from the sale or
other disposition of "foreclosure property" (generally, property acquired by
reason of a default on indebtedness or a lease) which is held primarily for sale
to customers in the ordinary course of business or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company may
also be subject to the corporate "alternative minimum tax," on its items of tax
preference, as well as tax in certain situations not presently contemplated.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
The Company believes that it will have issued sufficient shares pursuant to
the Offering to allow it to satisfy conditions (v) and (vi). In addition, the
Company's Charter provides for restrictions regarding the transfer and ownership
of shares, which restrictions are intended to assist the Company in continuing
to satisfy the share ownership requirements described in (v) and (vi) above.
Such transfer and ownership restrictions are described in "Capital Stock --
Restrictions on Ownership."
The Company currently has two subsidiaries and may have additional
subsidiaries in the future. Code Section 856(i) provides that a corporation that
is a "qualified REIT subsidiary" shall not be treated as a separate corporation,
and all assets, liabilities, and items of income, deduction, and credit of a
"qualified REIT subsidiary" shall be treated as assets, liabilities, and items
of income, deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which has been held by the REIT at all
times during the period such corporation was in existence. Thus, in applying the
requirements described herein, any "qualified REIT subsidiaries" acquired or
formed by the Company will be ignored, and all assets, liabilities, and items of
income, deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of income, deduction, and credit of the Company. Each of
the Company's current subsidiaries is a "qualified REIT subsidiary." The
Company's subsidiaries therefore will not be subject to federal corporate income
taxation, although they may be subject to state and local taxation.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income of the partnership retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, the Company's proportionate share of the
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assets, liabilities and items of income of the Operating Partnership will be
treated as assets, liabilities and items of income of the Company for purposes
of applying the requirements described herein. A summary of the rules governing
the federal income taxation of partnerships and their partners is provided below
in "Federal Income Tax Consideration -- Tax Aspects of the Operating
Partnership."
INCOME TESTS. In order to qualify and maintain qualification as a REIT, the
Company annually must satisfy three gross income requirements. First, at least
75% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income (including gross income
from prohibited transactions) for each taxable year.
Pursuant to the Participating Leases, the Initial Lessees lease from the
Company the land, buildings, improvements and equipment comprising the Golf
Courses for a 10-year period, with, except in one instance, options to extend
for six additional terms of five years each. The Participating Leases provide
that the Initial Lessees will be obligated to pay to the Company (i) Base Rent
and, if applicable, Participating Rent and (ii) certain other additional
charges.
In order for the Base Rent, the Participating Rent and the additional
charges to constitute "rents from real property," the Participating Leases must
be respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Participating Leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (i) the intent of the parties, (ii) the form of the agreement, (iii)
the degree of control over the property that is retained by the property owner
(e.g., whether the lessee has substantial control over the operation of the
property or whether the lessee was required simply to use its best efforts to
perform its obligations under the agreement), and (iv) the extent to which the
property owner retains the risk of loss with respect to the property (e.g.,
whether the lessee bears the risk of increases in operating expenses or the risk
of damage to the property).
In addition, Code Section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property, (ii) the service recipient controls the
property, (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in value,
the recipient shares in any appreciation in the value of the property, the
recipient shares in savings in the property's operating costs, or the recipient
bears the risk of damage to or loss of the property), (iv) the service provider
does not bear any risk of substantially diminished receipts or substantially
increased expenditures if there is nonperformance under the contract, (v) the
service provider does not use the property concurrently to provide significant
services to entities unrelated to the service recipient, and (vi) the total
contract price does not substantially exceed the rental value of the property
for the contract period. Since the determination whether a service contract
should be treated as a lease is inherently factual, the presence or absence of
any single factor may not be dispositive in every case.
O'Melveny & Myers LLP is of the opinion that each Participating Lease will
be treated as a true lease for federal income tax purposes. Such opinion is
based, in part, on the following facts: (i) the Operating Partnership and the
Initial Lessees intend for their relationship to be that of a lessor and lessee
and such relationship is documented by lease agreements, (ii) the Initial
Lessees have the right to exclusive possession and use and quiet
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enjoyment of the Golf Courses during the term of the Participating Leases, (iii)
the Initial Lessees bear the cost of, and will be responsible for, day-to-day
maintenance and repair of the Golf Courses, other than the cost of certain
capital expenditures, and dictate how the Golf Courses are operated, maintained,
and improved, (iv) the Initial Lessees bear all of the costs and expenses of
operating the Golf Courses (including the cost of any inventory used in their
operation) during the term of the Participating Leases other than the cost of
certain furniture, fixtures and equipment, and certain capital expenditures),
(v) the Initial Lessees benefit from any savings in the costs of operating the
Golf Courses during the term of the Participating Leases, (vi) in the event of
damage or destruction to a Golf Course, the Initial Lessees are at economic risk
because they will be obligated either (A) to restore the property to its prior
condition, in which event they will bear all costs of such restoration in excess
of any insurance proceeds or (B) in certain circumstances, terminate the
Participating Lease, (vii) the Initial Lessees have indemnified the Operating
Partnership against all liabilities imposed on the Operating Partnership during
the term of the Participating Leases by reason of (A) injury to persons or
damage to property occurring at the Golf Courses or (B) the Initial Lessees'
use, management, maintenance or repair of the Golf Courses, (viii) the Initial
Lessees are obligated to pay substantial Base Rent for the period of use of the
Golf Courses, and (ix) the Initial Lessees stand to incur substantial losses (or
reap substantial gains) depending on how successfully they operate the Golf
Courses. Such opinion is also based upon the representation of the Company to
the effect that upon termination of the Participating Leases (including the
optional fixed-rate renewal periods), each such Golf Course is expected to have
a remaining useful life equal to at least 20% of its expected useful life when
contributed to the Operating Partnership, and a fair market value equal to at
least 20% of its fair market value when contributed to the Operating
Partnership.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Participating Leases that discuss whether
such leases constitute true leases for federal income tax purposes. Therefore,
the opinion of O'Melveny & Myers LLP with respect to the relationship between
the Operating Partnership and the Initial Lessees is based upon all of the facts
and circumstances and upon rulings and judicial decisions involving situations
that are considered to be analogous. Opinions of counsel are not binding upon
the Service or any court, and there can be no complete assurance that the
Service will not assert successfully a contrary position. If the Participating
Leases are recharacterized as service contracts or partnership agreements,
rather than true leases, part or all of the payments that the Operating
Partnership receives from the Initial Lessees may not be considered rent or may
not otherwise satisfy the various requirements for qualification as "rents from
real property." In that case, the Company likely would not be able to satisfy
either the 75% or 95% gross income tests and, as a result, would lose its REIT
status.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant"). The
Charter provides that no stockholder may own, directly or constructively, in
excess of 9.8% of the Common Stock. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue, provided, however, the Company
may directly perform certain services that are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, (iii) with the exception of one Golf Course derive
rental income attributable to personal property (other than personal
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property leased in connection with the lease of real property, the amount of
which is less than 15% of the total rent received under the lease), or (iv)
perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom the Company derives no
revenue. With respect to one Golf Course, a portion of the revenues derived
under the Participating Lease applicable to such Golf Course (the portion
attributable to personal property) will not be considered as "rents from real
property." The amount of the anticipated disqualified income under such
Participating Lease, however, will not prevent the Company from qualifying as a
REIT or subject it to any federal income taxation.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "General," even if these relief provisions apply, a tax would
be imposed with respect to the excess net income.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments not included in the 75% asset class,
the value of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities (except for its ownership
interest in the stock of a qualified REIT subsidiary).
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset requirements either did not exist immediately after the acquisition of
any particular asset or was not wholly or partly caused by such an acquisition
(i.e., the discrepancy arose from changes in the market values of its assets).
If the condition described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the quarter in which it arose.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if the Company should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain income for such year, and (iii) any
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undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Company intends to make timely distributions
sufficient to satisfy this annual distribution requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the Operating Partnership is the owner for federal income tax
purposes of all of the Golf Courses. As a result, the Company expects that
depreciation deductions with respect to all such Golf Courses will reduce its
"REIT taxable income". This conclusion is consistent with the opinion of
O'Melveny & Myers LLP as described above, which in turn is based upon
representations from the Company as to the expected useful life and future fair
market value of each such Golf Course. If the Service were to successfully
challenge this position, the Company might be deemed retroactively to have
failed to meet the distribution requirement and would have to rely on the
payment of a "deficiency dividend" in order to retain its REIT status.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
PARTNERSHIP ANTI-ABUSE RULE
The United States Treasury Department has issued a regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions") that authorizes the Service, in certain "abusive"
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal purpose
of substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the Partnership
Provisions. The Anti-Abuse Rule states that the Partnership Provisions are
intended to permit taxpayers to conduct joint business (including investment)
activities through a flexible economic arrangement that accurately reflects the
partners' economic agreement and clearly reflects the partners' income without
incurring any entity-level tax. The purposes for structuring a transaction
involving a partnership are determined based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal tax liability
through the use of a partnership does not, by itself, establish inconsistency
with the intent of the Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest. The
limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, the limited partners have the right, beginning
one year after the formation of the partnership, to require the redemption of
their limited partnership interests in exchange for cash or REIT stock (at the
Company's option) equal to the fair market value of their respective interests
in the partnership at the time of the redemption. The example concludes that the
use of the partnership is not inconsistent with the intent of the Partnership
Provisions and, thus, cannot be recast by the Service. Based on the foregoing,
O'Melveny & Myers LLP is of the opinion that the Anti-Abuse Rule will not have
any adverse impact on the Company's ability to qualify as a REIT. However, the
Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse
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Rule to the Company. If the conditions of the Anti-Abuse Rule are met, the
Service is authorized to take appropriate enforcement action, including
disregarding the Operating Partnership for federal tax purposes or treating one
or more of its partners as nonpartners. Any such action potentially could
jeopardize the Company's status as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gain (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a stockholder's shares they will
be included in income as long-term capital gain (or short-term capital gain if
the shares have been held for one year or less) assuming the shares are a
capital asset in the hands of the stockholder. In addition, any dividend
declared by the Company in October, November or December of any year payable to
a stockholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the stockholder on December 31 of
such year, provided that the dividend is actually paid by the Company during
January of the following calendar year. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of the
Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the Service. Any amount paid as backup withholding will be creditable against
the stockholder's income tax liability. In addition, the Company may be required
to withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the Company. The Service issued
proposed regulations in April 1996 that would alter the technical requirements
relating to backup withholding compliance as applied to foreign stockholders.
See "-- Taxation of Foreign Stockholders."
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TAXATION OF TAX-EXEMPT STOCKHOLDERS
In Revenue Ruling 66-106, 1966-1 C.B. 151, the Service ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust did not
constitute "unrelated business taxable income" ("UBTI"). Revenue rulings are
interpretive in nature and subject to revocation or modification by the Service.
However, based upon Revenue Ruling 66-106 and the analysis therein,
distributions by the Company to a stockholder that is a tax-exempt entity should
not constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its shares with "acquisition indebtedness" within the meaning of
the Code and the shares are not otherwise used in an unrelated trade or business
of the tax-exempt entity.
In certain circumstances, a pension trust that owns more than 10% of the
Company's stock will be required to treat a percentage of the dividends received
from the Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the
gross income derived by the Company from an unrelated trade or business
(determined as if the Company were a pension trust) divided by the gross income
of the Company for the year in which the dividends are paid. The UBTI Percentage
rule will apply to a pension trust holding more than 10% of the Company's stock
only if (i) the UBTI Percentage is at least 5%, (ii) the Company qualifies as a
REIT by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding shares of the
Company in proportion to their actuarial interests in the pension trust and
(iii) either (A) one pension trust owns more than 25% of the value of the
Company's stock or (B) a group of pension trusts individually holding more than
10% of the value of the Company's stock collectively owns more than 50% of the
value of the Company's stock.
TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions by the Company that are not attributable to gain from sales or
exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Common Stock is treated as
effectively connected with the conduct by the Non-U.S. Stockholder of a United
States trade or business, the Non-U.S. Stockholder generally will be subject to
a tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits tax
in the case of a Non-U.S. Stockholder that is a foreign corporation). The
Company expects to withhold United States income tax at the rate of 30% on the
gross amount of any such dividends made to a Non-U.S. Stockholders unless (i) a
lower treaty rate applies or (ii) the Non-U.S. Stockholder files an Service Form
4224 with the Company certifying that the investment to which the distribution
relates is effectively connected to a Untied States trade or business of such
Non-U.S. Stockholder. Lower treaty rates applicable to dividend income may not
necessarily apply to dividends from a REIT, however. The Service issued proposed
regulations in April 1996 that would modify the manner in which the Company
complies with the withholding requirements. Distributions in excess of current
and accumulated earnings and profits of the Company will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder otherwise is subject to tax on any gain from the sale or disposition
of his shares in the Company (as described below). If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distribution will be
subject to withholding at the same rate applicable to dividends. However,
amounts thus withheld are refundable if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
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In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits. That
statute is effective for distributions made after August 20, 1996. Consequently,
although the Company intends to withhold at a rate of 30% on the entire amount
of any distribution, to the extent that the Company does not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a United States
trade or business. Non-U.S. Stockholders would thus be taxed at the same capital
gain rates applicable to U.S. stockholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a foreign corporate stockholder not
entitled to treaty relief or exemption. The Company is required by applicable
Treasury Regulations to withhold 35% of any distribution that could be
designated by the Company as a capital gains dividend. This amount is creditable
against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a "domestically controlled REIT," and therefore the sale of shares will not
be subject to taxation under FIRPTA. However, because the shares will be
publicly-traded, no assurance can be given that the Company will continue to be
a "domestically-controlled REIT." In addition, gain not subject to FIRPTA will
be taxable to a Non-U.S. Stockholder if (i) investment in the shares is
effectively connected with the Non-U.S. Stockholder's United States trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain (except that a
stockholder that is a foreign corporation may also be subject to the 30% branch
profits tax), or (ii) the Non-U.S. Stockholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital gains.
If the gain on the sale of shares were to be subject to taxation under FIRPTA,
the Non-U.S. Stockholder will be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and, in the case of foreign corporations, subject to the
possible application of the 30% branch profits tax).
STATE AND LOCAL TAXES
The Company, any of its subsidiaries, the Operating Partnership or the
Company's stockholders may be subject to state and local tax in various states
and localities, including those states and localities in which it or they
transact business, own property, or reside. The state tax treatment of the
Company and the stockholders in such jurisdictions may differ from the federal
income tax treatment described above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws upon an investment in the Common Stock.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
CLASSIFICATION AS A PARTNERSHIP. The Company will be entitled to include in
its income its distributive share of the Operating Partnership's income and to
deduct its distributive share of the Operating Partnership's losses only if the
Operating Partnership is classified for federal income tax purposes as a
partnership rather than as a corporation or an association taxable as a
corporation. An organization formed as a partnership will be
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treated as a partnership, rather than as a corporation, for federal income tax
purposes if (i) it is not expressly classified as a corporation under
Section301.7701-2(b)(1) through (8) of the Treasury Regulations; (ii) it does
not elect to be classified as an association taxable as a corporation; and (iii)
it is not treated as a corporation by virtue of being classified as a "publicly
traded partnership."
The Operating Partnership will not request a ruling from the Service that it
will be classified as a partnership for federal income tax purposes. Instead, at
the Closing, O'Melveny & Myers LLP will deliver its opinion that, based on the
provisions of the Partnership Agreement, certain factual assumptions and certain
representations described in the opinion, the Operating Partnership will be
treated for federal income tax purposes as a partnership and not as an
association taxable as a corporation. Unlike a tax ruling, an opinion of counsel
is not binding upon the Service, and no assurance can be given that the Service
will not challenge the status of the Operating Partnership as a partnership for
federal income tax purposes. If such challenge were sustained by a court, the
Operating Partnership would be treated as a corporation for federal income tax
purposes, as described below. In addition, the opinion of O'Melveny & Myers LLP
is based on existing law, which is to a great extent the result of
administrative and judicial interpretation. No assurance can be given that
administrative or judicial changes would not modify the conclusions expressed in
the opinion.
Under Section 7704 of the Code, a partnership is treated as a corporation
for federal income tax purposes if it is a "publicly traded partnership" (except
in situations in which 90% or more of the partnership's gross income is of a
specified type). A partnership is deemed to be publicly traded if its interests
are either (i) traded on an established securities market, or (ii) readily
tradable on a secondary market (or the substantial equivalent thereof). While
the OP Units will not be traded on an established securities market, they could
possibly be deemed to be traded on a secondary market or its equivalent due to
the Redemption Rights enabling the partners to dispose of their Units.
The Treasury Department recently issued regulations (the "PTP Regulations")
governing the classification of partnerships under Section 7704. These
regulations provide that the classification of partnerships is generally based
on a facts and circumstances analysis. However, the regulations also provide
limited "safe harbors" which preclude publicly traded partnership status.
Pursuant to one of those safe harbors, interests in a partnership will not be
treated as readily tradable on a secondary market or the substantial equivalent
thereof if (i) all interests in the partnership were issued in a transaction (or
transactions) that was not required to be registered under the Securities Act,
and (ii) the partnership does not have more than 100 partners at any time during
the partnership's taxable year. In determining the number of partners in a
partnership for this purpose, a person owning an interest in a flowthrough
entity (i.e., a partnership, grantor trust, or S corporation) that owns an
interest in the partnership is treated as a partner in such partnership only if
(x) substantially all of the value of the person's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (y) a principal purpose of the use of the
tiered arrangement is to permit the partnership to satisfy the 100-partner
limitation.
The Operating Partnership is expected to have less than 100 partners
(including persons owning interests through flow-through entities). The
Operating Partnership has not issued any OP Units required to be registered
under the Securities Act. Thus, the Operating Partnership presently qualifies
for the safe harbors provided in the PTP Regulations. If the Operating
Partnership were to have more than 100 partners (including, in certain
circumstances, persons owning interests through flow-through entities), it
nevertheless would be treated as a partnership for federal income tax purposes
(rather than an association taxable as a corporation) if at least 90% of its
gross income in each taxable year (commencing with the year in which it is
treated as a publicly traded partnership) consists of "qualifying income" with
the meaning of Section 7704(c)(2) of the Code (including interest, dividends,
"real property rents" and gains from the disposition of real property (the "90%
Passive-Type Income Exception"). Because of the substantial ownership of the
Operating Partnership by the Initial Lessees (or their affiliates), the
Operating Partnership currently would not be eligible for the 90% Passive-Type
Income Exception. Thus, if the Operating Partnership were to have more than 100
partners (including, in certain circumstances, persons owning interests through
flow-through entities), the Company would be required to place appropriate
restrictions on the ability of the Limited Partners to exercise their Redemption
Rights as and if
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deemed necessary to ensure that the Operating Partnership does not constitute a
publicly traded partnership. However, there is no assurance that the Operating
Partnership will at all times in the future be able to avoid treatment as a
publicly traded partnership. The opinion of O'Melveny & Myers LLP as to the
classification of the Partnership is based on an assumption that the Operating
Partnership will continue to fall within a safe harbor from publicly traded
partnership status.
If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to satisfy the income and asset requirements for REIT status. See
"Federal Income Tax Considerations -- Requirements for Qualification -- Income
Tests" and "-- Requirements for Qualification -- Asset Tests." In addition, any
change in the Operating Partnership's status for tax purposes might be treated
as a taxable event, in which case the Company might incur a tax liability
without any related cash distribution. See "Federal Income Tax Considerations --
Requirements for Qualification -- Distribution Requirements." Further, items of
income and deduction of the Operating Partnership would not pass through to its
partners, and its partners would be treated as stockholders for tax purposes.
Consequently, the Operating Partnership would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing the Operating
Partnership's taxable income.
The following discussion assumes that the Operating Partnership will be
treated as a partnership for federal income tax purposes.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE GOLF COURSES. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property (such as the Golf Courses) that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including the Golf Courses). Consequently, the Partnership
Agreement will require such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the Prior Owners will be allocated depreciation deductions for
tax purposes which are lower than such deductions would be if determined on a
pro rata basis. In addition, in the event of the disposition of any of the
contributed assets (including the Golf Courses) which have a Book-Tax
Difference, all income attributable to such Book-Tax Difference will generally
be allocated to the Prior Owners and the Company will generally be allocated
only its share of capital gains attributable to appreciation, if any, occurring
after the closing of the Offering. This will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
the Operating Partnership will cause the Company to be
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allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "-- Taxation of the Company -- Annual
Distribution Requirements." The foregoing principles also apply in determining
the earnings and profits of the Company for purposes of determining the portion
of distributions taxable as dividend income. The application of these rules over
time may result in a higher portion of distributions being taxed as dividends
than would have occurred had the Company purchased the contributed assets at
their agreed values.
The Treasury Regulations under Section 704(c) of the Code allow partnerships
to use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the contributed property. The Operating Partnership has
determined to use the "traditional method" (which is specifically approved in
the Treasury Regulations) for accounting for Book-Tax Differences with respect
to the properties initially contributed to it.
The Operating Partnership has not determined which of the alternative
methods of accounting for Book-Tax Differences will be elected with respect to
any properties contributed to it in the future.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceeds the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain. Under current law, capital gains and
ordinary income of corporations are generally taxed at the same marginal rates.
SALE OF THE GOLF COURSES. The Company's share of any gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "-- Requirements for Qualification -- Income Tests." Such
prohibited transaction income may also have an adverse effect upon the Company's
ability to satisfy the income tests for qualification as a REIT. See "--
Requirements for Qualification -- Income Tests." Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a partnership's trade or business is a question of fact that depends
on all the facts and circumstances with respect to the particular transaction.
The Operating Partnership intends to hold the Golf Courses for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating the Golf Courses (and other golf courses) and
to make such occasional sales of the Golf Courses, including peripheral land, as
are consistent with the Operating Partnership's investment objectives.
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UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and Wheat, First Securities, Inc. (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase the numbers of shares
of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC...........................................................
Wheat, First Securities, Inc................................................................
----------
Total..................................................................................... 2,865,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the Offering Price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the Offering, the Offering Price, concession
and reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by the Company as
set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 429,750
additional shares of Common Stock, at the same price per share as the Company
will receive for the 2,865,000 shares that the Underwriters have agreed to
purchase from the Company. To the extent that the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the 2,865,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the 2,865,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The Company has agreed with the Representatives for a period of 180 days
after the consummation of the Offering, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock other than the Company's sales of shares
in the Offering, and the Company's issuance of options and stock under the
Directors' Plan without the prior written consent of Robertson, Stephens &
Company LLC. In addition, Mr. Young and each of the officers of the Company have
agreed that, for a period of 18 months following the completion of the Offering,
they and their affiliates will not, without prior written consent of Robertson,
Stephens & Company LLC, subject to certain exceptions, issue, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock. At the
expiration of such 18 month period, transfers of 50% of any such securities held
by such officers and Mr. Young shall continue to be restricted until 30 months
following the completion of the Offering. Robertson, Stephens & Company LLC may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements.
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Prior to the completion of the Offering, there has been no public market for
the Common Stock of the Company. Consequently, the Offering Price is being
determined through negotiations among the Company and the Representatives. Among
the factors considered in such negotiations are prevailing market conditions,
certain financial information of the Company, market valuations of other
companies that the Company and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
EXPERTS
The balance sheet of the Company as of November 8, 1996 and the consolidated
financial statements of Northgate Country Club as of September 30, 1996,
December 20, 1995 and 1994, the nine months ended September 30, 1996 and for
each of three fiscal years ended in the period ended December 20, 1995 included
in this Prospectus have been so included in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The combined financial statements of Legends Golf and the individual
financial statements of Golf Legends, Ltd., Heritage Golf Club, Ltd., Seaside
Resorts, Ltd. and Legends of Virginia, LC appearing in this Prospectus and
Registration Statement for the nine months ended September 30, 1996 and fiscal
years ended December 31, 1995, 1994, and 1993 have been audited by BDO Seidman,
LLP, independent auditors, as set forth in their reports appearing elsewhere
herein and are included in reliance upon such report given the authority of such
firm as experts in accounting and auditing.
The financial statements of Bright's Creek Development, LLC (current owner
of The Woodlands) appearing in this Prospectus and Registration Statement as of
September 30, 1996 and December 31, 1995 and 1994, and for the nine months ended
September 30, 1996, the year ended December 31, 1995, and the period from
inception (May 17, 1994) through December 31, 1994 have been audited by Coopers
& Lybrand L.L.P., independent accountants, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
the authority of such firm as experts in accounting and auditing.
The financial statements of Olde Atlanta Golf Club Limited Partnership
appearing in this Prospectus and Registration Statement for the nine month
period ended September 30, 1996 and fiscal years ended December 31, 1995 and
1994 have been audited by Crowe, Chizek and Company LLP, independent auditors,
as set forth in their reports appearing elsewhere herein and are included in
reliance upon such report given the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, San Francisco, California, and
certain legal matters will be passed upon for the Underwriters by Hunton &
Williams. O'Melveny & Myers LLP and Hunton & Williams will rely as to all
matters of Maryland law on the opinion of Ballard Spahr Andrews & Ingersoll,
Baltimore, Maryland. In addition, the description of federal income tax
consequences contained in this Prospectus entitled "Federal Income Tax
Considerations" is based upon the opinion of O'Melveny & Myers LLP.
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ADDITIONAL INFORMATION
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-11 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered pursuant to this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits. For
further information concerning the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Any statements contained herein concerning the provisions of
any document are not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
For further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and such exhibits and schedules,
copies of which may be examined without charge at, or copies obtained upon
payment of prescribed fees from, the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and at CitiCorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission also maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company, and the
address is http://www.sec.gov.
The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act, in addition to any other legal or
American Stock Exchange requirements. The Company intends to furnish to its
stockholders annual reports containing audited financial statements examined by
its independent public accountants and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year. The
Company intends to initially include in such reports annual audited and
quarterly unaudited financial statements for the Legends Lessee.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"ANTI-ABUSE RULE" means the regulation that authorizes the Service, in
certain "abusive" transactions involving partnerships, to disregard the form of
the transaction and recast it for federal tax purposes as the Service deems
appropriate.
"ADVISORY ASSOCIATION" means the association of Initial Lessees, established
to facilitate the cross-marketing of the Golf Courses and to promote awareness
of the Golf Courses.
"AUDIT COMMITTEE" means the committee established by the Board of Directors
to make recommendations concerning the Company's accounting practices, including
the engagement and review of independent public accountants.
"BASE RENT" means the fixed base rent payable under the Participating
Leases.
"BASE RENT ESCALATOR" means the lesser of (i) 3% or (ii) 200% of the change
in the CPI for the prior year.
"BOARD OF DIRECTORS" means the board of directors of the Company.
"BOOK-TAX DIFFERENCES" means the difference between the fair market value of
property contributed to a partnership and the adjusted tax basis of such
property at the time of contribution.
"BUILT-IN GAIN" means the difference between the fair market value and the
adjusted basis of a Built-in Gain Asset as determined by the Operating
Partnership in consultation with the REIT and with the advice of counsel.
"BUILT-IN GAIN ASSET" means an asset acquired by the Company in certain
transactions from a corporation which is or has been a C corporation.
"BUSINESS COMBINATIONS" means any business combination as defined in the
Charter.
"BYLAWS" means the bylaws of the Company, as amended.
"CAPITAL REPLACEMENT FUND" means the fund established by the Company in
amounts ranging from 2% to 3% of Gross Golf Revenue at each Golf Course, to fund
capital expenditures.
"CASH AVAILABLE FOR DISTRIBUTION" means net income (loss) computed in
accordance with generally accepted accounting principles of the Company plus
depreciation and amortization and minority interest minus capital expenditures
and principal payments on indebtedness.
"CHARTER" means the Articles of Incorporation of the Company.
"CODE" means Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means common stock, par value $.01 per share, of the Company.
"COMPANY" means Golf Trust of America, Inc., a Maryland corporation.
"COMPENSATION COMMITTEE" means the committee established by the Board of
Directors to determine compensation for the Company's executive officers.
"COVERAGE RATIO" means the ratio of an Initial Lessee's net operating income
to such Initial Lessee's Lease Payment.
"CPI" means the United States Consumer Price Index, All Urban Consumers,
U.S. City Average, All Items (1982-84 = 100).
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"DAILY FEE" means those Golf Courses that are open to the public and
generate revenues principally through green fees, golf cart rentals, merchandise
sales, driving range charges, and food and beverage operations.
"DIRECTORS' PLAN" means the Company's Non-Employee Directors' Plan.
"DISQUALIFIED PERSONS" means persons who have specified relationships with
Plans.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPANSION FACILITIES" means the planned expansion of the Northgate Country
Club course (nine additional holes), and the planned new clubhouse to be
constructed at The Woodlands.
"EXTENDED TERMS" means the up to six consecutive five-year extension terms
after the Fixed Term of each Participating Lease, by which each Initial Lessee
may elect to extend the term of each Participating Lease, subject to earlier
termination upon the occurrence of certain contingencies described in each
Participating Lease.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"FIXED TERM" means the initial 10 year term of each Participating Lease.
"FORMATION TRANSACTIONS" means the series of transactions described in "The
Formation Transactions" in this Prospectus.
"FUNDS FROM OPERATIONS" means income before minority interest (computed in
accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring and sales of property and real estate related
depreciation and amortization (excluding amortization of financing costs).
"GTA GP" means GTA GP, Inc., a wholly-owned subsidiary of the Company.
"GTA LP" means GTA LP, Inc., a wholly-owned subsidiary of the Company.
"GOLF COURSES" means the 10 golf courses to be acquired by the Company in
the Formation Transactions.
"GROSS GOLF REVENUE" means all revenues received from or by reason of a Golf
Course including revenues from memberships, initiation fees, dues, greens fees,
range fees and income, fees to reserve tee time, golf related guest fees, golf
cart rental and surcharges, fees and other charges paid to sponsors of any golf
tournament; provided, however, that Gross Golf Revenue does not include revenue
relating to food and beverage operations, golf professional shops, parking,
fitness centers, tennis facilities, locker rentals, bag storage, video games,
vending machines, fees paid by the providers of golf lessons, certain
uncollectible amounts relating to sales or excise taxes, uncollectible debts
(i.e., checks and charges), interest paid by customers for the extension of
credit and certain other revenues relating to marketing programs, refunds and
employees.
"INDEPENDENT DIRECTORS" means the directors who are unaffiliated with the
Prior Owners and the Initial Lessees and are not officers or employees of the
Company.
"INITIAL LESSEES" means the seven separate lessees entering into the
Participating Leases.
"INITIAL LESSEE IMPROVEMENTS" means alteration, additions, changes and/or
improvements made by each Initial Lessee at its sole cost and expense, with the
Company's prior written consent.
"LEASE PAYMENT" means the rent payable to the Company under the
Participating Leases, consisting of the Base Rent plus any Participating Rent.
"LEASED PROPERTY" means the Company's interest in each Golf Course,
including land, buildings and improvements, related easements and rights, and
fixtures.
104
<PAGE>
"LEGENDS LESSEES" means the four Initial Lessees which are affiliates of The
Legends Group and will lease the seven Golf Courses contributed by The Legends
Group.
"LEGENDS RESORT COURSES" means the three Legends Group Golf Courses in
Myrtle Beach--Heathland, Moorland and Parkland--which share a common clubhouse,
driving range, golf carts, and other facilities.
"LESSEE PERFORMANCE OPTION" means the one-time right of each Prior Owner to
elect to receive additional OP Units in exchange for an increase in Base Rent as
described in "The Company -- Internal Growth."
"LIMITED PARTNERS" means the limited partners of the Operating Partnership,
initially GTA LP, the Prior Owners and certain officers of the Company.
"LINE OF CREDIT" means the line of credit for which the Company is seeking a
commitment, which the Company expects to obtain following the Offering, to be
utilized primarily to fund the acquisition of additional golf courses by the
Company.
"NGF" means the National Golf Foundation, an industry trade association.
"NON-U.S. STOCKHOLDERS" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders.
"OFFERING" means the offering of shares of Common Stock of the Company,
pursuant to this Prospectus.
"OFFERING PRICE" means the initial public offering price of the Common
Stock, which is estimated to be $20, the mid-point of the range set forth on the
cover page of the Prospectus.
"OP UNITS" means units of limited partnership interest in the Operating
Partnership held by the Limited Partners other than GTA LP.
"OPERATING PARTNERSHIP" means Golf Trust of America Partnership, L.P., a
Delaware limited partnership.
"OPTION AGREEMENT" means the Option to Purchase and Right of First Refusal
Agreement between the Company and The Legends Group, pursuant to which the
Company will have an option and right of first refusal to purchase any golf
courses currently owned or subsequently acquired or developed in the future by
The Legends Group or its affiliates.
"OWNERSHIP LIMIT" means the direct or constructive ownership by any
stockholder or group of affiliated stockholders of more than 9.8% of the
outstanding Common Stock.
"OWNERSHIP LIMIT PROVISION" means the provision of the Charter that
prohibits the direct or constructive ownership by any stockholder or group of
affiliated stockholders of more than 9.8% of the outstanding Common Stock.
"PARTICIPATING LEASES" means the leases between the Operating Partnership,
as lessor, and the Initial Lessees, as lessees.
"PARTICIPATING RENT" means the additional rent due annually to the Company
under the Participating Leases, in addition to Base Rent, in the amount of
33.33% of any increase in Gross Golf Revenue over Gross Golf Revenue in 1996, as
adjusted.
"PARTNERSHIP AGREEMENT" means the agreement of limited partnership of the
Operating Partnership.
"PARTNERSHIP PROVISIONS" means the provisions of the Code relating to
partnerships.
"PLAN" means the Company's Stock Incentive Plan.
"PREFERRED STOCK" means preferred stock, par value $.01 per share, of the
Company.
"PRIOR OWNERS" means the owners of the Golf Courses prior to the Formation
Transactions who will contribute their interests in the Golf Courses to the
Company and who will be Limited Partners of the Operating Partnership.
105
<PAGE>
"RECOGNITION PERIOD" means the recognition period pertaining the Built-in
Gain as defined pursuant to Treasury Regulations to be issued under Section
337(d) of the Code.
"REDEMPTION RIGHTS" means those rights granted to the Limited Partners
(other than GTA LP), pursuant to the Partnership Agreement, enabling them to
cause the Operating Partnership to redeem each OP Unit for cash or, at the
option of the Company, shares of Common Stock on a one-for-one basis, subject to
the Ownership Limit.
"REIT" means real estate investment trust as defined in Section 856 of the
Code.
"RELATED PARTY TENANT" under the Code means with respect to the Company a
tenant of which the Company, or an owner of 10% or more of the Company, directly
or constructively owns a 10% or greater ownership interest.
"RESORT COURSES" means Daily Fee courses that attract a significant
percentage of players from outside the immediate area in which the course is
located, generating significant revenue through golf packages.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERVICE" means the Internal Revenue Service.
"SHARES-IN-TRUST" means the separate class of stock into which shares of
Common Stock directly or constructively owned by an individual in excess of the
Ownership Limit will be automatically exchanged.
"THE LEGENDS GROUP" means Legends Group Ltd., headquartered in Myrtle Beach,
South Carolina and its affiliates and predecessors which are in the business of
owning and operating golf courses.
"TREASURY REGULATIONS" means the income tax regulations that have been
promulgated under the Code.
"UBTI" means "unrelated business taxable income" as defined in Section
512(a) of the Code.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GOLF TRUST OF AMERICA, INC.:
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1995
(unaudited)............................................................................................ F-5
Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1996
(unaudited)............................................................................................ F-5
Notes to Pro Forma Condensed Consolidated Statements of Operations...................................... F-6
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 (unaudited)..................... F-7
Notes to Pro Forma Condensed Consolidated Balance Sheet................................................. F-8
Report of Independent Accountants -- Price Waterhouse LLP............................................... F-10
Balance Sheet as of November 8, 1996.................................................................... F-11
Notes to Balance Sheet.................................................................................. F-11
GOLF COURSES AND INITIAL LESSEES PRO FORMA CONDENSED FINANCIAL STATEMENTS:
LEGENDS GOLF:
Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1995 (unaudited)... F-14
Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 1996
(unaudited)............................................................................................ F-14
Pro Forma Condensed Combined Balance Sheet as of September 30, 1996 (unaudited)......................... F-15
GOLF LEGENDS:
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995 (unaudited)............ F-16
Pro Forma Condensed Statement of Operations for the nine months ended September 30, 1996 (unaudited).... F-16
Pro Forma Condensed Balance Sheet as of September 30, 1996 (unaudited).................................. F-17
HERITAGE GOLF CLUB:
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995 (unaudited)............ F-18
Pro Forma Condensed Statement of Operations for the nine months ended September 30, 1996 (unaudited).... F-18
Pro Forma Condensed Balance Sheet as of September 30, 1996 (unaudited).................................. F-19
SEASIDE RESORTS:
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995 (unaudited)............ F-20
Pro Forma Condensed Statement of Operations for the nine months ended September 30, 1996 (unaudited).... F-20
Pro Forma Condensed Balance Sheet as of September 30, 1996 (unaudited).................................. F-21
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LEGENDS OF VIRGINIA:
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995 (unaudited)............ F-22
Pro Forma Condensed Statement of Operations for the nine months ended September 30, 1996 (unaudited).... F-22
Pro Forma Condensed Balance Sheet as of September 30, 1996 (unaudited).................................. F-23
NORTHGATE COUNTRY CLUB:
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 20, 1995
(unaudited)............................................................................................ F-24
Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 20, 1996
(unaudited)............................................................................................ F-24
Pro Forma Condensed Consolidated Balance Sheet as of September 20, 1996 (unaudited)..................... F-25
BRIGHT'S CREEK DEVELOPMENT, LLC
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995 (unaudited)............ F-26
Pro Forma Condensed Statement of Operations for the nine months ended September 30, 1996 (unaudited).... F-26
Pro Forma Condensed Balance Sheet as of September 30, 1996 (unaudited).................................. F-27
OLDE ATLANTA GOLF CLUB
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995 (unaudited)............ F-28
Pro Forma Condensed Statement of Operations for the nine months ended September 30, 1996 (unaudited).... F-28
Pro Forma Condensed Balance Sheet as of September 30, 1996 (unaudited).................................. F-29
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS....................................................... F-30
LEGENDS GOLF COMBINED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants -- BDO Seidman, LLP.................................. F-33
Combined Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996............................ F-34
Combined Statements of Income -- years ended December 31, 1993, 1994 and 1995 and nine months ended
September 30, 1995 (unaudited) and 1996................................................................ F-35
Combined Statements of Owners' Equity -- years ended December 31, 1993, 1994 and 1995 and nine months
ended September 30, 1996............................................................................... F-36
Combined Statements of Cash Flows -- years ended December 31, 1993, 1994 and 1995 and nine months ended
September 30, 1995 (unaudited) and 1996................................................................ F-37
Notes to Combined Financial Statements.................................................................. F-38
</TABLE>
F-2
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GOLF LEGENDS, LTD. FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants -- BDO Seidman, LLP.................................. F-45
Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996..................................... F-46
Statements of Income and Retained Earnings -- years ended December 31, 1993, 1994 and 1995 and nine
months ended September 30, 1995 (unaudited) and 1996................................................... F-47
Statements of Cash Flows -- years ended December 31, 1993, 1994 and 1995 and nine months ended September
30, 1995 (unaudited) and 1996.......................................................................... F-48
Summary of Significant Accounting Policies.............................................................. F-49
Notes to Financial Statements........................................................................... F-51
HERITAGE GOLF CLUB, LTD. FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants -- BDO Seidman, LLP.................................. F-56
Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996..................................... F-57
Statements of Income and Retained Earnings -- years ended December 31, 1993, 1994 and 1995 and nine
months ended September 30, 1995 (unaudited) and 1996................................................... F-58
Statements of Cash Flows -- years ended December 31, 1993, 1994 and 1995 and nine months ended September
30, 1995 (unaudited) and 1996.......................................................................... F-59
Summary of Significant Accounting Policies.............................................................. F-60
Notes to Financial Statements........................................................................... F-62
SEASIDE RESORTS, LTD. FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants -- BDO Seidman, LLP.................................. F-66
Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996..................................... F-67
Statements of Income and Retained Earnings -- years ended December 31, 1993, 1994 and 1995 and nine
months ended September 30, 1995 (unaudited) and 1996................................................... F-68
Statements of Cash Flows -- years ended December 31, 1993, 1994 and 1995 and nine months ended September
30, 1995 (unaudited) and 1996.......................................................................... F-69
Summary of Significant Accounting Policies.............................................................. F-70
Notes to Financial Statements........................................................................... F-72
LEGENDS OF VIRGINIA, LC FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants -- BDO Seidman, LLP.................................. F-76
Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996..................................... F-77
Statements of Loss and Members' Deficit -- year ended December 31, 1995 and nine months ended September
30, 1996............................................................................................... F-78
Statements of Cash Flows -- year ended December 31, 1995 and nine months ended September 30, 1996....... F-79
Summary of Significant Accounting Policies.............................................................. F-80
Notes to Financial Statements........................................................................... F-82
</TABLE>
F-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
NORTHGATE COUNTRY CLUB FINANCIAL STATEMENTS:
Report of Independent Accountants -- Price Waterhouse LLP............................................... F-85
Consolidated Balance Sheets -- December 20, 1994 and 1995 and September 20, 1996........................ F-86
Consolidated Statements of Operations and Partners' Equity -- years ended December 20, 1993, 1994 and
1995 and nine-month periods ended September 20, 1995 (unaudited) and 1996.............................. F-87
Consolidated Statements of Cash Flows -- years ended December 20, 1993, 1994 and 1995 and nine-month
periods ended September 20, 1995 (unaudited) and 1996.................................................. F-88
Notes to Consolidated Financial Statements.............................................................. F-89
BRIGHT'S CREEK DEVELOPMENT, LLC FINANCIAL STATEMENTS:
Report of Independent Accountants -- Coopers & Lybrand L.L.P............................................ F-93
Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996..................................... F-94
Statements of Operations -- for the period from inception (May 17, 1994) through December 31, 1994, the
year ended December 31, 1995 and the nine-month periods ended September 30, 1995 (unaudited) and
1996................................................................................................... F-95
Statements of Members' Deficit -- for the period from inception (May 17, 1994) through December 31,
1994, the year ended December 31, 1995 and the nine-month period ended September 30, 1996.............. F-96
Statements of Cash Flows -- for the period from inception (May 17, 1994) through December 31, 1994, the
year ended December 31, 1995 and the nine-month period ended September 30, 1995 (unaudited) and 1996... F-97
Notes to Financial Statements........................................................................... F-98
OLDE ATLANTA GOLF CLUB FINANCIAL STATEMENTS:
Report of Independent Auditors -- Crowe, Chizek and Company LLP......................................... F-101
Balance Sheets -- December 31, 1994 and 1995 and September 30, 1996..................................... F-102
Statements of Income -- years ended December 31, 1994 and 1995 and nine-month periods ended September
30, 1995 (unaudited) and 1996.......................................................................... F-103
Statements of Changes in Partners' Capital -- years ended December 31, 1994, and 1995 and nine-month
period ended September 30, 1996........................................................................ F-104
Statements of Cash Flows -- years ended December 31, 1994 and 1995 and nine-month periods ended
September 30, 1995 (unaudited) and 1996................................................................ F-105
Notes to Financial Statements........................................................................... F-106
</TABLE>
F-4
<PAGE>
GOLF TRUST OF AMERICA, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company's unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996 are presented as if the completion of the Formation
Transactions had occurred as of the beginning of the period presented and
carried forward through each period presented. The Company was formed in
November 1996 and has no operating history. In management's opinion, all
adjustments necessary to reflect the effects of the Formation Transactions have
been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what actual results of operations
of the Company would have been assuming such Formation Transactions had been
completed as of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
(F)
FOR THE YEAR ENDED DECEMBER 31, 1995 HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Participating lease revenue................ -- $ 14,988(A) $ 14,988
----------- ----------- -----------
Depreciation and amortization.............. -- 3,126(B) 3,126
General and administrative................. -- 1,639(C) 1,639
Interest expense........................... -- 366(D) 366
----------- ----------- -----------
Total expenses............................. -- 5,131 5,131
----------- ----------- -----------
Income before minority interest............ -- 9,857 9,857
Minority interest.......................... -- 5,823(E) 5,823
----------- ----------- -----------
Net income applicable to common
shareholders.............................. -- $ 4,034 $ 4,034
----------- ----------- -----------
----------- ----------- -----------
Net income per share of Common Stock....... $ 1.41
-----------
-----------
Shares of Common Stock outstanding......... 2,865
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<S> <C> <C> <C>
Participating lease revenue................ -- $ 11,241(A) $ 11,241
--- ----------- -----------
Depreciation and amortization.............. -- 2,345(B) 2,345
General and administrative................. -- 1,229(C) 1,229
Interest expense........................... -- 275(D) 275
--- ----------- -----------
Total expenses............................. -- 3,849 3,849
--- ----------- -----------
Income before minority interest............ -- 7,392 7,392
Minority interest.......................... -- 4,367(E) 4,367
--- ----------- -----------
Net income applicable to common
shareholders.............................. -- $ 3,025 $ 3,025
--- ----------- -----------
--- ----------- -----------
Net income per shares of Common Stock...... $ 1.06
-----------
-----------
Shares of Common Stock outstanding......... 2,865
-----------
-----------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-5
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(A) Represents payments of Base Rent from the Initial Lessees to the Company
calculated on a pro forma basis as if the beginning of the period presented
was the beginning of a lease year.
(B) Represents depreciation on buildings, improvements, and furniture and
equipment and amortization. Depreciation is computed using the straight-line
method and is based upon the estimated useful lives of 30 years for
buildings, 20 years for improvements and 3 to 10 years for furniture and
equipment.
(C) Represents legal, audit, office costs, salaries and other general and
administrative expenses to be paid by the Company as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------------
<S> <C> <C>
Salaries and benefits -- executive officers................ $ 697 $ 523
Other salaries and benefits................................ 121 91
Directors & officers insurance............................. 200 150
Legal and accounting....................................... 185 139
Directors fees and travel.................................. 77 57
SEC reporting and other stockholder costs.................. 110 82
Office rent, telephone, supplies and other administrative
costs..................................................... 165 124
Other...................................................... 84 63
------ ------
$ 1,639 $ 1,229
------ ------
------ ------
</TABLE>
Salaries and benefits for executive officers are based upon tentative
agreements with the respective officers. Other amounts are based upon
management's estimates of expenses to be incurred given the Company's
estimated level of operations and related administrative requirements.
(D) Reflects interest expense at 8% per annum to be paid on the initial
borrowing of $4,325 and loan costs amortized as interest expense. Loan
costs, aggregrating $40, include estimated fees and legal costs of obtaining
the Company's initial borrowing and are amortized over the expected two year
term of the initial borrowing.
(E) Calculated as approximately 59.1% of the Operating Partnership's net income.
(F) The Company, as sole general partner of the Operating Partnership, will
have, subject to certain protective rights of the Limited Partners, full,
exclusive and complete responsibility and discretion in the management and
unilateral control of the Operating Partnership. Such responsibilities
permit the Company to enter into certain major transactions including
acquisitions, dispositions, refinancings and selection of golf course
operators and to cause changes in the Operating Partnership's line of
business and distribution policies. Further, the Company may not be replaced
as general partner by the Limited Partners, except in certain limited
circumstances. Accordingly, for accounting purposes, the Company is
considered to control the Operating Partnership and the accompanying
unaudited Pro Forma Condensed Consolidated Statement of Operations
consolidates the accounts of the Company and the Operating Partnership.
F-6
<PAGE>
GOLF TRUST OF AMERICA, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the completion of the Formation Transactions and the application of the net
proceeds of the Offering as set forth under the caption "Use of Proceeds" had
occurred on September 30, 1996. It should be read in conjunction with the
Financial Statements listed in the Index at Page F-1 of this Prospectus. The
contribution of the interest in the Golf Courses to the Operating Partnership by
The Legends Group represents a reorganization of the interests of The Legends
Group in the contributed Golf Courses and has been accounted for at historical
cost as a transfer between parties under common control. In accordance with APB
No. 16, the contribution of the Golf Courses by the other Prior Owners to the
Operating Partnership (Other Acquired Golf Courses) has been accounted for using
the purchase method. In management's opinion, all adjustments necessary to
reflect the effects of the Formation Transactions have been made.
This unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the Company's actual financial position would
have been assuming formation such transactions had been completed as of
September 30, 1996, nor does it purport to represent the future financial
position of the Company.
<TABLE>
<CAPTION>
OTHER ACQUIRED (E)
LEGENDS GOLF COURSES COMBINED PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Properties, net............................ $ 33,989 $ 18,437 $ 52,426 $ 10,106 $ 62,532
Cash....................................... 225 169 394 150 544
Advances to affiliates..................... 12,547 1,467 14,014 (14,014)
Other assets............................... 2,144 1,429 3,473 (3,533) 40
---------- -------------- ---------- ----------- ------------
Total assets............................. $ 48,905 $ 21,502 $ 70,407 $ (7,291) $ 63,116
---------- -------------- ---------- ----------- ------------
---------- -------------- ---------- ----------- ------------
LIABILITIES & EQUITY
Due to affiliates.......................... $ 12,044 $ 12,044 $ (12,044)
Notes payable.............................. 27,198 $ 12,706 39,904 (35,579) $ 4,325
Accounts payable and accrued expenses...... 3,169 467 3,636 (3,636)
Other liabilities.......................... 2,011 2,011 (2,011)
Minority interest.......................... 34,730 34,730
Common stock............................... 4 6,318 6,322 (6,295) 27
Additional paid in capital................. 300 300 23,734 24,034
Retained earnings.......................... 6,190 6,190 (6,190)
---------- -------------- ---------- ----------- ------------
Total liablities and equity.............. $ 48,905 $ 21,502 $ 70,407 $ (7,291) $ 63,116
---------- -------------- ---------- ----------- ------------
---------- -------------- ---------- ----------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-7
<PAGE>
GOLF TRUST OF AMERICA, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS - DR.(CR.) LIABILITIES - (DR.)CR.
---------------------------------------------- -----------------------------------------------------------
ADVANCES
TO OTHER DUE TO NOTES ACCOUNTS OTHER MINORITY
ADJUSTMENTS PROPERTIES CASH AFFILIATES ASSETS AFFILIATES PAYABLE PAYABLE LIABILITIES INTEREST
- --------------------- ----------- --------- ----------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eliminate Legends
Group assets and
liabilities not
acquired............ $ (1,198) $ (225) $ (12,547) $ (2,144) $ (3,844) $ (638) $ (3,169)
Contribution of
additional Legends
land................ 3,532
Eliminate assets and
liabilities of
acquired courses not
acquired............ (58) (169) (1,467) (1,429) (45) (467) $ (2,011)
Record acquisition of
acquired courses
(A)................. 7,830 (6,187)
Initial borrowing
(B)................. 4,285 40 4,325
Repayment of
outstanding
mortgages........... (47,421) (8,200) (39,221)
Sales of shares by
the Company (C)..... 49,867
Record minority
interest (D)........ $ 34,730
----------- --------- ----------- --------- --------- --------- ----------- ----------- -----------
Total adjustments.... $ 10,106 $ 150 $ (14,014) $ (3,533) $ (12,044) $ (35,579) $ (3,636) $ (2,011) $ 34,730
----------- --------- ----------- --------- --------- --------- ----------- ----------- -----------
----------- --------- ----------- --------- --------- --------- ----------- ----------- -----------
<CAPTION>
ADDITIONAL
COMMON PAID IN RETAINED
ADJUSTMENTS STOCK CAPITAL EARNINGS
- --------------------- --------- ----------- -----------
<S> <C> <C> <C>
Eliminate Legends
Group assets and
liabilities not
acquired............ $ (1,973) $ (300) $ (6,190)
Contribution of
additional Legends
land................ 3,532
Eliminate assets and
liabilities of
acquired courses not
acquired............ (600)
Record acquisition of
acquired courses
(A)................. 1,643
Initial borrowing
(B).................
Repayment of
outstanding
mortgages...........
Sales of shares by
the Company (C)..... 25,833 24,034
Record minority
interest (D)........ (34,730)
--------- ----------- -----------
Total adjustments.... $ (6,295) $ 23,734 $ (6,190)
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
(A) Reflects the acquisition of property and equipment from Northgate Country
Club, Bright's Creek Development and Olde Atlanta Golf Club which includes,
but is not limited to, the Golf Courses, buildings, improvements, fixed
assets and equipment (except golf carts) as follows:
<TABLE>
<S> <C>
Cash............................................................... $ 6,187
Assumption of debt................................................. 12,661
Issuance of 368,050 OP Units....................................... 7,361
---------
Consideration paid for acquired Golf Courses....................... 26,209
Less: Historical basis in acquired Golf Courses.................... 18,379
---------
Increase in basis of acquired Golf Courses......................... $ 7,830
---------
---------
Historical basis of equity of acquired courses..................... $ 6,318
Equity not acquired................................................ (600)
---------
Equity of acquired courses in contributed assets................... 5,718
Less: Issuance of 368,050 OP Units to Prior Owners of acquired
courses........................................................... 7,361
---------
Increase in equity on contribution of acquired courses............. $ 1,643
---------
---------
</TABLE>
(B) Reflects initial borrowing obtained by the Company and related loan costs
($40).
F-8
<PAGE>
GOLF TRUST OF AMERICA, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
(C) Reflects the following proposed transaction:
<TABLE>
<S> <C>
Gross proceeds from sale of 2,865,000 shares of Common Stock, net
of underwriting discount.......................................... $ 53,289
Expenses of the Offering........................................... (3,422)
---------
$ 49,867
---------
---------
</TABLE>
(D) Reflects the following:
<TABLE>
<S> <C>
Legends Golf equity as of September 30, 1996....................... $ 6,494
Legends Golf equity not acquired by the Company.................... (8,463)
---------
Deficit upon contribution to Operating Partnership of properties
and debt of Legends Golf.......................................... (1,969)
Contributions of land subsequent to September 30, 1996 by Legends
Golf's Prior Owner................................................ 3,532
Issuance of 368,050 OP Units to Prior Owners for acquisition of
Golf Courses...................................................... 7,361
Contribution of capital to Operating Partnerships by Company....... 49,867
---------
58,791
Minority Interest percentage....................................... 59.1%
---------
$ 34,730
---------
---------
</TABLE>
(E) The Company, as sole general partner of the Operating Partnership, will
have, subject to certain protective rights of the Limited Partners, full,
exclusive and complete responsibility and discretion in the management and
unilateral control of the Operating Partnership. Such responsibilities
permit the Company to enter into certain major transactions including
acquisitions, dispositions, refinancings and selection of golf course
operators and to cause changes in the Operating Partnership's line of
business and distribution policies. Further, the Company may not be replaced
by as general partner by the Limited Partners, except in certain limited
circumstances.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Golf Trust of America, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Golf Trust of America, Inc. at
November 8, 1996, in conformity with generally accepted accounting principles.
The balance sheet is the responsibility of the Company's management; our
responsibility is to express an opinion on the balance sheet based on our audit.
We conducted our audit of the balance sheet in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall presentation. We believe that our audit provides a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
November 8, 1996
F-10
<PAGE>
GOLF TRUST OF AMERICA, INC.
BALANCE SHEET
NOVEMBER 8, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash............................................................................... $ 100
------
------
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 10,000,000 shares authorized, no shares issued.... $ --
Common Stock, $.01 par value, 90,000,000 shares authorized, 1 share issued and
outstanding....................................................................... --
Additional paid-in capital......................................................... 100
------
Total stockholders' equity........................................................... $ 100
------
------
</TABLE>
NOTES TO BALANCE SHEET
1. ORGANIZATION
Golf Trust of America, Inc. (the "Company") was incorporated in Maryland on
November 8, 1996. The authorized capital stock of the Company consists of
90,000,000 shares of Common Stock having a par value of $.01 per share and
10,000,000 shares of Preferred Stock having a par value of $.01 per share.
The Company will own a 0.2% sole general partnership interest and an
approximately 40.7% limited partnership interest in Golf Trust of America, L.P.
(the "Operating Partnership") currently in the process of formation. The
Operating Partnership will acquire and own resort golf courses, private golf
courses and daily fee golf courses throughout the United States.
The Company as sole general partner of the Operating Partnership will have,
subject to certain protective rights of the Limited Partner, full, exclusive and
complete responsibility and discretion in the management and unilateral control
of the Operating Partnership. Such responsibilities permit the Company to enter
into certain major transactions including acquisitions, dispositions,
refinancings and selection of golf course operators and to cause changes in the
Operating Partnership's line of business and distribution policies. Further, the
Company may not be replaced as general partner by the Limited Partners, except
in certain limited circumstances. Accordingly, the Company is considered to
control the Operating Partnership and intends to present its accounts on a
consolidated basis with the Operating Partnership.
Holders of limited partnership interests in the Operating Partnership ("OP
Units") will have the opportunity after one year following the receipt of such
OP Units, subject to certain restrictions, to have their OP Units exchanged for
cash in an amount equal to the fair market value of an equivalent number of
shares of Common Stock or, at the election of the Company, for Common Stock on a
one-for-one basis. The Company currently expects that it will elect to issue
Common Stock in connection with such exchange, unless it is prohibited from
doing so because of the ownership restrictions in its Charter.
2. INCOME TAXES
After the completion of the Offering, the Company intends to make an
election to be taxed as a real estate investment trust ("REIT") under Sections
856 through 860 of the Code. As a REIT, the Company generally will not be
subject to federal income tax if it distributes at least 95% of its REIT taxable
income to its stockholders. REITs are subject to a number of organizational and
operational requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
tax rates. Even if the Company qualifies for taxation as a REIT, the Company may
be subject to state and local taxes on its income and property and to federal
income and excise taxes on its undistributed income.
F-11
<PAGE>
3. INCENTIVE PLANS
The Company intends to establish a stock incentive plan to be administered
by the Compensation Committee of the Board of Directors. Awards under the plan
take the form of nonqualified stock options, incentive stock options, restricted
stock or performance awards:
NONQUALIFIED STOCK OPTIONS will provide for the right to purchase common
stock at a specified price which may be less than the fair market value on the
date of grant and usually will become exercisable in installments after the
grant date.
INCENTIVE STOCK OPTIONS will be designed to comply with the provisions of
the Internal Revenue Service Code and subject to related restrictions, including
exercise prices equal to at least 100% of the fair market value of the common
stock at the date of the grant and a ten year restriction on their term.
RESTRICTED STOCK may be sold to participants at various prices and made
subject to such restrictions as may be determined by the Compensation Committee.
PERFORMANCE AWARDS may be granted to individuals or groups of employees
based upon specific agreements. Such awards may be payable in common stock, cash
or some combination of the two. Performance awards may include bonus payments
based upon increases in the price of the Company's stock.
In addition, a maximum of 100,000 shares of Common Stock may be issued under
the Company's Non-Employee Directors' Plan.
In accordance with Statement of Financial Accounting Standards No. 123, the
Company intends to adopt the intrinsic value based approach to accounting for
stock-based compensation, supplemented by footnote disclosure of pro forma net
income and earnings per share using a fair value based method of accounting for
stock-based compensation.
4. PROPOSED PUBLIC OFFERING
The Company has filed a Form S-11 registration statement with the Securities
and Exchange Commission in connection with a proposed offering of shares to the
public.
F-12
<PAGE>
GOLF COURSES AND INITIAL LESSEES
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Financial Statements give effect
to the proposed contribution of assets and liabilities to the Operating
Partnership in connection with the Formation Transactions and the contribution
of certain other assets and liabilities by the Prior Owners to the Initial
Lessees. The unaudited Pro Forma Condensed Balance Sheets are based upon the
individual historical balance sheets of each of the Prior Owners and have been
prepared to reflect the contribution of assets and liabilities by the Prior
Owners to the Operating Partnership and Initial Lessees as if such events had
occurred on September 30, 1996 (September 20, 1996 with respect to Northgate
Country Club). The unaudited Pro Forma Condensed Statements of Operations for
the year ended December 31, 1995 (December 20, 1995 with respect to Northgate
Country Club) and the nine months ended September 30, 1996 (September 20, 1996
with respect to Northgate Country Club) are based upon the individual historical
statements of operations of each of the Golf Courses and have been prepared to
reflect the operating results of the Initial Lessees as if such events had
occurred as of the beginning of the period presented and carried forward through
each period presented. The pro forma condensed financial information has been
prepared by the management of each of the Prior Owners. These Pro Forma
Condensed Financial Statements may not be indicative of the results that
actually would have occurred if the proposed transactions had occurred on the
dates indicated nor are they indicative of future results.
F-13
<PAGE>
LEGENDS GOLF
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (A) ADJUSTMENTS PRO FORMA
-------- --------------------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations..................................... $14,619 $-- $14,619
Other revenue.................................................... 3,823 -- 3,823
-------- ------- -----------
Total revenue.................................................... 18,442 -- 18,442
-------- ------- -----------
Participating Lease payments..................................... -- 8,351(F) 8,351
Operating expenses............................................... 10,322 (826)(O,P,R) 9,496
Interest expense................................................. 1,017 (936)(D) 81
Depreciation..................................................... 1,791 (1,508)(E) 283
-------- ------- -----------
Total expenses................................................... 13,130 5,081 18,211
-------- ------- -----------
Net income (loss)................................................ $ 5,312 $(5,081) $ 231
-------- ------- -----------
-------- ------- -----------
Cash provided by operating activities (AA)....................... $ 6,570 $ 514
-------- -----------
-------- -----------
Cash used in investing activities (AB)........................... $(16,932) $--
-------- -----------
-------- -----------
Cash used in financing activities (AC)........................... $10,257 $--
-------- -----------
-------- -----------
EBITDA (U)....................................................... $ 8,120 $ 595
-------- -----------
-------- -----------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations..................................... $11,354 $-- $11,354
Other revenue.................................................... 3,095 -- 3,095
-------- ------- -----------
Total revenue.................................................... 14,449 -- 14,449
-------- ------- -----------
Participating Lease payments..................................... -- 7,197(F) 7,197
Operating expenses............................................... 9,800 (628)(O,P,R) 9,172
Interest expense................................................. 883 (842)(D) 41
Depreciation and amortization.................................... 1,579 (1,326)(E) 253
-------- ------- -----------
Total expenses................................................... 12,262 4,401 16,663
-------- ------- -----------
Net income (loss)................................................ $ 2,187 $(4,401) $(2,214)
-------- ------- -----------
-------- ------- -----------
Cash provided by operating activities (AA)....................... $ 5,174 $(1,961)
-------- -----------
-------- -----------
Cash used in investing activities (AB)........................... $(5,105) $--
-------- -----------
-------- -----------
Cash used in financing activities (AC)........................... $ (244) $--
-------- -----------
-------- -----------
EBITDA (U)....................................................... $ 4,649 $(1,920)
-------- -----------
-------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-14
<PAGE>
LEGENDS GOLF
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (B) ADJUSTMENTS PRO FORMA
----------- -------------------- -----------
<S> <C> <C> <C>
Current assets................................... $ 2,070 $ (1,418)(V,W,Q,T) $ 653
Property and equipment........................... 33,989 (32,791)(H,N,X) 1,198
Advances to affiliates........................... 12,547 (12,546)(V,W,Q,T) --
Other............................................ 299 (299)(C,V,T) --
----------- -------- -----------
Total assets..................................... $ 48,905 $ (47,054) $ 1,851
----------- -------- -----------
----------- -------- -----------
Current liabilities.............................. $ 3,168 $ -- $ 3,168
Current maturities of long-term debt............. 813 (398)(I) 415
Long-term debt................................... 26,386 (26,386)(I) --
Advances from affiliates......................... 12,044 (12,044)(V,W,Q,S) --
----------- -------- -----------
Total liabilities................................ 42,411 (38,828) 3,583
Owners' equity................................... 6,494 (8,226)(V,W,Q,T) (1,732)
----------- -------- -----------
Total liabilities and owners' equity............. $ 48,905 $ (47,054) $ 1,851
----------- -------- -----------
----------- -------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-15
<PAGE>
GOLF LEGENDS
COURSES: PARKLAND, HEATHLAND, MOORLAND
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (A) ADJUSTMENTS PRO FORMA
-------- --------------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations............................................. $ 8,003 $-- $8,003
Other revenue............................................................ 2,177 -- 2,177
-------- ------- -----------
Total revenue............................................................ 10,180 -- 10,180
-------- ------- -----------
Participating Lease payments............................................. -- 4,670(F) 4,670
Operating expenses....................................................... 5,739 (588)(O) 5,151
Interest expense......................................................... 877 (825)(D) 52
Depreciation............................................................. 1,256 (1,087)(E) 169
-------- ------- -----------
Total expenses........................................................... 7,872 2,170 10,042
-------- ------- -----------
Net income (loss)........................................................ $ 2,308 $(2,170) $ 138
-------- ------- -----------
-------- ------- -----------
Cash provided by operating activities (AA)............................... $ 3,537 $ 307
-------- -----------
-------- -----------
Cash used in investing activities (AB)................................... $(3,372) $--
-------- -----------
-------- -----------
Cash used in financing activities (AC)................................... $ (164) $--
-------- -----------
-------- -----------
EBITDA (U)............................................................... $ 4,441 $ 359
-------- -----------
-------- -----------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations............................................. $ 6,126 $-- $6,126
Other revenue............................................................ 1,888 -- 1,888
-------- ------- -----------
Total revenue............................................................ 8,014 -- 8,014
-------- ------- -----------
Participating Lease payments............................................. -- 3,503(F) 3,503
Operating expenses....................................................... 4,805 (449)(O) 4,356
Interest expense......................................................... 602 (578)(D) 24
Depreciation and amortization............................................ 945 (826)(E) 119
-------- ------- -----------
Total expenses........................................................... 6,352 1,650 8,002
-------- ------- -----------
Net income (loss)........................................................ $ 1,662 $(1,650) $ 12
-------- ------- -----------
-------- ------- -----------
Cash provided by operating activities (AA)............................... $ 3,121 $ 131
-------- -----------
-------- -----------
Cash used in investing activities (AB)................................... $(2,742) $--
-------- -----------
-------- -----------
Cash used in financing activities (AC)................................... $ (533) $--
-------- -----------
-------- -----------
EBITDA (U)............................................................... $ 3,209 $ 155
-------- -----------
-------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-16
<PAGE>
GOLF LEGENDS
COURSES: PARKLAND, HEATHLAND, MOORLAND
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (B) ADJUSTMENTS PRO FORMA
----------- ---------------- -----------
<S> <C> <C> <C>
Current assets....................................... $ 1,128 $ (805)(V) $ 323
Property and equipment............................... 10,739 (9,829)(H,N,X) 910
Advances to affiliates............................... 7,484 (7,484)(V) --
Other................................................ 4 (4)(C,V) --
----------- -------- -----------
Total assets......................................... $ 19,355 $ (18,122) $ 1,233
----------- -------- -----------
----------- -------- -----------
Current liabilities.................................. $ 1,431 $ -- $ 1,431
Current maturities of long-term debt................. 429 (171)(I) 258
Long-term debt....................................... 12,244 (12,244)(I) --
Advances from affiliates............................. 1,014 (1,014)(V) --
----------- -------- -----------
Total liabilities.................................... 15,118 (13,429) 1,689
Owners' equity....................................... 4,237 (4,693)(V) (456)
----------- -------- -----------
Total liabilities and owners' equity................. $ 19,355 $ (18,122) $ 1,233
----------- -------- -----------
----------- -------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-17
<PAGE>
HERITAGE GOLF CLUB
COURSE: HERITAGE GOLF CLUB
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
LESSEE
PRIOR PRO FORMA PRO
OWNER (A) ADJUSTMENTS FORMA
-------- ----------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations............................................... $ 3,156 $ -- $ 3,156
Other revenue.............................................................. 782 -- 782
-------- ----------- --------
Total revenue............................................................ 3,938 -- 3,938
-------- ----------- --------
Participating Lease payments............................................... -- 1,825(F) 1,825
Operating expenses......................................................... 2,442 (218)(P) 2,224
Interest expense........................................................... 63 (48)(D) 15
Depreciation............................................................... 319 (258)(E) 61
-------- ----------- --------
Total expenses........................................................... 2,824 1,301 4,125
-------- ----------- --------
Net income (loss)........................................................ $ 1,114 $(1,301) $ (187)
-------- ----------- --------
-------- ----------- --------
Cash provided by (used in) operating activities (AA)....................... $ 969 $ (126)
-------- --------
-------- --------
Cash used in investing activities (AB)..................................... $ (913) $ --
-------- --------
-------- --------
Cash used in financing activities (AC)..................................... $ (133) $ --
-------- --------
-------- --------
EBITDA (U)............................................................... $ 1,496 $ (111)
-------- --------
-------- --------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations............................................... $ 2,413 $ -- $ 2,413
Other revenue.............................................................. 555 -- 555
-------- ----------- --------
Total revenue............................................................ 2,968 -- 2,968
-------- ----------- --------
Participating Lease payments............................................... -- 1,369(F) 1,369
Operating expenses......................................................... 1,662 (164)(P) 1,498
Interest expense........................................................... 41 (34)(D) 7
Depreciation............................................................... 225 (187)(E) 38
-------- ----------- --------
Total expenses........................................................... 1,928 984 2,912
-------- ----------- --------
Net income (loss)........................................................ $ 1,040 $ (984) $ 56
-------- ----------- --------
-------- ----------- --------
Cash provided by operating activities (AA)................................. $ 1,516 $ 94
-------- --------
-------- --------
Cash used in investing activities (AB)..................................... $(1,371) $ --
-------- --------
-------- --------
Cash used in financing activities (AC)..................................... $ (181) $ --
-------- --------
-------- --------
EBITDA (U)............................................................... $ 1,306 $ 101
-------- --------
-------- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-18
<PAGE>
HERITAGE GOLF CLUB
COURSE: HERITAGE GOLF CLUB
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (B) ADJUSTMENTS PRO FORMA
--------- ---------------- ---------
<S> <C> <C> <C>
Current assets........................ $ 381 $ (250)(W) $131
Property and equipment................ 1,914 (1,773)(H)(X) 141
Advances to affiliates................ 2,301 (2,301)(W) --
--------- ------- ---------
Total assets........................ $4,596 $(4,324) $272
--------- ------- ---------
--------- ------- ---------
Current liabilities................... $ 541 $-- $541
Current maturities of long-term
debt................................. 89 (10)(I) 79
Long-term debt........................ 726 (726)(I) --
Advances from affiliates.............. 595 (595)(W) --
--------- ------- ---------
Total liabilities................... 1,951 (1,331) 620
Owners' equity...................... 2,645 (2,993)(W) (348)
--------- ------- ---------
Total liabilities and owners
equity............................. $4,596 $(4,324) $272
--------- ------- ---------
--------- ------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-19
<PAGE>
SEASIDE RESORTS
COURSE: OYSTER BAY
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
LESSEE
PRIOR PRO FORMA PRO
OWNER (A) ADJUSTMENTS FORMA
-------- ----------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations............................................... $ 3,459 $ -- $ 3,459
Other revenue.............................................................. 865 -- 865
-------- ----------- --------
Total revenue............................................................ 4,324 -- 4,324
-------- ----------- --------
Participating Lease payments................................................. -- 1,856(F) 1,856
Operating expenses......................................................... 2,126 (20)(R) 2,106
Interest expense........................................................... 77 (63)(D) 14
Depreciation............................................................... 187 (134)(E) 53
-------- ----------- --------
Total expenses........................................................... 2,390 1,639 4,029
-------- ----------- --------
Net income............................................................... $ 1,934 $(1,639) $ 295
-------- ----------- --------
-------- ----------- --------
Cash provided by operating activities (AA)................................. $ 2,080 $ 348
-------- --------
-------- --------
Cash used in investing activities (AB)..................................... $(1,207) $ --
-------- --------
-------- --------
Cash used in financing activities (AC)..................................... $ (902) $ --
-------- --------
-------- --------
EBITDA (U)............................................................... $ 2,198 $ 362
-------- --------
-------- --------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations............................................... $ 2,490 -- $ 2,490
Other revenue.............................................................. 591 -- 591
-------- ----------- --------
Total revenue............................................................ 3,081 -- 3,081
-------- ----------- --------
Participating Lease payments............................................... -- 1,392(F) 1,392
Operating expenses......................................................... 1,588 (15)(R) 1,573
Interest expense........................................................... 52 (42)(D) 10
Depreciation............................................................... 137 (41)(E) 96
-------- ----------- --------
Total expenses........................................................... 1,777 1,294 3,071
-------- ----------- --------
Net income............................................................... $ 1,304 $(1,294) $ 10
-------- ----------- --------
-------- ----------- --------
Cash provided by (used in) operating activities (AA)....................... $ 1,591 $ 106
-------- --------
-------- --------
Cash provided by (used in) investing activities (AB)....................... $ (956) $ --
-------- --------
-------- --------
Cash provided by (used in) financing activities (AC)....................... $ (718) --
-------- --------
-------- --------
EBITDA (U)............................................................... $ 1,493 $ 116
-------- --------
-------- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-20
<PAGE>
SEASIDE RESORTS
COURSE: OYSTER BAY
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
LESSEE
PRIOR PRO FORMA PRO
OWNER (B) ADJUSTMENTS FORMA
-------- ----------- --------
<S> <C> <C> <C>
Current assets........................ $ 424 $ (250)(Q) $ 174
Property and equipment................ 1,014 (867)(H) 147
Advances to affiliates................ 2,701 (2,701)(Q) --
-------- ----------- --------
Total assets........................ $ 4,139 $(3,818) $ 321
-------- ----------- --------
-------- ----------- --------
Current liabilities................... $ 344 $ -- $ 344
Current maturities of long-term
debt................................. 117 (39)(I) 78
Long-term debt........................ 948 (948)(I) --
Advances from affiliates.............. 1,256 (1,256)(Q) --
-------- ----------- --------
Total liabilities................... 2,665 (2,243) 422
Owners' equity...................... 1,474 (1,575)(Q) (101)
-------- ----------- --------
Total liabilities and owners
equity............................. $ 4,139 $(3,818) $ 321
-------- ----------- --------
-------- ----------- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-21
<PAGE>
LEGENDS OF VIRGINIA
COURSES: ROYAL NEW KENT, STONEHOUSE GOLF CLUB
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
LESSEE PRO
PRIOR PRO FORMA FORMA
OWNER (A) ADJUSTMENTS CONSOLIDATED
----------- ----------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations.......... $ -- $ -- $ --
Other revenue......................... -- -- --
----------- ----- -----------
Total revenue......................... -- -- --
----------- ----- -----------
Participating Lease payments.......... -- -- (F) --
Operating expenses.................... 15 -- 15
Depreciation.......................... 29 (29)(E) --
----------- ----- -----------
Total expenses........................ 44 (29) 15
----------- ----- -----------
Net loss.............................. $ (44) $ 29 $ (15)
----------- ----- -----------
----------- ----- -----------
Cash used in operating activities
(AA)................................. $ (15) $ (15)
----------- -----------
----------- -----------
Cash used in investing activities
(AB)................................. $ (11,443) $ --
----------- -----------
----------- -----------
Cash used in financing activities
(AC)................................. $ 11,458 $ --
----------- -----------
----------- -----------
EBITDA (U)............................ $ (15) $ (15)
----------- -----------
----------- -----------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations.......... $ 325 $ -- $ 325
Other revenue......................... 62 -- 62
----------- ----- -----------
Total revenue......................... 387 -- 387
----------- ----- -----------
Participating Lease payments.......... -- 933(F) 933
Operating expenses.................... 1,746 -- 1,746
Interest expense...................... 188 (188)(D) --
Depreciation.......................... 272 (272)(E) --
----------- ----- -----------
Total expenses........................ 2,206 473 2,679
----------- ----- -----------
Net loss.............................. $ (1,819) $ (473) $ (2,292)
----------- ----- -----------
----------- ----- -----------
Cash used in operating activities
(AA)................................. $ (1,054) $ (2,292)
----------- -----------
----------- -----------
Cash used in investing activities
(AB)................................. $ (36) $ --
----------- -----------
----------- -----------
Cash provided by financing activities
(AC)................................. $ 1,188 $ --
----------- -----------
----------- -----------
EBITDA (U)............................ $ (1,359) $ (2,292)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-22
<PAGE>
LEGENDS OF VIRGINIA
COURSES: ROYAL NEW KENT, STONEHOUSE GOLF CLUB
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE PRO
OWNER (B) ADJUSTMENTS FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Current assets.......................... $ 138 $ (113)(T) $ 25
Property and equipment.................. 20,322 (20,322)(H) --
Advances to affiliates.................. 60 (60)(T) --
Other................................... 295 (295)(C,T) --
----------- ----------- -----------
Total assets........................ $ 20,815 $ (20,790) $ 25
----------- ----------- -----------
----------- ----------- -----------
Current liabilities..................... $ 852 $ -- $ 852
Current maturities of long-term debt.... 178 (178)(I) --
Long-term debt.......................... 12,468 (12,468)(I) --
Advances from affiliates................ 9,179 (9,179)(S) --
----------- ----------- -----------
Total liabilities....................... 22,677 (21,825) 852
Capital deficit......................... (1,862) 1,035(T) (827)
----------- ----------- -----------
Total liabilities and capital
deficit............................ $ 20,815 $ (20,790) $ 25
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-23
<PAGE>
NORTHGATE COUNTRY CLUB
COURSE: NORTHGATE COUNTRY CLUB
PRO FORMA CONDENSED CONSOLDIATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE PRO
OWNER (A) ADJUSTMENTS FORMA
----------- ----------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 20, 1995
Revenue from golf operations.......... $ 2,803 $ -- $ 2,803
Other revenue......................... 1,763 -- 1,763
----------- ----------- -----------
Total revenue......................... 4,566 -- 4,566
----------- ----------- -----------
Participating Lease payments.......... -- 1,407(F) 1,407
Operating expenses.................... 3,140 (41)(G) 3,099
Interest expense...................... 485 (485)(D) --
Depreciation.......................... 323 (298)(E) 25
----------- ----------- -----------
Total expenses........................ 3,948 583 4,531
----------- ----------- -----------
Net income............................ $ 618 (583) $ 35
----------- ----------- -----------
----------- ----------- -----------
Cash provided by operating activities
(AA)................................. $ 543 $ 60
----------- -----------
----------- -----------
Cash used in investing activities
(AB)................................. $ (347) $ --
----------- -----------
----------- -----------
Cash used in financing activities
(AC)................................. $ (273) $ --
----------- -----------
----------- -----------
EBITDA (U)............................ $ 1,426 $ 60
----------- -----------
----------- -----------
NINE MONTHS ENDED SEPTEMBER 20, 1996
Revenue from golf operations.......... $ 2,214 -- $ 2,214
Other revenue......................... 1,215 -- 1,215
----------- ----------- -----------
Total revenue......................... 3,429 -- 3,429
----------- ----------- -----------
Participating Lease payments.......... -- 1,055(F) 1,055
Operating expenses.................... 2,482 (31)(G) 2,451
Interest expense...................... 389 (389)(D) --
Depreciation.......................... 241 (223)(E) 18
----------- ----------- -----------
Total expenses........................ 3,112 412 3,524
----------- ----------- -----------
Net income............................ $ 317 $ (412) $ (95)
----------- ----------- -----------
----------- ----------- -----------
Cash provided by (used in) operating
activities (AA)...................... $ 573 $ (77)
----------- -----------
----------- -----------
Cash used in investing activities
(AB)................................. $ (155) $ --
----------- -----------
----------- -----------
Cash (used in) financing activities
(AC)................................. $ (423) $ --
----------- -----------
----------- -----------
EBITDA (U)............................ $ 947 $ (77)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-24
<PAGE>
NORTHGATE COUNTRY CLUB
COURSE: NORTHGATE COUNTRY CLUB
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 20, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (B) ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Current assets.......................... $ 2,221 $ -- $ 2,221
Property and equipment, net............. 10,508 (10,450)(H) 58
----------- ----------- -----------
Total assets........................ $ 12,729 $ (10,450) $ 2,279
----------- ----------- -----------
----------- ----------- -----------
Current liabilities..................... $ 903 (28)(I) $ 875
Long-term debt.......................... 6,101 (6,101)(I) --
Membership deposits..................... 1,435 -- 1,435
----------- ----------- -----------
Total liabilities................... 8,439 (6,129) 2,310
Owners' equity.......................... 4,290 (4,321) (31)
----------- ----------- -----------
Total liabilities and owners'
equity............................. $ 12,729 $ (10,450) $ 2,279
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-25
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
COURSE: THE WOODLANDS
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE PRO
OWNER (A) ADJUSTMENTS FORMA
----------- ----------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations.......... $ 1,455 $ -- $ 1,455
Other revenue......................... 291 -- 291
----------- ----- -----------
Total revenue......................... 1,746 -- 1,746
----------- ----- -----------
Participating Lease payments.......... -- 679(F) 679
Operating expenses.................... 1,074 -- 1,074
Interest expense...................... 424 (424)(D) --
Depreciation.......................... 247 (247)(E) --
----------- ----- -----------
Total expenses........................ 1,745 8 1,753
----------- ----- -----------
Net income (loss)..................... $ 1 $ (8) $ (7)
----------- ----- -----------
----------- ----- -----------
Cash provided by (used in) operating
activities (AA)...................... $ 220 $ (7)
----------- -----------
----------- -----------
Cash used in investing activities
(AB)................................. $ (5) $ --
----------- -----------
----------- -----------
Cash used in financing activities
(AC)................................. $ (190) $ --
----------- -----------
----------- -----------
EBITDA (U)............................ $ 672 $ (7)
----------- -----------
----------- -----------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations.......... $ 1,206 $ -- $ 1,206
Other revenue......................... 244 -- 244
----------- ----- -----------
Total revenue......................... 1,450 -- 1,450
----------- ----- -----------
Participating Lease payments.......... 509(F) 509
Operating expenses.................... 841 841
Interest expense...................... 274 (274)(D) --
Depreciation.......................... 186 (186)(E) --
----------- ----- -----------
Total expenses........................ 1,301 49 1,350
----------- ----- -----------
Net income............................ $ 149 $ (49) $ 100
----------- ----- -----------
----------- ----- -----------
Cash provided by operating activities
(AA)................................. $ 334 $ 100
----------- -----------
----------- -----------
Cash used in investing activities
(AB)................................. $ (29) $ --
----------- -----------
----------- -----------
Cash used in financing activities
(AC)................................. $ (301) $ --
----------- -----------
----------- -----------
EBITDA (U)............................ $ 609 $ 100
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-26
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
COURSE: THE WOODLANDS
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE PRO
OWNER (B) ADJUSTMENTS FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Current assets.......................... $ 281 $ -- $ 281
Other assets............................ 52 (50)(A) 2
Property and equipment, net............. 3,656 (3,656)(B) --
----------- ----------- ---
Total assets........................ $ 3,989 $ (3,706) $ 283
----------- ----------- ---
----------- ----------- ---
Current liabilities..................... $ 283 $ (234)(C) $ 49
Notes payable........................... 3,733 (3,733)(C) --
----------- ----------- ---
Total liabilities................... 4,016 (3,967) 49
Members' (deficit) equity............... (27) 261(D) 234
----------- ----------- ---
$ 3,989 $ (3,706) $ 283
----------- ----------- ---
----------- ----------- ---
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-27
<PAGE>
OLDE ATLANTA GOLF CLUB
COURSE: OLDE ATLANTA
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE PRO
OWNER (A) ADJUSTMENTS FORMA
----------- -------------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenue from golf operations............................................... $ 1,568 $ -- $ 1,568
Other revenue.............................................................. 466 -- 466
----------- ----- -----------
Total revenue.............................................................. 2,034 -- 2,034
----------- ----- -----------
Participating Lease payments............................................... -- 845(F) 845
Operating expenses......................................................... 1,434 8(J) 1,442
Interest expense........................................................... 202 (202)(D) --
Depreciation and amortization.............................................. 375 (277)(E) --
-- (98)(K) --
----------- ----- -----------
Total expenses............................................................. 2,011 276 2,287
----------- ----- -----------
Net income (loss).......................................................... $ 23 $ (276) $ (253)
----------- ----- -----------
----------- ----- -----------
Cash provided by (used in) operating activities (AA)....................... $ 375 $ (253)
----------- -----------
----------- -----------
Cash used in investing activities (AB)..................................... $ (53) $ --
----------- -----------
----------- -----------
Cash used in financing activities (AC)..................................... $ (391) $ --
----------- -----------
----------- -----------
EBITDA (U)................................................................. $ 600 $ (253)
----------- -----------
----------- -----------
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue from golf operations............................................... $ 1,362 $ -- $ 1,362
Other revenue.............................................................. 402 -- 402
----------- ----- -----------
Total revenue.............................................................. 1,764 -- 1,764
----------- ----- -----------
Participating Lease payments............................................... -- 634(F) 634
Operating expenses......................................................... 1,298 (61)(J) 1,221
(16)(L)
Interest expense........................................................... 167 (167)(D) --
Depreciation and amortization.............................................. 243 (169)(E) --
-- (74)(K) --
----------- ----- -----------
Total expenses............................................................. 1,708 147 1,855
----------- ----- -----------
Net income (loss).......................................................... $ 56 $ (147) $ (91)
----------- ----- -----------
----------- ----- -----------
Cash provided by (used in) operating activities (AA)....................... $ 252 $ (91)
----------- -----------
----------- -----------
Cash used in investing activities (AB)..................................... $ (19) $ --
----------- -----------
----------- -----------
Cash used in financing activities (AC)..................................... $ (200) $ --
----------- -----------
----------- -----------
EBITDA (U)................................................................. $ 466 $ (91)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-28
<PAGE>
OLDE ATLANTA GOLF CLUB
COURSE: OLDE ATLANTA
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRIOR PRO FORMA LESSEE
OWNER (B) ADJUSTMENTS PRO FORMA
--------- ----------- ---------
<S> <C> <C> <C>
Current assets.......................... $ 292 $ -- $292
Intangible assets....................... 219 (219)(M) --
Property and equipment, net............. 4,318 (4,318)(H) --
--------- ----------- ---
Total assets............................ $4,829 $(4,537) $292
--------- ----------- ---
--------- ----------- ---
Current liabilities..................... 188 (69)(I) 119
Notes payable........................... 2,541 (2,541)(I) --
--------- ----------- ---
Total liabilities....................... 2,729 (2,610) 119
Capital................................. 2,100 (1,927)(Y) 173
--------- ----------- ---
Total liabilities and capital........... $4,829 $(4,537) $292
--------- ----------- ---
--------- ----------- ---
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-29
<PAGE>
GOLF COURSES AND LESSEES
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(A) Reflects the Prior Owner's Historical Condensed Statements of Operations for
the year ended December 31, 1995, and the nine months ended September 30,
1996.
(B) Reflects the Prior Owner's Historical Condensed Balance Sheet at September
30, 1996.
(C) Decrease reflects the write-off of deferred financing costs related to debt
expected to be repaid with the proceeds of the Offering. These nonrecurring
costs are expected to be incurred in connection with the "Formation
Transactions" and the completion of the Offering and have not been included
in the unaudited Pro Forma Condensed Statements of Operations, but are
expected to be charged to operations when incurred.
(D) Decrease relates to a reduction in interest expense associated with debt
payoff from the Use of Proceeds.
(E) Decrease relates to a reduction in depreciation expense on the assets
contributed to the Operating Partnership.
(F) Represents Participating Lease payments as calculated in accordance with the
Participating Lease as if the Formation Transactions were completed as of
the beginning of the period presented. The Legends of Virginia pro forma
condensed statements of operations reflect Participating Lease payments on
the newly developed golf courses for the period in which the courses were
actually operating. Had the courses been operating and the Participating
Lease payments reflected rental payments for the entire period presented,
the Participating Lease payments would have been $3,706 for the year ended
December 31, 1995 and the twelve months ended September 30, 1996 and $3,234
for the nine months ended September 30, 1996.
(G) Reflects a decrease in costs which would have been paid by the Operating
Partnership with funds accrued from capital expenditure reserves included in
the Participating Lease payments had the Formation Transactions been
consummated at the beginning of the period presented.
(H) Reflects transfers, as a part of the Formation Transactions, of property and
equipment and leasehold improvements expected to be contributed to the
Operating Partnership. Golf carts and certain vehicles are to be retained by
the Initial Lessee and have not been included in the amounts transferred.
(I) Reflects the transfer of certain bank debt, as part of the Formation
Transactions, expected to be retired with the proceeds of the Offering.
(J) Reflects a change in management fees and area manager compensation based on
the new management agreement as a result of the Formation Transactions.
(K) Represents the elimination of amortization expense of intangible assets
which are not being transferred to the Initial Lessee.
(L) Reflects a decrease in professional fees for costs directly related to the
Formation Transactions.
(M) Reflects the removal of intangible assets which are not being transferred to
the Initial Lessee as a result of the Formation Transactions.
(N) The leasehold improvements are encumbered by a conservatory easement entered
into prior to the Formation Transactions. Under the terms of the
conservatory easement, the land may be used only as a golf course.
F-30
<PAGE>
(O) Represents the elimination of the following expenses not expected to recur
as a result of the Formation Transactions:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
1995 1996
------------ ----------
<S> <C> <C>
Land lease payment to the stockholder............. $534 $410
Allocable portion of executive vice president
compensation and related benefits eliminated as a
result of the elimination of the position........ 54 39
--- ---
$588 $449
--- ---
--- ---
</TABLE>
(P) Represents the elimination of the following expenses not expected to recur
as a result of the Formation Transactions:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
1995 1996
------------ ----------
<S> <C> <C>
Land lease payment to the stockholder............. $200 $149
Allocable portion of executive vice president
compensation and related benefits eliminated as a
result of the elimination of the position........ 18 15
--- ---
$218 $164
--- ---
--- ---
</TABLE>
(Q) Certain assets, liabilities and equity have not been transferred to the
Initial Lessee as part of the Formation Transactions. These amounts remain
with the Prior Owner and are as follows:
<TABLE>
<S> <C>
Cash.............................................. $ 26
Accounts receivable............................... $ 224
Advances to affiliates............................ $ 2,701
Advances from affiliates.......................... $ 1,256
Equity............................................ $ (1,575)
</TABLE>
(R) Represents the elimination of the allocable portion of executive vice
president compensation and related benefits eliminated as a result of the
elimination of the position.
(S) Includes $8,203 of advances from affiliates of Legends of Virginia for the
construction of the two Virginia golf courses. The advances will be repaid
with proceeds of the Offering as part of the Formation Transactions.
(T) Certain assets, liabilities and deficit have not been transferred to the
Initial Lessee as part of the Formation Transactions. These amounts remain
with the Prior Owner and are as follows:
<TABLE>
<S> <C>
Cash.............................................. $ 98
Accounts receivable............................... $ 16
Advances to affiliates............................ $ 60
Other (loan costs)................................ $ 295
Deficit........................................... $ 1,035
</TABLE>
(U) EBITDA represents earnings before interest, taxes, depreciation and
amortization.
F-31
<PAGE>
(V) Certain assets, liabilities and equity have not been transferred to the
Initial Lessee as part of the Formation Transactions. These amounts remain
with the Prior Owner and are as follows:
<TABLE>
<S> <C>
Cash.............................................. $ 62
Accounts receivable............................... $ 743
Advances to affiliates............................ $ 7,484
Other............................................. $ 4
Advances from affiliates.......................... $ 1,014
Equity............................................ $ (4,693)
</TABLE>
(W) Certain assets, liabilities and equity have not been transferred to the
Initial Lessee as part of the Formation Transactions. These amounts remain
with the Prior Owner and are as follows:
<TABLE>
<S> <C>
Cash.............................................. $ 39
Accounts receivable............................... $ 209
Prepaid assets.................................... $ 2
Advances to affiliates............................ $ 2,301
Advances from affiliates.......................... $ 595
Equity............................................ $ (2,993)
</TABLE>
(X) Transfer does not reflect the contribution of land by Mr. Young to Golf
Legends or Heritage Golf Club and the subsequent transfer to the Operating
Partnership as a result of the Formation Transactions. The land of Golf
Legends is covered under a conservatory easement which limits the use of the
land to a golf course.
(Y) Decrease reflects the transfer of assets to the Operating Partnership in
excess of liabilities transferred.
(Z) Increase reflects the transfer of liabilities to the Operating Partnership
in excess of assets transferred.
The aforementioned adjustments do not reflect any allocable share of the
income or distributions from the interest in the OP Units received by the Prior
Owner as a result of the Formation Transactions as these pro forma statements
are intended to reflect the accounts of the newly formed Initial Lessees only.
(AA) Represents the Initial Lessees' pro forma income adjusted for non-cash
depreciation and amortization. Estimated pro forma cash flows from operating
activities excludes cash provided by (used in) operating activities due to
changes in working capital resulting from changes in current assets and
current liabilities. As the Initial Lessees will be newly formed entities,
the Company does not believe these excluded items are material to cash flows
from operating activities.
(AB) Cash flows from investing activities would primarily include capital
improvements to the Golf Course. As such improvements will generally be
funded through a capital expenditure reserve funded by the Company, cash
flows from investing activities are not expected to be material.
(AC) Cash flows from financing activities would primarily include transactions
with the Initial Lessees' owners and borrowings and repayments on loans.
Such cash flows have been excluded in the determination of cash flows from
financing activities as the Company does not believe these excluded items
are material to cash flows from financing activities.
F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Legends Golf
Myrtle Beach, South Carolina
We have audited the accompanying combined balance sheets of Legends Golf (as
defined in Note 1) as of September 30, 1996, December 31, 1995 and 1994, and the
related combined statements of income, owners' equity, and cash flows for the
nine months ended September 30, 1996 and for each of the three years in the
period ended December 31, 1995. These combined financial statements are the
responsibility of Legends Golf's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free to material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the notes to the combined financial statements,
Legends Golf has material transactions with its majority stockholder and
affiliates.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Legends Golf at
September 30, 1996, December 31, 1994 and 1995, and the results of its
operations and its cash flows for the nine months ended September 1996 and for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Charlotte, North Carolina
December 11, 1996
F-33
<PAGE>
LEGENDS GOLF
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
ASSETS (Note 6)
CURRENT:
Cash....................................................................... $ 505 $ 400 $ 225
Accounts receivable (Note 3):
Golf packages............................................................ 462 580 1,018
Related parties.......................................................... 30 45 139
Stockholder.............................................................. 886 -- --
Other.................................................................... 36 37 33
Inventories................................................................ 429 294 514
Prepaid assets............................................................. 16 2 141
--------- --------- -------------
Total current assets..................................................... 2,364 1,358 2,070
--------- --------- -------------
Property and equipment, less accumulated depreciation and amortization (Notes
4 and 6).................................................................... 18,301 32,099 33,989
--------- --------- -------------
Other assets:
Advances to affiliates (Note 3)............................................ 2,899 7,803 12,547
Other...................................................................... 85 40 299
--------- --------- -------------
Total other assets....................................................... 2,984 7,843 12,846
--------- --------- -------------
$ 23,649 $ 41,300 $ 48,905
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND OWNERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable........................................................... $ 517 $ 430 $ 2,076
Accrued expenses:
Land lease (Note 7)...................................................... 1,318 -- 559
Retirement plan (Note 5)................................................. 74 71 80
Other.................................................................... 330 308 453
Current maturities of long-term debt (Note 6).............................. 1,076 1,710 813
--------- --------- -------------
Total current liabilities................................................ 3,315 2,519 3,981
Advances from affiliates (Note 3)............................................ 2,372 8,787 12,044
Advances from stockholder (Note 3)........................................... 525 -- --
Long-term debt, less current maturities (Note 6)............................. 14,665 24,666 26,386
--------- --------- -------------
Total liabilities........................................................ 20,877 35,972 42,411
--------- --------- -------------
Commitments and contingencies (Notes 5 and 7)
Owners' equity:
Common stock, $1 par -- shares authorized, 300,000; outstanding, 3,000..... 3 3 3
Members' contributions..................................................... 1 1 1
Additional paid-in capital................................................. 300 300 300
Members' accumulated deficit............................................... -- (44) (1,863)
Retained earnings (Note 6)................................................. 2,468 5,068 8,053
--------- --------- -------------
Total owners' equity..................................................... 2,772 5,328 6,494
--------- --------- -------------
$ 23,649 $ 41,300 $ 48,905
--------- --------- -------------
--------- --------- -------------
</TABLE>
See accompanying notes to Combined Financial Statements.
F-34
<PAGE>
LEGENDS GOLF
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Green fees.................................. $ 9,336 $ 9,931 $ 10,147 $ 7,801 $ 7,901
Cart rentals................................ 4,082 4,364 4,373 3,376 3,306
Membership dues............................. 37 76 99 99 147
Food and beverage sales..................... 1,546 1,652 1,708 1,310 1,555
Pro shop merchandise sales.................. 1,834 1,857 2,021 1,526 1,540
Other income................................ 58 216 94 45 --
--------- --------- --------- ----------- ---------
Total revenues............................ 16,893 18,096 18,442 14,157 14,449
--------- --------- --------- ----------- ---------
COSTS AND EXPENSES:
General and administrative (Note 3)......... 4,370 4,150 3,998 3,091 3,834
Repairs and maintenance..................... 2,138 2,319 2,386 1,788 2,593
Depreciation and amortization............... 1,564 1,830 1,791 1,303 1,579
Cost of merchandise sold.................... 812 911 983 768 820
Rents (Note 6).............................. 902 956 982 732 737
Pro shop operations......................... 767 765 857 637 770
Cost of food and beverage sold.............. 541 565 604 461 573
Food and beverage operations................ 352 417 512 364 473
--------- --------- --------- ----------- ---------
Total costs and expenses.................. 11,446 11,913 12,113 9,144 11,379
--------- --------- --------- ----------- ---------
Operating income.............................. 5,447 6,183 6,329 5,013 3,070
Interest expense.............................. 619 998 1,017 759 883
--------- --------- --------- ----------- ---------
Net income.................................... $ 4,828 $ 5,185 $ 5,312 $ 4,254 $ 2,187
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying notes to Combined Financial Statements.
F-35
<PAGE>
LEGENDS GOLF
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEMBERS' PAID-IN RETAINED ACCUMULATED
SHARES AMOUNT CONTRIBUTIONS CAPITAL EARNINGS DEFICIT
-------- -------- ------------- ------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993........... 3 $ 3 $ -- $300 $ 1,783 $ --
Net income......................... -- -- -- -- 4,828 --
Cash dividends..................... -- -- -- -- (4,651) --
-------- -------- ------------- ------- ------------- ----------------
Balance, December 31, 1993......... 3 3 -- 300 1,960 --
Net income......................... -- -- -- -- 5,185 --
Cash dividends..................... -- -- -- -- (4,677) --
Members' contributions............. -- -- 1 -- -- --
-------- -------- ------------- ------- ------------- ----------------
Balance, December 31, 1994......... 3 3 1 300 2,468 --
Net income (loss).................. -- -- -- -- 5,357 (44)
Cash dividends..................... -- -- -- -- (2,757) --
-------- -------- ------------- ------- ------------- ----------------
Balance, December 31, 1995......... 3 3 1 300 5,068 (44)
Net income (loss).................. -- -- -- -- 4,006 (1,819)
Cash dividends..................... -- -- -- -- (1,021) --
-------- -------- ------------- ------- ------------- ----------------
Balance, September 30, 1996........ 3 $ 3 $ 1 $300 $ 8,053 $ (1,863)
-------- -------- ------------- ------- ------------- ----------------
-------- -------- ------------- ------- ------------- ----------------
</TABLE>
See accompanying notes to Combined Financial Statements.
F-36
<PAGE>
LEGENDS GOLF
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 4,828 $ 5,185 $ 5,312 $ 4,254 $ 2,187
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 1,564 1,830 1,791 1,280 1,579
Loss (gain) on sale of property and
equipment................................. (2) -- 5 -- 254
Decrease (increase) in:
Accounts receivable...................... (1,409) 374 (135) (670) (527)
Inventories.............................. (55) (98) 135 67 (221)
Prepaid expenses/other assets............ (137) (16) 7 (1) (458)
Increase (decrease) in:
Checks written against future deposits... (48) -- -- -- --
Accounts payable......................... (264) 293 (87) 305 1,645
Accrued expenses......................... (290) 777 (458) (1,194) 715
--------- --------- --------- ----------- ---------
Net cash provided by operating activities...... 4,187 8,345 6,570 4,041 5,174
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions............. (807) (1,049) (12,213) (514) (361)
Proceeds from sale of property and
equipment................................... 28 -- 124 54 --
Increase in advances to affiliates........... (116) (698) (4,843) (3,103) (4,744)
--------- --------- --------- ----------- ---------
Net cash used in investing activities.......... (895) (1,747) (16,932) (3,563) (5,105)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends........................ (1,128) (3,599) (2,757) (2,099) (1,020)
Proceeds from long-term debt................. 8,949 1,175 11,448 -- 1,188
Payments on long-term debt................... (8,943) (1,660) (812) (797) (365)
Increase (decrease) in advances from
affiliates.................................. (1,668) (2,526) 2,903 2,567 (47)
Decrease in advances from stockholder........ -- -- (525) (525) --
--------- --------- --------- ----------- ---------
Net cash provided by (used in) financing
activities.................................... (2,790) (6,610) 10,257 (854) (244)
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash................ 502 (12) (105) (376) (175)
Cash, beginning of period...................... 15 517 505 505 400
--------- --------- --------- ----------- ---------
Cash, end of period............................ $ 517 $ 505 $ 400 $ 129 $ 225
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying notes to Combined Financial Statements.
F-37
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of three
subchapter S-Corporations (Seaside Resorts, Ltd. d/b/a Oyster Bay Golf Club;
Heritage Golf Club, Ltd.; and Golf Legends, Ltd.) and one limited liability
company (Legends of Virginia, LC). The entities, referred to collectively as
Legends Golf, are engaged in the operation of golf courses in North Carolina and
South Carolina, and Virginia.
The accompanying combined financial statements of Legends Golf have been
presented on a historical cost basis since the Legends Golf is to be the subject
of a business combination upon the contribution of real estate and other
properties in exchange for interest in a limited partnership to be formed by the
operating partnership for inclusion in a public offering (see Note 9). All
significant intercompany balances and transactions have been eliminated.
Additionally, certain classifications may vary from those of the individual
companies' financial statements.
Minority interest attributed to the minority shareholder of Legends of
Virginia, LC is not reflected as the company is in a capital deficit position.
Therefore, the total deficit is attributed to the majority owner.
The Companies' financial statements are being presented on a combined basis
due to all companies being under common control and under the terms of the
operating leases to be implemented under the Formation Transactions, the lease
obligations are cross-collateralized among all four Legends lessees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower-of-cost (first-in, first-out) or market
and consist primarily of food, beverages, golf equipment, and clothing.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flow, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using straight-line methods for financial
reporting and accelerated methods for income tax purposes.
Estimated useful lives for major asset categories approximate:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
- ---------------------------------------- -----
<S> <C>
Golf course improvements................ 15
Buildings............................... 40
Machinery and equipment................. 3-8
Furniture............................... 8
Golf carts.............................. 5
</TABLE>
Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, related cost and accumulated depreciation are removed
from the accounts.
F-38
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
For the S-Corporations, the absence of a provision for income taxes is due
to the election by the companies, and consent by their sole stockholder, to
include the taxable income or loss of the companies in his individual tax
returns. As a result, no federal or state income taxes are imposed on the
companies. For the limited liability company, no provision has been made for
income taxes or related credits as under the Internal Revenue Code as a limited
liability company is treated as a partnership for income tax purposes.
Therefore, the results of operations are includable in the income tax returns of
the members.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles required 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 combined
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Legends Golf to
concentration of credit risk consist primarily of trade receivables.
Concentration of credit risk with respect to trade receivables, which
consists primarily of golf packages from hotels and charges, is limited due to
the large number of hotels comprising Legends Golf's customer base. 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. As of December 31, 1994, 1995, and September 30, 1996, the Company had
no significant concentration of credit risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (Statement No. 121).
Statement No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Legends Golf
periodically reevaluates the carrying amounts of its long-lived assets and the
related depreciation and amortization periods are discussed above, and Legends
Golf believes that the adoption of Statement No. 121 will not have a material
effect on its combined financial statements. This statement is effective for
fiscal years beginning after December 15, 1995.
ADVERTISING
Legends Golf expenses advertising costs as incurred. Advertising costs
included in general and administrative costs in the amounts of $446, $403, and
$418 for December 31, 1993, 1994, and 1995, respectively. Amounts expended for
the periods ended September 30, 1995 and 1996, were $312 and $576, respectively.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 30,
1995 are unaudited; however, in the opinion of the management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-39
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
Legends Golf sole stockholder (majority member) also owns and operates Marsh
Harbour, Ltd.; Heritage Plantation, Ltd.; Legends Golf Development, Ltd.; The
Legends Group, Ltd.; Legends Scottish Village, LLC; Legends Properties, LLC;
Legends Golf Resorts, LLC; and other related businesses.
The Legends Group, Ltd. provides various management and administrative
services including reservations, advertising, accounting, payroll and related
benefits, and telephone for all affiliated companies. These expenses are
allocated to the businesses using procedures deemed appropriate to the nature of
the expenses involved. The procedures utilize various allocation bases such as
relative investment and number of employees and direct effort expended. Interest
on allocated external debt is charged as incurred. Management believes the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the businesses had operated as separate
companies.
Administrative fees paid by Legends Golf for such services are as follows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- ---------
<S> <C>
1993.................................... $ 1,485
1994.................................... $ 934
1995.................................... $ 1,065
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... $ 799
1996.................................... $ 919
</TABLE>
Advances to and from affiliated companies, stockholder receivable and
accrued land lease (Note 7), as shown on the balance sheets, have no fixed
payment/repayment provisions.
Interest income and expense on advances to and from affiliates is not
recorded for financial statement purposes.
Legends Golf paid an affiliate approximately $18,221 for construction of two
golf courses which represented cost plus seven percent.
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 31, ENDED
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Golf courses improvements............... $ 15,267 $ 15,297 $ 35,473
Buildings............................... 3,466 3,835 3,875
Machinery and equipment................. 2,800 3,549 2,612
Furniture............................... 716 727 813
Golf carts.............................. 1,439 1,439 1,448
Construction-in-progress,............... 2,467 16,821 282
--------- --------- -------------
26,155 41,668 44,503
Less accumulated depreciation........... 7,854 9,569 10,514
--------- --------- -------------
Net property and equipment.............. $ 18,301 $ 32,099 $ 33,989
--------- --------- -------------
--------- --------- -------------
</TABLE>
F-40
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
5. RETIREMENT PLAN
The Legends Group, Ltd. sponsors a defined-contribution retirement plan for
all eligible employees, of Legends Golf and other affiliated companies including
officers. The plan provides for contributions by Legends Golf equal to the level
funding amount as calculated and defined in the plan agreement for its eligible
employees. The actual benefit, at any point in time for each participant, is the
actual value of the participant's account based on the earnings or losses
experienced by the plan. Retirement plan expense was:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................... $ 64
1994.................................... $ 93
1995.................................... $ 71
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... $ 61
1996.................................... $ 80
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 SEPTEMBER 30, 1996
--------- --------- ------------------
<S> <C> <C> <C>
6.25% note payable to bank collateralized by substantially all assets
(1).................................................................... $ 14,667 $ 14,122 $ 14,110
Note payable to bank at prime (8.25% as of September 30, 1996) (2)...... -- 11,048 12,646
Notes payable to bank, due in monthly installments of principal plus
interest at prime to dates ranging from November 1996 to May 1998;
collateralized by golf carts having a net book value of $728 at
September 30, 1996..................................................... 1,049 687 416
Notes payable to financing corporation maturing February 1997 and April
2000 with monthly payments of principal plus interest at prime plus .9%
to 1.15% collateralized by equipment with a net book value of $27...... -- 519 27
Repaid in 1995.......................................................... 25 -- --
--------- --------- -------
15,741 26,376 27,199
Less current maturities................................................. 1,076 1,710 813
--------- --------- -------
Total long-term debt.................................................... $ 14,665 $ 24,666 $ 26,386
--------- --------- -------
--------- --------- -------
</TABLE>
- ------------
(1) Legends Golf, along with certain affiliated companies (The Legends Group,
Ltd. and Marsh Harbour, Ltd.), participate in a debt agreement with a bank
consisting of two term notes totaling $17,790 as of September 30, 1996. The
aforementioned companies are jointly liable for the debt and the sole
stockholder has guaranteed the loans.
Effective October 26, 1996, the rate was adjusted to the bank's prime rate.
F-41
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
6. LONG-TERM DEBT (CONTINUED)
(2) On April 19, 1995, Legends of Virginia, LC obtained a loan with a bank
totaling $13,925. In addition, on this date, the affiliated entities amended
an existing loan agreement of which the Legends of Virginia, LC is jointly
liable. These loans are guaranteed by the majority member and collateralized
by the two new golf courses, New Kent and Stonehouse, and existing
affiliated courses and clubhouses and other assets of the majority member.
Payment terms on the above notes are from October 25, 1996, $150 monthly
plus interest; from October 25, 1997, $156 monthly plus interest; from
October 25, 1998, $163 monthly plus interest; total remaining due in balloon
payment on October 25, 1999.
The loan agreements provide among other covenants, restrictions on certain
financial ratios, a minimum aggregate cash balance of $250, payments to the
sole stockholder, capital expenditures, indebtedness, liens, changes in the
nature of the business and significant other limitations as to the use of
funds. Legends Golf had obtained a waiver of certain of the covenants not
met as of December 31, 1995 and September 30, 1996.
Legends Golf is jointly liable as a guarantor, with the sole stockholder,
and other affiliated entities for additional amounts totaling $3,850.
Total debt of all affiliated entities of which Legends Golf is jointly
liable is approximately $34,286, at September 30, 1995.
The aggregate annual maturities for the above mortgage notes payable at
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
- ---------------------------------------- ---------
<S> <C>
1996 (three months)..................... $ 813
1997.................................... 1,601
1998.................................... 1,721
1999.................................... 23,064
---------
Total................................... $ 27,199
---------
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES (Note 9)
Legends Golf leases the land for two of the entities included in the
combined financials from the sole stockholder. Legends Golf has four leases from
the sole stockholder one expiring in 2006, two expiring in 2009, and one in
2012. An additional lease from a third party expires in 2032. The leases require
rental payments of 10% of monthly green fees as defined in the lease agreements.
The leases do not contain an option to purchase the land. Total lease expense
approximates the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, STOCKHOLDER OTHER
- ---------------------------------------- ------------- -----------
<S> <C> <C>
1993.................................... $ 669 $ 233
1994.................................... $ 728 $ 228
1995.................................... $ 734 $ 248
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C> <C>
1995.................................... $ 563 $ 170
1996.................................... $ 559 $ 178
</TABLE>
F-42
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum lease commitments for noncancelable operating leases for various
equipment and golf carts in effect at September 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ----------------------------------------------------------------------------------------------- ---------
<S> <C>
1996 (three months)............................................................................ $ 186
1997........................................................................................... 531
1998........................................................................................... 531
1999........................................................................................... 494
2000........................................................................................... 86
---------
Total.......................................................................................... $ 1,828
---------
---------
</TABLE>
SELF-INSURANCE
Legends Golf along with its affiliates maintain a self-insurance program for
that portion of health care costs not covered by insurance. Legends Golf is
liable for claims up to $15 per employee annually with an annual aggregate
maximum liability under the program for all entities included in these combined
financials which totals $225. Cumulative amounts estimated to be payable by
Legends Golf with respect to pending and potential claims have been accrued as
liabilities.
EMPLOYMENT AGREEMENT
Legends Golf, along with other affiliated entities, have an employment
agreement with an officer that expires in 1998. The agreement provides basic
compensation in addition to other incentives and bonuses based upon certain
conditions as defined in the agreement.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- ---------
<S> <C>
1993.................................... $ 607
1994.................................... $ 1,016
1995.................................... $ 1,574
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... $ 759
1996.................................... $ 883
</TABLE>
During 1993, equipment having a net book value of $334 and cash of $176 was
exchanged for similar new equipment having a value of $480.
During 1994, equipment having a net book value of $827 and cash of $333 was
exchanged for similar new equipment having a value of $1,159.
During 1994, $1,078 of receivables from the sole stockholder were settled
through the declaration of a dividend.
During 1994, the Company acquired $2,365 of Construction costs through
advances from an unaffiliated company.
F-43
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
During 1995, the Company acquired $14,895 of property and equipment through
advances from an affiliated company.
During 1995, $898 of land lease payable to stockholder were netted against
receivables from the stockholder.
9. PROPOSED CONTRIBUTION OF ASSETS
The Company is in negotiations to contribute the Company's interest in the
golf courses properties and related equipment along with related debt to a newly
formed partnership, Golf Trust of America, L.P. (GTA LP) in exchange for a
limited partnership interest in GTA LP. A newly formed affiliate would lease the
golf course properties and related equipment from GTA LP. GTA LP's general
partner, Golf Trust of America, Inc. intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-44
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Golf Legends, Ltd.
Myrtle Beach, South Carolina
We have audited the accompanying balance sheets of GOLF LEGENDS, LTD. as of
September 30, 1996 December 31, 1995 and 1994, and the related statements of
income and retained earnings, and cash flows for the nine months ended September
30, 1996 and for each of the three years in the period ended December 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the notes to the financial statements, GOLF
LEGENDS, LTD. has material transactions with its stockholder and affiliates.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GOLF LEGENDS, LTD. at
September 30, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the nine months ended September 30, 1996 and
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Charlotte, North Carolina
December 11, 1996
F-45
<PAGE>
GOLF LEGENDS, LTD.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS (NOTE 5)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
CURRENT:
Cash....................................................................... $ 215 $ 216 $ 62
Accounts receivable (Notes 2 and 7)........................................ 1,188 356 743
Inventories................................................................ 181 98 234
Prepaid expenses........................................................... -- -- 89
--------- --------- -------------
Total current assets................................................... 1,584 670 1,128
--------- --------- -------------
Property and equipment (Notes 3 and 5), less accumulated depreciation........ 12,218 11,654 10,739
--------- --------- -------------
Other assets:
Advances to affiliates (Note 1)............................................ 2,191 4,924 7,484
Other...................................................................... 85 39 4
--------- --------- -------------
Total other assets..................................................... 2,276 4,963 7,488
--------- --------- -------------
$ 16,078 $ 17,287 $ 19,355
--------- --------- -------------
--------- --------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................................... $ 282 $ 257 $ 759
Accrued expenses:
Land lease (Notes 6 and 7)................................................. 898 -- 410
Retirement plan (Note 4)................................................... 41 36 26
Other...................................................................... 206 200 236
Current maturities of long-term debt (Note 5).............................. 867 882 429
--------- --------- -------------
Total current liabilities.............................................. 2,294 1,375 1,860
Advances from affiliates (Notes 1 and 5)..................................... 7 1,064 1,014
Advances from stockholder (Note 1)........................................... 525 -- --
Long-term debt, less current maturities (Note 5)............................. 12,739 12,061 12,244
--------- --------- -------------
Total liabilities...................................................... 15,565 14,500 15,118
--------- --------- -------------
Commitments and contingencies (Notes 4, 5 and 6)
Stockholder's equity:
Common stock, $1 par -- shares authorized, 100,000; outstanding, 1,000..... 1 1 1
Additional paid-in capital................................................. 300 300 300
Retained earnings (Note 5 and 7)........................................... 212 2,486 3,936
--------- --------- -------------
Total stockholder's equity............................................. 513 2,787 4,237
--------- --------- -------------
$ 16,078 $ 17,287 $ 19,355
--------- --------- -------------
--------- --------- -------------
</TABLE>
See accompanying summary of significant accounting polices
and notes to financial statements.
F-46
<PAGE>
GOLF LEGENDS, LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Green fees............................................................ $ 5,161 $ 5,582 $ 5,610 $ 4,290 $ 4,303
Cart rentals.......................................................... 2,289 2,452 2,393 1,838 1,823
Food and beverage sales............................................... 876 905 969 719 977
Pro shop merchandise sales............................................ 1,008 1,009 1,119 846 880
Other income.......................................................... 33 98 89 50 31
--------- --------- --------- --------- ---------
Total revenues........................................................ 9,367 10,046 10,180 7,743 8,014
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
General and administrative (Note 1)................................... 2,549 2,458 2,412 1,842 1,856
Repairs and maintenance............................................... 1,133 1,368 1,259 910 1,128
Depreciation and amortization......................................... 1,088 1,291 1,256 928 945
Cost of merchandise sold.............................................. 433 489 537 416 423
Rents (Note 6)........................................................ 494 531 534 408 410
Pro shop operations................................................... 347 331 357 261 323
Cost of food and beverage sold........................................ 300 311 361 272 374
Food and beverage operations.......................................... 193 219 279 194 291
--------- --------- --------- --------- ---------
Total costs and expenses............................................ 6,537 6,998 6,995 5,231 5,750
--------- --------- --------- --------- ---------
Operating income...................................................... 2,830 3,048 3,185 2,512 2,264
Interest expense...................................................... 562 857 877 654 602
--------- --------- --------- --------- ---------
Net income............................................................ 2,268 2,191 2,308 1,858 1,662
Retained earnings, beginning of period................................ 879 919 212 212 2,486
Dividends (Notes 5 and 7)............................................. 2,228 2,898 34 34 212
--------- --------- --------- --------- ---------
Retained earnings, end of period...................................... $ 919 $ 212 $ 2,486 $ 2,036 $ 3,936
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-47
<PAGE>
GOLF LEGENDS, LTD.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 2,268 $ 2,191 $ 2,308 $ 1,858 $ 1,662
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,088 1,291 1,257 928 945
Loss (gain) on sale of property........................ (2) -- -- -- 186
Decrease (increase) in:
Accounts receivable................................ (1,321) 186 (54) (444) (386)
Inventories........................................ (38) (55) 83 58 (136)
Prepaid expenses/other assets...................... (140) -- (8) -- (89)
Increase (decrease) in:
Checks written against future deposits............... (8) -- -- -- --
Accounts payable..................................... (144) 148 (25) 158 502
Accrued expenses..................................... 94 551 (24) (848) 437
--------- --------- --------- ----------- ---------
Net cash provided by operating activities.................. 1,797 4,312 3,537 1,710 3,121
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions......................... (326) (747) (639) (515) (182)
Proceeds from sale of property and equipment............. 28 -- -- -- --
Increase in advances to affiliates....................... (574) (886) (2,733) (1,229) (2,560)
--------- --------- --------- ----------- ---------
Net cash used in investing activities...................... (872) (1,633) (3,372) (1,744) (2,742)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends..................................... -- (2,370) (34) (34) (212)
Proceeds from long-term debt............................. 8,446 733 53 -- --
Payments on long-term debt............................... (8,429) (1,123) (715) (643) (271)
Increase (decrease) in advances from affiliates.......... (657) 7 1,057 1,067 (50)
Decrease in advances from stockholder.................... -- -- (525) (525) --
--------- --------- --------- ----------- ---------
Net cash provided by (used in) financing activities........ (640) (2,753) (164) (135) (533)
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash............................ 285 (74) 1 (169) (154)
Cash, beginning of period.................................. 4 289 215 215 216
--------- --------- --------- ----------- ---------
Cash, end of period........................................ $ 289 $ 215 $ 216 $ 46 $ 62
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-48
<PAGE>
GOLF LEGENDS, LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
BUSINESS
Golf Legends, Ltd. (the Company) owns and operates three golf courses,
"Heathland Links," "Moorland Links," and "Parkland Links," located in Myrtle
Beach, South Carolina.
INVENTORIES
Inventories are valued at the lower-of-cost (first-in, first-out) or market
and consist primarily of food, beverages, golf equipment and clothing.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flow, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using straight-line methods for financial
reporting and accelerated methods for income tax purposes.
Estimated useful lives for major asset categories approximate:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
- ---------------------------------------- -----
<S> <C>
Golf course improvements................ 15
Buildings............................... 40
Machinery and equipment................. 3-8
Furniture............................... 8
Golf carts.............................. 5
</TABLE>
Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, related cost and accumulated depreciation are removed
from the accounts.
INCOME TAXES
The absence of a provision for income taxes is due to the election by the
Company, and consent by its stockholder, to include the taxable income or loss
of the Company in his individual tax returns. As a result, no federal or state
income taxes are imposed on the Company.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables.
F-49
<PAGE>
GOLF LEGENDS, LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
Concentration of credit risk with respect to trade receivables, which
consists primarily of golf packages from hotels and charges, is limited due to
the large number of hotels comprising the Company's customer base. 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. As of December 31, 1994, 1995, and September 30, 1996, the Company had
no significant concentration of credit risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (Statement No. 121).
Statement No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically reevaluates the carrying amounts of its long-lived assets and the
related depreciation and amortization periods are discussed above, and the
Company believes that the adoption of Statement No. 121 will not have a material
effect on its financial statements. This statement is effective for fiscal years
beginning after December 15, 1995.
ADVERTISING
Golf Legends expenses advertising costs as incurred. Advertising costs
included in general and administrative costs in the amounts of $275, $234, and
$258 for December 31, 1993, 1994, and 1995, respectively. Amounts expended for
the periods ended September 30, 1995 and 1996, were $194 and $183, respectively.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 30,
1995, are unaudited; however, in the opinion of the management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-50
<PAGE>
GOLF LEGENDS, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
1. AFFILIATED COMPANIES
The Company's sole stockholder also owns and operates Marsh Harbour, Ltd.;
Seaside Resorts, Ltd. (d/b/a Oyster Bay Golf Links); Heritage Golf Club, Ltd.;
Heritage Plantation Ltd.; Legends Golf Development, Ltd.; The Legends Group,
Ltd.; Legends of Virginia, LC; and other businesses.
The Legends Group, Ltd. provides various management and administrative
services including reservations, advertising, accounting, payroll and related
benefits, and telephone for all affiliated companies. These expenses are
allocated to the businesses using procedures deemed appropriate to the nature of
the expenses involved. The procedures utilize various allocation bases such as
relative investment and number of employees and direct effort expended. Interest
on allocated external debt is charged as incurred. Management believes the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the businesses had operated as separate
companies.
Administrative fees paid by the Company for such services are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................. $ 891
1994.................................. $ 560
1995.................................. $ 639
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................. $ 480
1996.................................. $ 480
</TABLE>
Advances to and from affiliated companies, stockholder receivable (Note 2)
and accrued land lease (Note 6), as shown on the balance sheets, have no fixed
payment/repayment provisions and are noninterest bearing.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 SEPTEMBER 30, 1996
--------- --------- ---------------------
<S> <C> <C> <C>
Golf packages........................... $ 272 $ 311 $ 604
Related parties......................... 30 45 139
Stockholder (Note 1).................... 886 -- --
--------- --- ---
$ 1,188 $ 356 $ 743
--------- --- ---
--------- --- ---
</TABLE>
F-51
<PAGE>
GOLF LEGENDS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 SEPTEMBER 30, 1996
--------- --------- ------------------
<S> <C> <C> <C>
Golf course improvements................ $ 11,642 $ 11,642 $ 12,544
Buildings............................... 2,069 2,567 1,762
Machinery and equipment................. 1,441 1,648 1,342
Furniture............................... 248 256 267
Golf carts.............................. 877 877 887
Construction-in-progress................ 102 27 2
--------- --------- -------
16,379 17,017 16,804
Less accumulated depreciation........... 4,161 5,363 6,065
--------- --------- -------
Net property and equipment.............. $ 12,218 $ 11,654 $ 10,739
--------- --------- -------
--------- --------- -------
</TABLE>
4. RETIREMENT PLAN
Legends Group, Ltd. sponsors a defined-contribution retirement plan for all
eligible employees, of Golf Legends and other affiliated companies including
officers. The plan provides for contributions by the Company equal to the level
funding amount as calculated an defined in the plan agreement. The actual
benefit, at any point in time for each participant, is the actual value of the
participant's account based on the earnings or losses experienced by the plan.
Retirement plan expense was
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................... $ 35
1994.................................... 54
1995.................................... 36
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... 34
1996.................................... 27
</TABLE>
F-52
<PAGE>
GOLF LEGENDS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 SEPTEMBER 30, 1996
--------- --------- ------------------
<S> <C> <C> <C>
6.25% note payable to bank, collateralized by substantially all
assets(1).............................................................. $ 12,910 $ 12,455 $ 12,414
Notes payable to bank, due in monthly installments of $20,000, including
interest at prime (8.25% as of September 30, 1996) to dates ranging
from November 1996 to May 1998; collateralized by golf carts having a
net book value of $444 at September 30, 1996........................... 670 435 259
Paid in 1996............................................................ -- 53 --
Paid in 1995............................................................ 26 -- --
--------- --------- -------
13,606 12,943 12,673
Less current maturities................................................. 867 882 429
--------- --------- -------
Total long-term debt.................................................... $ 12,739 $ 12,061 $ 12,244
--------- --------- -------
--------- --------- -------
</TABLE>
- ------------
(1) The Company, along with certain affiliated companies (The Legends Group,
Ltd.; Seaside Resorts, Ltd.; Marsh Harbour, Ltd.; and Heritage Golf Club,
Ltd.), participates in a debt agreement with a bank consisting of two term
notes totaling $17,790 as of September 30, 1996. The aforementioned
companies are jointly liable for the debt and the sole stockholder as
guaranteed the loans.
Effective October 25, 1996, the rate on the notes was adjusted to the bank's
prime rate.
The outstanding balance at September 30, 1996, has been allocated to the
various entities based on the original use of the loan proceeds net of payments
to date as follows:
<TABLE>
<CAPTION>
AFFILIATE AMOUNT
- -------------------------------------------------- -------------
<S> <C>
Marsh Harbour, Ltd................................ $ 3,680
Seaside Resorts, Ltd.............................. 960
Golf Legends, Ltd................................. 12,414
Heritage Golf Club, Ltd........................... 736
-------------
$ 17,790
-------------
-------------
</TABLE>
On April 19, 1995, the Company, along with the affiliated entities, amended
the bank loan agreement and increased the total available loan by approximately
$13,925 ($12,646 outstanding at September 30, 1996). These funds are to be used
for construction of golf courses by an affiliated entity, Legends of Virginia,
LC.
Payment terms on the above Notes are from October 25, 1996, $150 monthly
plus interest; from October 25, 1997, $156 monthly plus interest; from October
25, 1998, $163 monthly plus interest; total remaining due in balloon payment on
October 25, 1999.
F-53
<PAGE>
GOLF LEGENDS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
5. LONG-TERM DEBT (CONTINUED)
The loan agreements provide, among other covenants, restrictions on certain
financial ratios, a minimum aggregate cash balance of $250, payments to the sole
stockholder, capital expenditures, indebtedness, liens, changes in the nature of
the business and significant other limitations as to the use of funds. The
Company had obtained a waiver for those covenants not met at December 31, 1995
and September 30, 1996.
The Company is jointly liable as a guarantor, with the sole stockholder, and
other affiliated entities for additional amounts totaling $3,850.
Total debt of all affiliated entities of which the Company is jointly liable
is approximately $34,285 at September 30, 1996.
The aggregate annual maturities are as follows:
<TABLE>
<S> <C>
1996 (three months).................................... $ 429
1997................................................... 673
1998................................................... 714
1999................................................... 10,857
-----------
Total.................................................. $ 12,673
-----------
-----------
</TABLE>
6. COMMITMENTS
LEASES
The Company leases the land for the golf courses from the sole stockholder.
As of September 30, 1996, the Company has three leases for the golf courses, two
expiring in 2009 and one in 2012. The leases require rental payments of 10% of
monthly green fees as defined in the lease agreements. The total rental expense
approximated the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------
<S> <C>
1993......................................................................... $ 494
1994......................................................................... 531
1995......................................................................... 534
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- -----------------------------------------------------------------------------
<S> <C>
1995......................................................................... 408
1996......................................................................... 410
</TABLE>
Minimum lease commitments for noncancelable operating leases for various
equipment in effect at September 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- --------------------------------------------------------------------------- -----------
<S> <C>
1996 (three months)........................................................ $ 38
1997....................................................................... 113
1998....................................................................... 113
1999....................................................................... 103
---
Total.................................................................... $ 367
---
---
</TABLE>
F-54
<PAGE>
GOLF LEGENDS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
6. COMMITMENTS (CONTINUED)
SELF-INSURANCE
The Company and its affiliates maintain a self-insurance program for that
portion of health care costs not covered by insurance. The Company is liable for
claims up to $15 per employee annually with an annual aggregate maximum
liability under the program for all companies of $225. Cumulative amounts
estimated to be payable by the Company with respect to pending and potential
claims have been accrued as liabilities.
EMPLOYMENT AGREEMENT
The Company, along with other affiliated entities, has an employment
agreement with an officer that expires in 1998. The agreement provides basic
compensation in addition to other incentives and bonuses based upon certain
conditions as defined in the agreement.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
1993............................................................................. $ 552
1994............................................................................. $ 873
1995............................................................................. $ 876
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- -------------------------------------------------------------------------------------
<S> <C>
1995............................................................................. $ 654
1996............................................................................. $ 602
</TABLE>
During 1993, equipment having a net book value of $419 and cash of $227 was
exchanged for similar new equipment having a value of $645.
During 1993, $2,228 of receivables from the stockholder were settled through
the declaration of a dividend.
During 1994, $528 of receivables from the stockholder were settled through
the declaration of a dividend.
During 1994, equipment having a net book value of $419 and cash of $226 was
exchanged for similar equipment having a value of $645.
During 1995, $898 of land lease payables to stockholder were netted against
receivables from stockholders.
8. PROPOSED CONTRIBUTION OF ASSETS
The Company is in negotiations to contribute the Company's interest in the
golf courses properties and related equipment along with related debt to a newly
formed partnership, Golf Trust of America, L.P. (GTA LP) in exchange for a
limited partnership interest in GTA LP. A newly formed affiliate would lease the
golf course properties and related equipment from GTA LP. GTA LP's general
partner, Golf Trust of America, Inc. intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-55
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Heritage Golf Club, Ltd.
Myrtle Beach, South Carolina
We have audited the accompanying balance sheets of HERITAGE GOLF CLUB, LTD.
as of September 30, 1996, December 31, 1995 and 1994, and the related statements
of income and retained earnings, and cash flows for the nine months ended
September 30, 1996 and for each of the three years in the period ended December
31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the notes to the financial statements, the
HERITAGE GOLF CLUB, LTD. has material transactions with its stockholder and
affiliates.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HERITAGE GOLF CLUB, LTD. at
September 30, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the nine months ended September 30, 1996 and
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Charlotte, North Carolina
December 11, 1996
F-56
<PAGE>
HERITAGE GOLF CLUB, LTD.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER
1994 1995 30, 1996
------ ------ -----------
ASSETS (NOTE 5)
<S> <C> <C> <C>
CURRENT:
Cash.................................................................................... $ 152 $ 75 $ 39
Accounts receivable (Notes 1 and 6)..................................................... 93 144 209
Inventories............................................................................. 98 76 87
Prepaid expenses........................................................................ 16 2 46
------ ------ -----------
Total current assets.................................................................. 359 297 381
------ ------ -----------
Property and equipment (Notes 2 and 4), less accumulated depreciation..................... 2,526 2,160 1,914
------ ------ -----------
Advances to affiliates, net (Note 1)...................................................... 1 956 2,301
------ ------ -----------
$2,886 $3,413 $4,596
------ ------ -----------
------ ------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 138 $ 108 $ 284
Accrued expenses:
Land lease (Notes 5).................................................................. 420 -- 149
Retirement plan (Note 3).............................................................. 25 23 17
Other................................................................................. 86 85 91
Current maturities of long-term debt (Note 4)............................................. 99 89 89
------ ------ -----------
Total current liabilities........................................................... 768 305 630
Advances from affiliates (Notes 1)........................................................ -- 595 595
Long-term debt, less current maturities (Note 4).......................................... 853 773 726
------ ------ -----------
Total liabilities................................................................... 1,621 1,673 1,951
------ ------ -----------
Commitments (Notes 3 and 5)
Stockholder's equity:
Common stock, $1 par -- shares authorized, 100,000; outstanding, 1,000.................. 1 1 1
Retained earnings (Note 4 and 6)........................................................ 1,264 1,739 2,644
------ ------ -----------
Total stockholder's equity.......................................................... 1,265 1,740 2,645
------ ------ -----------
$2,886 $3,413 $4,596
------ ------ -----------
------ ------ -----------
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-57
<PAGE>
HERITAGE GOLF CLUB, LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Green fees...................................... $ 1,836 $ 2,075 $ 2,108 $ 1,637 $ 1,568
Cart rentals.................................... 787 937 949 736 698
Membership dues................................. 37 76 99 99 147
Food and beverage sales......................... 355 419 405 316 300
Pro shop merchandise sales...................... 317 375 377 288 263
Other income (expense).......................... 7 53 -- (5) (8)
--------- --------- --------- ----------- ---------
Total revenues................................ 3,339 3,935 3,938 3,071 2,968
--------- --------- --------- ----------- ---------
COSTS AND EXPENSES:
General and administrative (Note 1)............. 1,050 985 895 693 677
Repairs and maintenance......................... 639 549 619 466 312
Depreciation and amortization................... 332 358 319 238 225
Cost of merchandise sold........................ 147 176 188 150 138
Rents (Note 5).................................. 175 197 200 154 149
Pro shop operations............................. 185 199 232 172 144
Cost of food and beverage sold.................. 154 167 149 114 117
Food and beverage operations.................... 101 138 159 117 125
--------- --------- --------- ----------- ---------
Total costs and expenses...................... 2,783 2,769 2,761 2,104 1,887
--------- --------- --------- ----------- ---------
Operating income.................................. 556 1,166 1,177 967 1,081
Interest expense.................................. 26 63 63 47 41
--------- --------- --------- ----------- ---------
Net income........................................ 530 1,103 1,114 920 1,040
Retained earnings, beginning of period............ 578 858 1,264 1,264 1,739
Dividends (Notes 4 and 6)......................... 250 697 639 403 134
--------- --------- --------- ----------- ---------
Retained earnings, end of period.................. $ 858 $ 1,264 $ 1,739 $ 1,781 $ 2,645
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-58
<PAGE>
HERITAGE GOLF CLUB, LTD.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 530 $ 1,103 $ 1,114 $ 920 $ 1,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss of sale of assets........................ -- -- 5 -- 46
Depreciation and amortization................. 332 358 319 238 225
(Increase) decrease) in:
Accounts receivable......................... (55) 112 (52) (109) (64)
Inventories................................. 5 (27) 22 15 (12)
Prepaid expenses/other assets............... 3 (16) 14 -- (44)
Increase (decrease) in:
Checks written against future deposits...... (13) -- -- -- --
Accounts payable............................ (24) 74 (30) 27 175
Accrued expenses............................ (310) 210 (423) (380) 150
--------- --------- --------- ----- ---------
Net cash provided by operating activities......... 468 1,814 969 711 1,516
--------- --------- --------- ----- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions................ (320) (91) (82) -- (25)
Proceeds from sale of assets.................... -- -- 124 47 --
Increase in advances to affiliates.............. -- (1) (955) (935) (1,346)
--------- --------- --------- ----- ---------
Net cash used in investing activities............. (320) (92) (913) (888) (1,371)
--------- --------- --------- ----- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends............................ -- (146) (639) (403) (134)
Proceeds from long-term debt.................... 253 222 -- -- --
Payments on long-term debt...................... (241) (266) (89) (74) (47)
Increase (decrease) in advances from
affiliates..................................... (48) (1,499) 595 562 --
--------- --------- --------- ----- ---------
Net cash used in financing activities............. (36) (1,689) (133) 85 (181)
--------- --------- --------- ----- ---------
Net increase (decrease) in cash................... 112 33 (77) (92) (36)
Cash, beginning of period......................... 7 119 152 152 75
--------- --------- --------- ----- ---------
Cash, end of period............................... $ 119 $ 152 $ 75 $ 60 $ 39
--------- --------- --------- ----- ---------
--------- --------- --------- ----- ---------
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-59
<PAGE>
HERITAGE GOLF CLUB, LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
BUSINESS
Heritage Golf Club, Ltd. (the Company) owns and operates Heritage Golf Club,
located on Pawleys Island, South Carolina.
INVENTORIES
Inventories are valued at the lower-of-cost (first-in, first-out) or market
and consist primarily of food, beverages, golf equipment and clothing.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using straight-line methods for financial
reporting and accelerated methods for income tax purposes.
Estimated useful lives for major asset categories approximate:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
- ---------------------------------------- -----
<S> <C>
Golf course improvements................ 15
Buildings............................... 40
Machinery and equipment................. 3-8
Furniture............................... 8
Golf carts.............................. 5
</TABLE>
Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, related cost and accumulated depreciation are removed
from the accounts.
INCOME TAXES
The absence of a provision for income taxes is due to the election by the
Company, and consent by its stockholder, to include the taxable income or loss
of the Company in his individual tax returns. As a result, no federal or state
income taxes are imposed on the Company.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables.
F-60
<PAGE>
HERITAGE GOLF CLUB, LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
Concentration of credit risk with respect to trade receivables, which
consists primarily of golf packages from hotels and charges, is limited due to
the large number of hotels comprising the Company's customer base. 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. As of December 31, 1994, 1995, and September 30, 1996, the Company had
no significant concentration of credit risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (Statement No. 121).
Statement No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically reevaluates the carrying amounts of its long-lived assets and the
related depreciation and amortization periods are discussed above, and the
Company believes that the adoption of Statement No. 121 will not have a material
effect on its financial statements. This statement is effective for fiscal years
beginning after December 15, 1995.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs
included in general and administrative costs in the amounts of $82, $76, and $81
for December 31, 1993, 1994, and 1995, respectively. Amounts expended for the
periods ended September 30, 1995 and 1996, were $59 and $74, respectively.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 30,
1995, are unaudited; however, in the opinion of the management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-61
<PAGE>
HERITAGE GOLF CLUB, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
1. AFFILIATED COMPANIES
The Company's sole stockholder also owns and operates Marsh Harbour, Ltd.;
Seaside Resorts, Ltd. (d/b/a Oyster Bay Golf Links); Heritage Plantation Ltd.;
Legends Golf Development, Ltd.; The Legends Group, Ltd.; Golf Legends, Ltd.;
Legends of Virginia, LC; and other businesses.
The Legends Group, Ltd. provides various management and administrative
services including reservations, advertising, accounting, payroll and related
benefits, and telephone for all affiliated companies. These expenses are
allocated to the businesses using procedures deemed appropriate to the nature of
the expenses involved. The procedures utilize various allocation bases such as
relative investment and number of employees and direct effort expended. Interest
on allocated external debt is charged as incurred. Management believes the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the businesses had operated as separate
companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................. $ 297
1994.................................. $ 187
1995.................................. $ 213
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1995.................................. $ 160
1996.................................. $ 160
</TABLE>
Advances to and from affiliated companies, stockholder receivable and
accrued land lease (Note 5), as shown on the balance sheets, have no fixed
payment/repayment provisions and are noninterest bearing.
2. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Golf course improvements................ $ 2,490 $ 2,511 $ 2,511
Machinery and equipment................. 700 758 510
Furniture and fixtures.................. 363 366 380
Buildings............................... 1,161 1,032 1,032
Golf carts.............................. 296 296 296
--------- --------- ------
5,010 4,963 4,729
Less accumulated depreciation........... 2,484 2,803 2,815
--------- --------- ------
Net property and equipment.............. $ 2,526 $ 2,160 $ 1,914
--------- --------- ------
--------- --------- ------
</TABLE>
3. RETIREMENT PLAN
The Company and its affiliates sponsor a defined-contribution retirement
plan for all eligible employees, including officers. The plan provides for
contributions by the Company equal to the level funding amount as
F-62
<PAGE>
HERITAGE GOLF CLUB, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
3. RETIREMENT PLAN (CONTINUED)
calculated an defined in the plan agreement. The actual benefit, at any point in
time for each participant, is the actual value of the participant's account
based on the earnings or losses experienced by the plan. Retirement plan
expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -------------
<S> <C>
1993.................................. $ 13
1994.................................. $ 26
1995.................................. $ 24
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................. $ 17
1996.................................. $ 17
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
<S> <C> <C> <C>
6.25% note payable to bank, collateralized by substantially all assets
(1)..................................................................... $ 762 $ 736 $ 736
Note payable to bank, due in monthly installments of $5, including
interest at prime (8.25% as of September 30, 1996) to February 1997;
collateralized by golf carts having a net book value of $142 at
September 30, 1996...................................................... 190 126 79
--- --- ---
952 862 815
Less current maturities.................................................. 99 89 89
--- --- ---
Total long-term debt..................................................... $ 853 $ 773 $ 726
--- --- ---
--- --- ---
</TABLE>
- ------------
(1) The Company, along with certain affiliated companies (The Legends Group,
Ltd.; Seaside Resorts, Ltd.; Golf Legends, Ltd.; and Marsh Harbour, Ltd.),
participates in a debt agreement with a bank consisting of two term notes
totaling $17,790 as of September 30, 1996. The aforementioned companies are
jointly liable for the debt and the sole stockholder as guaranteed the
loans.
The outstanding balance at September 30, 1996, has been allocated to the
various entities based on the original use of the loan proceeds net of payments
to date as follows:
<TABLE>
<CAPTION>
AFFILIATE AMOUNT
- ---------------------------------------- ---------
<S> <C>
Marsh Harbour, Ltd...................... $ 3,680
Seaside Resorts, Ltd.................... 960
Golf Legends, Ltd....................... 12,414
Heritage Golf Club, Ltd................. 736
---------
$ 17,790
---------
---------
</TABLE>
On April 19, 1995, the Company, along with the affiliated entities, amended
the bank loan agreement and increased the total available loan by approximately
$13,925 ($12,646 outstanding at September 30, 1996). These funds are to be used
for construction of golf courses by an affiliated entity, Legends of Virginia,
LC.
F-63
<PAGE>
HERITAGE GOLF CLUB, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
4. LONG-TERM DEBT (CONTINUED)
Payment terms on the above notes are from October 26, 1996, $150 monthly
plus interest; from October 25, 1997, $156 monthly plus interest; from October
25, 1998, $163 monthly plus interest; total remaining due in balloon payment on
October 25, 1999.
The loan agreement provides, among other covenants, restrictions on certain
financial ratios, a minimum aggregate cash balance of $250, payments to the sole
stockholder, capital expenditures, indebtedness, liens, changes in the nature of
the business and significant other limitations as to the use of funds. The
Company obtained a waiver for those covenants not met at December 31, 1995 and
September 30, 1996.
The Company is jointly liable as a guarantor, with the sole stockholder, and
other affiliated entities for additional amounts totaling $3,850.
Total debt of all affiliated entities of which the Company is jointly liable
is approximately $34,285 at September 30, 1996.
The aggregate annual maturities for the above mortgage notes payable at
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
1996 (three months).................... $ 89
1997.................................. 26
1998.................................. 26
1999.................................. 674
---
Total............................... $ 815
---
---
</TABLE>
5. COMMITMENTS
LEASES
The Company leases the land for the golf course from the sole stockholder.
The lease expires in June 2006 and requires a rental payment of 10% of the
monthly green fees as defined in the lease agreements. The total rental expense
for the land approximates:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -------------
<S> <C>
1993.................................. $ 175
1994.................................. $ 197
1995.................................. $ 200
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................. $ 154
1996.................................. $ 149
</TABLE>
F-64
<PAGE>
HERITAGE GOLF CLUB, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
5. COMMITMENTS (CONTINUED)
Minimum lease commitments for noncancelable operating leases for various
equipment in effect at September 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
1996 (three months).................................................................. $ 15
1997................................................................................. 45
1998................................................................................. 45
1999................................................................................. 42
2000................................................................................. 2
---
Total.............................................................................. $ 149
---
---
</TABLE>
SELF-INSURANCE
The Company and its affiliates maintain a self-insurance program for that
portion of health care costs not covered by insurance. The Company is liable for
claims up to $15 per employee annually with an annual aggregate maximum
liability under the program for all companies of $225. Cumulative amounts
estimated to be payable by the Company with respect to pending and potential
claims have been accrued as liabilities.
EMPLOYMENT AGREEMENT
The Company, along with other affiliated entities, has an employment
agreement with an officer that expires in 1998. The agreement provides basic
compensation in addition to other incentives and bonuses based upon certain
conditions as defined in the agreement.
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -------------
<S> <C>
1993.................................. $ 26
1994.................................. $ 64
1995.................................. $ 63
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1996.................................. $ 47
1995.................................. $ 41
</TABLE>
During 1994, equipment having a net book value of $204 and cash of $53 was
exchanged for similar new equipment having a value of $257.
During 1994, $551 of receivables from the stockholder were settled through
the declaration of a dividend.
During 1993, equipment having a net book value of $167 and cash of $88 was
exchanged for similar new equipment having a value of $255.
7. PROPOSED CONTRIBUTION OF ASSETS
The Company is in negotiations to contribute the Company's interest in the
golf courses properties and related equipment along with related debt to a newly
formed partnership, Golf Trust of America, L.P. (GTA LP) in exchange for a
limited partnership interest in GTA LP. A newly formed affiliate would lease the
golf course properties and related equipment from GTA LP. GTA LP's general
partner, Golf Trust of America, Inc. intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-65
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Seaside Resorts, Ltd.
Myrtle Beach, South Carolina
We have audited the accompanying balance sheets of SEASIDE RESORTS, LTD. as
of September 30, 1996, December 31, 1995 and 1994, and the related statements of
income and retained earnings, and cash flows for the nine months ended September
30, 1996 and for each of the three years in the period ended December 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the notes to the financial statements, the
Seaside Resorts, Ltd. has material transactions with its shareholder and
affiliates.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SEASIDE RESORTS, LTD. at
September 30, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the nine months ended September 30, 1996 and
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Charlotte, North Carolina
December 11, 1996
F-66
<PAGE>
SEASIDE RESORTS, LTD.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
ASSETS (Note 5)
CURRENT:
Cash......................................................................... $ 138 $ 109 $ 26
Accounts receivable (Note 2)................................................. 133 162 224
Inventories.................................................................. 151 120 168
Prepaid expenses............................................................. -- -- 6
--------- --------- ------
Total current assets..................................................... 422 391 424
--------- --------- ------
Property and equipment (Notes 3 and 5), less accumulated depreciation.......... 1,192 1,055 1,014
--------- --------- ------
Advances to affiliates (Note 1)................................................ 706 1,863 2,701
--------- --------- ------
$ 2,320 $ 3,309 $ 4,139
--------- --------- ------
--------- --------- ------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 96 $ 65 $ 268
Accrued expenses:
Retirement plan (Note 4)................................................... 9 12 9
Other...................................................................... 38 23 67
Current maturities of long-term debt (Note 5).............................. 110 116 117
--------- --------- ------
Total current liabilities................................................ 253 216 461
Advances from affiliates (Note 1).............................................. -- 1,253 1,256
Long-term debt, less current maturities (Note 5)............................... 1,073 996 948
--------- --------- ------
Total liabilities........................................................ 1,326 2,465 2,665
--------- --------- ------
Commitments (Notes 4 and 6)
Shareholder's equity:
Common stock, $1 par -- shares authorized, 100,000; outstanding, 1,000....... 1 1 1
Retained earnings (Note 5)................................................... 993 843 1,473
--------- --------- ------
Total shareholder's equity............................................... 994 844 1,474
--------- --------- ------
$ 2,320 $ 3,309 $ 4,139
--------- --------- ------
--------- --------- ------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements
F-67
<PAGE>
SEASIDE RESORTS, LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Green fees.................................... $ 2,339 $ 2,274 $ 2,429 $ 1,875 $ 1,776
Cart rentals.................................. 1,006 975 1,030 801 714
Food and beverage sales....................... 316 329 334 272 255
Pro shop merchandise sales.................... 510 474 526 392 356
Other income.................................. 17 63 5 3 (20)
--------- --------- --------- ----------- ---------
Total revenues.............................. 4,188 4,115 4,324 3,343 3,081
--------- --------- --------- ----------- ---------
COST AND EXPENSES:
General and administrative (Note 1)........... 773 707 676 556 518
Repairs and maintenance....................... 366 403 508 412 406
Depreciation and amortization................. 144 181 187 137 137
Cost of merchandise sold...................... 232 247 259 202 173
Rents (Note 6)................................ 233 228 248 170 178
Pro shop operations........................... 234 234 267 204 188
Cost of food and beverage sold................ 87 87 94 75 75
Food and beverage operations.................. 58 59 74 53 50
--------- --------- --------- ----------- ---------
Total costs and expenses.................... 2,127 2,146 2,313 1,809 1,725
--------- --------- --------- ----------- ---------
Operating income................................ 2,061 1,969 2,011 1,534 1,356
Interest expense................................ 31 78 77 58 52
--------- --------- --------- ----------- ---------
Net income...................................... 2,030 1,891 1,934 1,476 1,304
Retained earnings, beginning of period.......... 327 184 993 993 843
Dividends (Notes 5 and 7)....................... 2,173 1,082 2,084 1,662 674
--------- --------- --------- ----------- ---------
Retained earnings, end of period................ $ 184 $ 993 $ 843 $ 807 $ 1,473
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-68
<PAGE>
SEASIDE RESORTS, LTD.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 2,030 $ 1,891 $ 1,934 $ 1,476 $ 1,304
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and Amortization............... 144 181 187 137 137
Gain (loss) on disposal of assets........... -- -- -- -- 22
(Increase) decrease in:
Accounts receivable....................... (32) 77 (29) (117) (62)
Inventories............................... (22) (16) 31 (8) (48)
Prepaid expenses.......................... -- -- -- -- (6)
Increase (decrease) in:
Checks written against future deposits.... (27) -- -- -- --
Accounts payable.......................... (97) 70 (32) 120 203
Accrued expenses.......................... (74) 15 (11) 21 41
--------- --------- --------- ----------- ---------
Net cash provided by operating activities....... 1,922 2,218 2,080 1,629 1,591
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.............. (161) (209) (51) -- (118)
(Increase) decrease in advances to
affiliates................................... 458 189 (1,156) (939) (838)
--------- --------- --------- ----------- ---------
Net cash used in investing activities........... 297 (20) (1,207) (939) (956)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends.......................... (1,128) (1,082) (2,084) (1,662) (674)
Proceeds from long-term debt.................. 249 220 26 -- --
Payments on long-term debt.................... (273) (272) (96) (81) (47)
Increase (decrease) in advances from
affiliates................................... (962) (1,035) 1,252 939 3
--------- --------- --------- ----------- ---------
Net cash used in financing activities........... (2,114) (2,169) (902) (804) (718)
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash................. 105 29 (29) (114) (83)
Cash, beginning of period....................... 4 109 138 138 109
--------- --------- --------- ----------- ---------
Cash, end of period............................. $ 109 $ 138 $ 109 $ 24 $ 26
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements
F-69
<PAGE>
SEASIDE RESORTS, LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
BUSINESS
Seaside Resorts, Ltd. (the Company) owns and operates Oyster Bay Golf Links
located in Sunset Beach, North Carolina.
INVENTORIES
Inventories are valued at the lower-of-cost (first-in, first-out) or market
and consist primarily of food, beverages, golf equipment and clothing.
REVENUE RECOGNITION
Revenue from green fees, cart rentals, food and beverage sales, merchandise
sales, and range income are generally recognized at time of sale.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using straight-line methods for financial
reporting and accelerated methods for income tax purposes.
Estimated useful lives for major asset categories approximate:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
- ---------------------------------------- -----
<S> <C>
Golf course improvements................ 15
Buildings............................... 40
Machinery and equipment................. 3-8
Furniture............................... 8
Golf carts.............................. 5
</TABLE>
INCOME TAXES
The absence of a provision for income taxes is due to the election by the
Company, and consent by its shareholder, to include the taxable income or loss
of the Company in his individual tax returns. As a result, no federal or state
income taxes are imposed on the Company.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables.
Concentration of credit risk with respect to trade receivables, which
consists primarily of golf packages from hotels and charges, is limited due to
the large number of hotels comprising the Company's customer base.
F-70
<PAGE>
SEASIDE RESORTS, LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
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. As of December 31, 1994, 1995, and September 30, 1996, the
Company had no significant concentration of credit risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (Statement No. 121).
Statement No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically reevaluates the carrying amounts of its long-lived assets and the
related depreciation and amortization periods are discussed above, and the
Company believes that the adoption of Statement No. 121 will not have a material
effect on its financial statements. This statement is effective for fiscal years
beginning after December 15, 1995.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs
included in general and administrative costs in the amounts of $89, $93, and $80
for December 31, 1993, 1994, and 1995, respectively. Amounts expended for the
periods ended September 30, 1995 and 1996, were $59 and $61, respectively.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 30,
1995 and 1996, are unaudited; however, in the opinion of the management, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-71
<PAGE>
SEASIDE RESORTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
1. AFFILIATED COMPANIES
The Company's sole shareholder also owns and operates Marsh Harbour, Ltd.;
Heritage Golf Club, Ltd.; Heritage Plantation, Ltd.; Legends Golf Development,
Ltd.; Golf Legends, Ltd.; The Legends Group, Ltd.; Legends of Virginia, LC; and
other businesses.
The Legends Group, Ltd. provides various management and administrative
services including reservations, advertising, accounting, payroll and related
benefits, and telephone for all affiliated companies. These expenses are
allocated to the businesses using procedures deemed appropriate to the nature of
the expenses involved. The procedures utilize various allocation bases such as
relative investment and number of employees and direct effort expended. Interest
on allocated external debt is charged as incurred. Management believes the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the businesses had operated as separate
companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................... $ 297
1994.................................... $ 187
1995.................................... $ 213
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... $ 160
1996.................................... $ 160
</TABLE>
Advances to and from affiliated companies, as shown on the balance sheets,
have no fixed payment/ repayment provisions and are noninterest bearing.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
<S> <C> <C> <C>
Golf packages receivables............... $ 97 $ 125 $ 191
Other................................... 36 37 33
--- --- ---
$ 133 $ 162 $ 224
--- --- ---
--- --- ---
</TABLE>
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Golf course improvements................ $ 1,136 $ 1,144 $ 1,263
Buildings............................... 236 236 243
Machinery and equipment................. 659 679 495
Furniture and fixtures.................. 105 105 105
Golf carts.............................. 265 264 265
--------- --------- ------
2,401 2,428 2,371
Less accumulated depreciation........... 1,209 1,373 1,357
--------- --------- ------
Net property and equipment.............. $ 1,192 $ 1,055 $ 1,014
--------- --------- ------
--------- --------- ------
</TABLE>
F-72
<PAGE>
SEASIDE RESORTS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
4. RETIREMENT PLAN
The Company and its affiliates sponsor a defined-contribution retirement
plan for all eligible employees, including officers. The plan provides for
contributions by the Company, equal to the level funding amount as calculated an
defined in the plan agreement. The actual benefit, at any point in time for each
participant, is the actual value of the participant's account based on the
earnings or losses experienced by the plan. Retirement plan expense was:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................... $ 16
1994.................................... $ 12
1995.................................... $ 13
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... $ 9
1996.................................... $ 9
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
6.25% note payable to bank, collateralized by substantially
all assets(1)............................................. $ 994 $ 960 $ 960
Note payable to bank, due in monthly installments of $5
including interest at prime (8.25% as of September 30,
1996) to December 1997; collateralized by golf carts
having a net book value of $142 at September 30, 1996..... 189 126 79
Note payable to a finance company maturing April 2000 with
monthly payments of $1 plus interest at prime plus 1.15%;
collateralized by equipment with a net book value of
$27....................................................... -- 26 26
--------- --------- ------
1,183 1,112 1,065
Less current maturities.................................... 110 116 117
--------- --------- ------
Total long-term debt....................................... $ 1,073 $ 996 $ 948
--------- --------- ------
--------- --------- ------
</TABLE>
- ------------
(1) The Company, along with certain affiliated companies (The Legends Group,
Ltd.; Marsh Harbour, Ltd.; Golf Legends, Ltd.; and Heritage Golf Club,
Ltd.), participates in a debt agreement with a bank consisting of two term
notes totaling $17,790 as of September 30, 1996. The aforementioned
companies are jointly liable for the debt and the shareholder has guaranteed
the loans.
F-73
<PAGE>
SEASIDE RESORTS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
5. LONG-TERM DEBT (CONTINUED)
The outstanding balance at September 30, 1996, has been allocated to the
various entities based on the original use of the loan proceeds net of payments
to date as follows:
<TABLE>
<CAPTION>
AFFILIATE AMOUNT
- ---------------------------------------- ---------
<S> <C>
Marsh Harbour, Ltd...................... $ 3,680
Seaside Resorts, Ltd.................... 960
Golf Legends, Ltd....................... 12,414
Heritage Golf Club, Ltd................. 736
---------
$ 17,790
---------
---------
</TABLE>
On April 19, 1995, the Company, along with the affiliated entities, amended
the bank loan agreement and increased the total available loan by approximately
$13,925 ($12,646 outstanding at September 30, 1996.) These funds are to be used
for construction of golf courses by an affiliated entity, Legends of Virginia,
LC.
Payment terms on the above notes are from October 25, 1996, $150 monthly
plus interest; from October 25, 1997, $156 monthly plus interest; from October
25, 1998, $163 monthly plus interest; total remaining due in balloon payment on
October 25, 1999.
The loan agreement provides, among other covenants, restrictions on certain
financial ratios, a minimum aggregate cash balance of $250,000, payments to the
sole shareholder, capital expenditures, indebtedness, liens, changes in the
nature of the business and significant other limitations as to the use of funds.
The Company had obtained a waiver for those covenants not met at December 31,
1995 and September 30, 1996.
The Company is jointly liable as a guarantor, with the shareholder, and
other affiliated entities for additional amounts totaling $3,850.
Total debt of all affiliated entities of which the Company is jointly liable
is approximately $34,286 at September 30, 1996.
The aggregate annual maturities are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
1996 (three months)..................... $ 117
1997.................................... 53
1998.................................... 56
1999.................................... 839
---------
Total................................... $ 1,065
---------
---------
</TABLE>
F-74
<PAGE>
SEASIDE RESORTS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
6. COMMITMENTS
LEASES
The Company leases land for the golf course. The lease has a term of fifty
years expiring in April 2032. The lease requires an annual rental payment of 10%
of the green fees, as defined in the lease agreement. The lease does not contain
an option to purchase the land. The total rental expense for the land
approximated.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------- -------------
<S> <C>
1993.................................... $ 234
1994.................................... 228
1995.................................... 248
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... 170
1996.................................... 178
</TABLE>
SELF-INSURANCE
The Company and its affiliates maintain a self-insurance program for that
portion of health care costs not covered by insurance. The Company is liable for
claims up to $15 per employee annually with an annual aggregate maximum
liability under the program for all companies of $225. Cumulative amounts
estimated to be payable by the Company with respect to pending and potential
claims have been accrued as liabilities.
EMPLOYMENT AGREEMENT
The Company, along with other affiliated entities, has an employment
agreement with an officer that expires in 1998. The agreement provides basic
compensation in addition to other incentives and bonuses based upon certain
conditions as defined in the agreement.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1993.................................... $ 30
1994.................................... 79
1995.................................... 77
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------
<S> <C>
1995.................................... 58
1996.................................... 52
</TABLE>
During 1993, equipment having a net book value of $167 and cash of $88 was
exchanged for similar new equipment having a value of $225.
During 1994, equipment having a net book value of $204 and cash of $53 was
exchanged for similar new equipment having a value of $257.
8. PROPOSED CONTRIBUTION OF ASSETS
The Company is in negotiations to contribute the Company's interest in the
golf courses properties and related equipment along with related debt to a newly
formed partnership, Golf Trust of America, L.P. (GTA LP) in exchange for a
limited partnership interest in GTA LP. A newly formed affiliate would lease the
golf course properties and related equipment from GTA LP. GTA LP's general
partner, Golf Trust of America, Inc. intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-75
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Members
Legends of Virginia, LC
Myrtle Beach, South Carolina
We have audited the accompanying balance sheets of LEGENDS OF VIRGINIA, LC
as of September 30, 1996, December 31, 1995 and 1994 and the related statements
of income and retained earnings, and cash flows for the nine months ended
September 30, 1996 and for the two years in the period ended December 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the notes to the financial statements, LEGENDS OF
VIRGINIA, LC has material transactions with its majority member and affiliates.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LEGENDS OF VIRGINIA, LC at
September 30, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the nine months ended September 30, 1996 and
for the two years in the period ended December 31, 1995 ended in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Charlotte, North Carolina
December 11, 1996
F-76
<PAGE>
LEGENDS OF VIRGINIA, LC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 31, ENDED
-------------------- SEPTEMBER
1994 1995 30, 1996
--------- --------- -----------
ASSETS (NOTE 5)
<S> <C> <C> <C>
CURRENT:
Cash......................................................... $ -- $ -- $ 98
Accounts receivable.......................................... -- -- 15
Inventories.................................................. -- -- 25
--------- --------- -----------
Total current assets..................................... -- -- 138
Advances to affiliates (Note 1)................................ -- 60 60
Other.......................................................... -- -- 295
Property and equipment (Notes 3 and 5), less accumulated
depreciation.................................................. -- 436 20,322
Construction in progress (Note 1).............................. 2,365 16,795 --
--------- --------- -----------
$ 2,365 $ 17,291 $ 20,815
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................................... $ -- $ -- $ 765
Other liabilities.............................................. -- -- 87
Current maturities of long-term debt (Note 2).................. -- 622 178
--------- --------- -----------
Total current liabilities................................ -- 622 1,030
--------- --------- -----------
Advances from affiliates (Note 1).............................. 2,364 5,876 9,179
Long-term debt (Note 2)........................................ -- 10,836 12,468
--------- --------- -----------
Total liabilities........................................ 2,364 17,334 22,677
--------- --------- -----------
Commitments (Notes 3 and 4)
Members' equity (deficit):
Members' contributions....................................... 1 1 1
Members' accumulated deficit................................. -- (44) (1,863)
--------- --------- -----------
Total members' equity (deficit).......................... 1 (43) (1,862)
--------- --------- -----------
$ 2,365 $ 17,291 $ 20,815
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-77
<PAGE>
LEGENDS OF VIRGINIA, LC
STATEMENTS OF LOSS AND MEMBERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
-------------------- ------------------------
1994 1995 1995 1996
--------- --------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Green fees................................................. $ -- $ -- $ -- $ 255
Cart rentals............................................... -- -- -- 70
Food and beverage sales.................................... -- -- -- 24
Pro shop merchandise sales................................. -- -- -- 41
Other income............................................... -- -- -- (3)
--------- --------- --- ---------
Total revenues......................................... -- -- -- 387
--------- --------- --- ---------
COSTS AND EXPENSES:
General and administrative (Note 1)........................ -- 15 -- 783
Repairs and maintenance.................................... -- -- -- 747
Depreciation and amortization.............................. -- 29 -- 272
Cost of merchandise sold................................... -- -- -- 87
Pro shop operations........................................ -- -- -- 114
Cost of food and beverage sold............................. -- -- -- 8
Food and beverage operations............................... -- -- -- 7
--------- --------- --- ---------
Total costs and expenses............................... -- 44 -- 2,018
--------- --------- --- ---------
Operating loss............................................. -- (44) -- (1,631)
Interest expense........................................... -- -- -- 188
--------- --------- --- ---------
Net loss................................................... -- (44) -- (1,819)
Members' accumulated deficit, beginning of period.......... -- -- -- (44)
--------- --------- --- ---------
Members' accumulated deficit, end of period................ $ -- $ (44) $ -- $ (1,863)
--------- --------- --- ---------
--------- --------- --- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-78
<PAGE>
LEGENDS OF VIRGINIA, LC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 31, ENDED
----------------- SEPTEMBER 30,
1994 1995 1996
------- -------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss........................................ $ -- $ (44) $(1,819)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. -- 29 272
(Increase) decrease in:
Accounts receivable......................... -- -- (15)
Inventories................................. -- -- (25)
Prepaid expenses/other assets............... -- -- (319)
Increase (decrease) in:
Accounts payable............................ -- -- 765
Accrued expenses............................ 87
------- -------- ------
Net cash (used in) operating activities........... -- (15) (1,054)
------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions................ -- (11,443) (36)
------- -------- ------
Net cash used in investing activities............. -- (11,443) (36)
------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................... -- 11,458 1,188
Increase (decrease) in advances from
affiliates..................................... -- -- --
------- -------- ------
Net cash provided by financing activities......... -- 11,458 1,188
------- -------- ------
Net decrease in cash.............................. -- -- 98
Cash, beginning of period......................... -- -- --
------- -------- ------
Cash, end of period............................... $ -- $ -- $ 98
------- -------- ------
------- -------- ------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-79
<PAGE>
LEGENDS OF VIRGINIA, LC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
BUSINESS
Legends of Virginia, LC (the Company) is in the business of developing and
operating two golf courses near Williamsburg, Virginia, Stonehouse Golf Club and
Royal New Kent which opened in June and August 1996, respectively.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt investments with a maturity of three months or less to be
cash equivalents.
CONSTRUCTION-IN-PROGRESS
Construction-in-progress is stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using straight-line methods for financial
reporting and accelerated methods for income tax purposes.
Estimated useful lives for major asset categories approximate:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
- ---------------------------------------- -----
<S> <C>
Golf course improvements................ 15
Buildings............................... 40
Machinery and equipment................. 3-8
Furniture............................... 8
Golf carts.............................. 5
</TABLE>
Major renewals and betterment's are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, related cost and accumulated depreciation are removed
from the accounts.
INCOME TAXES
No provision has been made for income taxes or related credits, as under the
Internal Revenue Code a limited liability company is treated as a partnership
for income tax purposes. Therefore, the results of operations are includable in
the income tax returns of the members.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables.
Concentration of credit risk with respect to trade receivables, which
consists primarily of golf packages from hotels and charges, is limited due to
the large number of hotels comprising the Company's customer base.
F-80
<PAGE>
LEGENDS OF VIRGINIA, LC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
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. As of December 31, 1994, 1995, and September 30, 1996, the
Company had no significant concentration of credit risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (Statement No. 121).
Statement No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically reevaluates the carrying amounts of its long-lived assets and the
related depreciation and amortization periods are discussed above, and the
Company believes that the adoption of Statement No. 121 will not have a material
effect on its financial statements. This statement is effective for fiscal years
beginning after December 15, 1995.
ADVERTISING
The Company expenses advertising costs as incurred. The Company incurred no
advertising costs in 1994 and 1995. Amounts expended for the nine month periods
ended September 30, 1995 and 1996, were $0 and $251, respectively.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 30,
1995, are unaudited; however, in the opinion of the management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-81
<PAGE>
LEGENDS OF VIRGINIA, LC
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
1. AFFILIATED COMPANIES
The Company's majority member also owns and operates Seaside Resorts, Ltd.
(d/b/a Oyster Bay Golf Links); Marsh Harbour, Ltd.; Heritage Golf Club, Ltd.;
Legends Golf Development, Ltd.; Heritage Plantation, Ltd.; Legends Properties,
LLC; The Legends Group, Ltd.; Golf Legends, Ltd.; and other businesses.
Legends Golf Development, Ltd. (LGD) serves as the general contractor for
the projects. Under the terms of the contract, LGD will be paid 7 percent over
costs as its fee.
The Legends Group, Ltd. provides various management and administrative
services including reservations, advertising, accounting, payroll and related
benefits, and telephone for all affiliated companies. These expenses are
allocated to the businesses using procedures deemed appropriate to the nature of
the expenses involved. The procedures utilize various allocation bases such as
relative investment and number of employees and direct effort expended. Interest
on allocated external debt is charged as incurred. Management believes the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the businesses had operated as separate
companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1994.................................. $ --
1995.................................. $ --
<CAPTION>
NINE MONTH ENDED SEPTEMBER 30, AMOUNT
- ---------------------------------------- -----------
<S> <C>
1996.................................. $ 60
</TABLE>
2. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Golf course improvements............................................ $ -- $ -- $ 19,155
Buildings........................................................... -- -- 836
Machinery and equipment............................................. -- 465 252
Furniture........................................................... -- -- 76
Construction-in-progress............................................ 2,365 16,795 280
--------- --------- -------------
2,365 17,260 20,599
Less accumulated depreciation....................................... -- 29 277
--------- --------- -------------
Net property and equipment.......................................... $ 2,365 $ 17,231 $ 20,322
--------- --------- -------------
--------- --------- -------------
</TABLE>
F-82
<PAGE>
LEGENDS OF VIRGINIA, LC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Note payable to bank at prime (8.25% at September 30, 1996) (1)....... $ -- $ 11,048 $ 12,646
Paid in 1996.......................................................... -- 410 --
--- --------- -------------
-- 11,458 12,646
Less current maturities............................................... -- 622 178
--- --------- -------------
Total long-term debt.................................................. -- $ 10,836 $ 12,468
--- --------- -------------
--- --------- -------------
</TABLE>
- ------------
(1) On April 19, 1995, the Company obtained a loan with a bank totaling $13,925.
In addition, on this date, the affiliated entities amended an existing loan
agreement of which the Company is jointly liable. These loans are guaranteed
by the majority member and collateralized by the two new golf courses, New
Kent and Stonehouse, and existing affiliated courses and clubhouses and
other assets of the majority member.
Certain affiliated companies (Legends Group, Ltd., Golf Legends, Ltd.,
Seaside Resorts, Ltd., Heritage Golf Club, Ltd. and Marsh Harbor, Ltd.)
participate in a debt agreement with a bank consisting of two term notes
totaling $17,804 as of September 30, 1996. The aforementioned companies are
jointly liable for the debt and the majority member has guaranteed the loans.
Payment terms on the above note are from October 25, 1996, $69 monthly plus
interest; from October 25, 1997, $75 monthly plus interest; from October 25,
1998, $82 monthly plus interest; total remaining due in balloon payment on
October 25, 1999.
The loan agreement provides, among other covenants, restrictions on certain
financial ratios, a minimum aggregate cash balance of $250, payments to the
majority member, capital expenditures, indebtedness, liens, changes in the
nature of the business and significant other limitations as to the use of funds.
The Company had obtained a waiver of certain of the covenants not met as of
December 31, 1995 and September 30, 1996.
The Company is jointly liable as a guarantor, with the majority member, and
other affiliated entities for additional amounts totaling $3,850.
Total debt of all affiliated entities of which the Company is jointly liable
is approximately $34,285 at September 30, 1996.
The aggregate annual maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ---------------------------------------- ---------
<S> <C>
1996 (three months)..................... $ 178
1997.................................... $ 848
1998.................................... $ 925
1999.................................... $ 10,695
---------
Total................................. $ 12,646
---------
---------
</TABLE>
4. COMMITMENT
EMPLOYMENT AGREEMENT
The Company, along with other affiliated entities, has an employment
agreement with an officer that expires in 1998. The agreement provides basic
compensation in addition to other incentives and bonus based upon certain
conditions as defined in the agreement.
F-83
<PAGE>
LEGENDS OF VIRGINIA, LC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS)
4. COMMITMENT (CONTINUED)
SELF-INSURANCE
The Company and its affiliates maintain a self-insurance program for that
portion of health care costs not covered by insurance. The Company is liable for
claims up to $15 per employee annually with an annual aggregate maximum
liability under the program for all companies of $225. Cumulative amounts
estimated to be payable by the Company with respect to pending and potential
claims have been accrued as liabilities.
LEASES
Minimum lease commitments for noncancelable operating leases for various
equipment and golf carts in effect at September 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1996 (three months).................................................................. $ 132
1997................................................................................. 373
1998................................................................................. 373
1999................................................................................. 349
2000................................................................................. 84
---------
Total.............................................................................. $ 1,311
---------
---------
</TABLE>
5. RETIREMENT PLAN
The Legends Group, Ltd. sponsors a defined-contribution retirement plan for
all eligible employees of Golf Legends and other affiliated companies including
officers. The plan provides for contributions by the Company equal to the level
funding amount as calculated and defined in the plan agreement. The actual
benefits, at any point in time for each participant, is the actual value of the
participant's account based on the earnings or losses experienced by the plan.
Retirement plan expense was:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
YEAR ENDED DECEMBER 31,
1994............................................................................... $ --
1995............................................................................... $ --
NINE MONTHS ENDED SEPTEMBER 30,
1995............................................................................... $ --
1996............................................................................... $ --
</TABLE>
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During 1994, the Company acquired $2,365 of construction costs through
advances from an affiliated company.
During 1995, the Company acquired $14,894 of property and equipment through
advances from an affiliated company.
7. PROPOSED CONTRIBUTION OF ASSETS
The Company is in negotiations to contribute the Company's interest in the
golf courses properties and related equipment along with related debt to a newly
formed partnership, Golf Trust of America, L.P. (GTA LP) in exchange for a
limited partnership interest in GTA LP. A newly formed affiliate would lease the
golf course properties and related equipment from GTA LP. GTA LP's general
partner, Golf Trust of America, Inc. intends to file a form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Northgate Country Club
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and partners' equity and of cash flows
present fairly, in all material respects, the financial position of Northgate
Country Club (the "Club") at September 20, 1996 and December 20, 1995 and 1994,
and the results of its operations and its cash flows for the nine months ended
September 20, 1996 and each of the three years in the period ended December 20,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Club'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
generally accepted auditing standards 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 the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, CA
December 13, 1996
F-85
<PAGE>
NORTHGATE COUNTRY CLUB
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 20,
-------------------- SEPTEMBER 20,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 97 $ 20 $ 15
Accounts receivable, net of allowance for doubtful accounts of $-0-, $12
and $18, respectively..................................................... 515 539 496
Receivable from affiliate.................................................. 70 1,953 1,467
Inventories................................................................ 99 99 129
Prepaid expenses........................................................... 42 176 114
--------- --------- -------------
Total current assets..................................................... 823 2,787 2,221
Property and equipment, net.................................................. 10,567 10,594 10,508
--------- --------- -------------
Total assets............................................................. $ 11,390 $ 13,381 $ 12,729
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................... $ 214 $ 262 $ 256
Notes payable -- current portion........................................... 88 31 28
Accrued liabilities........................................................ 166 32 68
Deferred revenue........................................................... 229 249 231
Other liabilities.......................................................... 352 345 320
--------- --------- -------------
Total current liabilities................................................ 1,049 919 903
Membership deposits.......................................................... 1,649 1,482 1,435
Notes payable................................................................ 4,839 6,719 6,101
--------- --------- -------------
Total liabilities........................................................ 7,537 9,120 8,439
--------- --------- -------------
Contingencies (Note 6)
Partners' equity............................................................. 3,853 4,261 4,290
--------- --------- -------------
Total liabilities and partners' equity................................... $ 11,390 $ 13,381 $ 12,729
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes to are an integral part to these financial statements.
F-86
<PAGE>
NORTHGATE COUNTRY CLUB
CONSOLIDATED STATEMENTS OF OPERATIONS
AND PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD
YEAR ENDED DECEMBER 20, ENDED
SEPTEMBER 20,
------------------------ --------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Revenue from golf operations.................. $2,461 $2,594 $2,768 $2,060 $2,190
Food and beverage sales....................... 1,181 1,170 1,370 910 982
Pro shop merchandise sales.................... 337 363 393 259 233
Revenue from other services................... 33 35 35 24 24
------ ------ ------ ------ ------
Total revenues................................ 4,012 4,162 4,566 3,253 3,429
------ ------ ------ ------ ------
OPERATING COSTS AND EXPENSES
Operating expenses.............................. 1,107 1,194 1,149 950 984
Costs of goods sold............................. 589 594 731 449 469
General and administrative...................... 580 580 517 401 408
Repairs and maintenance......................... 743 746 743 560 621
Depreciation and amortization................... 360 401 323 245 241
------ ------ ------ ------ ------
Total operating costs and expenses.......... 3,379 3,515 3,463 2,605 2,723
------ ------ ------ ------ ------
Operating income................................ 633 647 1,103 648 706
------ ------ ------ ------ ------
OTHER EXPENSES
Interest expense................................ 914 475 485 356 389
------ ------ ------ ------ ------
Net (loss) income............................... (281) 172 618 292 317
------
------
Capital contributions........................... 2,055 201 577 112
Capital distributions........................... (733) (522) (787) (400)
Partners' equity beginning of period............ 2,961 4,002 3,853 4,261
------ ------ ------ ------
Partners' equity end of period.................. $4,002 $3,853 $4,261 $4,290
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes to are an integral part to these financial statements.
F-87
<PAGE>
NORTHGATE COUNTRY CLUB
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED DECEMBER 20, ENDED SEPTEMBER 20,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................. $ (281) $ 172 $ 618 $ 292 $ 317
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation..................................... 360 401 323 245 241
Decrease (increase) in accounts receivable....... 236 (17) (24) (44) 43
Decrease (increase) in inventories............... (15) 7 -- (9) (30)
Decrease (increase) in prepaid expenses.......... 382 (2) (134) (88) 62
Decrease (increase) in accounts payable.......... (4) 127 48 106 (6)
(Decrease) increase in accrued liabilities....... 19 8 (134) (139) 36
(Decrease) increase in deferred revenue.......... 86 7 20 30 (18)
(Decrease) increase in other liabilities......... 82 (42) (7) (25) (25)
(Decrease) increase in membership deposits....... (25) (77) (167) (157) (47)
--------- --------- --------- ----------- ---------
Net cash provided by (used in) operating
activities...................................... 840 584 543 211 573
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment................. (37) (81) (347) (129) (155)
--------- --------- --------- ----------- ---------
Net cash provided by (used in) investing
activities...................................... (37) (81) (347) (129) (155)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt....... 63 -- 7,000 7,000 --
Principal payments on notes payable................ (501) (115) (5,180) (5,100) (621)
Decrease (increase) in receivables from affiliates -- (70) (1,883) (1,812) 486
Contributions...................................... 375 201 577 426 112
Distributions...................................... (733) (522) (787) (692) (400)
--------- --------- --------- ----------- ---------
Net cash used by financial activities............ (796) (506) (273) (178) (423)
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... 7 (3) (77) (96) (5)
Cash and cash equivalents at beginning of year..... 93 100 97 97 20
--------- --------- --------- ----------- ---------
Cash and cash equivalents at end of year........... $ 100 $ 97 $ 20 $ 1 $ 15
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes to are an intergral part to these financial statements.
F-88
<PAGE>
NORTHGATE COUNTRY CLUB
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Northgate, a
Texas general partnership, and Northgate Country Club Beverage, Inc., a Texas
corporation (collectively, the "Partnership"). Northgate was formed in 1982 for
the purpose of constructing and operating a country club facility consisting of
a golf course, clubhouse, pro shop, tennis courts and dining facilities. Jack A.
Thoner owns an 89% general partner interest in Northgate and is the sole
shareholder of Northgate Country Club Beverage, Inc.
The term "affiliate," as used in these financial statements, refers to any
entity which Jack A. Thoner has a controlling interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, all cash and certificates of
deposit purchased with a maturity of three months or less are considered to be
cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. Inventories consist primarily of food, beverage, golf
and tennis equipment, clothing and accessories.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost which is less than fair value as
measured in accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Improvement of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." Depreciation is computed using the straight-line basis over
the estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings............................... 30 years
Land improvements....................... 20 years
Equipment............................... 3 to 10 years
</TABLE>
Significant expenditures which extend the useful lives of existing assets
are capitalized. All other maintenance and repair costs are charged to current
operations.
MEMBERSHIP DEPOSITS
Membership deposits consist of refundable deposits to members, provided that
the membership contract has not been downgraded or terminated for a term of 30
years after the origination date. The Partnership believes that no liability
exists for membership contracts which have been downgraded or terminated
subsequent to the origination date and accordingly has not reflected a liability
for the related membership deposits in the financial statements. Any liability
which may arise from these downgraded or terminated membership contracts has
been assumed by Jack A. Thoner.
REVENUE RECOGNITION
Membership dues are recorded as revenue during the period to which the dues
apply. Other revenue is recorded when earned. Fees collected in advance are
deferred and recorded as revenue over the period to which they apply.
F-89
<PAGE>
NORTHGATE COUNTRY CLUB
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to
concentration of credit risk consist primarily of trade receivables.
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 Partnership's customer base. 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. As of September 20, 1996, the Partnership had no significant
concentration of credit risk.
The Partnership has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per institution.
At various times throughout the year, the Partnership may have cash in financial
institutions which exceed the FDIC insurance limits.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The cost basis of the Partnership's note payable approximates fair value
based on comparison with current market rates for loans of similar risks and
maturities.
INCOME TAXES
No provision has been made in the accompanying consolidated financial
statements for federal or state income taxes because, as a partnership, the
results of operations are included in the tax returns of the respective
partners.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 20,
1995, are unaudited; however, in the opinion of the management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-90
<PAGE>
NORTHGATE COUNTRY CLUB
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(IN THOUSANDS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 20,
-------------------- -------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Land.................................... $ 7,144 $ 7,144 $ 7,147
Golf course improvements................ 2,592 2,640 2,663
Buildings............................... 2,788 3,018 3,037
Furniture, fixtures, machinery and
equipment.............................. 1,539 1,579 1,689
--------- --------- -------------
14,063 14,381 14,536
Less accumulated depreciation........... (3,496) (3,787) (4,028)
--------- --------- -------------
$ 10,567 $ 10,594 $ 10,508
--------- --------- -------------
--------- --------- -------------
</TABLE>
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 20, SEPTEMBER 20,
-------------------- -------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Notes payable to purchase equipment.................................. $ 46 $ 49 $ 37
Note payable to Greyrock Capital Group, Inc. The note is due in the
year 2000 but may be extended for five years at the option of the
Partnership; requires monthly principal and interest payments and
accrues interest at an annual rate of LIBOR plus 4 1/2%............. -- 6,701 6,092
Note payable to Textron Financial Corporation. The note is due in
1998 and accrues interest at an annual rate equal to the greater of
prime plus 2.5% or 9%. The note was repaid in 1995 from funds
obtained from Greyrock Capital Group, Inc........................... 4,881 -- --
--------- --------- ------
$ 4,927 $ 6,750 $ 6,129
--------- --------- ------
--------- --------- ------
</TABLE>
The Partnership obtained the note payable to Greyrock Capital Group, Inc.
("Greyrock") to pay off the note with Textron Financial Corporation and to have
the available capital to facilitate the lending of funds to an affiliate. The
Partnership has allocated financing costs of the Greyrock note to the affiliate
and charges the affiliate interest in accordance with the stated rate on the
note.
The Greyrock note is collateralized by the golf course land as well as 21
additional real estate lots deeded to the Partnership by various affiliates
solely for the purpose of collateralizing and obtaining the loan. Accordingly,
the Partnership has not recorded the 21 additional lots on the financial
statements.
F-91
<PAGE>
NORTHGATE COUNTRY CLUB
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(IN THOUSANDS)
4. NOTES PAYABLE (CONTINUED)
The following is a schedule of maturities on notes payables for the next
five years ending September 20, 1997 through 2001, and in total thereafter:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------- ---------
<S> <C>
1997.................................... 103
1998.................................... 105
1999.................................... 108
2000.................................... 113
2001.................................... 125
Thereafter.............................. 5,575
---------
$ 6,129
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
During 1995 the Partnership refinanced its note payable to facilitate the
lending of funds to an affiliate. The amounts due from the affiliate are
collateralized by 21 real estate lots, bear interest at the same rate as the
note payable owed by the Partnership (LIBOR plus 4 1/2% per annum) and represent
amounts borrowed from the Partnership and loan fees paid on behalf of the
affiliate by the Company.
6. CONTINGENCIES
The Partnership is involved in various legal proceedings incidental to the
conduct of its normal business operations. The Partnership's management believes
that none of these legal proceedings will have a material impact on the
financial condition or results of operations of the Partnership.
7. SUBSEQUENT EVENTS
Subsequent to September 20, 1996, the Partnership began negotiating
agreements to transfer the golf course and related improvements and equipment to
Golf Trust of America, Inc.
F-92
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members
Bright's Creek Development, LLC
We have audited the accompanying balance sheets of Bright's Creek
Development, LLC, as of September 30, 1996 and December 31, 1995 and 1994, and
the related statements of operations and cash flows for the nine months ended
September 30, 1996, the year ended December 31, 1995, and the period from
inception (May 17, 1994) through December 31, 1994 and the statement of members'
deficit for the nine months ended September 30, 1996, the year ended December
31, 1995, and the period from inception (May 17, 1994) through December 31,
1994. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bright's Creek Development,
LLC, as of September 30, 1996 and December 31, 1995 and 1994, and the results of
its operations and its cash flows for the nine months ended September 30, 1996
and the year ended December 31, 1995, and the period from inception (May 17,
1994) through December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
December 6, 1996
F-93
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
BALANCE SHEETS
(IN THOUSANDS)
(DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents......................................................... $ 26 $ 51 $ 55
Accounts receivable.......................................................... 12 10 30
Notes receivable............................................................. 183 155 155
Inventory.................................................................... 23 43 38
Other........................................................................ 1 3 3
--------- --------- ------
Total current assets..................................................... 245 262 281
--------- --------- ------
LAND, BUILDINGS, AND EQUIPMENT:
Land......................................................................... 1,001 1,001 1,001
Golf course improvements..................................................... 2,596 2,596 2,625
Buildings.................................................................... 312 312 312
Furniture and equipment...................................................... 194 230 207
Automobiles.................................................................. 45 37 36
--------- --------- ------
4,148 4,176 4,181
Less accumulated depreciation.................................................. (104) (350) (525)
--------- --------- ------
4,044 3,826 3,656
--------- --------- ------
OTHER ASSETS:
Deposits..................................................................... 1 1 1
Loan costs, net.............................................................. 52 52 51
--------- --------- ------
53 53 52
--------- --------- ------
Total assets............................................................. $ 4,342 $ 4,141 $ 3,989
--------- --------- ------
--------- --------- ------
<CAPTION>
LIABILITIES AND MEMBERS' DEFICIT
<S> <C> <C> <C>
Accounts payable and accrued expenses.......................................... $ 44 $ 35 $ 49
Current maturities of long-term debt........................................... -- 413 234
--------- --------- ------
Total current liabilities................................................ 44 448 283
Long-term debt................................................................. 4,433 3,855 3,733
--------- --------- ------
Total liabilities........................................................ 4,477 4,303 4,016
Members' deficit............................................................... (135) (162) (27)
--------- --------- ------
Total liabilities and members' deficit................................... $ 4,342 $ 4,141 $ 3,989
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(FOR THE PERIOD FROM INCEPTION (MAY 17, 1994) THROUGH DECEMBER 31, 1994 AND THE
YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND 1996)
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
INCEPTION ENDED
(MAY 17, 1994) SEPTEMBER
THROUGH YEAR ENDED 30,
DECEMBER 31, DECEMBER 31, ------------
1994 1995 1995 1996
-------------- ------------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Golf revenues................................... $ 376 $1,429 $1,193 $1,183
Food and beverage............................... 56 169 142 130
Pro shop........................................ 23 116 93 103
Other income.................................... 8 26 22 23
------ ------ ----- -----
Total revenues.............................. 463 1,740 1,450 1,439
------ ------ ----- -----
OPERATING COSTS AND EXPENSES:
Golf course maintenance......................... 122 302 224 259
Pro shop costs and expenses..................... 85 335 249 281
Food and beverage costs and expenses............ 43 124 102 100
General and administrative expenses............. 113 313 220 201
Depreciation and amortization................... 104 247 184 186
------ ------ ----- -----
Total operating costs and expenses.......... 467 1,321 979 1,027
------ ------ ----- -----
Operating (loss) income..................... (4) 419 471 412
Interest expense.................................. (134) (424) (320 ) (274)
Other income...................................... 1 6 1 11
------ ------ ----- -----
Net (loss) income........................... $(137) $ 1 $152 $ 149
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
STATEMENTS OF MEMBERS' DEFICIT
(IN THOUSANDS)
(FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM INCEPTION (MAY 17, 1994) THROUGH DECEMBER 31, 1994)
<TABLE>
<S> <C>
Initial contribution from members, May 17, 1994...................................... $ 1
Net loss............................................................................. (137)
Other contributions.................................................................. 1
---------
Balance, December 31, 1994........................................................... (135)
Net income........................................................................... 1
Distributions to members............................................................. (31)
Contributions from members........................................................... 3
---------
Balance, December 31, 1995........................................................... (162)
Net income........................................................................... 149
Distributions to members............................................................. (14)
---------
Balance, September 30, 1996.......................................................... $ (27)
---------
---------
</TABLE>
F-96
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM INCEPTION (MAY 17, 1994) THROUGH DECEMBER 31, 1994)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 17,
1994) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER DECEMBER 31, ----------------------
31, 1994 1995 1995 1996
----------- ------------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................... $ (137) $ 1 $ 152 $ 149
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization................. 104 247 184 186
Changes in current assets and liabilities:
Accounts receivable......................... (12) 2 (8) (20)
Inventory................................... (23) (20) (11) 5
Other assets................................ (1) (2) 1
Deposits.................................... (1) (1)
Accounts payable and accrued expenses....... 44 (8) 48 14
----------- ------ ----------- ---------
Net cash provided by (used in) operating
activities............................... (26) 220 365 334
----------- ------ ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of golf course...................... (3,416)
Capital expenditures............................ (731) (33) (33) (29)
Notes receivable issued by related parties...... (183)
Payments received from related parties.......... 28 30
----------- ------ ----------- ---------
Net cash used in investing activities......... (4,330) (5) (3) (29)
----------- ------ ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common units.......... 1
Distributions to members........................ (25) (5)
Principal reductions of debt.................... (13) (109)
Net change in revolving credit balances......... 30 (30)
Proceeds from bankborrowings.................... 4,000
Proceeds from related party borrowings.......... 433
Payments made to related parties................ (182) (209) (162)
Payment of loan financing costs................. (52)
----------- ------ ----------- ---------
Net cash provided by (used in) financing
activities................................. 4,382 (190) (214) (301)
----------- ------ ----------- ---------
Increase (decrease) in cash and cash
equivalents................................ 26 25 148 4
Cash and equivalents, beginning of period......... 26 26 51
----------- ------ ----------- ---------
Cash and equivalents, end of period............... $ 26 $ 51 $ 174 $ 55
----------- ------ ----------- ---------
----------- ------ ----------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.......... $ 118 $ 437 $ 290 $ 274
----------- ------ ----------- ---------
----------- ------ ----------- ---------
</TABLE>
F-97
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. FORMATION AND PRESENTATION
Bright's Creek Development, LLC (the Company) is a limited liability
corporation which owns and operates The Woodlands Golf Course in Gulf Shores,
Alabama. Under the operating agreement of the limited liability corporation, the
members may be held liable only to the extent of each member's respective
investment in the Company. The Company was formed on May 17, 1994 and,
subsequently, purchased The Woodlands Golf Course for a purchase price of
$3,416. After completion of the golf course, operations began in August 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY -- Inventory is valued at the lower of cost (specific
identification method) or market.
LAND, BUILDINGS, AND EQUIPMENT -- Land, buildings, and equipment is stated
at the lower of cost, less accumulated depreciation, or net realizable value.
Maintenance and repairs are charged to expense as incurred. Replacements and
improvements are capitalized and depreciated over the estimated remaining useful
lives of the assets. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets.
LOAN COSTS -- Amortization of loan costs is recorded using the straight-line
method, which approximates the effective interest method, over the life of the
related note.
REVENUE RECOGNITION -- Golf course related income is recognized as services
are provided.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Actual results could differ from those
estimates.
INCOME TAXES -- Federal and state income taxes are not incurred by the
Company. Members are taxed individually on their share of earnings. Accordingly,
no provision for federal or state income taxes has been provided in these
financial statements.
CASH AND EQUIVALENTS -- The Company considers all highly liquid marketable
securities and debt instruments purchased with a maturity of three months or
less in cash equivalents.
RECENTLY ISSUED ACCOUNTING STANDARDS -- Statement of Financial Accounting
Standards No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS, establishes guidance beginning in 1996 for recognizing and measuring
impairment losses which require that the carrying amounts of impaired assets be
reduced to fair value. Management does not believe that the adoption of SFAS 121
will have a material effect on the financial statements of the Company.
PRO SHOP COSTS AND EXPENSES -- Included in pro shop costs and expenses are
certain costs which are incurred for the benefit of the entire golf course and
not solely for the benefit of the pro shop. These expenses include, but are not
limited to, golf professionals' salaries and wages and certain overhead costs.
F-98
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
3. NOTES PAYABLE
Notes payable at September 30, 1996 and December 31, 1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Note payable to Colonial Bank, dated December 1, 1995;
payable in monthly installments beginning December 31,
1995 of $41, including interest at .5% over the Colonial
Bank base rate (9.25% at December 31, 1995); final payment
due at maturity on November 30, 2000; collateralized by
real estate, guaranteed by Robert S. Craft and Craft Turf
Farms..................................................... $ $ 3,987 $ 3,878
Note payable to Colonial Bank, dated May 17, 1994 in the
amounts of $3,000 and $1,000 payable in monthly
installments of interest only beginning June 16, 1994;
interest accrues at 1% over the Colonial Bank base rate;
final payment of principal balance due at maturity on
November 16, 1995; collateralized by real estate,
guaranteed by Robert S. Craft and Craft Turf Farms........ 4,000 -- --
Note payable to Craft Development Corporation (related
party). This note is dated May 17, 1994; payable on
demand; bears interest at 7.16% annually; unsecured....... 433 251 89
Line of credit dated August 16, 1995, which provides for
borrowings up to a maximum of $200 with Gulf Bank;
interest payable quarterly at a rate equal to the New York
prime rate; matures August 14, 1996; unsecured............ -- 30 --
------ ------ ------
$ 4,433 $ 4,268 $ 3,967
------ ------ ------
------ ------ ------
</TABLE>
The aggregate maturities of notes payable at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996........................................................................ $ 413
1997........................................................................ 147
1998........................................................................ 162
1999........................................................................ 177
2000........................................................................ 3,369
---------
$ 4,268
---------
---------
</TABLE>
4. LEASES
The Company rents certain machinery, equipment, and buildings under
operating leases in the normal course of business.
F-99
<PAGE>
BRIGHT'S CREEK DEVELOPMENT, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. LEASES (CONTINUED)
Total rent expense for the year ended December 31, 1995 amounted to
approximately $102. Minimum commitments under noncancelable operating leases as
of December 31, 1995 are payable as follows:
<TABLE>
<S> <C>
1996......................................................................... $ 101
1997......................................................................... 65
---
$ 166
---
---
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a note receivable, which bears interest at 7.63% and is due
on demand, from Pinehurst Development Partnership in the amounts of $58, $58 and
$86 at September 30, 1996, December 31, 1995, and December 31, 1994,
respectively. The Company also has a note receivable, which bears interest at
7.63% and is due on demand, from Craft Land Company in the amount of $97 at
September 30, 1996, December 31, 1995, and December 31, 1994. Both Pinehurst
Development Partnership and Craft Land Company are related parties.
The Company has a note payable to Craft Development Corporation which is due
on demand (SEE NOTE 3).
Robert S. Craft serves as a member on the board of directors of Colonial
BancGroup, the Company's primary lender.
6. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan for all employees who have worked
1,000 hours and have been employed at least two years. Funding is discretionary
by the members of the Company.
7. LITIGATION
The Company is engaged in various legal actions in the ordinary course of
business. Management does not believe the ultimate outcome of these actions will
have a material adverse affect on the financial position, results of operations,
or cash flows of the Company.
F-100
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Olde Atlanta Golf Club Limited Partnership
Suwanee, Georgia
We have audited the accompanying balance sheets of Olde Atlanta Golf Club
Limited Partnership as of September 30, 1996 and December 31, 1995 and 1994, and
the related statements of income, changes in partners' capital and cash flows
for the nine-month period ended September 30, 1996 and the years ended December
31, 1995 and 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Olde Atlanta Golf Club Limited
Partnership as of September 30, 1996 and December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the periods then ended
in conformity with generally accepted accounting principles.
CROWE, CHIZEK AND COMPANY LLP
Oak Brook, Illinois
November 13, 1996
F-101
<PAGE>
OLDE ATLANTA GOLF CLUB LIMITED PARTNERSHIP
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash......................................................................... $ 135 $ 66 $ 99
Accounts receivable.......................................................... 56 43 83
Inventories.................................................................. 57 64 81
Other current assets......................................................... 18 20 29
--------- --------- ------
Total current assets....................................................... 266 193 292
Property and equipment
Land......................................................................... 2,229 2,229 2,229
Land improvements............................................................ 1,159 1,167 1,167
Buildings and equipment...................................................... 1,671 1,696 1,715
--------- --------- ------
5,059 5,092 5,111
Accumulated depreciation..................................................... 366 625 793
--------- --------- ------
Total property and equipment............................................... 4,693 4,467 4,318
Intangible assets.............................................................. 369 293 219
--------- --------- ------
$ 5,328 $ 4,953 $ 4,829
--------- --------- ------
--------- --------- ------
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 2)................................ $ 42 $ 65 $ 69
Accounts payable............................................................. 7 7 54
Accrued property taxes....................................................... 42 53 40
Other current liabilities.................................................... 79 39 25
--------- --------- ------
Total current liabilities.................................................. 170 164 188
Long-term debt (Note 2)........................................................ 1,766 2,591 2,541
Capital
General partners............................................................. 34 22 21
Limited partners............................................................. 3,358 2,176 2,079
--------- --------- ------
Total capital.............................................................. 3,392 2,198 2,100
--------- --------- ------
$ 5,328 $ 4,953 $ 4,829
--------- --------- ------
--------- --------- ------
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE>
OLDE ATLANTA GOLF CLUB LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTH PERIOD
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------- ----------------------
1994 1995 1995 1996
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES
Green fees, cart fees, driving range fees, membership
fees and dues.......................................... $ 1,623 $ 1,568 $ 1,290 $ 1,362
Golf shop sales......................................... 186 200 144 160
Restaurant sales........................................ 246 261 202 234
Other sales............................................. 10 5 5 8
--------- --------- ----------- ---------
Total sales........................................... 2,065 2,034 1,641 1,764
--------- --------- ----------- ---------
COSTS AND EXPENSES
Cost of sales -- golf shop................................ 166 158 121 129
Cost of sales -- restaurant............................... 70 94 60 83
Operating expenses........................................ 1,605 1,557 1,138 1,329
--------- --------- ----------- ---------
1,841 1,809 1,319 1,541
--------- --------- ----------- ---------
Income from operations.................................... 224 225 322 223
Interest expense.......................................... 143 202 145 167
--------- --------- ----------- ---------
Net income................................................ $ 81 $ 23 $ 177 $ 56
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
See accompanying notes to the financial statements.
F-103
<PAGE>
OLDE ATLANTA GOLF CLUB LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Partners' capital at January 1, 1994................................................ $ 35 $ 3,440 $ 3,475
Distributions....................................................................... (2) (162) (164)
Net income.......................................................................... 1 80 81
--- --------- ---------
Partners' capital at December 31, 1994.............................................. 34 3,358 3,392
Purchase of limited partnership interest............................................ -- (21) (21)
Distributions....................................................................... (12) (1,184) (1,196)
Net income.......................................................................... -- 23 23
--- --------- ---------
Partners' capital at December 31, 1995.............................................. 22 2,176 2,198
Distributions....................................................................... (2) (152) (154)
Net income.......................................................................... 1 55 56
--- --------- ---------
Partners' capital at September 30, 1996............................................. $ 21 $ 2,079 $ 2,100
--- --------- ---------
--- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-104
<PAGE>
OLDE ATLANTA GOLF CLUB LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------- ----------------------
1994 1995 1995 1996
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 81 $ 23 $ 177 $ 56
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 352 277 210 169
Amortization.......................................... 91 98 74 74
Change in assets and liabilities:
Accounts receivable................................. (49) 13 (3) (40)
Inventory........................................... (30) (7) (19) (19)
Other current assets................................ (11) (2) (7) (9)
Accounts payable.................................... (79) -- 10 48
Other current liabilities........................... (35) (27) (41) (27)
--------- --------- ----------- ---------
Net cash provided by operating activities............... 320 375 401 252
--------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (196) (69) (64) (19)
Proceeds from sale of equipment......................... -- 16 -- --
--------- --------- ----------- ---------
Net cash used in investing activities................... (196) (53) (64) (19)
--------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of limited partnership interest................ -- (21) (21) --
Payments of financing fees.............................. (41) (22) (22) --
Proceeds from long-term debt............................ 1,835 900 900 --
Payments on long-term debt.............................. (1,702) (52) (37) (46)
Partner distributions................................... (164) (1,196) (1,138) (154)
--------- --------- ----------- ---------
Net cash used in financing activities................... (72) (391) (318) (200)
--------- --------- ----------- ---------
Net increase (decrease) in cash........................... 52 (69) 19 33
Cash at beginning of period............................... 83 135 135 66
--------- --------- ----------- ---------
Cash at end of period..................................... $ 135 $ 66 $ 154 $ 99
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Supplemental disclosure of cash flow information
Cash paid during the period for interest................ $ 143 $ 202 $ 145 $ 167
</TABLE>
See accompanying notes to financial statements.
F-105
<PAGE>
OLDE ATLANTA GOLF CLUB LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994 AND SEPTEMBER 30, 1996
(IN THOUSANDS)
1. NATURE OF BUSINESS AND OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Olde Atlanta Golf Club Limited Partnership (the Partnership) owns and
operates a golf course, Olde Atlanta Country Club, in Atlanta, Georgia. The
Partnership was organized as a limited partnership on August 21, 1992 under the
laws of the State of Illinois.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
Management must make estimates and assumptions in preparing financial
statements that affect the amounts reported therein and the disclosures
provided. These estimates and assumptions may change in the future and future
results could differ.
INVENTORY
Inventory is stated at the lower of cost or market, cost determined on the
first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Improvements and betterments
are capitalized; maintenance and repairs are charged to operations as incurred.
Depreciation is provided for financial reporting and income tax purposes using
both accelerated and straight-line methods over lives from 5 to 31 years.
INTANGIBLE ASSETS
Intangible assets consist of financing fees, start-up costs, and
organization costs. Financing fees are being amortized on the straight-line
method over the period of the underlying loans. Start-up and organization costs
are being amortized on the straight-line method over 60 months. Accumulated
amortization at December 31, 1994 and 1995 and September 30, 1996 was $98, $195
and $270, respectively.
REVENUE RECOGNITION
Green fees, cart fees, and driving range fees are recognized as revenue when
the rounds are played. Membership dues are recognized in the period in which
they relate. The monthly dues are structured to cover the club operating costs
and membership services. Nonrefundable initiation fees are recorded as revenue
when received.
INCOME TAXES
The Partnership is not subject to income taxes since the income or loss of
the Partnership is includable in the respective income tax returns of the
partners.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the nine months ended September 30,
1995 are unaudited, however, in the opinion of management, the interim financial
statments include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim
period. The results of operations for such interim period are not necessarily
indicative of the results to be obtained for the full year.
F-106
<PAGE>
OLDE ATLANTA GOLF CLUB LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1994 and 1995 and
September 30, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Loan with Peoples Bank of Forsyth County, dated April 20, 1994, due in
monthly payments of $15 including interest, with a balloon payment due
April 19, 1999; interest at 8% secured by the golf course, including all
improvements.............................................................. $ 1,808 $ 1,767 $ 1,735
Loan with Peoples Bank of Forsyth County, dated April 15, 1995, due in
monthly payments of $8 including interest, with a balloon payment due
April 15, 1999; interest at 9.25%, secured by the golf course, including
all improvements. An unused line of credit for $100 to acquire equipment
is available.............................................................. -- 889 875
--------- --------- ---------
1,808 2,656 2,610
Current maturities of long-term debt....................................... 42 65 69
--------- --------- ---------
Total long-term debt....................................................... $ 1,766 $ 2,591 $ 2,541
--------- --------- ---------
--------- --------- ---------
</TABLE>
Maturities of long-term debt as of September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................................ $ 69
1998........................................................................ 75
1999........................................................................ 2,466
</TABLE>
Based on the borrowing rates currently available to the Partnership for
loans with similar terms and maturities, the fair value of long-term debt
approximates the carrying amount.
3. COMMITMENTS
The Partnership leases golf carts under an operating lease which expires in
November 1997. Minimum future rentals under this lease as of September 30, 1996
are as follows:
<TABLE>
<S> <C>
1997........................................................................ $ 46
1998........................................................................ 8
---------
$ 54
---------
---------
</TABLE>
Total rent expense for the nine months ended September 30, 1996 and for the
years ended December 31, 1995 and 1994 was $47, $55 and $51, respectively.
The Partnership terminated its agreement with HMS Golf Management, Inc. to
manage the golf club effective November 30, 1994. The termination agreement
included a termination fee of $102 to be paid by the Partnership. Total expense
plus the termination fee incurred in 1994 amounted to $161.
The Partnership pays a management fee to the general partner for
administrative and management services. The management fee is based on gross
revenues and amounted to $92, $78 and $54 for the nine months ended September
30, 1996 and the years ended December 31, 1995 and 1994, respectively.
4. SUBSEQUENT EVENT
Subsequent to September 30, 1996, the Partnership began negotiating
agreements to transfer the golf course and related improvements and equipment to
Golf Trust of America.
F-107
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by the
Company in connection with the sale of Common Stock being registered. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the American Stock Exchange listing fees.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC Registration fee.............................................................. $ 20,967
NASD filing fee................................................................... 7,419
American Stock Exchange listing fees.............................................. 22,500
Printing and engraving............................................................ *
Legal fees and expenses of the Company............................................ *
Accounting fees and expenses...................................................... *
Blue sky fees and expenses........................................................ *
Transfer Agent and Registrar fees................................................. *
Miscellaneous..................................................................... *
-----------
Total.........................................................................
-----------
-----------
</TABLE>
- ------------
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32 below.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
On November 11, 1996, 1 share of Common Stock was issued by the Company to
C.A. Hooks, Jr. This issuance of Common Stock was effected in reliance upon an
exemption from registration under Section 4(2) of the Securities Act as a
transaction not involving a public offering. On November 11, 1996 (i) 12,500 OP
Units were issued by the Operating Partnership to W. Bradley Blair, II, (ii)
12,500 OP Units were issued to David J. Dick and (iii) 3,750 OP Units were
issued to James Hoppenrath. These issuances were effected in reliance upon an
exemption from registration under Section 4(2) of the Securities Act as a
transaction not involving a public offering.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Maryland General Corporation Law (the "MGCL") empowers
the Company to indemnify, subject to the standards set forth therein, any person
who is a party in any action in connection with any action, suit or proceeding
brought or threatened by reason of the fact that the person was a director,
officer, employee or agent of such company, or is or was serving as such with
respect to another entity at the request of such company. The MGCL also provides
that the Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Charter provides for indemnification of the officers and
directors of the Company substantially identical in scope to that permitted
under Section 2-418 of the MGCL. The Bylaws of the Company also provide that the
expenses of officers and directors incurred in defending any action, suit or
proceeding, whether civil, criminal, administrative or investigative, must be
paid by the Company as they are incurred and in advance of the final disposition
of the action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay all amounts so advanced if it is
ultimately determined by a court of competent jurisdiction that the officer or
director is not entitled to be indemnified by the Company.
Prior to the completion of the Offering, the Company anticipates entering
into indemnification agreements with certain of its directors and officers that
require the Company to indemnify such directors and officers to the fullest
extent permitted by applicable provisions of the MGCL, provided that any
settlement of a third party
II-1
<PAGE>
action against a director or officer is approved by the Company, and subject to
limitations for actions initiated by the director or officer, penalties paid by
insurance, and violations of Section 16(b) of the Securities Exchange Act of
1934, as amended, and similar laws.
Pursuant to the Underwriting Agreement, the Registrant has agreed to
indemnify the Underwriters against certain liabilities which may be incurred in
connection with the Offering made by this Prospectus forming a part of this
Registration Statement, including liabilities under the Securities Act, and the
Underwriters have agreed to indemnify the Company and its officers and directors
against certain similar liabilities.
The Company's Charter limits the liability of the Company's directors and
officers for money damages to the Company and its shareholders to the fullest
extent permitted from time to time by Maryland law. Maryland law presently
permits the liability of directors and officers to a corporation or its
shareholders for money damages to be limited, except (i) to the extent that it
is proved that the director or officer actually received an improper benefit or
profit or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its shareholders to obtain other
relief, such as an injunction or rescission.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Index included at page F-1 to F-4
(b) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Charter of the Company, as filed with the State Department of
Assessments and Taxation of Maryland on November 8, 1996.
3.2 Bylaws of the Company, as currently in effect.
5.1 Opinion of Ballard Spahr Andrews & Ingersoll as to legality of the
shares being registered.
8.1* Opinion of O'Melveny & Myers LLP as to tax matters.
10.1 Form of First Amended and Restated Agreement of Limited Partnership
of the Operating Partnership.
10.2 Form of Participating Lease.
10.3* Form of Right of Option to Purchase and Right of First Refusal
Agreement.
10.4** Form of Contribution and Leaseback Agreement.
10.6 Form of Golf Trust of America, Inc. Stock Incentive Plan.
10.7 Form of Golf Trust of America, Inc. Non-Employee Directors'
Incentive Plan.
10.8 Form of Employment Agreement between the Company and W. Bradley
Blair, II.
10.9 Form of Employment Agreement between the Company and David J. Dick.
10.10 Form of Employment Agreement between the Company and Scott D.
Peters.
22.1 List of subsidiaries of the Company.
23.1 Consents of Price Waterhouse LLP, Coopers & Lybrand L.L.P., BDO
Seidman, LLP and Crowe, Chizek and Company LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included within the
opinion filed as Exhibit 5.1).
23.3* Consent of O'Melveny & Myers LLP
24.1** Powers of Attorney.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<C> <S>
99.1 Consent of Fred W. Reams, proposed director.
99.2 Consent of Roy C. Chapman, proposed director.
99.3 Consent of Edward L. Wax, proposed director.
99.4 Consent of Raymond V. Jones, proposed director.
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
ITEM 36. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 33 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus as
filed as part of the registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b(1) or (4) or 497(h) under the Securities Act of 1933, as amended,
shall be deemed to be part of the registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each posteffective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement on Form S-11 to
be signed on its behalf by the undersigned, thereunto duly authorized, in Myrtle
Beach, State of South Carolina, on January 14, 1997.
GOLF TRUST OF AMERICA, INC.
By: /s/ W. BRADLEY BLAIR, II
-----------------------------------
W. Bradley Blair, II
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-11 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ----------------------------------------- ------------------
<C> <S> <C>
/s/ W. BRADLEY BLAIR, II
---------------------------------------- Chairman of the Board of Directors/ Chief January 14, 1997
W. Bradley Blair, II Executive Officer/President
/s/ DAVID J. DICK
---------------------------------------- Executive Vice President/Director January 14, 1997
David J. Dick
/s/ SCOTT D. PETERS
---------------------------------------- Senior Vice President/Chief Financial January 14, 1997
Scott D. Peters Officer
/s/ *
---------------------------------------- Director January 14, 1997
Larry D. Young
*Power of Attorney By:
/s/ W. BRADLEY BLAIR, II
----------------------------------------
W. Bradley Blair, II
CHAIRMAN OF THE BOARD/
CHIEF EXECUTIVE OFFICER
</TABLE>
II-4
<PAGE>
EXHIBIT 3.2
BYLAWS
<PAGE>
THE BYLAWS
OF
GOLF TRUST OF AMERICA, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. PRINCIPAL OFFICE. . . . . . . . . . . . . . . . . . . . . 1
Section 2. ADDITIONAL OFFICES. . . . . . . . . . . . . . . . . . . . 1
Section 3. FISCAL AND TAXABLE YEARS. . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 1
Section 1. PLACE . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . 1
Section 3. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . 2
Section 4. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 7. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. VOTING OF SHARES BY CERTAIN HOLDERS . . . . . . . . . . . 3
Section 10. INSPECTORS. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 11. DETERMINATION OF SHAREHOLDERS OF RECORD . . . . . . . . . 3
Section 12. ACTION WITHOUT A MEETING. . . . . . . . . . . . . . . . . 4
Section 13. VOTING BY BALLOT. . . . . . . . . . . . . . . . . . . . . 4
Section 14. CONTROL SHARE ACQUISITION STATUTE . . . . . . . . . . . . 4
ARTICLE IV Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1. GENERAL POWERS. . . . . . . . . . . . . . . . . . . . . . 4
Section 2. NUMBER, TENURE AND QUALIFICATIONS . . . . . . . . . . . . 4
Section 3. CHANGES IN NUMBER VACANCIES . . . . . . . . . . . . . . . 5
Section 4. RESIGNATIONS. . . . . . . . . . . . . . . . . . . . . . . 5
Section 5. REMOVAL OF DIRECTORS. . . . . . . . . . . . . . . . . . . 5
Section 6. ANNUAL AND REGULAR MEETINGS . . . . . . . . . . . . . . . 5
Section 7. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . 5
Section 8. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 9. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 11. TELEPHONE MEETINGS. . . . . . . . . . . . . . . . . . . . 6
Section 12. ACTION WITHOUT A MEETING. . . . . . . . . . . . . . . . . 6
Section 13. COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 6
Section 14. POLICIES AND RESOLUTIONS. . . . . . . . . . . . . . . . . 6
ARTICLE V Committees . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . 7
Section 2. TELEPHONE MEETINGS. . . . . . . . . . . . . . . . . . . . 7
Section 3. ACTION BY COMMITTEES WITHOUT A MEETING. . . . . . . . . . 7
i
<PAGE>
ARTICLE VI Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 8
Section 2. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS . . . . . . . 8
Section 3. REMOVAL AND RESIGNATION . . . . . . . . . . . . . . . . . 8
Section 4. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. GENERAL POWERS. . . . . . . . . . . . . . . . . . . . . . 8
Section 6. CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . 8
Section 7. CHIEF OPERATING OFFICER . . . . . . . . . . . . . . . . . 8
Section 8. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD . . . . . . . . . 9
Section 9. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . 9
Section 11. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 12. CHIEF FINANCIAL OFFICER OR TREASURER. . . . . . . . . . . 9
Section 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. . . . . . 10
Section 14. SALARIES. . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII Contracts, Notes, Checks and Deposits. . . . . . . . . . . . . 10
Section 1. CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. CHECKS AND DRAFTS . . . . . . . . . . . . . . . . . . . . 10
Section 3. DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII Capital Share. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. CERTIFICATES OF SHARES. . . . . . . . . . . . . . . . . . 10
Section 2. LOST CERTIFICATE. . . . . . . . . . . . . . . . . . . . . 10
Section 3. TRANSFER AGENTS AND REGISTRARS. . . . . . . . . . . . . . 11
Section 4. TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . . . 11
Section 5. SHARE LEDGER. . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IX Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. DECLARATION . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE X Indemnification and Limitation of Liability. . . . . . . . . . 11
Section 1. INDEMNIFICATION OF AGENTS . . . . . . . . . . . . . . . . 11
Section 2. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3. INDEMNIFICATION NON-EXCLUSIVE . . . . . . . . . . . . . . 12
Section 4. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . 12
ARTICLE XI Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2. AFFIXING SEAL . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XII Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XIII Amendment of Bylaws. . . . . . . . . . . . . . . . . . . . . . 13
Section 1. BY DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . 13
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ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of Golf Trust
of America, Inc. (the "Corporation") shall be located at 190 King Street,
Charleston, South Carolina 29401 or at any other place or places as the Board of
Directors may designate.
SECTION 2. ADDITIONAL OFFICES. The Corporation may have
additional offices at such places as the Board of Directors may from time to
time determine or the business of the Corporation may require.
SECTION 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years
of the Corporation shall begin on January 1 and end on December 31.
ARTICLE II
DEFINITIONS
For purposes of these Bylaws, the following words shall have the
meanings set forth below:
(a) "Affiliate" of a person shall mean (i) any person that, directly
or indirectly, controls or is controlled by or is under common control with such
person (ii) any other person that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding capital shares, shares or equity
interests of such person, or (iii) any officer, director, employee, partner or
trustee of such person or any person controlling, controlled by or under common
control with such person (excluding trustees and persons serving in similar
capacities who are not otherwise an Affiliate of such person). The term
"person" means and includes individuals, corporations, general and limited
partnerships, stock companies, land trusts, business trusts, or other entities
and governments and agencies and political subdivisions thereof. For the
purposes of this definition, "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as used with respect
to any person, shall mean the possession, directly or indirectly,of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.
(b) "Independent Director" shall mean a Director of the Corporation
who is not an officer or employee of the Corporation or an Affiliate of (i) any
lessee of or management company operating any of the properties owned by the
Corporation or any Affiliate of the Corporation, (ii) any subsidiary of the
Corporation or (iii) any partnership which is an Affiliate of the Corporation.
ARTICLE III
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE. All meetings of shareholders shall be held at
190 King Street, Charleston, South Carolina, or at such other place within the
United States as shall be stated in the notice of the meeting.
SECTION 2. ANNUAL MEETING. The President or the Board of
Directors may fix the time of the annual meeting of the shareholders for the
election of Directors and the transaction of any business as may be properly
brought before the meeting, but if no such date and time is fixed by the
President or the Board of Directors, the meeting for any calendar year shall be
held on the fourth Thursday in May, if that day is not a legal holiday. If that
day is a legal holiday, the annual meeting shall be held on the next succeeding
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day that is not a legal holiday. Failure to hold an annual meeting does not
invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
SECTION 3. SPECIAL MEETINGS. The President, a majority of the
Board of Directors or a majority of the Independent Directors may call special
meetings of the shareholders. Special meetings of shareholders also shall be
called by the Secretary upon the written request of the holders of shares
entitled to cast not less than fifty percent (50%) of all the votes entitled to
be cast at such meeting. Such request shall state the purpose of such meeting
and the matters proposed to be acted on at such meeting. The Secretary shall
inform such shareholders of the reasonably estimated cost of preparing and
mailing notice of the meeting and, upon payment to the Corporation of such costs
by such shareholders, the Secretary shall give notice to each shareholder
entitled to notice of the meeting. Unless requested by shareholders entitled to
cast a majority of all the votes entitled to be cast at such meeting, a special
meeting need not be called to consider any matter which is substantially the
same as a matter voted on at any special meeting of the shareholders held during
the preceding twelve months.
SECTION 4. NOTICE. Not less than ten (10) nor more than sixty
(60) days before each meeting of shareholders, the Secretary shall give to each
shareholder entitled to vote at such meeting and to each shareholder not
entitled to vote who is entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by statute, the purpose for which the
meeting is called, either by mail or by presenting it to such shareholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the shareholder at his post office address as it
appears on the records of the Corporation, with postage thereon prepaid.
SECTION 5. ORGANIZATION. At every meeting of the shareholders,
the Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in his absence, an assistant secretary, or in the absence of both
the Secretary and assistant secretaries, a person appointed by the Chairman
shall act as Secretary.
SECTION 6. QUORUM. At any meeting of shareholders, the presence
in person or by proxy of shareholders entitled to cast fifty percent (50%) of
all the votes entitled to be cast at such meeting shall constitute a quorum; but
this Section 6 shall not affect any requirement under any statute, the Charter
or these Bylaws for the vote necessary for the adoption of any measure. If such
quorum shall not be present at any meeting of the shareholders, the shareholders
representing a majority of the shares entitled to vote at such meeting, present
in person or by proxy, may vote to adjourn the meeting from time to time to a
date not more than 120 days after the original record date without notice other
than announcement at the meeting until such quorum shall be present. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 7. VOTING. A plurality of all the votes cast at a meeting
of shareholders duly called and at which a quorum is present shall be sufficient
to elect a director. There shall be no cumulative voting. Each common share
may be voted for as many individuals as there are Directors to be elected and
for whose election the share is entitled to be voted. A majority of the votes
cast at a meeting of shareholders duly called and at which a quorum is present
shall be sufficient to approve any other matter which may properly come before
the meeting, unless more than a majority of the votes cast is required by
statute, by the Charter or by these Bylaws. Each shareholder of record shall
have the right, at every meeting of shareholders, to one vote for each share
held, except shares which are the subject of a redemption notice as provided in
the Charter.
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SECTION 8. PROXIES. A shareholder may vote the common shares
owned of record by him, either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered
in the name of a trust or another corporation, if entitled to be voted, may be
voted by the president, a vice president or a proxy appointed by the president
or a vice president of such trust or other corporation, unless some other person
who has been appointed to vote such shares pursuant to a bylaw or a resolution
of the board of such trust or other corporation presents a certified copy of
such bylaw or resolution, in which case such person may vote such shares. Any
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares indirectly owned by the Corporation shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares entitled to be voted at any given time, unless they are held by it in a
fiduciary capacity, in which case they may be voted and shall all be counted in
determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a
shareholder may certify in writing to the Corporation that any shares registered
in the name of the shareholder are held for the account of a specified person
other than the shareholder. The resolution shall set forth the class of
shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the share transfer books, the time after the record date or closing
of the share transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the shareholder of record of
the specified shares in place of the shareholder who makes the certification.
SECTION 10. INSPECTORS. At any meeting of shareholders, the
Chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented at the meeting based
upon their determination of the validity and effect of proxies, count all votes,
report the results and perform such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be PRIMA
FACIE evidence thereof.
SECTION 11. DETERMINATION OF SHAREHOLDERS OF RECORD. The Board of
Directors shall fix a date, not more than sixty (60) nor less than ten (10) days
preceding the date of any meeting of shareholders, and not more than sixty (60)
days preceding the date fixed for the payment of any dividend or distribution,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of shares will be made or go into effect, as a record
date for the determination of the shareholders entitled to notice of, or to vote
at, any such meeting, or entitled to receive any such dividend or distribution
or allotment of rights, or to exercise the rights in respect to any such change,
conversion or exchange of shares.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 11, such determination
shall apply to any adjournment thereof unless the meeting is adjourned to a date
more than one hundred twenty (120) days after the date fixed for the original
meeting, in which case the Board of Directors shall fix a new record date.
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SECTION 12. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled to
notice of a meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.
SECTION 13. VOTING BY BALLOT. Voting on any question or in any
election may be VIVA VOCE unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
SECTION 14. CONTROL SHARE ACQUISITION STATUTE. Subtitle 7 of
Title 3 of the Maryland General Corporation Law does not apply to any
acquisition of shares of capital stock of the Corporation.
ARTICLE IV
DIRECTORS
SECTION 1. GENERAL POWERS. The Board of Directors shall have full
power to conduct, manage, and direct the business and affairs of the
Corporation, and all powers of the Corporation, except those specifically
reserved or granted to the shareholders by statute or by the Charter or these
Bylaws, shall be exercised by, or under the authority of, the Board of
Directors. Unless otherwise agreed between the Corporation and the Director,
each individual Director, including each Independent Director, may engage in
other business activities of the type conducted by the Corporation and is not
required to present to the Corporation any investment opportunities presented to
them even though the investment opportunities may be within the scope of the
Corporation's investment policies.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular
meeting or at any special meeting called for that purpose, a majority of the
entire Board of Directors may establish, increase or decrease the number of
directors, provided that the number thereof shall not be less than the minimum
number required by the General Laws of the State of Maryland now or hereafter in
force, nor more than nine (9), and further provided that the tenure of office of
a director shall not be affected by any decrease in the number of directors.
Pursuant to the Charter of the Corporation, at all times subsequent to the
closing of the Initial Public Offering of Common Shares of the Corporation, the
directors shall be divided into three (3) classes with terms of office of three
years each, with the term of office of one class expiring at the annual meeting
of stockholders in each year. Each director shall hold office for the term for
which he or she is elected and until his or her successor is duly elected and
qualified, or until his or her resignation, removal (in accordance with the
Charter and these Bylaws) or death.
At all times (except (i) during a period not to exceed sixty (60) days
following the death, resignation, incapacity or removal from office of a
Director prior to the expiration of the Director's term of office or (ii) prior
to the closing date of the Initial Public Offering (as hereinafter defined) and
the consummation of all transactions related thereto), a majority of the
Directors shall be Independent Directors.
An Independent Director shall be a person who is not: (i) an officer or
employee of the Corporation; or (ii) an Affiliate of (w) any advisor to the
Corporation under an advisory agreement; (x) any lessee or management company
operating any property of the Corporation; (y) any subsidiary of the
Corporation; (z) or any partnership which is an Affiliate of the Corporation.
For purposes of this Section 2 of the Bylaws, an "Affiliate" of a person or
entity shall mean (i) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (ii) any other person
that owns, beneficially, directly or indirectly, five percent (5%) or more of
the outstanding capital shares, shares or equity interests of such person, or
(iii) any officer, director, employee, partner or trustee of such person or any
person controlling, controlled by or under common control with such person
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(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such person). The term "person" means and includes
individuals, corporations, general and limited partnerships, stock companies or
associations, joint ventures, associations companies, trusts, banks, trust
companies, last trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with", as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.
Notwithstanding the foregoing requirement that a majority of the directors
be Independent Directors, no action otherwise validly taken by the Board of
Directors during a period in which a majority of its members are not Independent
Directors shall be invalidated or otherwise affected by such circumstance, nor
shall such circumstance subject the directors taking any such action to a higher
standard of care or to liability other than that which would have applied to
such action had a majority of the members of the Board of Directors been
independent Directors at the time such action was taken.
SECTION 3. CHANGES IN NUMBER VACANCIES. Except in the case of a
vacancy on the Board of Directors among the directors elected by a class of
Equity Shares other than Common Shares, any vacancy on the Board of Directors
may be filled by the affirmative vote of the remaining directors (except that a
vacancy which results from an increase in the number of directors may be filled
by a majority of the entire Board of Directors), and, in the case of a vacancy
resulting from the removal of a director, by the stockholders by the vote of a
majority of the votes entitled to be cast in the election of directors. Any
vacancy on the Board of Directors among the directors elected by a class of
Equity Shares (other than Common Shares) may be filled by a majority of the
remaining directors elected by that class or the sole remaining director elected
by that class, or by the stockholders by a majority of the votes of that class.
If the shareholders of any class or series are entitled separately to elect one
or more Directors, a majority of the remaining Directors elected by that class
or series or the sole remaining Director elected by that class or series may
fill any vacancy among the number of Directors elected by that class or series.
A Director elected by the Board of Directors to fill a vacancy shall be elected
to hold office until the next annual meeting of shareholders or until his
successor is elected and qualified. The Board of Directors may declare
unqualified a Director who has been declared of unsound mind by an order of
court who has pled guilty or NOLO CONTENDERE to, or been convicted of, a felony
involving moral turpitude, or who has wilfully violated the Corporation's
Charter or these Bylaws. The office of a Director declared unqualified shall be
considered vacant until filled as herein provided.
SECTION 4. RESIGNATIONS. Any Director or member of a committee
may resign at any time. Such resignation shall be made in writing and shall
take effect at the time specified therein, or if no time be specified, at the
time of the receipt by the Chairman of the Board, the President or the
Secretary.
SECTION 5. REMOVAL OF DIRECTORS. Any Director may be removed,
with or without cause by the affirmative vote of the stockholders holding not
less than two-thirds (66 2/3%) of all the votes entitled to be cast for the
election of Directors; provided, however that in the case of any Director
elected by holders of a class of Equity Shares, other than Common Shares, such
Directors may be removed, with or without cause, by the affirmative vote of all
of that class of Equity Shares.
SECTION 6. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Board of Directors shall be held immediately after and at the same place as the
annual meeting of shareholders, no notice other than this bylaw being
necessary. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of South Carolina, for the holding of
regular meeting of the Board of Directors without other notice than such
resolution.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President, a majority of the
Board of Directors or a majority of the Independent Directors then in office.
The person or persons authorized to call special meetings of the Board of
Directors
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may fix any place, either within or without the State of South Carolina, as the
place for holding any special meeting of the Board of Directors called by them.
SECTION 8. NOTICE. Notice of any special meeting of the Board of
Directors shall be given by written notice delivered personally, telegraphed or
mailed to each Director at his business or resident address. Personally
delivered or telegraphed notices shall be given at least two days prior to the
meeting. Notice by mail shall be given at least five days prior to the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail properly addressed, with postage thereon prepaid. If
given by telegram, such notice shall be deemed to be given when the telegram is
delivered to the telegraph company. Neither the business to be transacted at,
nor the purpose of, any annual, regular or special meeting of the Board of
Directors need be stated in the notice, unless required by statute or these
Bylaws.
SECTION 9. QUORUM. A majority of the entire Board of Directors
shall constitute a quorum for transaction of business at any meeting of the
Board of Directors, provided that, if less than a quorum is present at said
meeting, a majority of the Directors present may adjourn the meeting from time
to time without further notice.
The Directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Directors to leave less than a majority of the entire
Board, provided, that at least one-third of the entire Board of Directors
remains present at that meeting, in which case a quorum will still be deemed
present.
SECTION 10. VOTING. (a) Except as provided in subsection (b) of
this Section 10, the action of the majority of the Directors present at a
meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by the Charter, these Bylaws, or applicable statute.
(b) Notwithstanding anything in these Bylaws to the contrary, any
action pertaining any transaction involving the Corporation with respect to the
purchase, sale, acquisition, lease or mortgage of any real estate asset in which
an officer, Director or advisor of the Corporation has any direct or indirect
interest other than solely as a result of such person's status as an officer,
director or advisor of the Corporation, must be approved by a majority of the
Directors and a majority of the disinterested Independent Directors, even if the
disinterested Independent Directors constitutes less than a quorum.
SECTION 11. TELEPHONE MEETINGS. Members of the Board of Directors
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
SECTION 12. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
Director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
SECTION 13. COMPENSATION. Independent Directors shall receive such
reasonable compensation for their services as Directors as the Board of
Directors may fix or determine from time to time; such compensation may include
a fixed sum, capital shares of the Corporation and Directors shall receive
reimbursement of reasonable expenses incurred in traveling to and from or
attending regular or special meetings of the Board of Directors or of any
committee thereof.
SECTION 14. POLICIES AND RESOLUTIONS. It shall be the duty of the
Board of Directors to insure that the purchase, sale, retention and disposal of
the Corporation's assets, the investment policies and the borrowing policies of
the Corporation and the limitations thereon or amendment thereof are all times:
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(a) consistent with such policies, limitations and restrictions are
contained in these Bylaws, or in the Corporation's Charter, or as described in
the Registration Statement or in the Corporation's ongoing periodic reports
filed with the SEC following the Initial Public Offering, subject to revision
from time to time at the discretion of the Board of Directors without
shareholder approval unless otherwise required by law; and
(b) in compliance with the restrictions applicable to real estate
investment trusts pursuant to the Internal Revenue Code of 1986, as amended.
ARTICLE V
COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD. The Board of Directors may
appoint from among its members an executive committee and other committees
comprised of one or more Directors. The Board of Directors shall appoint an
audit committee comprised of not less than two members, a majority of whom are
Independent Directors. The Board of Directors shall appoint a compensation
committee comprised of not less than three Independent Directors. The Board of
Directors may delegate to any committee any of the powers of the Board of
Directors except the power to elect Directors, declare dividends or
distributions on shares, recommend to the shareholders any action which requires
shareholder approval, amend or repeal these Bylaws, approve any merger or share
exchange which does not require shareholder approval or issue shares. However,
if the Board of Directors has given general authorization for the issuance of
shares, a committee of the Board of Directors, in accordance with a general
formula or method specified by the Board of Directors by resolution or by
adoption of a share option plan, may fix the terms of shares, subject to
classification or reclassification, and the terms on which any shares may be
issued.
Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Directors.
One-third, but not less than two (unless the committee has less than
two members), of the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the transaction of
business at such meeting, and the act of a majority present shall be the act of
such committee. The Board of Directors may designate a chairman of any
committee, and such chairman or any two members of any committee (unless the
committee has less than two members, in which case one member of such committee)
may fix the time and place of its meetings unless the Board shall otherwise
provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
Director to act at the meeting int he place of such absent or disqualified
members; provided, however, that in the event of the absence or disqualification
of an Independent Director, such appointee shall be an Independent Director.
Each committee shall keep minutes of its proceedings and shall report
the same to the Board of Directors at the meeting next succeeding, and any
action by the committees shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be affected
by any such revision or altercation.
Subject to the provisions hereof, the Board of Directors shall have
the power at any time to change the membership of any committee, to fill all
vacancies, to designate alternative members to replace any absent or
disqualified members or to dissolve any such committee.
SECTION 2. TELEPHONE MEETINGS. Members of a committee of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all
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persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in a person
at the meeting.
SECTION 3. ACTION BY COMMITTEES WITHOUT A MEETING. Any action
required or permitted to be taken at any meeting of a committee of the Board of
Directors may be taken without a meeting, if a consent in writing to such action
is signed by each members of the committee and such written consent is filed
with the minutes of proceedings of such committee.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Corporation
may consist of a Chairman of the Board, a Vice Chairman of the Board, a
President, a Chief Executive Officer, a Chief Operating Officer, one or more
Vice Presidents, a Chief Financial Officer or Treasurer, one or more assistant
treasurers, a Secretary, and one or more assistant secretaries and such other
officers as may be elected in accordance with the provisions of Section 2 of
this Article VI. The officers of the Corporation shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualifies or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices may be held by the same person. In its
discretion, the Board of Directors may leave unfilled any office except that of
President and Secretary. Election or appointment of an officer or agent shall
not of itself create contract rights between the Corporation and such officer or
agent.
SECTION 2. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The Board
of Directors may from time to time elect such other officers and appoint such
committees, employees, other agents as the business of the Corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws, or as the Board of
Directors may from time to time determine. The Directors may delegate to any
officer or committee the power to elect subordinate officers and to retain or
appoint employees or other agents.
SECTION 3. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Any resignation shall take effect at the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise stated
in the resignation.
SECTION 4. VACANCIES. A vacancy in any office may be filled by
the Board of Directors for the balance of the term.
SECTION 5. GENERAL POWERS. All officers of the Corporation as
between themselves and the Corporation shall, respectively, have such authority
and perform such duties in the management of the property and affairs of the
Corporation as may be determined by resolution of the Board of Directors, or in
the absence of controlling provisions in a resolution of the Board of Directors,
as may be provided in these Bylaws.
SECTION 6. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer from among the elected officers. The chief
executive officer shall have responsibility for
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implementation of the policies of the Corporation, as determined by the Board
of Directors, and for the administration of the business affairs of the
Corporation.
SECTION 7. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer from among the elected officers. Said
officer will have the responsibility and duties as set forth by the Board of
Directors or the chief executive officer.
SECTION 8. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman
of the Board, if there be one, shall preside over the meetings of the Board of
Directors and of the shareholders at which he shall be present. In the absence
of the Chairman of the Board, the Vice Chairman of the Board, if there be one,
shall preside at such meetings at which he shall be present. The Chairman of
the Board and the Vice Chairman of the Board shall, respectively, perform such
other duties as may be assigned to him or them by the Board of Directors.
SECTION 9. PRESIDENT. The President shall in general supervise
and control all of the business and affairs of the Corporation. Unless the
President is not a member of the Board of Directors, in the absence of both the
Chairman and Vice Chairman of the Board, he shall preside at all meetings of the
Board of Directors and of the shareholders at which he shall be present. In the
absence of a designation of a chief executive officer by the Board of Directors,
the President shall be the chief executive officer and shall be EX OFFICIO a
member of all committees that may, from time to time, be constituted by the
Board of Directors. He may execute any deed, mortgage, bond, contract or other
instrument to which the Corporation is a party, except in cases where the
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the Corporation or shall be
required by law to be otherwise executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 10. VICE PRESIDENTS. In the absence of the President or in
the event of a vacancy in such office, the Vice President (or in the event there
be more than one Vice President, the Vice Presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of the election) shall perform the duties of the President and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President, and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors. The Board of
Directors may designate one or more Vice Presidents as executive Vice President
or as Vice President for particular areas of responsibility.
SECTION 11. SECRETARY. The Secretary shall (a) keep the minutes of
the proceedings of the shareholders, the Board of Directors and committees of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation; (d) keep a register of the post office address of
each shareholder which shall be furnished to the Secretary by such shareholder;
(e) have general charge of the share transfer books of the Corporation; and (f)
in general perform such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
SECTION 12. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall have the custody of the corporate funds and
securities and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and Board of Directors, at the regular meetings of the
Board of Directors or whenever they may require it, an account of all his
transactions as Chief Financial Officer or Treasurer and of the financial
condition of the Corporation.
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If required by the Board of Directors, he shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, all books, papers, vouchers, moneys and other
property of whatever kind in his possession or under his control belonging to
the Corporation.
SECTION 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Chief Financial
Officer Treasurer, respectively, or by the President or the Board of Directors.
The assistant treasurers shall, if required by the Board of Directors, give
bonds for the faithful performance of their duties in such sums and with such
surety or sureties as shall be satisfactory to the Board of Directors.
SECTION 14. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a Director of
the Corporation.
ARTICLE VII
CONTRACTS, NOTES, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances.
SECTION 2. CHECKS AND DRAFTS. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agents or
agents of the Corporation and in such manner as shall from time to time be
determined by the Board of Directors.
SECTION 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VIII
CAPITAL SHARE
SECTION 1. CERTIFICATES OF SHARES. Each shareholder shall be
entitled to a certificate or certificates which shall represent and certify the
number of shares of each kind and class of shares held by him in the
Corporation. Each certificate shall be signed by the Chairman of the Board or
the President or a Vice President and countersigned by the Secretary or an
assistant secretary of the Treasurer or an assistant treasurer and may be sealed
with the corporate seal.
The signatures may be either manual or facsimile. Certificates shall
be consecutively numbered; and if the Corporation shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which is restricted as to its transferability or voting powers, which is
preferred or limited as to its dividends or as to its share of the assets upon
liquidation or which is redeemable at the option of the Corporation, shall have
a statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. In lieu of such
statement or summary, the Corporation may set forth upon the face or back of the
certificate a statement that the Corporation will furnish to any shareholder,
upon request and without charge, a full statement of such information.
10
<PAGE>
SECTION 2. LOST CERTIFICATE. The Board of Directors may direct a
new certificate to be issued in place of any certificate previously issued by
the Corporation alleged to have been lost, stolen or destroyed upon the making
of an affidavit of that fact by the person claiming the shares certificate to be
lost, stolen or destroyed. When authorizing the issuance of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or his legal representative to advertise the same in such manner as
it shall require and/or to give bond, with sufficient surety, to the Corporation
to indemnify it against any loss or claim which may arise as a result of the
issuance of a new certificate.
SECTION 3. TRANSFER AGENTS AND REGISTRARS. At such time as the
Corporation lists its securities on a national securities exchange or qualities
for trading in the over the counter market, the Board of Directors shall appoint
one or more banks or trust companies in such city or cities as the Board of
Directors may deem advisable, from time to time, to act as transfer agents
and/or registrars of the shares of the Corporation; and, upon such appointments
being made, no certificate representing shares shall be valid until
countersigned by one of such transfer agents and registered by one of such
registrars.
SECTION 4. TRANSFER OF SHARES. No transfers of shares of the
Corporation shall be made if (i) void AB INITIO pursuant to any provision of the
Corporation's Charter or (ii) the Board of Directors, pursuant to any provision
of the Corporation's Charter, shall have refused to permit the transfer of such
shares. Permitted transfers of shares of the Corporation shall be made on the
share records of the Corporation only upon the instruction of the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or transfer
clerk, and upon surrender of the certificate or certificates, if issued, for
such shares properly endorsed or accompanied by a duly executed share transfer
power and the payment of all taxes thereon. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, as to any transfers not prohibited by any provision of
the Corporation's Charter by action of the Board of Directors thereunder, it
shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
SECTION 5. SHARE LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agents
an original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
ARTICLE IX
DIVIDENDS
SECTION 1. DECLARATION. Dividends upon the shares of the
Corporation may be declared by the Board of Directors, subject to applicable
provisions of law and the Charter. Dividends may be paid in cash, property or
shares of the Corporation, subject to applicable provisions of law and the
Charter.
SECTION 2. CONTINGENCIES. Before payment of any dividends, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors may from time to time, in its
absolute discretion, think proper as a reserve fund for contingencies, for
equalizing dividends, for repairing or maintaining the property of the
Corporation, its subsidiaries or any partnership for which it serves as general
partner, or for such other purpose as the Board of Directors shall determine to
be in the best interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
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INDEMNIFICATION AND LIMITATION OF LIABILITY
SECTION 1. INDEMNIFICATION OF AGENTS. The Corporation shall
indemnify, in the manner and to the fullest extent permitted by law, any person
(or the estate of any person) who is or was a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation, and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation, or
such director or officer is or was serving at the request of the Corporation as
a director, officer, agent or employee of another corporation, partnership,
joint venture, trust or other enterprise. To the fullest extent permitted by
law, the indemnification provided herein shall include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement and any such
expenses may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding. The Corporation shall indemnify other
employees and agents to such extent as shall be authorized by the Board of
Directors or these Bylaws and be permitted by law. Any repeal or modification
of this Article X by the shareholders of the Corporation shall be prospective
only, and shall not adversely affect any right to indemnification or advancement
of expenses hereunder existing at the time of such repeal or modification.
SECTION 2. INSURANCE. The Corporation may to the fullest extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person.
SECTION 3. INDEMNIFICATION NON-EXCLUSIVE. The indemnification
provided herein shall not be deemed to limit the right of the Corporation to
indemnify any other person for any such expenses to the fullest extent permitted
by law, nor shall it be deemed exclusive of any other rights to which any person
seeking indemnification from the Corporation may be entitled under any
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding such office.
SECTION 4. LIMITATION OF LIABILITY. To the fullest extent
permitted by Maryland statutory or decisional law, as amended or interpreted
from time to time, no director or officer of the Corporation shall be personally
liable to the Corporation or its shareholders, or any of them, for money
damages. No amendment of these Bylaws or repeal of any of its provisions shall
limit or eliminate the benefits provided to directors and officers under this
provision with respect to any act or omission which occurred prior to such
amendment or repeal.
ARTICLE XI
SEAL
SECTION 1. SEAL. The Corporation may have a corporate seal, which
may be altered at will by the Board of Directors. The Board of Directors may
authorize one or more duplicate or facsimile seals and provide for the custody
thereof. Unless specifically required by law, a corporate seal is not required
for the due execution of any document.
SECTION 2. AFFIXING SEAL. Whenever the Corporation is required to
place its corporate seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a corporate seal to
place the word "(SEAL)" adjacent to the signature of the person authorized to
execute the document on behalf of the Corporation.
ARTICLE XII
WAIVER OF NOTICE
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Whenever any notice is required to be given pursuant to the Charter or
these Bylaws of the Corporation or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
SECTION 1. BY DIRECTORS. The Board of Directors shall have the
exclusive power to adopt, alter or repeal any Bylaws of the Corporation and to
make new Bylaws; provided that any amendment to Section 2, Section 3, Section 5
or Section 9 of Article IV required the affirmative vote of 80% of the entire
Board of Directors.
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<PAGE>
EXHIBIT 5.1
Law Offices
BALLARD SPAHR ANDREWS & INGERSOLL
300 East Lombard Street, 19th Floor
Baltimore, Maryland 21202-3268
(410) 528-5600
(410) 528-5650
[email protected]
January 10, 1997
Golf Trust of America, Inc.
190 King Street
Charleston, South Carolina 29401
Re: Golf Trust of America, Inc., a Maryland corporation, (the
"Company") Registration Statement on Form S-11 (Registration
Number 333-15965) pertaining to three million two hundred ninety
four thousand seven hundred fifty (3,294,750) shares of common
stock, par value one cent ($.01) per share (the "Shares")
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933 as amended (the "Act"), by the Company on Form S-11 filed with the
Securities and Exchange Commission (the "Commission") on or about November 12,
1996 (Registration Number 333-15965) as amended by Amendment Number 1 filed with
the Commission on or about January 10, 1997, (collectively the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the authorization, issuance and sale of the Shares, and for purposes of
this opinion have assumed such proceedings will be timely completed in the
manner presently proposed. In addition, we have relied upon certificates and
advice from the officers of the Company upon which we believe we are justified
in relying and on various certificates from and documents recorded with, the
State Department of Assessments and Taxation of Maryland (the "SDAT"), including
the charter of the Corporation (the "Charter"), consisting of Articles of
Incorporation filed with the SDAT on November 8, 1996. We have also examined the
Bylaws of the Company adopted as of November 10, 1996 (the "Bylaws") and
Resolutions of the Board of Directors of the Company adopted on or before
November 11, 1996 and in full force and effect on November 11, 1996 and adopted
on or before January 10, 1997 and in full force and effect on January 10, 1997;
and such laws, records, documents, certificates, opinions and instruments as we
deem necessary to render this opinion.
We have assumed the genuineness of all signatures and the authenticity of
all documents submitted to us as originals and the conformity to the originals
of all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument, document
or certificate referred to herein on behalf of any party is duly authorized to
do so.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that, as of the date of this letter, all of
the Shares have been duly authorized and the Shares will, upon issuance and
delivery in accordance with the terms and conditions described in the
Registration Statement against payment of the purchase price therefor as
determined by the Board of Directors of the Company or a committee thereof, be
validly issued, fully paid and non-assessable.
<PAGE>
Golf Trust of America, Inc.
January 10, 1997
Page 2
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the filing of
this opinion, as may be necessary, pursuant to Rule 462(b) of the Securities Act
of 1933. We also consent to the identification of our firm as Maryland counsel
to the Company in the section of the Prospectus (which is part of the
Registration Statement) entitled "Legal Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
The opinions expressed in this letter are solely for your use and may not be
relied upon by any other person without our prior written consent.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
--------------------------------------------
Ballard Spahr Andrews & Ingersoll
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
GOLF TRUST OF AMERICA, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION. . . . . . . . . . . . . . . . 9
2.01 Continuation. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.02 Name, Office and Registered Agent . . . . . . . . . . . . . . . . 9
2.03 Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.04 Term and Dissolution. . . . . . . . . . . . . . . . . . . . . . . 9
2.05 Filing of Certificate and Perfection of Limited Partnership . . . 10
ARTICLE III
BUSINESS OF THE PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS . . . . . . . . . . . . . . . . . . . . 11
4.01 Capital Contributions . . . . . . . . . . . . . . . . . . . . . . 11
4.02 Additional Capital Contributions and Issuances of Additional
Partnership Interests . . . . . . . . . . . . . . . . . . . . . . 11
4.03 General Partner Loans . . . . . . . . . . . . . . . . . . . . . . 14
4.04 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 14
4.05 Percentage Interests. . . . . . . . . . . . . . . . . . . . . . . 14
4.06 No Interest on Contributions. . . . . . . . . . . . . . . . . . . 15
4.07 Return of Capital Contributions . . . . . . . . . . . . . . . . . 15
4.08 No Third Party Beneficiary. . . . . . . . . . . . . . . . . . . . 15
4.09 Stock Incentive Plans . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . 16
5.01 Allocation of Profit and Loss . . . . . . . . . . . . . . . . . . 16
5.02 Distribution of Cash. . . . . . . . . . . . . . . . . . . . . . . 18
5.03 REIT Distribution Requirements. . . . . . . . . . . . . . . . . . 19
5.04 No Right to Distributions in Kind . . . . . . . . . . . . . . . . 19
5.05 Limitations on Return of Capital Contributions. . . . . . . . . . 19
5.06 Distributions Upon Liquidation. . . . . . . . . . . . . . . . . . 20
5.07 Substantial Economic Effect . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER. . . . . . . . . . . . . . . . . . . . . . . 20
6.01 Management of the Partnership . . . . . . . . . . . . . . . . . . 20
6.02 Delegation of Authority . . . . . . . . . . . . . . . . . . . . . 23
6.03 Indemnification and Exculpation of Indemnitees. . . . . . . . . . 23
6.04 Liability of the General Partner. . . . . . . . . . . . . . . . . 25
<PAGE>
6.05 Expenditures by the Partnership . . . . . . . . . . . . . . . . . 26
6.06 Outside Activities. . . . . . . . . . . . . . . . . . . . . . . . 26
6.07 Employment or Retention of Affiliates . . . . . . . . . . . . . . 26
6.08 General Partner Participation . . . . . . . . . . . . . . . . . . 27
6.09 Title to Partnership Assets . . . . . . . . . . . . . . . . . . . 27
6.10 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.11 Maintenance of Indebtedness . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII
CHANGES IN GENERAL PARTNER . . . . . . . . . . . . . . . . . . . . . . . . 28
7.01 Transfer of the General Partner's Partnership Interest. . . . . . 28
7.02 Admission of a Substitute or Successor General Partner. . . . . . 29
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.04 Removal of a General Partner. . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS . . . . . . . . . . . . . . 32
8.01 Management of the Partnership . . . . . . . . . . . . . . . . . . 32
8.02 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . 32
8.03 Limitation on Liability of Limited Partners . . . . . . . . . . . 32
8.04 Ownership by Limited Partner of Corporate
General Partner or Affiliate. . . . . . . . . . . . . . . . . . . 32
8.05 Redemption Right. . . . . . . . . . . . . . . . . . . . . . . . . 32
8.06 Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.07 "Piggyback" Registration Rights . . . . . . . . . . . . . . . . . 36
8.08 Sale of Initial Golf Course . . . . . . . . . . . . . . . . . . . 41
8.09 Execution of Pledge Agreement . . . . . . . . . . . . . . . . . . 42
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS . . . . . . . . . . . . . . . . 42
9.01 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . 42
9.02 Restrictions on Transfer of Limited Partnership Interests . . . . 42
9.03 Admission of Substitute Limited Partner . . . . . . . . . . . . . 44
9.04 Rights of Assignees of Partnership Interests. . . . . . . . . . . 45
9.05 Effect of Bankruptcy, Death, Incompetence or
Termination of a Limited Partner. . . . . . . . . . . . . . . . . 46
9.06 Joint Ownership of Interests. . . . . . . . . . . . . . . . . . . 46
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS . . . . . . . . . . . . . . . . 46
10.01 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 46
10.02 Custody of Partnership Funds; Bank Accounts . . . . . . . . . . 46
10.03 Fiscal and Taxable Year . . . . . . . . . . . . . . . . . . . . 47
10.04 Annual Tax Information and Report . . . . . . . . . . . . . . . 47
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments . 47
10.06 Reports to Limited Partners . . . . . . . . . . . . . . . . . . 48
<PAGE>
ARTICLE XI
AMENDMENT OF AGREEMENT;
SALE OF ALL OR SUBSTANTIALLY ALL OF COMPANY'S ASSETS . . . . . . . . . . . 48
11.01 Amendment of Agreement. . . . . . . . . . . . . . . . . . . . . 48
11.02 Sale of All or Substantially all of the Assets
of the Partnership; Change in Control . . . . . . . . . . . . . 49
ARTICLE XII
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.02 Survival of Rights. . . . . . . . . . . . . . . . . . . . . . . 49
12.03 Additional Documents. . . . . . . . . . . . . . . . . . . . . . 49
12.04 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.05 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 50
12.06 Pronouns and Plurals. . . . . . . . . . . . . . . . . . . . . . 50
12.07 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.08 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.10 Guaranty by Company . . . . . . . . . . . . . . . . . . . . . . 50
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
GOLF TRUST OF AMERICA, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF GOLF
TRUST OF AMERICA, L.P. (this "Agreement"), dated as of _______________, 1996,
is entered into by and between GTA GP, INC., a Maryland corporation (in its
capacity as General Partner, the "General Partner"), and each of the Limited
Partners signatory hereto.
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts,
understandings and intentions:
A. Golf Trust of America, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Delaware by a Certificate
of Limited Partnership filed with the Secretary of State of Delaware on
November 8, 1996. The Partnership is governed by a Limited Partnership
Agreement dated October 31, 1996 maintained at the offices of the Partnership
(the "Original Agreement"). The current parties to the Original Agreement
are the General Partner, GTA LP, Inc., and David J. Dick, as original limited
partners (the "Original Limited Partners").
B. The General Partner and the Original Limited Partners desire to (i)
admit additional Limited Partners to the Partnership and (ii) restate the
Original Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing, and the covenants and
agreements between the parties hereto, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree to amend the Original Agreement to read in its
entirety as follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the
meanings specified below:
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this Partnership
as a Limited Partner pursuant to Section 4.02 hereof.
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"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) all administrative and
operating costs and expenses of the General Partner, including any salaries
or other payments to directors, officers and/or employees of the General
Partner, and any accounting and legal expenses of the General Partner, all of
which costs and expenses, the Partners have agreed, are expenses of the
Partnership and not the General Partner, and (iii) to the extent not included
in clause (ii) above, REIT Expenses.
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person, (ii) any
other Person that owns, beneficially, directly or indirectly, 5% or more of
the outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner or trustee of such Person or
any Person controlling, controlled by or under common control with such
Person (excluding trustees and persons serving in similar capacities who are
not otherwise an Affiliate of such Person). For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
through the ownership of voting securities, partnership interests or other
equity interests.
"AGREED VALUE" means the fair market value of a Partner's non-cash
Capital Contribution as of the date hereof as agreed to by the Partners. For
purposes of this Partnership Agreement, the Agreed Value of a Partner's
non-cash Capital Contribution shall be equal to the number of Partnership
Units received by such Partner in exchange for an Initial Golf Course or an
interest therein or in connection with the merger of a partnership of which
such person is a partner with and into the Partnership, or for any other
non-cash asset so contributed, multiplied by the Public Offering Price or, if
the contribution is made after the date hereof, the "Market Price" on the
date of the contribution calculated in accordance with the second and third
sentences of the definition of "Cash Amount." The names and addresses of the
Partners, number of Partnership Units issued to each Partner, and the Agreed
Value of non-cash Capital Contributions is set forth on EXHIBIT A.
"AGREEMENT" means this First Amended and Restated Agreement of Limited
Partnership of the Partnership.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof.
"CAPITAL CONTRIBUTION" means the total amount of capital initially
contributed or agreed to be contributed, as the context requires, to the
Partnership by each Partner pursuant to the terms of the Agreement. Any
reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner. The paid-in Capital Contribution shall mean the cash amount or the
Agreed Value of other assets actually contributed by each Partner to the
capital of the Partnership.
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"CAPITAL TRANSACTION" means the refinancing, sale, exchange,
condemnation, recovery of a damage award or insurance proceeds (other than
business or rental interruption insurance proceeds not reinvested in the
repair or reconstruction of Properties), or other disposition of any Property
(or the Partnership's interest therein).
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the General Partner
of a Notice of Redemption. The value of the REIT Shares Amount shall be
based on the average of the daily market price of REIT Shares for the ten
consecutive trading days immediately preceding the date of receipt by the
General Partner of a Notice of Redemption. The market price for each such
trading day shall be: (i) if the REIT Shares are listed or admitted to
trading on any securities exchange or the NYSE, the sale price, regular way,
on such day, or if no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, on such day, (ii) if the REIT
Shares are not listed or admitted to trading on any securities exchange or
the NYSE, the last reported sale price on such day or, if no sale takes place
on such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or the NYSE and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high
bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and
asked prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than 10 days prior to the
date in question) for which prices have been so reported; PROVIDED THAT if
there are no bid and asked prices reported during the ten days prior to the
date in question, the value of the REIT Shares shall be determined by the
General Partner acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable judgment, appropriate.
In the event the REIT Shares Amount includes rights that a holder of REIT
Shares would be entitled to receive, then the value of such rights shall be
determined by the Company acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
"CERTIFICATE" means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of
the Partnership (either by themselves or pursuant to the power-of-attorney
granted to the General Partner in Section 8.02 hereof) and filed for
recording in the appropriate public offices within the State of Delaware or
such other jurisdiction to perfect or maintain the Partnership as a limited
partnership, to effect the admission, withdrawal, or substitution of any
Partner of the Partnership, or to protect the limited liability of the
Limited Partners as limited partners under the laws of the State of Delaware
or such other jurisdiction.
"CHARTER" means the Charter of the Company filed with the Secretary of
State of the State of Maryland, as amended or restated from time to time.
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"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision
of the Code shall mean that provision in the Code at the date hereof and any
succeeding provision of the Code.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMPANY" means Golf Trust of America, Inc., a Maryland corporation.
"CONTRIBUTION AND LEASEBACK AGREEMENT" means, as to each Limited Partner
contributing interests in an Initial Golf Course, that certain Contribution
and Leaseback Agreement by and between the Partnership and such Limited
Partner.
"CONVERSION FACTOR" means 1.0, PROVIDED THAT in the event that the
Company (i) declares or pays a dividend on its outstanding REIT Shares in
REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares,
the Conversion Factor shall be adjusted by multiplying the Conversion Factor
by a fraction, the numerator of which shall be the number of REIT Shares
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination (assuming for such purposes that such dividend,
distribution, subdivision or combination has occurred as of such time), and
the denominator of which shall be the actual number of REIT Shares
(determined without the above assumption) issued and outstanding on such
date. Any adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event; PROVIDED, HOWEVER, that if the Company receives
a Notice of Redemption after the record date, but prior to the effective date
of such dividend, distribution, subdivision or combination, the Conversion
Factor shall be determined as if the Company had received the Notice of
Redemption immediately prior to the record date for such dividend,
distribution, subdivision or combination.
"DEFAULTING LIMITED PARTNER" has the meaning provided in Section 5.02(b)
hereof.
"EFFECTIVE DATE" means the date of closing of the Initial Offering.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or similar provision of law of any jurisdiction (except if such petition
is contested by such Person and has been dismissed within 90 days);
insolvency or bankruptcy of such Person as finally determined by a court
proceeding; filing by such Person of a petition or application to accomplish
the same or for the appointment of a receiver or a trustee for such Person or
a substantial part of his assets; commencement of any proceedings relating to
such Person as a debtor under any other reorganization, arrangement,
insolvency, adjustment of debt or liquidation law of any jurisdiction,
whether now in existence or hereinafter in effect, either by such Person or
by another, provided that if such proceeding is commenced by another, such
Person indicates his
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approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed
within 90 days.
"FUNDING LOAN" has the meaning provided in Section 4.03 hereof.
"GAAP" means generally accepted accounting principles, consistently
applied.
"GENERAL PARTNER" means GTA GP, Inc., a Maryland corporation, a
wholly-owned subsidiary of the Company, and any Person who becomes a
substitute or additional General Partner as provided herein, and any of their
successors as General Partner.
"GENERAL PARTNERSHIP INTEREST" means the Partnership Interest held by the
General Partner.
"GTA GP" means GTA GP, Inc., a Maryland corporation and wholly-owned
subsidiary of the Company.
"GTA LP" means GTA LP, Inc., a Maryland corporation and wholly-owned
subsidiary of the Company.
"INCENTIVE RIGHTS" has the meaning set forth in Section 4.02 hereof.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason
of his status as the General Partner or an affiliate of the General Partner
or a director or officer of the Partnership or the General Partner or an
affiliate of the General Partner or the Partnership and (ii) such other
Persons as the General Partner may designate in good faith from time to time,
in its reasonable discretion., giving consideration to the interest of the
Partnership.
"INDEPENDENT DIRECTOR" shall mean those individuals, who shall comprise a
majority of the Board of Directors of the Company, who are not officers or
employees of the Company or Affiliates of (i) any lessee of any property of
the Company or the Partnership, (ii) any subsidiary of the Company or (iii)
any partnership which is an Affiliate of the Company, including the
Partnership.
"INITIAL GOLF COURSES" means those properties listed on EXHIBIT B
attached hereto.
"INITIAL OFFERING" means the initial offer and sale by the Company and
the purchase by the Underwriters (as defined in the Prospectus) of the common
shares of the Company for sale to the public.
"LIMITED PARTNER" means any Person named as a Limited Partner on EXHIBIT
A attached hereto, and any Person who becomes a Substitute or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
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"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of
such Limited Partner to any and all benefits to which such Limited Partner
may be entitled as provided in this Agreement and in the Act, together with
the obligations of such Limited Partner to comply with all the provisions of
this Agreement and of such Act.
"LOSS" has the meaning provided in Section 5.01(f) hereof.
"MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceed $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"NEW SECURITIES" has the meaning set forth in Section 4.02(a)(ii) hereof.
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as EXHIBIT C hereto.
"NYSE" means the New York Stock Exchange.
"ORIGINAL LIMITED PARTNERS" has the meaning set forth in Recital A hereof.
"PARTNER" means any General Partner or Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse
Debt Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership by
either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled
as provided in this Agreement, together with all obligations of such Person
to comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if
it disposed of the property subject to that liability for no consideration
other than full satisfaction of the liability, and then aggregating the
separately computed gains. A Partner's share of Partnership Minimum Gain
shall be determined in accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.02 hereof,
which record date shall be the same as the record date established by the
Company for a distribution to its shareholders of some or all of its portion
of such distribution.
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"PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The initial allocation of
Partnership Units among the Partners is as set forth on EXHIBIT A, as may be
amended from time to time.
"PERCENTAGE INTEREST" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The initial Percentage Interest of each Partner is as set forth opposite its
respective name on EXHIBIT A, as may be amended from time to time.
"PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.
"PLEDGE AGREEMENT" means a Pledge Agreement executed by a Limited Partner
contributing an Initial Golf Course to the Partnership, substantially in the
form of EXHIBIT E attached hereto.
"PROFIT" has the meaning provided in Section 5.01(f) hereof.
"PROPERTY" means any golf course property or other investment in which the
Partnership holds an ownership interest.
"PROSPECTUS" means the final prospectus delivered to purchasers of the
Company's common stock in the Initial Offering.
"PUBLIC OFFERING PRICE" shall mean the initial public offering price set
forth in the Prospectus.
"REDEEMING PARTNER" has the meaning provided in Section 8.05(a) hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares Amount,
as determined pursuant to Section 8.05(b) hereof.
"REDEMPTION RIGHT" has the meaning provided in Section 8.05(a) hereof.
"REDEMPTION SHARES" has the meaning provided in Section 8.06(a) hereof.
"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any succeeding provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
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"REIT EXPENSES" means (i) costs and expenses relating to the formation and
continuity of existence of the Company and any Subsidiaries thereof including
GTA GP and GTA LP (which Subsidiaries shall, for purposes of this definition, be
included within the definition of Company), including taxes, fees and
assessments associated therewith, any and all costs, expenses or fees payable to
any Director, officer, or employee of the Company, (ii) costs and expenses
relating to the public offering and registration of securities by the, Company
and all statements, reports, fees and expenses incidental thereto, including
underwriting discounts and selling commissions applicable to any such offering
of securities, (iii) costs and expenses associated with the preparation and
filing of any periodic reports by the Company under federal, state or local laws
or regulations, including filings with the Commission, (iv) costs and expenses
associated with compliance by the Company with laws, rules and regulations
promulgated by any regulatory body, including the Commission, and (v) all other
operating or administrative costs of the Company incurred in the ordinary course
of its business on behalf of the Partnership.
"REIT SHARE" means a share of common stock of the Company.
"REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the number
of Partnership Units offered for redemption by a Redeeming Partner, multiplied
by the Conversion Factor; PROVIDED THAT in the event the Company issues to all
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), then the REIT
Shares Amount shall also include such rights that a holder of that number of
REIT Shares would be entitled to receive.
"RULE 144" has the meaning set forth in Section 8.06(a) hereof.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" has the meaning set forth in Section 8.05(b) hereof.
"SERVICE" means the Internal Revenue Service.
"STOCK INCENTIVE PLANS" means the Golf Trust of America, Inc. Incentive
Plan and the Golf Trust of America, Inc. Directors' Incentive Plan, as either
such plan may be amended from time to time, or any stock incentive plan adopted
in the future by the Company.
"SPECIFIED REDEMPTION DATE" means 30 days after the receipt by the Company
of the Notice of Redemption.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
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"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"TRANSACTION" has the meaning set forth in Section 7.01(c) hereof.
"TRANSFER" has the meaning set forth in Section 9.02(a) hereof.
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.01 CONTINUATION. The Partners hereby agree to continue the Partnership
pursuant to the Act and upon the terms and conditions set forth in this
Agreement.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership shall
be Golf Trust of America, L.P. The specified office and place of business of the
Partnership shall be ___________________________. The General Partner may at
any time change the location of such office, provided the General Partner gives
notice to the Partners of any such change. The name and address of the
Partnership's registered agent is Paracorp Incorporated, 15 East North Street,
Dover, Kent County, Delaware 19901. The sole duty of the registered agent as
such is to forward to the Partnership any notice that is served on him as
registered agent.
2.03 PARTNERS.
(a) As of the date hereof, the General Partner of the Partnership is
GTA GP, Inc., a Maryland corporation. Its principal place of business shall be
the same as that of the Partnership.
(b) The Limited Partners shall be those Persons identified as Limited
Partners in EXHIBIT A hereto, as amended from time to time. The Limited
Partners (other than the Original Limited Partner) hereby are admitted as
Limited Partners.
2.04 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2071 except that the Partnership shall be dissolved
upon the happening of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to
Section 7.03(b) hereof; PROVIDED THAT if a General Partner is on the
date of such occurrence a partnership, the dissolution of such General
Partner as a result of the dissolution, death, withdrawal, removal or
Event of Bankruptcy of a partner in such partnership shall not be an
event of dissolution of the Partnership if the
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business of such General Partner is continued by the remaining
partner or partners, either alone or with additional partners, and
such General Partner and such partners comply with any other
applicable requirements of this Agreement;
(ii) The passage of 90 days after the sale or other disposition
of all or substantially all the assets of the Partnership; (provided
that if the Partnership receives an installment obligation as
consideration for such sale or other disposition, the Partnership
shall continue, unless sooner dissolved under the provisions of this
Agreement, until such time as such note or notes are paid in full);
(iii) The redemption of all Limited Partnership Interests (other
than any of such interests held by GTA LP); or
(iv) The election by the General Partner that the Partnership
should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution, for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
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ARTICLE III
BUSINESS OF THE PARTNERSHIP
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the Company at
all times to qualify as a REIT, unless the Company otherwise ceases to qualify
as a REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing and (iii) to do anything necessary or
incidental to the foregoing. The General Partner shall also be empowered to do
any and all acts and things necessary or prudent to ensure that the Partnership
will not be classified as a "publicly traded partnership" for purposes of
Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 CAPITAL CONTRIBUTIONS. The General Partner and GTA LP shall each
contribute to the capital of the Partnership cash in an amount set forth
opposite their names on EXHIBIT A, which shall represent the gross proceeds of
the Initial Offering. The Limited Partners, other than GTA LP, shall contribute
to the capital of the Partnership certain real and personal property interests
in one or more of the Initial Golf Courses as set forth opposite their names on
EXHIBIT A. The Agreed Values of the Limited Partners' ownership interests in
the Initial Golf Courses that are contributed to the Partnership are as set
forth opposite their names on EXHIBIT A.
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in Sections 4.02 or 4.03, the Partners
shall have no right or obligation to make any additional Capital Contributions
or loans to the Partnership. The General Partner may contribute additional
capital to the Partnership, from time to time, and receive additional
Partnership Interests in respect thereof, in the manner contemplated in this
Section 4.02.
(a) ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS.
(i) GENERAL. The General Partner is hereby authorized to cause
the Partnership to issue such additional Partnership Interests in the
form of Partnership Units for any Partnership purpose at any time or
from time to time, to the Partners (including the General Partner and
GTA LP) or to other Persons for such consideration and on such terms
and conditions as shall be established by the General Partner in its
sole and absolute discretion, all without the approval of any Limited
Partners. Any additional Partnership Interests issued thereby may be
issued in one or more classes, or one or more series of any of such
classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties,
including
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rights, powers and duties senior to Limited Partnership Interests,
all as shall be determined by the General Partner in its sole and
absolute discretion and without the approval of any Limited Partner,
subject to Delaware law, including, without limitation, (i) the
allocation of items of Partnership income, gain, loss, deduction and
credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to
share in Partnership distributions; and (iii) the rights of each
such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership; PROVIDED, HOWEVER, that no
additional Partnership Interests shall be issued to the General
Partner or GTA LP unless either:
(1) the additional Partnership Interests are issued in
connection with an issuance of shares of or other interests in
the Company, which shares or interests have designations,
preferences and other rights, all such that the economic
interests are substantially similar to the designations,
preferences and other rights of the additional Partnership
Interests issued to the General Partner or GTA LP by the
Partnership in accordance with this Section 4.02 and (B) except
as provided in Section 4.02(a)(ii) hereof, the General Partner or
GTA LP shall make a Capital Contribution to the Partnership in an
amount equal to the proceeds raised in connection with the
issuance of such shares of or other interests in the Company, or
(2) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units for
less than fair market value, so long as the General Partner concludes
in good faith that such issuance is in the best interests of the
General Partner, the Company and the Partnership.
(ii) UPON ISSUANCE OF NEW SECURITIES. After the Initial
Offering, the Company shall not issue any additional REIT Shares
(other than REIT Shares issued in connection with a redemption
pursuant to Section 8.05 hereof) or rights, options, warrants or
convertible or exchangeable securities containing the right to
subscribe for or purchase REIT Shares (collectively, "New Securities")
other than to all holders of REIT Shares, unless (A) the General
Partner shall cause the Partnership to issue to the General Partner
and GTA LP, as the Company designate, Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the
Partnership having designations, preferences and other rights, all
such that the economic interests are substantially similar to those of
the New Securities, and (B) the Company, through the General Partner
and GTA LP, contributes the proceeds from the issuance of such New
Securities and from the exercise of rights contained in
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such New Securities to the Partnership; provided, however, that the
Company is allowed to issue New Securities in connection with an
acquisition of a property to be held directly by the Company, but if
and only if, such direct acquisition and issuance of New Securities
have been approved and determined to be in the best interests of the
Company and the Partnership by a majority of the Independent
Directors. Without limiting the foregoing, the Company is expressly
authorized to issue New Securities for less than fair market value,
and to cause the Partnership to issue to the General Partner
corresponding Partnership Interests, so long as (x) the General
Partner concludes in good faith that such issuance is in the best
interests of the General Partner and the Partnership (for example,
and not by way of limitation, the issuance of REIT Shares and
corresponding Partnership Units pursuant to an employee stock
purchase plan providing for employee purchases of REIT Shares at a
discount from fair market value or employee stock options that have
an exercise price that is less than the fair market value of the
REIT Shares, either at the time of issuance or at the time of
exercise), and (y) the Company contributes all proceeds from such
issuance, through the General Partner and GTA LP, as the Company may
so designate to the Partnership. By way of example, in the event the
Company issues REIT Shares for a cash purchase price and contributes
all of the proceeds of such issuance, through the General Partner
and GTA LP, to the Partnership as required hereunder, the General
Partner and GTA LP, as the Company may so designate, shall be issued
a number of additional Partnership Units equal to the product of (A)
the number of such REIT Shares issued by the Company the proceeds of
which were so contributed, multiplied by (B) a fraction, the
numerator of which is one hundred percent (100%), and the
denominator of which is the Conversion Factor in effect on the date
of such contribution.
(b) CERTAIN DEEMED CONTRIBUTIONS OF PROCEEDS OF ISSUANCE OF SHARES.
In connection with any and all issuances of REIT Shares, the Company shall
contribute all of the proceeds raised in connection with such issuance to the
General Partner and GTA LP, as the Company determines and in turn, the General
Partner and GTA LP shall make capital contributions to the Partnership of such
proceeds, provided that if the proceeds actually received by and contributed by
the Company to the General Partner are less than the gross proceeds of such
issuance as a result of any underwriter's discount or other expenses paid or
incurred in connection with such issuance, then the General Partner and GTA LP
shall be deemed to have made a Capital Contribution to the Partnership in the
amount of the gross proceeds of such issuance and the Partnership shall be
deemed simultaneously to have paid such offering expenses in connection with the
required issuance of additional Partnership Units to General Partner and GTA LP
for such Capital Contribution pursuant to Section 4.02(a) hereof.
(c) MINIMUM LIMITED PARTNERSHIP INTEREST. In the event that either a
redemption pursuant to Section 8.05 hereof or an additional Capital Contribution
by the General Partner or GTA LP would result in the Limited Partners (other
than GTA LP), in
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the aggregate, owning less than the Minimum Limited Partnership Interest, the
General Partner and the Limited Partners shall form another partnership and
contribute sufficient Limited Partnership Interests together with such other
Limited Partners so that the Limited Partners (other than GTA LP) own at
least the Minimum Limited Partnership Interest.
4.03 GENERAL PARTNER LOANS. The General Partner may from time to time
advance funds to the Partnership for any proper Partnership purpose as a loan
("Funding Loan"), provided that any such funds must first be obtained by the
General Partner from a third party lender, and then all of such funds must be
loaned by the General Partner to the Partnership on the same terms and
conditions, including principal amount, interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with such loan with such third party lender. Except for Funding
Loans, the General Partner shall not incur any indebtedness for borrowed funds;
provided, however, that any loan proceeds received by the General Partner may be
distributed to the Company and, in turn, to the Company's shareholders or other
equity holders if such loan and distribution have been approved and determined
to be necessary to enable the Company to maintain its status as a REIT under
Sections 856-860 of the Code by a majority of the Independent Directors.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires
an additional Partnership Interest in exchange for more than a DE MINIMIS
Capital Contribution, (ii) the Partnership distributes to a Partner more than a
DE MINIMIS amount of Partnership property as consideration for a Partnership
Interest, or (iii) the Partnership is liquidated within the meaning of
Regulation Section 1.704-l(b)(2)(ii)(g), the General Partner shall revalue the
property of the Partnership to its fair market value (as determined by the
General Partner and taking into account Section 7701(g) of the Code) in
accordance with Regulations Section 1.704-l(b)(2)(iv)(f). When the Partnership's
property is revalued by the General Partner, the Capital Accounts of the
Partners shall be adjusted in accordance with Regulations Sections
1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to
be adjusted to reflect the manner in which the unrealized gain or loss inherent
in such property (that has not been reflected in the Capital Accounts
previously) would be allocated among the Partners pursuant to Section 5.01 if
there were a taxable disposition of such property for its fair market value (as
determined by the General Partner and taking into account Section 7701(g) of the
Code) on the date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted to a percentage equal to the number of Partnership Units held
by such Partner divided by the aggregate number of Partnership Units outstanding
after giving effect to such increase or decrease. If the Partners' Percentage
Interests are adjusted pursuant to this Section 4.05, the Profits and Losses for
the taxable year in which the adjustment occurs shall be allocated between the
part of the year ending on the day of the adjustment and the part of the year
beginning on the following day either (i) as if the taxable year had ended on
the date of the
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adjustment or (ii) based on the number of days in each part. The General
Partner, in its sole discretion, shall determine which method shall be used
to allocate Profits and Losses for the taxable year in which the adjustment
occurs. The allocation of Profits and Losses for the earlier part of the year
shall be based on the Percentage Interests before adjustment, and the
allocation of Profits and Losses for the later part shall be based on the
adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act.
4.09 STOCK INCENTIVE PLANS. (a) If grants of REIT Shares are made in
connection with a Stock Incentive Plan:
(i) The Company, through the General Partner and GTA LP, shall
contribute, as soon as practicable after such grant, to the Partnership (to be
thereafter taken into account for the purposes of calculating any cash
distributable to the Partners), an amount equal to the price, if any, paid to
the Company by the party receiving such REIT Shares;
(ii) The Partnership shall issue to the General Partner and
GTA LP an aggregate number of additional Partnership Units equal to the product
of (1) the number of such REIT Shares issued by the Company, MULTIPLIED BY (2) a
fraction, the numerator of which is 100%, and the denominator of which is the
Conversion Factor in effect on the date of such contribution; and
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(iii) The General Partner's and GTA LP's Percentage Interest
and the Percentage Interests of the other Limited Partners shall be adjusted as
set forth in Section 4.02.
(b) If stock options or warrants granted in connection with a Stock
Incentive Plan are exercised:
(i) The Company, through the General Partner and GTA LP, shall
contribute, as soon as practicable after such exercise, to the Partnership (to
be thereafter taken into account for purposes of calculating any cash
distributable to the Partners), an amount equal to the exercise price, if any,
paid to the Company by the exercising party in connection with the exercise of
the option or warrant;
(ii) The Partnership shall issue to the General Partner and GTA
LP an aggregate number of additional Partnership Units equal to the product of
(1) the number of REIT Shares issued by the Company in satisfaction of such
exercised option or warrant, MULTIPLIED BY (2) a fraction, the numerator of
which is 100%, and the denominator of which is the Conversion Factor in effect
on the date of such contribution; and
(iii) The General Partner's and GTA LP's Percentage Interest
and the Percentage Interests of the other Limited Partners shall be adjusted as
set forth in Section 4.02.
(c) If the Company grants any director, officer or employee share
appreciation rights, performance share awards or other similar rights
("Incentive Rights"), then simultaneously, the Partnership shall grant the
General Partner and GTA LP corresponding and economically equivalent rights with
respect to their Partnership Units. Consequently, upon the cash payment by the
Company to its directors, officers or employees pursuant to such Incentive
Rights, the Partnership shall make an equal cash payment to the General Partner
and GTA LP.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 ALLOCATION OF PROFIT AND LOSS.
(a) GENERAL. Except as otherwise provided in this Section 5.01,
Profit and Loss of the Partnership for each fiscal year of the Partnership shall
be allocated among the Partners in accordance with their respective Percentage
Interests.
(b) MINIMUM GAIN CHARGEBACK. Notwithstanding any provision to the
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the
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Partners' respective Percentage Interests, (ii) any expense of the
Partnership that is a "partner nonrecourse deduction" within the meaning of
Regulations Section 1.704-2(i)(2) shall be allocated in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section
1.704-2(f)(1) for any Partnership taxable year, items of gain and income
shall be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section
1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any
Partnership taxable year, items of gain and income shall be allocated among
the Partners in accordance with Regulations Section 1.704-2(i)(4) and the
ordering rules contained in Regulations Section 1.704-2(j). A Partner's
"interest in partnership profits" for purposes of determining its share of
the nonrecourse liabilities of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3) shall be such Partner's Percentage Interest.
(c) QUALIFIED INCOME OFFSET. If a Limited Partner receives in any
taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-l(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section
1.704-l(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to
a Limited Partner in accordance with this Section 5.01(c), to the extent
permitted by Regulations Section 1.704-l(b), items of expense or loss shall be
allocated to such Partner in an amount necessary to offset the income or gain
previously allocated to such Partner under this Section 5.01(c).
(d) CAPITAL ACCOUNT DEFICITS. Loss shall not be allocated to a
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-l(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
(e) ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE. If a Partner
transfers any part or all of its Partnership Interest, and the transferee is
admitted as a substitute Partner as provided herein, the distributive shares of
the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
substitute Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective
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portions of such fiscal year in which the transferor and the transferee were
Partners. The General Partner, in its sole discretion, shall determine which
method shall be used to allocate the distributive shares of the various items
of Profit and Loss between the transferor and the substitute Partner.
(f) DEFINITION OF PROFIT AND LOSS. "Profit" and "Loss" and any
items of income, gain, expense, or loss referred to in this Agreement shall
be determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-l(b)(2)(iv), except that Profit and
Loss shall not include items of income, gain and expense that are specially
allocated pursuant to Section 5.01(b), 5.01(c), or 5.01(d). All allocations
of income, Profit, gain, Loss, and expense (and all items contained therein)
for federal income tax purposes shall be identical to all allocations of such
items set forth in this Section 5.01, except as otherwise required by Section
704(c) of the Code and Regulations Section 1.704-l(b)(4). The General Partner
shall have the authority to elect the method to be used by the Partnership
for allocating items of income, gain, and expense as required by Section
704(c) of the Code and such election shall be binding on all Partners.
5.02 DISTRIBUTION OF CASH.
(a) The General Partner shall distribute cash on a quarterly (or,
at the election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date; PROVIDED, HOWEVER, that if a new or
existing Partner acquires an additional Partnership Interest in exchange for
a Capital Contribution on any date other than a Partnership Record Date, the
cash distribution attributable to such additional Partnership Interest
relating to the Partnership Record Date next following the issuance of such
additional Partnership Interest shall be reduced in the proportion to (i) the
number of days that such additional Partnership Interest is held by such
Partner bears to (ii) the number of days between such Partnership Record Date
and the immediately preceding Partnership Record Date.
(b) Notwithstanding any other provision of this Agreement, the
general Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any
withholding requirements established under the Code or any other federal,
state or local law including, without limitation, pursuant to Sections 1441,
1442, 1445 and 1446 of the Code. To the extent that the Partnership is
required to withhold and pay over to any taxing authority any amount
resulting from the allocation or distribution of income to the Partner or
assignee (including by reason of Section 1446 of the Code), either (i) if the
actual amount to be distributed to the Partner or assignee equals or exceeds
the amount required to be withheld by the Partnership, the amount withheld
shall be treated as a distribution of cash in the amount of such withholding
to such Partner or assignee, or (ii) if the actual amount to be distributed
to the Partner or assignee is less than the amount required to be withheld by
the Partnership, the amount required to be withheld shall be treated as a
loan (a "Partnership Loan") from the Partnership to the Partner
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on the day the Partnership pays over such amount to the applicable taxing
authority. A Partnership Loan shall be repaid through withholding by the
Partnership with respect to subsequent distributions to the applicable
Partner or assignee. In the event that a Limited Partner or assignee
(collectively, a "Defaulting Limited Partner") fails to pay any amount owed
to the Partnership with respect to the Partnership Loan within 15 days after
demand for payment thereof is made by the Partnership on the Defaulting
Limited Partner, the General Partner, in its sole discretion, may elect to
make the payment to the Partnership on behalf of such Defaulting Limited
Partner. In such event, on the date of payment, the General Partner shall be
deemed to have extended a loan (a "General Partner Loan") to the Defaulting
Limited Partner in the amount of the payment made by the General Partner and
shall succeed to all rights and remedies of the Partnership against the
Defaulting Limited Partner as to that amount. Without limitation, the
General Partner shall have the right to receive any distributions that
otherwise would be made by the Partnership to the Defaulting Limited Partner
until such time as the General Partner Loan has been paid in full, and any
such distributions so received by the General Partner shall be treated as
having been received by the Defaulting Limited Partner and immediately paid
to the General Partner.
Any amounts treated as a Partnership Loan or a General Partner
Loan pursuant to this Section 5.02(b) shall bear interest at the lesser of
(i) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in THE WALL STREET JOURNAL,
or (ii) the maximum lawful rate of interest on such obligation, such interest
to accrue from the date the Partnership or the General Partner, as
applicable, is deemed to extend the loan until such loan is repaid in full.
(c) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a
dividend with respect to a REIT Share for which all or part of such
Partnership Unit has been or will be exchanged.
5.03 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient
to enable the Company (i) to meet its distribution requirement for
qualification as a REIT as set forth in Section 857(a)(1) of the Code and
(ii) to avoid any federal income or excise tax liability imposed by the Code.
5.04 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any
of the provisions of this Article V, no Partner shall have the right to
receive and the General Partner shall not have the right to make, a
distribution which includes a return of all or part of a Partner's Capital
Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all liabilities of the Partnership, other than the
liabilities to a Partner for the return of his Capital Contribution, does not
exceed the fair market value of the Partnership's assets.
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5.06 DISTRIBUTIONS UPON LIQUIDATION.
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including
any Partner loans, any remaining assets of the Partnership shall be
distributed to all Partners with positive Capital Accounts in accordance with
their respective positive Capital Account balances. For purposes of the
preceding sentence, the Capital Account of each Partner shall be determined
after all adjustments made in accordance with Sections 5.01 and 5.02
resulting from Partnership operations and from all sales and dispositions of
all or any part of the Partnership's assets. Any distributions pursuant to
this Section 5.06 should be made by the end of the Partnership's taxable year
in which the liquidation occurs (or, if later, within 90 days after the date
of the liquidation). To the extent deemed advisable by the General Partner,
appropriate arrangements (including the use of a liquidating trust) may be
made to assure that adequate funds are available to pay any contingent debts
or obligations.
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after
taking into account all Capital Account adjustments in accordance with
Sections 5.01 and 5.02 resulting from Partnership operations and from all
sales and dispositions of all or any part of the Partnership's assets, the
General Partner shall contribute to the Partnership an amount of cash equal
to the negative balance in its Capital Account and such cash shall be paid or
distributed by the Partnership to creditors, if any, and then to the Limited
Partners in accordance with Section 5.06(a). Such contribution by the General
Partner shall be made by the end of the Partnership's taxable year in which
the liquidation occurs (or, if later, within 90 days after the date of the
liquidation).
5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that
the allocations of Profit and Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to
nonrecourse debt) within the meaning of Section 704(b) of the Code as
interpreted by the Regulations promulgated pursuant thereto. Article V and
other relevant provisions of this Agreement shall be interpreted in a manner
consistent with such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.01 MANAGEMENT OF THE PARTNERSHIP.
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage
and control the business of the Partnership for the purposes herein stated,
and shall make all decisions affecting the business and assets of the
Partnership. Subject to the restrictions specifically contained in this
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Agreement, the powers of the General Partner shall include, without
limitation, the authority to take the following actions on behalf of the
Partnership:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of
the business of the Partnership;
(ii) subject to the terms of any applicable lease, to construct
buildings and make other improvements on the properties owned or
leased by the Partnership;
(iii) to borrow money for the Partnership, issue evidences
of indebtedness in connection therewith, refinance, guarantee,
increase the amount of, modify, amend or change the terms of, or
extend the time for the payment of, any indebtedness or obligation to
the Partnership, and secure such indebtedness by mortgage, deed of
trust, pledge or other lien on the Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Company,
the General Partner, GTA LP or the Partnership, to third parties or to
the General Partner as set forth in this Agreement;
(v) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion of
the Partnership's assets so leased are to be occupied by the lessee,
or, in turn, subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, or compromise any and all
claims or Liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership, or the Partnership's
assets; PROVIDED, HOWEVER, that the General Partner may not, without
the consent of all of the Partners, confess a judgment against the
Partnership;
(vii) to file applications, communicate, and otherwise deal
with any and all governmental agencies having jurisdiction over, or in
any way affecting, the Partnership's assets or any other aspect of the
Partnership business;
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(viii) to make or revoke any election permitted or required of
the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection
of the Partnership, for the conservation of Partnership assets, or for
any other purpose convenient or beneficial to the Partnership, in such
amounts and such types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance proceeds
for any property to the restoration of such property or to distribute
the same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may
deem necessary or appropriate in connection with the Partnership
business and to pay therefor such reasonable remuneration as the
General Partner may deem reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of
the Partnership;
(xv) to distribute Partnership cash or other Partnership assets
in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of
property to, its Subsidiaries and any other Person in which it has an
equity interest from time to time);
(xvii) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xviii) to take such other action, execute, acknowledge, swear to
or deliver such other documents and instruments, and perform any and
all other acts the General Partner deems necessary or appropriate for
the formation, continuation and conduct of the business and affairs of
the Partnership
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(including, without limitation, all actions consistent with allowing
the Company at all times to qualify as a REIT unless the Company
voluntarily terminates its REIT status) and to possess and enjoy all
of the rights and powers of a general partner as provided by the Act.
(c) Except as otherwise provided herein, to the extent the duties
of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except
to the extent that Partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend
its individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the
business of the Partnership, which Person may, under supervision of the
General Partner, perform any acts or services for the Partnership as the
General Partner may approve.
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities (joint or several), expenses
(including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Partnership as set forth
in this Agreement in which any Indemnitee may be involved, or is threatened
to be involved, as a party or otherwise, unless it is established that: (i)
the act or omission of the Indemnitee was material to the matter giving rise
to the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty; (ii) the Indemnitee actually received an
improper personal benefit in money, property or services; or (iii) in the
case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. The termination of any
proceeding by judgment, order or settlement does not create a presumption
that the Indemnitee did not meet the requisite standard of conduct set forth
in this Section 6.03(a). The termination of any proceeding by conviction or
upon a plea of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee acted in a manner contrary to that specified in this Section
6.03(a). Any indemnification pursuant to this Section 6.03 shall be made only
out of the assets of the Partnership.
(b) The Partnership may reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance
of the final disposition of the proceeding upon receipt by the Partnership of
(i) a written affirmation by the Indemnitee of the Indemnitee's good faith
belief that the standard of conduct necessary for indemnification by the
Partnership as authorized in this Section 6.03 has been met, and (ii) a
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written undertaking by or on behalf of the Indemnitee to repay the amount if
it shall ultimately be determined that the standard of conduct has not been
met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf
of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses
that may be incurred by such Person in connection with the Partnership's
activities, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall constitute fines within the meaning of this Section 6.03; and
actions taken or omitted by the Indemnitee with respect to an employee
benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
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6.04 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to
the Partnership or any Partners for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission if the General
Partner acted in good faith. Additionally, the General Partner shall not be
in breach of any duty that the General Partner may owe to the Limited
Partners or the Partnership or any other Persons under this Agreement or of
any duty stated or implied by law or equity, provided the General Partner,
acting in good faith, abides by the terms of this Agreement.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, the Company and the Company's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to the Limited Partners) in deciding whether
to cause the Partnership to take (or decline to take) any actions. In the
event of a conflict between the interests of the shareholders of the Company
on one hand and the Limited Partners on the other, the General Partner shall
endeavor in good faith to resolve the conflict in a manner not adverse to
either the shareholders of the Company or the Limited Partners; provided the
General Partner shall not be liable for monetary damages for losses
sustained, liabilities incurred, or benefits not derived by Limited Partners
in connection with such decisions, provided that the General Partner has
acted in good faith.
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.01 hereof, the General Partner may exercise any of the
powers granted to it under this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its agents. The
General Partner shall not be responsible for any misconduct or negligence on
the part of any such agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission
is necessary or advisable in order (i) to protect the ability of the Company
to continue to qualify as a REIT or (ii) to prevent the Company from
incurring any taxes under Section 857, Section 4981, or any other provision
of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or
any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership
and the Limited Partners under this Section 6.04 as in effect immediately
prior to such amendment, modification or repeal with respect to matters
occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when claims relating to such matters may arise or be
asserted.
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6.05 EXPENDITURES BY THE PARTNERSHIP. The General Partner is hereby
authorized to pay compensation for accounting, administrative, legal,
technical, management and other services rendered to the Partnership. All of
the aforesaid expenditures (including Administrative Expenses) shall be
obligations of the Partnership, and the General Partner shall be entitled to
reimbursement by the Partnership for any expenditure (including
Administrative Expenses) incurred by it on behalf of the Partnership which
shall be made other than out of the funds of the Partnership. The Partnership
shall also assume, and pay when due, all Administrative Expenses.
6.06 OUTSIDE ACTIVITIES. Subject to Section 6.08 hereof, the Charter and
any agreements entered into by the General Partner or its Affiliates with the
Partnership or a Subsidiary, any officer, director, employee, agent, trustee,
Affiliate or shareholder of the General Partner shall be entitled to and may
have business interests and engage in business activities in addition to
those relating to the Partnership, including business interests and
activities substantially similar or identical to those of the Partnership.
Neither the Partnership nor any of the Limited Partners shall have any rights
by virtue of this Agreement in any such business ventures, interests or
activities. None of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the partnership relationship
established hereby in any such business ventures, interests or activities,
and the General Partner shall have no obligation pursuant to this Agreement
to offer any interest in any such business ventures, interests and activities
to the Partnership or any Limited Partner, even if such opportunity is of a
character which, if presented to the Partnership or any Limited Partner,
could be taken by such Person.
6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership
(whether as a buyer, lessor, lessee, manager, furnisher of goods or services,
broker, agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Subsidiary or any other
Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or
thereby becomes a participant upon such terms and subject to such conditions
as the General Partner deems are consistent with this Agreement and
applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase
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any property from, the Partnership, directly or indirectly, except pursuant
to transactions that are on terms that are fair and reasonable to the
Partnership.
6.08 GENERAL PARTNER PARTICIPATION. The General Partner agrees that all
business activities of the General Partner, including activities pertaining
to the acquisition, development and/or ownership of property, shall be
conducted through the Partnership or one or more subsidiary partnerships;
provided, however, that the Company is allowed to make a direct acquisition,
but if and only if, such acquisition is made in connection with the issuance
of New Securities, which direct acquisition and issuance have been approved
and determined to be in the best interests of the Company and the Partnership
by a majority of the Independent Directors. The General Partner also agrees
that all loans from the General Partner to the Partnership shall constitute
Funding Loans, subject to the exception set forth in Section 4.03 hereof.
6.09 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be
held in the name of the Partnership, the General Partner or one or more
nominees, as the General Partner may determine, including Affiliates of the
General Partner. The General Partner hereby declares and warrants that any
Partnership assets for which legal title is held in the name of the General
Partner or any nominee or Affiliate of the General Partner shall be held by
the General Partner for the use and benefit of the Partnership in accordance
with the provisions of this Agreement; PROVIDED, HOWEVER, that the General
Partner shall use its best efforts to cause beneficial and record title to
such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
6.10 MISCELLANEOUS. In the event the Company redeems any REIT Shares,
then the General Partner shall cause the Partnership to purchase from the
General Partner and GTA LP a number of Partnership Units as determined based
on the application of the Conversion Factor on the same terms that the
Company redeemed such REIT Shares. Moreover, if the Company makes a cash
tender offer or other offer to acquire REIT Shares, then the General Partner
shall cause the Partnership to make a corresponding offer to the General
Partner and GTA LP to acquire an equal number of Partnership Units held by
the General Partner and GTA LP. In the event any REIT Shares are redeemed by
the Company pursuant to such offer, the Partnership shall redeem an
equivalent number of the General Partner's and GTA's Partnership Units for an
equivalent purchase price based on the application of the Conversion Factor.
6.11 MAINTENANCE OF INDEBTEDNESS. For a period of ten years following
the date hereof, the Partnership shall maintain indebtedness (the "Required
Indebtedness") in an amount equal to the lesser of approximately: (A)
$4,300,000 or (B) the aggregate negative capital account balances of the
contributor of Northgate Country Club (the "Northgate
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Partner") at the time of the contribution of such golf course (the "Initial
Negative Capital Account"). The Required Indebtedness shall be reduced to the
extent that the Northgate Partner (or its partners, if the Northgate Partner
distributes its Partnership Units to its partners) redeem in whole or in
part, their Partnership Units in exchange for REIT Shares, redeem their
Partnership Units in full for cash or otherwise dispose of their Partnership
Units or dies (the Partnership Units that are so redeemed, disposed of, or
held by transferees of deceased holders are referred to as "Stepped-Up Basis
Units"). In such a case, the Required Indebtedness shall be reduced by an
amount equal to the original Required Indebtedness prior to any reduction
multiplied by a fraction equal to (i) the Initial Negative Capital Account,
minus the aggregate negative capital account balances associated with the
Stepped-Up Basis Units redeemed or transferred immediately prior to the
reduction of the Required Indebtedness, divided by (ii) the Initial Negative
Capital Account. If the Partnership fails to maintain such level of debt,
then the Partnership shall pay to the Northgate Partner the amount of federal
and state income taxes (together with interest and penalties) of that
Partner, which are created by the reduction in debt. To the extent at the
end of the ten (10) year period the Partnership has debt not otherwise
guaranteed, the Partnership, to the extent permitted by the lender, will
permit the Northgate Partner to guarantee such debt (or to enter into
reimbursement agreements with the Partnership or any Affiliate of the
Partnership to whom such debt is recourse, if any); provided, however, that
nothing contained herein shall prevent the Partnership or any such affiliate
from incurring, retiring, repaying, or prepaying such debt at any time after
such ten year period.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
(a) The General Partner may not transfer any of its General
Partnership Interest or withdraw as General Partner except as provided in
Section 7.01(c) or in connection with a transaction described in Section
7.01(d).
(b) The General Partner agrees that it and GTA LP will at all times
own in the aggregate at least a 20% Percentage Interest.
(c) Except as otherwise provided in Section 6.07(c) or Section
7.01(d) hereof, the Company shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change
of outstanding REIT Shares (other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination of REIT
Shares) (a "Transaction"), unless (i) the Transaction also includes a merger
of the Partnership or sale of substantially all of the assets of the
Partnership as a result of which all Limited Partners will receive for each
Partnership Unit an amount of cash, securities, or other property equal to
the product of the Conversion Factor and the greatest amount of cash,
securities or other property paid in the Transaction to a holder of
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one REIT Share in consideration of one REIT Share, PROVIDED THAT if, in
connection with the Transaction, a purchase, tender or exchange offer
("Offer") shall have been made to and accepted by the holders of more than
50% of the outstanding REIT Shares, each holder of Partnership Units shall be
given the option to exchange its Partnership Units for the greatest amount of
cash, securities, or other property which a Limited Partner would have
received had it (A) exercised its Redemption Right and (B) sold, tendered or
exchanged pursuant to the Offer the REIT Shares received upon exercise of the
Redemption Right immediately prior to the expiration of the Offer; and (ii)
no more than 75% of the equity securities of the acquiring Person in such
Transaction shall be owned, after consummation of such Transaction, by the
General Partner or Persons who were Affiliates of the Partnership or the
General Partner immediately prior to the date on which the Transaction is
consummated.
(d) Notwithstanding Section 7.01(c), the Company may merge into or
consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity (the "Surviving Entity"), other than Partnership Units held by the
General Partner, are contributed to the Partnership as a Capital Contribution in
exchange for Partnership Units with a fair market value equal to the value of
the assets so contributed as determined by the Surviving Entity in good faith
and (ii) the Surviving Entity expressly agrees to assume, or acknowledge and
ratify, all obligations of the General Partner hereunder. Upon such contribution
and assumption, the Surviving Entity shall have the right and duty to amend this
Agreement as set forth in this Section 7.01(d). The Surviving Entity shall in
good faith arrive at a new method for the calculation of the Cash Amount and
Conversion Factor for a Partnership Unit after any such merger or consolidation
so as to approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of REIT Shares and/or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been redeemed
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation which shall
be as nearly equivalent as may be practicable to the adjustments provided for
with respect to the Conversion Factor. The above provisions of this Section
7.01(d) shall similarly apply to successive mergers or consolidations permitted
hereunder.
7.02 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person shall
be admitted as a substitute or successor General Partner of the Partnership only
if the following terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners (other than GTA
LP) shall have consented in writing to the admission of the substitute or
successor General Partner;
(b) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner,
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and a certificate evidencing the admission of such Person as a General
Partner shall have been filed for recordation and all other actions required
by Section 2.05 hereof in connection with such admission shall have been
performed;
(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the
withdrawal, death or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Partnership shall be dissolved and
terminated unless the Partnership is continued pursuant to Section 7.03(b)
hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to reconstitute the Partnership and continue the business
of the Partnership for the balance of the term specified in Section 2.04 hereof
by selecting, subject to Section 7.02 hereof and any other provisions of this
Agreement, a substitute General Partner by unanimous consent of the Limited
Partners. If the Limited Partners elect to reconstitute the Partnership and
admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
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(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; PROVIDED, HOWEVER, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this Section
7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners (excluding GTA LP) in accordance
with Section 7.03(b) hereof and otherwise admitted to the Partnership in
accordance with Section 7.02 hereof. At the time of assignment, the removed
General Partner shall be entitled to receive from the substitute General Partner
the fair market value of the General Partnership Interest of such removed
General Partner as reduced by any damages caused to the Partnership Interest of
such removed General Partner. Such fair market value shall be determined by an
appraiser mutually agreed upon by the General Partner and a majority in interest
of the Limited Partners (excluding GTA LP) within 10 days following the removal
of the General Partner. In the event that the parties are unable to agree upon
an appraiser, the removed General Partner and a majority in interest of the
Limited Partners (excluding GTA LP) each shall select an appraiser. Each such
appraiser shall complete an appraisal of the fair market value of the removed
General Partner's General Partnership Interest within 30 days of the General
Partner's removal, and the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals;
PROVIDED, HOWEVER, that if the higher appraisal exceeds the lower appraisal by
more than 20% of the amount of the lower appraisal, the two appraisers, no later
than 40 days after the removal of the General Partner, shall select a third
appraiser who shall complete an appraisal of the fair market value of the
removed General Partner's General Partnership Interest no later than 60 days
after the removal of the General Partner. In such case, the fair market value
of the removed General Partner's General Partnership Interest shall be the
average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; PROVIDED, HOWEVER, such removed
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead,
such removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
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ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
the General Partner his true and lawful attorney-in-fact, who may act for each
Limited Partner and in his name, place and stead, and for his use and benefit,
to sign, acknowledge, swear to, deliver, file and record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of his Partnership Interest.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of his Capital Contribution, if any, as and when due hereunder. After
his Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.05 REDEMPTION RIGHT.
(a) Subject to Sections 8.05(b)-(g), on or after the date which is
one (1) year after the Effective Date, each Limited Partner (other than GTA LP)
shall have the right (the "Redemption Right") to require the Partnership to
redeem on a Specified Redemption Date all or a portion of the Partnership Units
held by such Limited Partner at a redemption price equal to and in the form of
the Redemption Amount. The Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the Partnership (with a copy to the General
Partner) by the Limited Partner who is exercising the Redemption Right (the
"Redeeming Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Redemption Right if the Company and/or the General
Partner elects to purchase
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the Partnership Units subject to the Notice of Redemption pursuant to Section
8.05(b); and provided, further, that no Limited Partner may deliver to the
General Partner more than four (4) Notices of Redemption during each calendar
year. In addition to the restrictions on redemption set forth in Section
8.05(g), a Limited Partner may not exercise the Redemption Right for less
than one thousand (1,000) Partnership Units or, if such Limited Partner holds
less than one thousand (1,000) Partnership Units, all of the Partnership
Units held by such Partner. Notwithstanding the foregoing provisions of this
Section 8.05(a), the Company and the General Partner agree to use their best
efforts to cause the closing of the acquisition of redeemed Partnership Units
hereunder to occur as quickly as reasonably possible. The Redeeming Partner
shall have no right, with respect to any Partnership Units so redeemed, to
receive any distribution paid with respect to Partnership Units if the record
date for such distribution is on or after the Specified Redemption Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Redemption Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Redemption to the General
Partner and the Company, and either of the General Partner or the Company (or
both) may, in its sole and absolute discretion, elect to purchase directly and
acquire such Partnership Units by paying to the Redeeming Partner either the
Cash Amount, or, provided that the REIT Shares have been registered pursuant to
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") the REIT Shares Amount, as elected by the General
Partner or the Company (in its sole and absolute discretion), on the Specified
Redemption Date, whereupon the General Partner or the Company shall acquire the
Partnership Units offered for redemption by the Redeeming Partner and shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. If the General Partner and/or the Company shall elect to exercise its
right to purchase Partnership Units under this Section 8.05(b) with respect to a
Notice of Redemption, they shall so notify the Redeeming Partner within five
Business Days after the receipt by the General Partner of such Notice of
Redemption. Unless the General Partner and/or the Company (in its sole and
absolute discretion) shall exercise its right to purchase Partnership Units from
the Redeeming Partner pursuant to this Section 8.05(b), neither the General
Partner nor the Company shall have any obligation to the Redeeming Partner or
the Partnership with respect to the Redeeming Partner's exercise of the
Redemption Right. In the event the General Partner or the Company shall
exercise its right to purchase Partnership Units with respect to the exercise of
a Redemption Right in the manner described in the first sentence of this Section
8.05(b), the Partnership shall have no obligation to pay any amount to the
Redeeming Partner with respect to such Redeeming Partner's exercise of such
Redemption Right, and each of the Redeeming Partner, the Partnership, and the
General Partner or the Company, as the case may be, shall treat the transaction
between the General Partner or the Company, as the case may be, and the
Redeeming Partner for federal income tax purposes as a sale of the Redeeming
Partner's Partnership Units to the General Partner or the Company, as the case
may be. Each Redeeming Partner agrees to execute such documents as the General
Partner may reasonably require in connection with the issuance of REIT Shares
upon exercise of the Redemption Right.
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(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a
Limited Partner shall not be entitled to exercise the Redemption Right if the
delivery of REIT Shares to such Partner on the Specified Redemption Date by the
General Partner or the Company pursuant to Section 8.05(b) (regardless of
whether or not the General Partner or the Company would in fact exercise its
rights under Section 8.05(b)) would (i) result in such Partner or any other
person owning, directly or indirectly, REIT Shares in excess of the Ownership
Limitation or the Look-Through Ownership Limitation, if applicable, (as defined
in the Charter) and calculated in accordance therewith, except as provided in
the Charter, (ii) result in REIT Shares being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Code,
(iv) cause the Company to own, directly or constructively, 10% or more of the
ownership interests in a tenant of the Company's, the General Partner's, the
Partnership's, or a subsidiary partnership's, real property, within the meaning
of Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of REIT Shares
by such Partner to be "integrated" with any other distribution of REIT Shares
for purposes of complying with the registration provisions of the Securities
Act.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 8.05 shall be paid within 30 days after the initial date of receipt
by the Company of the Notice of Redemption relating to the Partnership Units to
be redeemed. Notwithstanding the foregoing, the Company and the General Partner
agree to use their best efforts to cause the closing of the acquisition of
redeemed Partnership Units hereunder to occur as quickly as reasonably possible.
(e) In the event that the General Partner permits the pledge of a
Limited Partner's Partnership Units to a lender, the General Partner may agree,
its sole discretion, to allow such lender, upon foreclosure of such Partnership
Units, to redeem such Partnership Units prior to the expiration of the one-year
period described in Section 8.05(a); provided, that any such redemption shall be
effected by the Partnership in the form of the Cash Amount.
(f) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Redemption Rights as and if deemed necessary
to ensure that the Partnership does not constitute a "publicly traded
partnership" under Section 7704 of the Code.
(g) In addition to the foregoing limitations, each Limited Partner
shall be limited in the number of Partnership Units that can be redeemed as
follows:
(i) After one (1) year, up to a maximum of 50% of a Limited
Partner's initial Partnership Units; and
(ii) After two (2) years, up to a maximum of 100% of a Limited
Partner's initial Partnership Units.
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8.06 REGISTRATION.
(a) SHELF REGISTRATION. Prior to or on the first date upon which the
Partnership Units owned by any Limited Partner may be redeemed, at the request
of a Limited Partner, the Company agrees to file with the Commission, a shelf
registration statement on Form S-3 under Rule 415 of the Securities Act, or any
similar rule that may be adopted by the Commission (the "Shelf Registration"),
with respect to all of the REIT Shares issued to the Limited Partners pursuant
to Section 8.05(b) hereof (the "Redemption Shares"). The Company will use its
best efforts to have the Shelf Registration declared effective under the
Securities Act and to keep the Shelf Registration continuously effective until a
date agreed upon by the Company and a majority of the Limited Partners or until
such time as all of the shares registered pursuant to such Shelf Registration
(i) have been disposed of pursuant to such Shelf Registration, (ii) have
otherwise been distributed pursuant to Rule 144 promulgated under the Securities
Act ("Rule 144"), or (iii) have been otherwise transferred in a transaction
resulting in the transferee receiving REIT Shares not deemed to be "restricted
securities" under Rule 144. The Company further agrees to supplement or make
amendments to the Shelf Registration, if required by the rules, regulations or
instructions applicable to the registration form utilized by the Company or by
the Securities Act or rules and regulations thereunder for the Shelf
Registration. No provision of this Agreement shall require the Company to file
a registration statement on any form other than Form S-3. The Company, in the
exercise of its reasonable judgment, shall have the right to delay the filing of
the Shelf Registration for up to 120 days.
(b) REGISTRATION AND QUALIFICATION PROCEDURES. The Company, upon the
written request of a Limited Partner, is required by the provisions of Section
8.06(a) hereof to use its best efforts to have the Shelf Registration declared
effective under the Securities Act. Accordingly, the Company will:
(i) prepare and file with the Commission a registration
statement, including amendments thereof and supplements relating
thereto, with respect to the Redemption Shares;
(ii) use its best efforts to cause the Shelf Registration to be
declared effective by the Commission;
(iii) keep the Shelf Registration effective and the related
prospectus current as described in Section 8.05(a) hereof; provided,
however, that the Company shall have no obligation to file any
amendment or supplement at its own expense or the Partnership's
expense more than 90 days after the effective date of the Shelf
Registration;
(iv) furnish to each holder of Redemption Shares such numbers of
copies of prospectuses, and supplements or amendments thereto, and
such other documents as such holder reasonably requests;
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(v) register or qualify the securities covered by the
registration statement under the securities or blue sky laws of such
jurisdictions within the United States as any holder of Redemption
Shares shall reasonably request, and do such other reasonable acts and
things as may be required of it to enable such holders to consummate
the sale or other disposition in such jurisdictions of the Redemption
Shares; provided, however, that the Company shall not be required to
(i) qualify as a foreign corporation or consent to a general and
unlimited service or process in any jurisdictions in which it would
not otherwise be required to be qualified or so consent or (ii)
qualify as a dealer in securities; and
(vi) keep the holders of Redemption Shares advised as to the
initiation and progress of the registration.
(c) ALLOCATION OF EXPENSES. The Partnership shall pay all expenses in
connection with the Shelf Registration, including without limitation (i) all
expenses incident to filing with the National Association of Securities Dealers,
Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal
fees and expenses, except to the extent holders of Redemption Shares elect to
engage accountants or attorneys in addition to the accountants and attorneys
engaged by the Partnership or the Company, (v) accounting expenses incident to
or required by any such registration or qualification and (vi) expenses of
complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided, however, the
Partnership shall not be liable for (A) any discounts or commissions to any
broker attributable to the sale of Redemption Shares, or (B) any fees or
expenses incurred by holders of Redemption Shares in connection with such
registration which, according to the written instructions of any regulatory
authority, the Partnership is not permitted to pay.
(d) SALE OF REDEMPTION SHARES. The Company may require in its sole
discretion that the Redemption Shares be sold in block trades through
underwriters or broker-dealers or that the sale of the Redemption Shares be
underwritten by investment banking firms selected by the Company.
(e) LISTING ON SECURITIES EXCHANGE. If the Company shall list or
maintain the listing of any REIT Shares on any securities exchange or national
market system, it will at its expense and as necessary to permit the
registration and sale of the Redemption Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Redemption Shares.
8.07 "PIGGYBACK" REGISTRATION RIGHTS.
(a) NOTICE OF REGISTRATION. It, at any time commencing upon the date
upon which all or any portion of the Partnership Units shall have been redeemed
for the Redemption Shares (but not if such Partnership Units shall have been
redeemed for cash in accordance with the provisions hereof), the Company files a
registration statement under
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the Securities Act with respect to a firm commitment underwritten public
offering of any securities of the Company, the Company shall give thirty (30)
days prior written notice thereof to each Limited Partner and shall, upon the
written request of any or all of the Limited Partners, include in the
underwritten public offering the number of Redemption Shares that each such
Limited Partner may request (except as set forth in Section 8.07(b) below).
The Company will keep such registration statement effective and current under
the Securities Act permitting the sale of Redemption Shares covered thereby
for the same period that the registration statement is maintained effective
for the other persons (including the Company) selling thereunder. In any
underwritten offering, however, the Redemption Shares to be included will be
sold at the same time and at the same price as the Company's securities. In
the event that the Company fails to receive a written request from a Limited
Partner within thirty (30) days of its written notice, then the Company shall
have no obligation to include any of the Redemption Shares in the offering.
In connection with any registration statement or subsequent amendment or
similar document filed pursuant to this Section 8.07, the Company shall take
all reasonable steps to make the securities covered thereby eligible for
public offering and sale under the securities or blue sky laws of the
applicable jurisdictions by the effective date of such registration
statement; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not so qualified at
the time of filing such documents or to take any action which would subject
it to unlimited service of process in any jurisdiction where it is not so
subject at such time. The Company shall keep such filing current for the
length of time it must keep any registration statement, post-effective
amendment, prospectus or offering circular effective pursuant hereto.
(b) UNDERWRITING. In the event of an offering by the Company in
which one or more Limited Partners wishes to include Redemption Shares under
this Section 8.07, and it is determined in good faith by the managing
underwriter of such offering, giving effect to the number of REIT Shares to be
offered by the Company, that the total number of Redemption Shares that would
consequently be offered is in excess of the number of Redemption Shares that can
be sold at the proposed price, then the number of Redemption Shares of the
Limited Partners to be offered will be reduced ratably, based upon the number of
Redemption Shares each Limited Partner has requested to include in such
registration; provided, however, that notwithstanding anything in this Section
8.07(b) to the contrary, the Limited Partners shall have the right to
contribute, on a pro-rata basis as described above, an aggregate of Redemption
Shares equalling at least fifteen percent (15%) of the total value of such
offering.
(c) OBLIGATION OF LIMITED PARTNERS UPON REGISTRATION. To include
Redemption Shares in any registration, each Limited Partner shall:
(i) Cooperate with the Company in preparing each such
registration and execute all such agreements as any underwriter may deem
reasonably necessary in favor of such underwriter;
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(ii) Promptly supply the Company with all information,
documents, representations and agreements as such underwriter may deem
reasonably necessary in connection with such registration; and
(iii) Agree in writing not to sell or transfer any share of the
Redemption Shares not included in such underwritten offering for a period of
seven (7) days prior to and thirty (30) days after the effective date of such
registration without the underwriters' consent, but no Limited Partner shall
be required to make such agreement unless the other Limited Partners included
in any offering covered by such registration shall similarly agree.
(d) COMPANY'S OBLIGATIONS UPON REGISTRATION. If and whenever the
Company is obligated by the provisions of this Section 8.07 to effect the
registration of any offering of REIT Shares under the Securities Act, as
expeditiously as possible the Company will, or will use its best efforts to, as
the case may be:
(i) Prepare and file with the SEC a registration statement
with respect to such REIT Shares and, use its best efforts to cause such
registration statement to become effective;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until the earlier of the sale of all securities covered thereby or
the date on which such REIT Shares may be sold into the market without
restriction under Rule 144;
(iii) Furnish to each Limited Partner so many copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such Limited
Partner may reasonably request; and
(iv) Register or qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as such Limited Partner shall reasonably request, and do any
and all other acts and things that may be reasonably necessary or advisable
to enable the Limited Partners to consummate the disposition in such
jurisdictions of such securities.
(e) EXPENSES.
In connection with any filing or other registration hereunder the
Partnership shall bear all the expenses and professional fees which arise in
connection with such filings or registration (except for the Limited Partner's
pro rata share of any underwriters' discount) and all expenses incurred in
making such filings and keeping them effective and correct as provided hereunder
and shall also provide each Limited Partner with a reasonable number of printed
copies of the prospectus, offering circulars and/or supplemental prospectuses or
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amended prospectuses in final and preliminary form; PROVIDED, HOWEVER, each
Limited Partner will pay its own direct out-of-pocket costs incurred with the
registration of REIT Shares, including but not limited to Limited Partner's
attorney and accountants; fees, travel expenses and any consulting fees.
(f) INDEMNIFICATION BY THE COMPANY. The Company will indemnify each
Limited Partner, each of its officers and directors, and each person controlling
the Limited Partner, with respect to which registration, qualification or
compliance has been effected pursuant to this Section 8.07, against all claims,
losses, damages, costs, expenses and liabilities whatsoever (or actions in
respect thereof) arising out of or based on (i) any untrue statement, (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other similar document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made or (ii) any violation by the Company of
the Securities Act or any state securities law or of any rule or regulation
promulgated under the Securities Act or any state securities law applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse the Limited Partner, each of its officers and directors, and each
person controlling the Limited Partner, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided, however, that (x) the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability, or action arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission) based
upon written information furnished to the Company by an instrument duly executed
by the Limited Partner and stated to be specifically for use therein or
furnished by the Limited Partner to the Company in response to a request by the
Company stating specifically that such information will be used by the Company
therein, and (y) such indemnity agreement shall not inure to the benefit of the
Limited Partner, insofar as it relates to any such untrue statement (or alleged
untrue statement) or omission (or alleged omission) made in the preliminary
prospectus or prospectus but eliminated or remedies in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective or in the amended prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act or in any subsequent amended prospectus
filed with the Commission prior to the written confirmation of the sale of the
Registrable Securities at issue (collectively, the "Final Prospectus"), if a
copy of the Final Prospectus was not furnished to the person or entity asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(g) INDEMNIFICATION BY THE LIMITED PARTNERS. The Limited Partners
will, if Redemption Shares held by or issuable to such Limited Partners are
included in the REIT Shares to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the REIT Shares covered by such
registration statement, and each person who controls the Company within
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the meaning of the Securities Act against all claims, losses, damages, costs,
expenses and liabilities whatsoever (or actions in respect thereof) arising out
of or based on any untrue Statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other similar document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
and will reimburse the Company, such directors, officers, persons or
underwriters for any legal or any other expenses reasonably incurred in
connection with investigation or defending any such claim, loss, damage, costs,
expense, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by the
Limited Partners and stated to be specifically for use therein or furnished by
any Limited Partner to the Company in response to a request by the Company
stating specifically that such information will be used by the Company therein,
provided, however, that the foregoing indemnity agreement is subject to the
condition that, such indemnity agreement shall not inure to the benefit of the
Company or any underwriter insofar as it relates to any such untrue statements
(or alleged untrue statements) or omission (or alleged omission) made in the
preliminary prospectus or prospectus but eliminated or remedied in the Final
Prospectus, if a copy of the Final Prospectus was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act.
(h) INDEMNIFICATION PROCEDURES. Each party entitled to
indemnification under this Section 8.07 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld). The failure of any Indemnified
Party to give notice as provided herein shall relieve the Indemnifying Party of
its obligations under this Agreement only to the extent that such failure to
give notice shall materially prejudice the Indemnifying Party in the defense of
any such claim or any such litigation. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement that
attributes any liability to the Indemnified Party, unless the settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. If any such Indemnified Party shall have been
advised by counsel chosen by it that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Indemnifying Party, the Indemnifying Party shall not have
the right to assume the defense of such action on behalf of such Indemnified
Party and will reimburse such Indemnified Party
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and any person controlling such Indemnified Party for the reasonable fees and
expenses of any counsel retained by the Indemnified Party, it being
understood that the Indemnifying Party shall not, in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of more than one separate firm of attorneys
for each Indemnified Party or controlling person (and all other Indemnified
Parties and controlling persons which may be represented without conflict by
one counsel), which firm shall be designated in writing by the Indemnified
Party (or Indemnified Parties, if more than one Indemnified Party is to be
represented by such counsel) to the Indemnifying Party. The Indemnifying
Party shall not be subject to any liability for any settlement made without
its consent, which shall not be unreasonably withheld.
If the indemnification provided for in this Section 8.07 from the
Indemnifying Party is unavailable to an Indemnified Party hereunder in respect
of any losses, claims, damages, labilities or expenses referred to therein, then
the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, labilities or expenses in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Parties, and the parties, relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8.07 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation).
8.08 SALE OF INITIAL GOLF COURSE. Notwithstanding anything herein to
the contrary, if the Partnership elects to sell an Initial Golf Course and
provided the lessee thereunder is not in default beyond any applicable notice
and cure periods provided in the applicable lease, then to the extent a
Limited Partner would recognize gain under Section 704(c) of the Code as a
result thereof, then the Partnership shall use reasonable efforts to
structure the sale as a like-kind exchange under Section 1031 of the Code.
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8.09 EXECUTION OF PLEDGE AGREEMENT. Each Limited Partner contributing an
Initial Golf Course in exchange for its Partnership Interest shall execute and
deliver to the Partnership the Pledge Agreement whereby the Limited Partner
pledges to the Partnership Units having a value equal on the date of the Pledge
Agreement to fifteen percent (15%) of the initial value of the Initial Golf
Course contributed by such Limited Partner to secure the indemnification
obligations of such Limited Partner contained in Section 8.2 of the Contribution
and Leaseback Agreement to which such Limited Partner is a party. The pledge
with respect to such indemnification obligations shall be for a period of one
(1) year, and the General Partner acknowledges that the pledged Partnership
Units shall also serve as collateral for the lease obligations of the applicable
lessee under the leases for the Initial Golf Course as provided more
particularly in the Pledge Agreement.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to the
Company, the General Partner and to the Partnership that the acquisition of his
Partnership Interest is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Except as otherwise provided in Section 9.02(d) hereof and except
for the pledge rights contained in Section 9.02(f) hereof, no Limited Partner
(other than the General Partner) may offer, sell, assign, hypothecate, pledge or
otherwise transfer his Limited Partnership Interest, in whole or in part,
whether voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the written consent of the General Partner,
which consent may be withheld in the sole discretion of the General Partner.
The General Partner may require, as a condition of any Transfer, that the
transferor assume all costs incurred by the Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of his Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the
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Securities Act or would otherwise violate any applicable federal or state
securities or "Blue Sky" law (including investment suitability standards).
(c) No transfer by a Limited Partner of his Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), or (ii) such
transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
(d) Section 9.02(a) shall not apply to the following transactions,
except that the General Partner may require that the transferor assume all costs
incurred by the Partnership in connection therewith:
(i) any Transfer by a Limited Partner pursuant to the exercise of
its Redemption Right under Section 8.05 hereof;
(ii) any Transfer by a Limited Partner that is a corporation or
other business entity to any of its Affiliates or subsidiaries or to
any successor in interest of such Limited Partner; or
(iii) any donative Transfer by an individual Limited Partner to
his immediate family members or any trust in which the individual or
his immediate family members own, collectively, 100% of the beneficial
interests. For purposes of this Section 9.02(d)(iii), the term
"immediate family member" shall be deemed to include only an
individual Limited Partner's spouse, children and grandchildren.
(e) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
(f) Notwithstanding Section 9.01(a), during the period in which all
or a portion of a Limited Partner's Partnership Units are restricted from
transfer pursuant to Article 9 hereof, the Limited Partner may pledge up to 85%
of its Partnership Units as collateral in any borrowing from an institutional
lender, provided complete copies of the commitment letter and all loan
documentation is delivered to the General Partner and the Company. After
satisfactory review of the documentation, the General Partner and the Company
will agree to issue a letter to such lender agreeing to allow the conversion of
such Limited Partner's Partnership Units to REIT Shares (or purchase by the
Company of such Partnership Units, at the Company's election) upon a default by
the applicable Limited Partner under such loan if (i) the lender and the
applicable Limited Partner each request that such letter be issued; (ii) such
loan transaction is deemed by the General Partner and the Company to be
arm's-length and not designed to circumvent the Agreement or restrictions
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contained herein; (iii) the applicable Limited Partner acknowledges that any
such conversion could potentially cause a taxable event to such Limited
Partner; and (iv) such conversion cannot occur within the first year after the
closing of the Initial Offering. In no event will the Company or the
Partnership guarantee or be liable to the lender or others for any such
permissible loans wherein the Limited Partner's Partnership Units are used as
collateral.
(g) No transfer of any Partnership Units may be made to a lender to
the Partnership or to any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a non-recourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion; PROVIDED, HOWEVER, that as a
condition to such consent the lender will be required to enter into an
arrangement with the Partnership and the General Partner to exchange or redeem
for the Cash Amount any Partnership Units in which a security interest is held
simultaneously with the time at which liabilities to such lender would be deemed
to be a partner in the Partnership for purposes of allocating liabilities to
such lender under Section 752 of the Code.
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
(a) Subject to the other provisions of this Article IX, an assignee
of the Limited Partnership Interest of a Limited Partner (which shall be
understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart
or an amendment thereof, including a revised EXHIBIT A, and such other
documents or instruments as the General Partner may require in order
to effect the admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been
signed, acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement
set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust, the
assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's
authority to become a Limited Partner under the terms and provisions
of this Agreement.
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(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication
costs in connection with his substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner,
which consent may be given or denied in the exercise of General
Partner's sole and absolute discretion.
(viii) In the case of an assignee of the Limited Partnership
Interest of the General Partner except in the case of a transaction
described in Section 7.01(c) or (d) (in which case no consent is
necessary), the assignee has obtained the prior written consent of a
majority-in-interest of the Limited Partners (other than the General
Partner) to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of such Limited
Partners' sole and absolute discretion.
(b) For the purpose of allocating profits and losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be treated
as having become, and appearing in the records of the Partnership as, a Partner
upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or,
if no such filing is required, the later of the date specified in the transfer
documents or the date on which the General Partner has received all necessary
instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of his Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article IX to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of his Limited Partnership Interest.
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9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED
PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or his duly authorized representative, upon paying the costs of
collection, duplication and mailing, shall be entitled to inspect or copy such
records during ordinary business hours.
10.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
46
<PAGE>
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 10.02(b).
10.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
10.04 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code or under any applicable state law shall be made by the General
Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article V of this Agreement,
any adjustments made pursuant to Section 754
47
<PAGE>
shall affect only the successor in interest to the transferring Partner and in
no event shall be taken into account in establishing, maintaining or computing
Capital Accounts for the other Partners for any purpose under this Agreement.
Each Partner will furnish the Partnership with all information necessary to
give effect to such election.
10.06 REPORTS TO LIMITED PARTNERS.
(a) As soon as practicable after the close of each fiscal quarter,
but in no event later than 45 days (other than the last quarter of the fiscal
year), the General Partner shall cause to be mailed to each Limited Partner a
quarterly report containing financial statements of the Partnership, or of the
Company if such statements are prepared solely on a consolidated basis with the
Company, for such fiscal quarter, presented in accordance with generally
accepted accounting principles. As soon as practicable after the close of each
fiscal year, the General Partner shall cause to be mailed to each Limited
Partner an annual report containing financial statements of the Partnership, or
of the Company if such statements are prepared solely on a consolidated basis
with the Company for such fiscal year, prepared in accordance with generally
accepted accounting principles. The annual financial statements shall be
audited by accountants selected by the General Partner.
(b) Any Partner shall further have the right to a private audit of
the books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT;
SALE OF ALL OR SUBSTANTIALLY ALL OF COMPANY'S ASSETS
11.01 AMENDMENT OF AGREEMENT.
The General Partner, without the consent of the Limited Partners, may amend
this Agreement in any respect; provided, however, that the following amendments
shall require the consent of Limited Partners (other than GTA LP) holding at
least two-thirds (2/3rds) of the Percentage Interests of the Limited Partners
(other than GTA LP):
(a) any amendment affecting the operation of the Conversion Factor or
Redemption Right (except as provided in Section 8.05(d) hereof) in a manner
adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder other
than with respect to the issuance of additional Partnership Units pursuant to
Section 4.02 of this Agreement;
(c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partners in a manner adverse to Limited Partners,
other than with
48
<PAGE>
respect to the issuance of additional Partnership Units pursuant to Section
4.02 of this Agreement;
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership;
(e) any amendment to Section 8.07 above in a manner adverse to any
Limited Partner; and
(f) any amendment to this Article XI.
11.02 SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP;
CHANGE IN CONTROL.
The General Partner, without the consent of the Limited Partners (including
GTA LP) holding 66.67% of the Percentage Interests of the Limited Partners
(including GTA LP), may not sell, transfer, or convey all or substantially all
of the assets of the Partnership, including, without limitation, a sale,
assignment or transfer to another public or private company, or approve a merger
or consolidation of the Partnership.
ARTICLE XII
GENERAL PROVISIONS
12.01 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in EXHIBIT A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
12.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 SEVERABILITY. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
49
<PAGE>
12.05 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 PRONOUNS AND PLURALS. When the context in which words are used in
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 HEADINGS. The Article headings or sections in this Agreement are for
convenience only and shall not be used in construing the scope of this Agreement
or any particular Article.
12.08 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
12.10 GUARANTY BY COMPANY. The Company unconditionally and irrevocably
guarantees to the Limited Partners the performance by the General Partner and
GTA LP of the respective obligations of the General Partner and GTA LP under
this Agreement. This guaranty is exclusively for the benefit of the Limited
Partners and shall not extend to the benefit of any creditor of the Partnership.
(Remainder of Page Intentionally Left Blank)
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this First Amended and Restated Agreement of Limited Partnership,
all as of the ________ day of ____________, 1996.
GENERAL PARTNER
GTA GP, INC., a
Maryland corporation
By: ______________________
Its: ______________________
LIMITED PARTNERS
GTA LP, INC., a
Maryland corporation
By: ______________________
Its: ______________________
[to be added]
Golf Trust of America, Inc., a Maryland corporation hereby executes this
Agreement for the sole purpose of being bound by the provisions of Sections
7.01(c), 8.06, 8.07 and 12.10 hereof.
GOLF TRUST OF AMERICA, INC., a
Maryland corporation
By: ______________________
Its: ______________________
51
<PAGE>
EXHIBIT A
SCHEDULE OF PARTNERS,
NUMBER OF PARTNERSHIP UNITS AND
THE AGREED VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
1
<PAGE>
EXHIBIT B
INITIAL GOLF COURSES
<PAGE>
EXHIBIT C
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the First Amended and Restated Agreement of
Limited Partnership (the "Agreement") of Golf Trust of America, L.P., the
undersigned hereby irrevocably (i) presents for redemption ________ units of
limited partnership interest ("Units") in Golf Trust of America, L.P. (the
"Partnership") in accordance with the terms of the Agreement and the "Redemption
Right" referred to in Section 8.05 thereof, (ii) surrenders such Units and all
right, title and interest therein, (iii) surrenders herewith any certificate or
other writing evidencing the Units (and requests that any Units so evidenced
that are not redeemed be evidenced by the issuance of a new certificate or
writing) and (iv) directs that the "Cash Amount" or "REIT Shares Amount" (as
determined by the General Partner), as defined in the Agreement, deliverable
upon exercise of the Redemption Rights be delivered to the address specified
below, and if REIT Shares are to be delivered, such REIT Shares be registered or
placed in the name(s) and at the address(es) specified below.
Dated: ______________
Name of Limited Partner:
___________________________
(Signature of Limited Partner)
___________________________
(Mailing Address)
___________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
___________________________
If REIT Shares are to be issued, issue to:
___________________________
___________________________
___________________________
Please insert social security or identifying number:
___________________________
<PAGE>
[Course Name]
[City]
[County]
[State]
L E A S E
GOLF TRUST OF AMERICA, L.P.
LANDLORD
AND
__________________________________,
TENANT
DATED AS OF __________, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
LEASED PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
DEFINITIONS, RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . 2
2.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3
TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 INITIAL TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 EXTENSION OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 RIGHT OF FIRST OFFER TO LEASE . . . . . . . . . . . . . . . . . . 13
ARTICLE 4
RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 INCREASE IN INITIAL BASE RENT . . . . . . . . . . . . . . . . . . 14
4.3 PERCENTAGE RENT . . . . . . . . . . . . . . . . . . . . . . . . . 15
ANNUAL RECONCILIATION OF PERCENTAGE RENT. . . . . . . . . . . . . 15
4.6 RECORD-KEEPING. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 ADDITIONAL CHARGES. . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 LATE PAYMENT OF RENT. . . . . . . . . . . . . . . . . . . . . . . 16
4.9 NET LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 ALLOCATION OF REVENUES . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 5
SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 PLEDGE OF OWNER'S SHARES. . . . . . . . . . . . . . . . . . . . . 17
5.2 OBLIGATION TO . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 CROSS-COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 6
IMPOSITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 PAYMENT OF IMPOSITIONS. . . . . . . . . . . . . . . . . . . . . . 18
6.2 INFORMATION AND REPORTING . . . . . . . . . . . . . . . . . . . . 18
6.3 PRORATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 REFUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 UTILITY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 ASSESSMENT DISTRICTS. . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 7
TENANT WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 NO TERMINATION, ABATEMENT, ETC. . . . . . . . . . . . . . . . . . 19
7.2 CONDITION OF THE PROPERTY . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 8
OWNERSHIP OF TANGIBLE PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . 21
(i)
<PAGE>
8.1 PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 TENANT'S PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . 21
8.3 TENANT'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 22
8.4 LANDLORD'S WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 9
USE OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 SPECIFIC PROHIBITED USES. . . . . . . . . . . . . . . . . . . . . 23
9.3 MEMBERSHIP SALES. . . . . . . . . . . . . . . . . . . . . . . . . 23
9.4 LANDLORD TO GRANT EASEMENTS, ETC. . . . . . . . . . . . . . . . . 23
9.6 VALUATION OF REMAINDER INTEREST IN LEASE. . . . . . . . . . . . . 24
ARTICLE 10
HAZARDOUS MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.1 OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.2 REMEDIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.3 VIOLATIONS; ORDERS. . . . . . . . . . . . . . . . . . . . . . . . 25
10.4 PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.5 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.6 REMEDIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.7 TENANT'S INDEMNIFICATION OF LANDLORD. . . . . . . . . . . . . . . 25
10.8 SURVIVAL OF INDEMNIFICATION OBLIGATIONS . . . . . . . . . . . . . 26
10.9 ENVIRONMENTAL VIOLATIONS AT EXPIRATION OR TERMINATION OF LEASE. . 26
ARTICLE 11
MAINTENANCE AND REPAIR . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1 TENANT'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 27
11.2 WAIVER OF STATUTORY OBLIGATIONS . . . . . . . . . . . . . . . . . 27
11.3 MECHANIC'S LIENS. . . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 SURRENDER OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 12
TENANT IMPROVEMENTS; SUBMITTAL OF BUDGETS; FINANCIAL STATEMENTS. . . . . . 28
12.1 TENANT'S RIGHT TO CONSTRUCT . . . . . . . . . . . . . . . . . . . 28
12.2 SCOPE OF RIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.3 COOPERATION OF LANDLORD . . . . . . . . . . . . . . . . . . . . . 29
12.4 CAPITAL REPLACEMENT FUND. . . . . . . . . . . . . . . . . . . . . 30
12.5 RIGHTS IN TENANT IMPROVEMENTS . . . . . . . . . . . . . . . . . . 30
12.6 LANDLORD'S RIGHT TO AUDIT CALCULATION OF GROSS GOLF REVENUE. . 31
12.7 ANNUAL BUDGET . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.8 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 13
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS . . . . . . . . . . . . . . . 33
13.1 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.2 ENCROACHMENTS AND OTHER TITLE MATTERS . . . . . . . . . . . . . . 34
ARTICLE 14
PERMITTED CONTESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.1 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.2 INDEMNIFICATION OF LANDLORD . . . . . . . . . . . . . . . . . . . 36
(ii)
<PAGE>
ARTICLE 15
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
15.1 GENERAL INSURANCE REQUIREMENTS. . . . . . . . . . . . . . . . . . 36
15.2 OTHER INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.3 REPLACEMENT COST. . . . . . . . . . . . . . . . . . . . . . . . . 38
15.4 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . 38
15.5 FORM SATISFACTORY, ETC. . . . . . . . . . . . . . . . . . . . . . 38
15.6 CHANGE IN LIMITS. . . . . . . . . . . . . . . . . . . . . . . . . 39
15.7 BLANKET POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.8 INSURANCE PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 39
15.9 DISBURSEMENT OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 40
15.10 EXCESS PROCEEDS, DEFICIENCY OF PROCEEDS . . . . . . . . . . . . . 41
15.11 RECONSTRUCTION COVERED BY INSURANCE . . . . . . . . . . . . . . . 41
15.12 RECONSTRUCTION NOT COVERED BY INSURANCE . . . . . . . . . . . . . 42
15.13 NO ABATEMENT OF RENT. . . . . . . . . . . . . . . . . . . . . . . 42
15.14 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15.15 DAMAGE NEAR END OF TERM . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 16
CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.1 TOTAL TAKING. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.2 PARTIAL TAKING. . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.3 RESTORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.4 AWARD-DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . 43
16.5 TEMPORARY TAKING. . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 17
EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
17.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 44
17.2 PAYMENT OF COSTS. . . . . . . . . . . . . . . . . . . . . . . . . 46
17.3 CERTAIN REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . 46
17.4 DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
17.5 ADDITIONAL REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 47
17.6 APPOINTMENT OF RECEIVER . . . . . . . . . . . . . . . . . . . . . 47
17.7 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.9 IMPOUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 18
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. . . . . . . . . . . . . . . . . 48
ARTICLE 19
LEGAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 20
HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 21
RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 22
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
22.1 TENANT'S INDEMNIFICATION OF LANDLORD. . . . . . . . . . . . . . . 49
22.2 LANDLORD'S INDEMNIFICATION OF TENANT. . . . . . . . . . . . . . . 50
(iii)
<PAGE>
22.3 MECHANICS OF INDEMNIFICATION. . . . . . . . . . . . . . . . . . . 50
22.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS; AVAILABLE INSURANCE
PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 23
SUBLETTING AND ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . 51
23.1 PROHIBITION AGAINST ASSIGNMENT. . . . . . . . . . . . . . . . . . 51
23.2 SUBLEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
23.3 TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
23.4 REIT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 54
23.5 RIGHT OF FIRST . . . . . . . . . . . . . . . . . . . . . . . . . 54
23.7 MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 24
OFFICER'S CERTIFICATES AND OTHER STATEMENTS. . . . . . . . . . . . . . . . 56
24.1 OFFICER'S CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . 56
24.2 ENVIRONMENTAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 25
LANDLORD MORTGAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
25.1 LANDLORD MAY GRANT LIENS. . . . . . . . . . . . . . . . . . . . . 57
25.2 TENANT'S NON-DISTURBANCE RIGHTS . . . . . . . . . . . . . . . . . 58
25.3 FACILITY MORTGAGE PROTECTION. . . . . . . . . . . . . . . . . . . 58
ARTICLE 26
SALE OF FEE INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
26.1 RIGHT OF FIRST OFFER TO PURCHASE. . . . . . . . . . . . . . . . . 58
26.2 CONVEYANCE BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 27
ARBITRATION . . . . . . . . . . . . . 59
27.1 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
27.2 ARBITRATION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 28
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
28.1 LANDLORD'S RIGHT TO INSPECT. . . . . . . . . . . . . . . . . . . 60
28.2 BREACH BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . 60
28.3 COMPETITION BETWEEN LANDLORD AND TENANT. . . . . . . . . . . . . 60
28.4 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
28.5 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . 61
28.6 ACCEPTANCE OF SURRENDER. . . . . . . . . . . . . . . . . . . . . 61
28.7 NO MERGER OF TITLE . . . . . . . . . . . . . . . . . . . . . . . 61
28.8 QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . 61
28.9 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
28.11 INVALIDITY OF TERMS OR PROVISIONS. . . . . . . . . . . . . . . . 62
28.12 PROHIBITION AGAINST USURY. . . . . . . . . . . . . . . . . . . . 62
28.13 AMENDMENTS TO LEASE. . . . . . . . . . . . . . . . . . . . . . . 62
28.14 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . 62
28.15 TITLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
28.16 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 62
28.17 MEMORANDUM OF LEASE. . . . . . . . . . . . . . . . . . . . . . . 62
(iv)
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28.18 ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . 63
28.19 NON-RECOURSE AS TO LANDLORD. . . . . . . . . . . . . . . . . . . 63
28.20 NO RELATIONSHIP. . . . . . . . . . . . . . . . . . . . . . . . . 63
28.21 RELETTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Exhibits
Exhibit A - Legal Description of the Land
Exhibit B - Schedule of Improvements
Exhibit C - Other Leased Property
Exhibit D - Pledge Agreement
Exhibit E - Adjustments to Gross Golf Revenue for Private Clubs
Exhibit F - Calculation of Gross Golf Revenue for the Base Year by
Quarter
(v)
<PAGE>
[Course Name]
[City]
[County]
[State]
LEASE
THIS LEASE (this "Lease"), dated as of _______________, 1997, is
entered into by and between GOLF TRUST OF AMERICA, L.P., a Delaware limited
partnership ("Landlord"), and ________________, a ________________ ("Tenant").
THE PARTIES ENTER THIS LEASE on the basis of the following facts,
understandings and intentions:
A. Pursuant to that certain Contribution and Leaseback Agreement (the
"Agreement") dated as of _____________, 1996 by and between Landlord and
_________________, a _________________ ("Transferor"), Transferor transferred to
Landlord all of its right, title and interest in and to the Property (as
hereafter defined); and
B. Tenant, an Affiliate of Transferor, desires to lease the Property
from Landlord, and Landlord desires to lease the Property to Tenant, on the
terms set forth herein.
NOW THEREFORE, in consideration of the foregoing and the covenants and
agreements to be performed by Tenant and Landlord hereunder, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
LEASED PROPERTY
Upon and subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant leases from Landlord all of Landlord's
rights and interest (to the extent acquired from Transferor) in and to the
following real property, improvements, personal property and related rights
(collectively the "Property"):
(a) the Land;
(b) the Improvements;
(c) all rights, privileges, easements and appurtenances to the Land
and the Improvements, if any, including, without limitation, all of
Landlord's right, title and interest, if
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any, in and to all mineral and water rights and all easements, rights-of-
way and other appurtenances used or connected with the beneficial use or
enjoyment of the Land and the Improvements;
(d) the Tangible Personal Property; and
(e) the Intangible Personal Property.
ARTICLE 2
DEFINITIONS, RULES OF CONSTRUCTION
2.1 DEFINITIONS. The following terms shall have the indicated
meanings:
"AAA" has the meaning provided in Section 27.1.
"ACTUAL PECUNIARY LOSS" has the meaning provided in Section 23.6.
"ADDITIONAL CHARGES" has the meaning provided in
Section 4.7.
"ADJUSTED NET OPERATING INCOME" shall have the meaning set forth in
EXHIBIT K of the Agreement.
"ADVISORY ASSOCIATION" means that certain association of lessees
operating golf courses under a lease with Landlord or any Affiliate of Landlord.
"AFFILIATE" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person.
"AGREEMENT" has the meaning provided in Recital A.
"ANNUAL BASE RENT" means the Initial Base Rent, as it may be adjusted
annually as provided in Section 4.2.
"ANNUAL BUDGET" has the meaning provided in Section 12.7.
"AUTHORIZATIONS" means all licenses, permits and approvals required by
any governmental or quasi-governmental agency, body or officer for the
ownership, operation and use of the Property or any part thereof.
"AWARD" means all compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation.
"BANKRUPTCY CODE" has the meaning provided in Section 23.6.
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<PAGE>
"BASE RENT" means one-twelfth of the Annual Base Rent.
"BASE RENT ESCALATOR" has the meaning provided in Section 4.2.
"BASE YEAR" means the calendar year 1996; provided, however, that
the Base Year shall refer to the calendar year immediately preceding the
Conversion Date if the Base Rent is increased as provided in Section 4.5. A
quarter-by-quarter calculation of Gross Golf Revenue in the Base Year is
attached hereto as EXHIBIT F.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, New
York, are authorized, or obligated, by law or executive order, to close.
"CAPITAL BUDGET" has the meaning provided in Section 12.7.
"CAPITAL EXPENDITURES" has the meaning provided in Section 12.4.
"CAPITAL REPLACEMENT FUND" means the amount of the Capital Replacement
Reserve, together with interest thereon as provided in Section 12.4, less
amounts withdrawn from the Capital Replacement Fund as provided in Section 12.4
"CAPITAL REPLACEMENT RESERVE" means an amount equal to ___% of each
Fiscal Quarter's Gross Golf Revenue, to be accrued quarterly by Landlord as part
of the Capital Replacement Fund, as provided in Section 12.4 hereof, based on
the Officer's Certificate.
"CHANGE OF CONTROL" means:
(a) the issuance and/or sale by Tenant or the sale by any stockholder
of Tenant of a Controlling interest in Tenant to a Person other than to a
Person that is an Affiliate of Tenant as of the date hereof;
(b) the sale, conveyance or other transfer of all or substantially
all of the assets of Tenant (whether by operation of law or otherwise);
(c) any other transaction, or series of transactions, which results
in the shareholders or partners who control Tenant as of the date hereof no
longer having Control of Tenant; or
(d) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an
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entity owned and Controlled by an Affiliate of Tenant as of the date
hereof), and Tenant is not the surviving entity.
Notwithstanding the foregoing, a Change of Control shall not be
deemed to have occurred for purposes of this Lease if the shareholders or
partners who Control Tenant as of the date hereof remain in Control of Tenant
through an agreement or equity interest.
"CODE" means the Internal Revenue Code of 1986, as the same may be
amended or supplemented, and the rules and regulations promulgated thereunder.
"COMMENCEMENT DATE" means ___________________, 1997.
"COMPANY" means Golf Trust of America, Inc. and any subsidiaries
thereof, including, without limitation, GTA LP and GTA GP, and, for purposes of
Sections 10.7, 22.1, 22.3 and 22.4, each of their officers, employees,
directors, agents and representatives.
"CONDEMNATION" means (a) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a Condemnor, and (b) a voluntary
sale or transfer by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
"CONDEMNOR" means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
"CONTINGENT PURCHASE PRICE" shall have the meaning set forth in
EXHIBIT K of the Agreement.
"CONTROL" means (including, with correlative meanings, the terms
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
"CONVERSION DATE" means the earlier of (i) the date Transferor elects
to receive additional Owner's Shares in the Partnership as a Contingent Purchase
Price for the contribution of the Property, (ii) the date on which Transferor
elects in writing to waive its right to receive additional Owner's Shares, or
(iii) April 30, 2002.
"CPI" means the United States Consumer Price Index, All Urban
Consumers, U.S. City Average, All Items (1982-84 = 100).
"DATE OF TAKING" means the date the Condemnor has the right to
possession of the property being condemned.
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"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et
seq.; the Superfund Amendments and Reauthorization Act of 1986, Pub. L. 99-499
and 99-563; the Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. Section 651, et seq.; the Clean Air Act, as amended, 42 U.S.C. Section
7401, et seq.; the Safe Drinking Water Act, as amended, 42 U.S.C. Section 201,
et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section
1251, et seq.; and all federal, state and local environmental health and safety
statutes, ordinance, codes, rules, regulations, orders and decrees regulating,
relating to or imposing liability or standards concerning or in connection with
Hazardous Materials.
"EVENT OF DEFAULT" has the meaning provided in Section 17.1.
"EXPIRATION DATE" means December 31, 2006, as such date may be
extended by the Extended Terms.
"EXTENDED TERM" has the meaning provided in Section 3.2.
"FACILITY MORTGAGE" means a mortgage, deed of trust or other security
agreement securing any indebtedness or any other Landlord's Encumbrance placed
on the Property in accordance with the provisions of Article 25.
"FACILITY MORTGAGEE" means the holder or beneficiary of a Facility
Mortgage, if any; provided Landlord has given Tenant notice of the identity and
address of the Person.
"FISCAL QUARTER" means the three-month periods (or applicable portions
thereof) in any Fiscal Year from January 1 through March 31, April 1 through
June 30, July 1 through September 30 and October 1 through December 31.
"FISCAL YEAR" means the twelve (12) month period from January 1 to
December 31 of each year; provided that for purposes of the Lease Term and the
Pledge Agreement, the first Fiscal Year shall be deemed to include the period
from the Commencement Date to December 31, 1997.
"FIXTURES" means all permanently affixed equipment, machinery,
fixtures, and other items of real and/or personal property, including all
components thereof, now or hereafter located in, on or used in connection with
and permanently affixed to or incorporated into the Property, including all
furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems
5
<PAGE>
and apparatus, sprinkler systems and fire and theft protection equipment, all
of which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically excluding
all items included within the category of Tenant's Personal Property and any
Tenant Improvements.
"FULL REPLACEMENT COST" means the actual replacement cost from time to
time of the improvement being insured, including the increased cost of a
construction endorsement, less exclusions provided in the fire insurance policy.
"GAAP" means generally accepted accounting principles, consistently
applied.
"GROSS GOLF REVENUE" means all revenues accrued (whether by Tenant or
any subtenants, assignees, concessionaires or licensees) from or by reason of
the operation of the golf operations at the Property calculated in accordance
with GAAP (but excluding reasonable reserves for refunds, allowances and bad
debts applicable to such operations), including, without limitation, (i)
revenues from membership initiation fees (to the extent described in EXHIBIT E
attached hereto), (ii) periodic membership dues, (iii) greens fees, (iv) fees to
reserve a tee time, (v) guest fees, (vi) golf cart rentals, (vii) parking lot
fees, (viii) locker rentals, (ix) fees for golf club storage, (x) fees for the
use of swim, tennis or other facilities, (xi) charges for range balls, range
fees or other fees for golf practice facilities, (xii) fees or other charges
paid for golf or tennis lessons (except where retained by or paid to a USTA or
PGA professional in accordance with historical practice at the Property), (xiii)
fees or other charges for fitness centers, (xiv) forfeited deposits with respect
to any membership application, (xv) transfer fees imposed on any member in
connection with the transfer of any membership interest, (xvi) fees or other
charges paid to Tenant by sponsors of golf tournaments at the Property (unless
the terms under which Tenant is paid by such sponsor do not comply with Section
23.4, in which event the gross revenues received from such sponsor for the
tournament shall be excluded from Gross Golf Revenue and further provided that
Tenant shall use commercially reasonable efforts to structure such payment to
comply with Section 23.4), (xvii) advertising or placement fees paid by vendors
in exchange for exclusive use or name rights at the Property, and (xviii) fees
received in connection with any golf package sponsored by any hotel group,
condominium group, golf association, travel agency, tourist or travel
association or similar payments; PROVIDED, HOWEVER, that Gross Golf Revenue
shall not include:
(a) Other Revenue;
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(b) The amount of any city, county, state or federal sales,
admissions, usage, or excise tax on the item included in Gross Golf
Revenue, which is both added to or incorporated in the selling price and
paid to the taxing authority by Tenant; and
(c) Revenues or proceeds from sales or trade-ins of machinery,
vehicles, trade fixtures or personal property owned by Tenant used in
connection with Tenant's operation of the Property.
"GTA GP" means GTA GP, Inc. and any successor thereto.
"GTA LP" means GTA LP, Inc. and any successor thereto.
"HAZARDOUS MATERIAL" means any substance, material, waste, gas or
particulate matter which is regulated by any local, state or federal
governmental authority, including but not limited to any material or substance
which is (i) defined as a "hazardous waste", "hazardous material", or
"restricted hazardous waste" or words of similar import under any provision of
any Environmental Law; (ii) petroleum or petroleum products; (iii) asbestos;
(iv) polychlorinated biphenyl; (v) radioactive material; (vi) radon gas; (vii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. Section 1251, et seq. (42 U.S.C. Section 1317); (viii) defined as
a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C. Section 6903); or (ix)
defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq. (42 U.S.C. Section 9601).
"IMPARTIAL APPRAISER" means the casualty insurance company which is
then carrying the largest amount of casualty insurance carried on the Property.
"IMPOSITIONS" means collectively:
(a) all taxes (including all real and personal property, ad
valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes);
(b) assessments and levies (including all assessments for public
improvements or benefits, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term);
(c) excises;
(d) fees (including license, permit, inspection, authorization
and similar fees); and
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(e) all other governmental charges;
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Property and/or the Rent or
Additional Charges (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time during or in respect of the
Term hereof may be assessed or imposed on or in respect of or be a lien upon (i)
Landlord or Landlord's interest in the Property; (ii) the Property or any part
thereof or any therefrom or any estate, right, title or interest therein; or
(iii) any operation, use or possession of, or sales from or activity conducted
on or in connection with the Property or the leasing or use of the Property or
any part thereof; PROVIDED, HOWEVER, that Impositions shall not include:
(aa) any taxes based on net income (whether denominated as an income,
franchise, capital stock or other tax) imposed on Landlord or any other
Person other than Tenant;
(bb) any transfer or net revenue tax of Landlord or any other Person
other than Tenant; or
(cc) any tax imposed with respect to any principal or interest on any
indebtedness on the Property.
"IMPOUND CHARGES" has the meaning provided in Section 17.9.
"IMPOUND PAYMENT" has the meaning provided in Section 17.9.
"IMPROVEMENTS" means the golf course, driving range, putting greens,
clubhouse facilities, snack bar, restaurant, pro shop, buildings, structures,
parking lots, improvements, Fixtures and other items of real estate located on
the Land as more particularly described in EXHIBIT B attached hereto.
"INITIAL BASE RENT" means $_________ per year.
"INITIAL TERM" means the period of time from the Commencement Date
through December 31, 2006.
"INSURANCE REQUIREMENTS" mean all terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
"INTANGIBLE PERSONAL PROPERTY" means all intangible personal property
owned by Landlord and used solely in connection with the ownership, operation,
leasing or maintenance of the Real Property or the Tangible Personal Property,
and any and all trademarks and copyrights, guarantees, Authorizations, general
intangibles, business records, plans and specifications, surveys,
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all licenses, permits and approvals solely with respect to the construction,
ownership, operation or maintenance of the Property.
"LAND" means the land described in EXHIBIT A attached hereto.
"LANDLORD" means Golf Trust of America, L.P., and any successor or
assignee permitted in accordance with the terms of the Lease.
"LANDLORD'S ENCUMBRANCE" means any lien, encumbrance or title
retention agreement upon the Property, or any portion thereof or interest
therein, whether to secure borrowing or other means of financing or refinancing.
"LEASE" means this Lease, as the same may be amended from time to
time.
"LEASE TERM" means the period from the Commencement Date through and
including the Expiration Date (or the termination date, if earlier terminated
pursuant to the provisions hereof).
"LEGAL REQUIREMENTS" means all federal, state, county, municipal and
other governmental statutes, laws (including the Americans with Disabilities Act
and any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Property or the construction, use
or alteration thereof, whether now or hereafter enacted and in force, including
any which may (i) require repairs, modifications, or alterations in or to the
Property; (ii) in any way adversely affect the use and enjoyment thereof, and
all permits, licenses and authorizations and regulations relating thereto, and
all covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Tenant (other than encumbrances
created by Landlord without the consent of Tenant), at any time in force
affecting the Property; or (iii) require the cleanup or other treatment of any
Hazardous Material.
"NET OPERATING INCOME" shall have the meaning set forth in EXHIBIT K
of the Agreement.
"NON-COMPLYING PARTY" has the meaning provided in Section 27.2.
"OFFICER'S CERTIFICATE" means a certificate of Tenant signed by an
officer authorized to so sign by the board of directors or by-laws, or if Tenant
is a partnership, by an officer authorized to so sign by the general partners.
"OPERATING BUDGET" has the meaning provided in Section 12.7.
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"OTHER LEASED PROPERTIES" means the property or properties leased or
hereafter leased to Tenant or an Affiliate of Tenant by Landlord or an Affiliate
of Landlord, other than pursuant to this Lease, which as of the date hereof are
the properties listed on EXHIBIT C attached hereto.
"OTHER REVENUE" means all revenue received (whether by Tenant or any
subtenants, assignees, concessionaires or licensees) from or by reason of the
Property relating to (i) the operation of snack bars, restaurants, bars,
catering functions, and banquet operations, (ii) sale of merchandise and
inventory on the Property, and (iii) photography services.
"OVERDUE RATE" means, on any date, a rate equal to the Prime Rate plus
an additional five percent (5%) per annum, but in no event greater than the
maximum rate then permitted under applicable law.
"OWNER'S SHARES" means limited partnership interests in the
Partnership.
"PARTNERSHIP" means Golf Trust of America, L.P., a Delaware limited
partnership.
"PERCENTAGE RENT" means, for any Fiscal Year during the Lease Term,
thirty-three and one-third percent (331/3%) of the positive difference, if any,
between the current year's Gross Golf Revenue and the Gross Golf Revenue for the
Base Year, pro rated for any partial periods.
"PERMITTED ASSIGNEE" means a Person or an Affiliate of a Person
meeting one or more of the following standards:
(a) an existing lessee under a lease with Landlord or any
Affiliate of Landlord who is not then in default under its lease;
(b) any entity affiliated with an entity acquiring from an
Affiliate of Tenant its resort and related operations located at or
adjacent to the Property, and provided Landlord has approved such assignee
in its reasonable discretion, based on, among other things, the proposed
assignee's reputation and experience in owning, operating and managing golf
courses similar in type to the Property and the proposed assignee's net
worth and financial resources; and
(c) a list of pre-approved assignees prepared by Landlord from
time to time in consultation with the Advisory Association.
"PERSON" means and includes natural persons, corporations, limited
partnerships, limited liability companies,
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general partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trusts companies, land trusts, business trusts,
Indian tribes or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
"PLEDGE AGREEMENT" means that certain pledge agreement dated as of the
date of this Lease, by and between Transferor and Landlord, in the form attached
hereto as EXHIBIT D.
"PLEDGED OWNER'S SHARES" means the Owner's Shares pledged pursuant to
the Pledge Agreement.
"PRIMARY INTENDED USE" means the operation of a golf course and other
activities incidental to the operation of a golf course.
"PRIME RATE" means on any date, a rate equal to the annual rate on
such date announced by Citibank, N.A., or its successor entity, to be its prime
rate or, if the prime rate is discontinued, the base rate for 90-day unsecured
loans to its corporate borrowers of the highest credit standing.
"PROPERTY" means the Real Property, the Tangible Personal Property and
the Intangible Personal Property
"REAL PROPERTY" means the Land and the Improvements, and all easements
and appurtenances attached thereto.
"RENT" means, collectively, the Base Rent and Percentage Rent.
"STATE" means the State or Commonwealth in which the Property is
located.
"TANGIBLE PERSONAL PROPERTY" means all items of tangible personal
property and fixtures (if any) owned by Landlord and located on or used solely
in connection with the Real Property, including, but not limited to, machinery,
equipment, furniture, furnishings, movable walls or partitions, phone systems,
restaurant equipment, computers or trade fixtures, golf course operation and
maintenance equipment, including mowers, tractors, aerators, sprinklers,
sprinkler and irrigation facilities and equipment, valves or rotors, driving
range equipment, athletic training equipment, office equipment or machines,
antiques or other decorations, furniture, computers or other control systems,
and equipment or machinery of every kind or nature, including all warranties and
guaranties associated therewith, with the exception of golf carts.
"TENANT" means __________________ and any successor thereto, or
assignee thereof, as permitted by the terms of this Lease.
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"TENANT IMPROVEMENTS" has the meaning provided in Section 12.1.
"TENANT'S PERSONAL PROPERTY" has the meaning provided in Section 8.2.
"TENANT'S RIGHT OF FIRST OFFER TO LEASE" has the meaning provided in
Section 3.3.
"TENANT'S RIGHT OF FIRST OFFER TO PURCHASE" has the meaning provided
in Section 26.1.
"TERM" means, collectively, the Initial Term and any Extended Terms,
as the context may require, unless earlier terminated pursuant to the provisions
hereof.
"TRANSFEROR" has the meaning provided in Recital A.
"TRUSTEE" has the meaning provided in Section 23.6.
"UNAVOIDABLE DELAYS" means delays due to strikes, lockouts, power
failure, acts of God, governmental restrictions, enemy action, civil commotion,
fire, unavoidable casualty or other causes beyond the control of the party
responsible for performing an obligation hereunder, PROVIDED THAT lack of funds
shall not be deemed a cause beyond the control of either party hereto unless
such lack of funds is caused by the failure of the other party hereto to perform
any obligations of such party under this Lease.
"UNSUITABLE FOR ITS PRIMARY INTENDED USE" means a state of condition
of the Property such that in the good faith judgment of Landlord, reasonably
exercised, the Property cannot be operated on a commercially practicable basis
for its Primary Intended Use.
2.2 RULES OF CONSTRUCTION. The following rules shall apply to the
construction and interpretation of this Lease:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Lease.
(c) The table of contents and headings contained herein are solely
for convenience of reference and shall not constitute a part of this Lease
nor shall they affect its meaning, construction or effect.
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(d) "Including" and variants thereof shall be deemed to mean
"including without limitation."
(e) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles then in effect.
(f) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Lease and have participated in the preparation
of this Lease, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Lease or any
exhibits hereto.
ARTICLE 3
TERM
3.1 INITIAL TERM. The Initial Term shall commence on the
Commencement Date and shall terminate on December 31, 2006.
3.2 EXTENSION OPTIONS. Landlord grants Tenant the right to extend
the Initial Term of this Lease six (6) consecutive times for a period of five
(5) years each (each such extension, an "Extended Term"). Tenant may exercise
its option for an Extended Term solely by giving written notice at least one
hundred eighty (180) days prior to the termination of the then-current term.
Tenant shall be entitled to exercise these options only if at the time of the
giving of such notice, Tenant is then the lessee of the Property pursuant to
this Lease, and at the time of the commencement of the applicable Term or
Extended Term no Event of Default shall then exist. During the Extended Term,
all of the terms and conditions of this Lease shall continue in full force and
effect, as the same may be amended, supplemented or modified.
3.3 RIGHT OF FIRST OFFER TO LEASE. Upon the expiration of the Lease
Term and provided that Tenant has exercised each Extended Term and no Event of
Default then exists beyond any applicable notice and cure period, Tenant shall
have a right of first offer ("Tenant's Right of First Offer to Lease") to lease
the Property upon the same terms and conditions as Landlord, at its election,
intends to offer to lease the Property to a third party. Tenant shall be
entitled to exercise Tenant's Right of First Offer to Lease only if at the time
of the giving of such notice and at the time of the commencement of the
applicable term no Event of Default shall then exist and only if Landlord elects
to lease the Property at the expiration of the Lease Term. Not more than nine
(9) months and not less than three (3) months prior to the expiration of the
Lease Term, Landlord shall, if applicable, give Tenant written notice of its
intent to lease the Property and shall indicate the terms and conditions upon
which Landlord intends to lease the Property.
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Tenant shall thereafter have a period of thirty (30) days to elect by
unequivocal written notice to Landlord to lease the Property on the same terms
and conditions as Landlord intends to offer to a third party; provided prior to
Tenant's acceptance Landlord shall retain the right to elect not to lease the
Property by giving Tenant written notice thereof. If Tenant elects not to
lease the Property, then Landlord shall be free to lease the Property to a
third party. However, if the Base Rent for such proposed lease is reduced by
five percent (5%) or more as compared to the Base Rent included in the lease
that Tenant rejected, then Landlord shall again offer Tenant the right to
acquire the Property upon the same terms and conditions, provided that Tenant
shall have only fifteen (15) days to accept such offer.
ARTICLE 4
RENT
4.1 RENT. Tenant will pay to Landlord, in lawful money of the United
States of America, Rent during the Initial Term or any Extended Term. Payments
of Base Rent shall be paid monthly, on the first day of each month in arrears,
at Landlord's address set forth in Section 28.9 or at such other place or to
such other Person as Landlord from time to time may designate in writing. The
first monthly installment shall be prorated as to any partial month. If any
payment owing hereunder shall otherwise be due on a day that is not a Business
Day, such payment shall be due on the next succeeding Business Day. No payment
in addition to the payment of Rent shall be required in order to require
Landlord to accrue the Capital Replacement Fund as provided in Section 12.4.
Tenant shall receive a credit against Rent (or be paid directly, at Landlord's
option) for any operating expense credits or operating revenues credited to
Landlord pursuant to the Agreement which are applicable to any period in the
Lease Term (E.G., credit for real property taxes, membership dues, sublease
rents, etc.) and conversely Tenant shall reimburse Landlord for any operating
expenses paid for by Landlord pursuant to the Agreement which are the
responsibility of Tenant hereunder.
4.2 INCREASE IN INITIAL BASE RENT. Beginning on January 1, 1998 and
on each January 1 thereafter through and including January 1, 2002, the Annual
Base Rent will increase by the lesser of (i) three percent (3%) of the Annual
Base Rent payable for the immediately preceding year, or (ii) two hundred
percent (200%) of the change in CPI from the immediately preceding fiscal year
(the "Base Rent Escalator"); provided the January 1, 1998 increase shall be pro
rated for the number of days in the Lease Term in 1997 divided by 365 and
multiplied by the applicable Base Rent Escalator. In addition, if the Annual
Base Rent is increased as provided in Section 4.5, then the Base Rent Escalator
shall continue to apply to each of the five (5) years following such increase,
with the increase effective on the
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anniversary of the increase in Base Rent as provided in Section 4.5 in lieu of
increases on January of each year.
4.3 PERCENTAGE RENT. In addition to Base Rent, Tenant shall pay
Percentage Rent as provided herein. Beginning in the first year of the Initial
Term and continuing for the Initial Term and any Extended Term, Tenant shall
calculate the Gross Golf Revenue for each Fiscal Quarter (or shorter period, if
applicable) within twenty (20) days of the end of such Fiscal Quarter (or
shorter period, if applicable) and submit such calculation in writing to
Landlord by way of an Officer's Certificate. If the Gross Golf Revenue for
that Fiscal Quarter (or shorter period, if applicable) is greater than the
Gross Golf Revenue for the same Fiscal Quarter (or shorter period, if
applicable) in the Base Year (and, following the Fiscal Quarter ending March
31, on a year-to-date basis), then Tenant shall pay to Landlord the Percentage
Rent upon submittal of the Officer's Certificate. The Percentage Rent payable
in any period in any Fiscal Year shall be adjusted to reflect the Percentage
Rent paid on a year-to-date cumulative basis for the Fiscal Year (pro rated for
any partial periods) and the limits set forth in the next two sentences on a
pro rated basis. The increase in Rent resulting from the payment of Percentage
Rent (together with any increase in Base Rent pursuant to Section 4.2) payable,
if any, during each of the first five (5) full calendar years of the Initial
Term shall be limited to five percent (5%) of the Rent payable for the prior
calendar year, or in the case of 1997, of the Initial Base Rent prorated.
Tenant shall receive a credit against the payment of Percentage Rent in an
amount equal to the increase in the Base Rent over the Initial Base Rent.
4.4 ANNUAL RECONCILIATION OF PERCENTAGE RENT. Within sixty (60) days
after the end of each Fiscal Year, or after the expiration or termination of
this Lease, Tenant shall deliver to Landlord an Officer's Certificate setting
forth (i) the Gross Golf Revenue for the Fiscal Year just ended, and (ii) a
comparison of the amount of the Percentage Rent actually paid during such Fiscal
Year versus the amount of Percentage Rent actually owing on the basis of the
annual calculation of the Gross Golf Revenue. If the Percentage Rent for such
Fiscal Year exceeds the sum of the quarterly payments of Percentage Rent
previously paid by Tenant, Tenant shall pay such deficiency to Landlord along
with such Officer's Certificate. If the Percentage Rent for such Fiscal Year is
less than the amount of Percentage Rent previously paid by Tenant, Landlord
shall, at Landlord's option, either (i) remit to Tenant its check in an amount
equal to such difference, or (ii) grant Tenant a credit against the payment of
Rent next coming due. Landlord shall have the right to audit all of Tenant's
business operations at the Property so as to determine the calculation of
Percentage Rent as provided in Section 12.6.
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4.5 INCREASE IN BASE RENT FOLLOWING CONVERSION DATE. For the Fiscal
Year in which the Conversion Date occurs, the Annual Base Rent shall be
increased, effective as of the date the additional Owner's Shares are issued to
the Transferor, to an amount equal to the Adjusted Net Operating Income.
4.6 RECORD-KEEPING. Tenant shall utilize an accounting system for
the Property in accordance with its usual and customary practices and in
accordance with GAAP which will accurately record all Gross Golf Revenue.
Tenant shall retain all accounting records for each Fiscal Year conforming to
such accounting system until at least five (5) years after the expiration of
such Fiscal Year.
4.7 ADDITIONAL CHARGES. In addition to the Base Rent and Percentage
Rent, (a) Tenant shall also pay and discharge when due and payable all other
amounts, liabilities, obligations and Impositions which Tenant assumes or agrees
to pay under this Lease, and (b) in the event of any failure on the part of
Tenant to pay any of those items referred to in clause (a) above, Tenant shall
also pay and discharge every fine, penalty, interest and cost which may be added
for non-payment or late payment of such items (the items referred to in clauses
(a) and (b) above being referred to herein collectively as the "Additional
Charges"). Except as otherwise provided in this Lease, all Additional Charges
shall become due and payable at the earlier of (i) thirty (30) days after either
Landlord or the applicable third party delivery of an invoice to Tenant, or (ii)
the date of delinquency with respect to Impositions.
4.8 LATE PAYMENT OF RENT. Tenant hereby acknowledges that late
payment by Tenant to Landlord of Base Rent, Percentage Rent or Additional
Charges will cause Landlord to incur costs not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting
charges and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Property and other expenses of a similar
or dissimilar nature. Accordingly, if any installment of Base Rent, Percentage
Rent or Additional Charges (but only as to those Additional Charges which are
payable directly to Landlord) shall not be paid within ten (10) days after the
date such payment is due, Tenant will pay Landlord on demand, as Additional
Charges, a late charge equal to the lesser of five percent (5%) of such
installment or $1,000. The parties agree that this late charge represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
late payment by Tenant and is not a penalty. In addition, if any installment of
Base Rent, Percentage Rent or Additional Charges (but only as to those
Additional Charges which are payable directly to Landlord) shall not be paid
within five (5) days after the due date with respect to Base Rent or Percentage
Rent or delivery of an invoice to Tenant with respect
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to the Additional Charge, the amount unpaid shall bear interest, from such
due date to the date of payment thereof, computed at the Overdue Rate on the
amount of such installment, and Tenant will pay such interest to Landlord as
Additional Charges. The acceptance of any late charge or interest shall not
constitute a waiver of, nor excuse or cure, any default under this Lease, nor
prevent Landlord from exercising any other rights and remedies available to
Landlord.
4.9 NET LEASE. This Lease shall be a triple net lease and Rent
shall be payable to Landlord without notice or demand and without set-off,
counterclaim, recoupment, abatement, suspension, determent, deduction or
defense, except as expressly provided herein, so that this Lease shall yield to
Landlord the full amount of the installments of Base Rent, Percentage Rent and
Additional Charges throughout the Term.
4.10 ALLOCATION OF REVENUES. In the event that individuals or groups
purchase for a single price items which are both included and excluded from
Gross Golf Revenue (e.g., green fees and dinner), then Tenant agrees that
revenues shall be allocated to Gross Golf Revenue in a reasonable manner
consistent with the historical allocation of such revenues.
ARTICLE 5
SECURITY DEPOSIT
5.1 PLEDGE OF OWNER'S SHARES. On or prior to the Commencement Date,
Tenant shall cause the Pledge Agreement to be executed for the benefit of
Landlord.
5.2 OBLIGATION TO WITHHOLD DISTRIBUTIONS. Notwithstanding the above
provisions, if the Net Operating Income for the Property falls below the
coverage ratio set forth in Section 2(a) of EXHIBIT D-1 to the Pledge Agreement,
at any time following the release of any Pledged Owner's Shares (or security
deposit held by Landlord in lieu thereof), then Tenant shall thereafter retain,
and not make cash distributions (except as may be necessary to pay any
applicable taxes) to its shareholders, partners or members, as applicable, until
such time as Tenant has accumulated six (6) months of Base Rent at the then
current level. Cash distributions may be made at such time as Tenant shall have
again satisfied such coverage ratios for two (2) consecutive Fiscal Years.
Tenant shall provide Landlord with such documentation, including Officer's
Certificates and financial statements, within forty-five (45) days after the end
of each Fiscal Quarter as are necessary to establish Tenant's compliance with
the foregoing requirements.
5.3 CROSS-COLLATERAL. The Pledged Owner's Shares shall also secure
Tenant's or Tenant's Affiliates obligations under each of the leases for the
Other Leased Properties.
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5.4 LANDLORD'S LIEN. To the fullest extent permitted by applicable
law, Landlord is granted a lien and security interest on all of Tenant's
personal property now or hereafter located on the Property, and such lien and
security interest shall remain attached to Tenant's personal property until
payment in full of all Rent and satisfaction of all of Tenant's obligations
hereunder; provided, however, Landlord shall subordinate its lien and security
interest only to that of any third party lender or seller which finances
Tenant's personal property, the terms and conditions of such subordination to be
satisfactory to Landlord in its reasonable discretion. Tenant shall, upon the
request of Landlord, execute such financing statements or other documents or
instruments reasonably requested by Landlord to perfect the lien and security
interests herein granted.
ARTICLE 6
IMPOSITIONS
6.1 PAYMENT OF IMPOSITIONS. Subject to Section 6.3 and Section 17.9,
Tenant will pay, or cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made directly
to the taxing authorities where feasible. All payments of Impositions shall be
subject to Tenant's right of contest pursuant to the provisions of Section 6.3
or Article 14. Upon request, Tenant shall promptly furnish to Landlord copies
of official receipts, if available, or other satisfactory proof evidencing such
payments, such as cancelled checks.
6.2 INFORMATION AND REPORTING. Landlord shall give prompt notice to
Tenant of all Impositions payable by Tenant hereunder of which Landlord at any
time has actual knowledge, but Landlord's failure to give any such notice shall
in no way diminish Tenant's obligations hereunder to pay such Impositions.
Landlord and Tenant shall, upon reasonable request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Property as may be necessary to prepare any required returns and reports.
In the event any applicable governmental authorities classify any property
covered by this Lease as personal property, Tenant shall file all personal
property tax returns in such jurisdictions where it must legally so file. Each
party, to the extent it possesses the same, will provide the other party, upon
reasonable request, with cost and depreciation records necessary for filing
returns for any property so classified as personal property.
6.3 PRORATIONS. Impositions imposed in respect of the tax-fiscal
period during which the Lease commences or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such commencement or termination, and Tenant's obligation to pay
its prorated share thereof shall survive such termination. If any
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Imposition may, at the option of the taxpayer, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of
such Imposition), Tenant may elect to pay in installments, in which event
Tenant shall pay all installments (and any accrued interest on the unpaid
balance of the Imposition) that are due during the Term hereof before any
fine, penalty, premium, further interest or cost may be added thereto.
6.4 REFUNDS. If any refund shall be due from any taxing authority in
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default
shall be applied as provided in Article 17.
6.5 UTILITY CHARGES. Tenant shall pay or cause to be paid prior to
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Property during the Term.
6.6 ASSESSMENT DISTRICTS. Landlord shall not voluntarily consent to
or agree in writing to (i) any special assessment or (ii) the inclusion of any
material portion of the Leased Property into a special assessment district or
other taxing jurisdiction unless Tenant shall have consented thereto, which
consent shall not be unreasonably withheld or unless Landlord agrees to pay the
cost thereof.
ARTICLE 7
TENANT WAIVERS
7.1 NO TERMINATION, ABATEMENT, ETC. Subject to Article 21 and except
as otherwise specifically provided in this Lease, and except for those causes
resulting from the willful misconduct or gross negligence of Landlord or any
person whose claim arose under Landlord, (i) Tenant, to the extent permitted by
law, shall remain bound by this Lease in accordance with its terms and shall
neither take any action without the consent of Landlord to modify, surrender or
terminate the same, nor be entitled to any abatement, deduction, deferment or
reduction of Rent, or set-off against the Rent by reason of, and (ii) the
respective obligations of Landlord and Tenant shall not be otherwise affected by
reason of:
(a) any damage to, or destruction of, any Property or any portion
thereof from whatever cause or any taking of the Property or any portion
thereof;
(b) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use of the Property, or any portion thereof, the interference with
such use by any Person, or by reason of eviction by paramount title;
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(c) any claim which Tenant has or might have against Landlord or by
reason of any default or breach of any warranty by Landlord under this
Lease or any other agreement between Landlord and Tenant, or to which
Landlord and Tenant are parties;
(d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceedings
affecting Landlord or any assignee or transferee of Landlord; or
(e) for any other cause whether similar or dissimilar to any of the
foregoing other than a discharge of Tenant from any such obligations as a
matter of law.
Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
(i) to modify, surrender or terminate this Lease or quit or surrender the
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.
7.2 CONDITION OF THE PROPERTY. Tenant acknowledges receipt and
delivery of possession of the Property and that Tenant has examined and
otherwise has knowledge of the condition of the Property prior to the execution
and delivery of this Lease and has found the same to be in good order and repair
and satisfactory for its purposes hereunder. Regardless, however of any
inspection made by Tenant of the Property and whether or not any patent or
latent defect or condition was revealed or discovered thereby, Tenant is leasing
the Property "as is" in its present condition. Tenant waives and releases any
claim or cause of action against Landlord with respect to the condition of the
Property including any defects or adverse conditions latent or patent, matured
or unmatured, known or unknown by Tenant or Landlord as of the date hereof.
TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN
ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED
TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT
TO THE PROPERTY, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR
PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH
SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION,
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(x) MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY,
(xiv) OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS MATERIAL OR (xvi)
COMPLIANCE OF THE PROPERTY WITH ANY LAW (INCLUDING ENVIRONMENTAL LAWS) OR
LEGAL REQUIREMENTS. TENANT ACKNOWLEDGES THAT THE PROPERTY IS OF ITS
SELECTION AND TO ITS SPECIFICATIONS AND THAT THE PROPERTY HAS BEEN INSPECTED
BY TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR
DEFICIENCY IN THE PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS
BETWEEN LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 7.2
HAVE BEEN NEGOTIATED AND REVIEWED BY TENANT'S LEGAL COUNSEL, AND ARE INTENDED
TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR
ARISING OTHERWISE.
Tenant represents to Landlord that Tenant has examined the title to
the Property prior to the execution and delivery of this Lease and has found the
same to be satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (A) Tenant or an Affiliate of Tenant has previously operated
the Property and has knowledge of its condition which is superior to that of
Landlord, (B) fee simple title, except where the Property is held under a ground
lease, (both legal and equitable) is in Landlord and that Tenant has only the
leasehold right of possession and use of the Property as provided herein, (C) to
Tenant's knowledge the Improvements conform to all material Legal Requirements
and all material Insurance Requirements, (D) all easements necessary or
appropriate for the use or operation of the Property have been obtained, (E) all
contractors and subcontractors retained by Tenant who have performed work on or
supplied materials to the Property have been fully paid, and all materials to
the Property have been fully paid for, (F) the Improvements constructed by
Tenant or any Affiliate of Tenant have been completed in all material respects
in a workmanlike manner of first class quality, and (G) all equipment necessary
or appropriate for the use or operation of the Property has been installed and
is presently operative in all material respects.
ARTICLE 8
OWNERSHIP OF TANGIBLE PERSONAL PROPERTY
8.1 PROPERTY. Tenant acknowledges that (i) the Property has been
transferred to Landlord and leased to Tenant, (ii) the Property is the property
of Landlord and (iii) that Tenant has only the right to the use of such Property
during the Term of and upon the terms and conditions of this Lease.
8.2 TENANT'S PERSONAL PROPERTY. Tenant shall maintain all of the
Property, whether initially included in the Lease or thereafter acquired by
Landlord or Tenant, in good condition and
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repair, normal wear and tear excepted. Upon the loss, destruction or
obsolescence of any Tangible Personal Property, Tenant shall replace such
property with replacements of the same type and quality as initially in
place, which such property will be owned by Tenant except to the extent
acquired with funds from the Capital Replacement Fund ("Tenant's Personal
Property"). Upon the expiration or sooner termination of this Lease, the
Tenant's Personal Property shall transfer to Landlord without requirement of
any bill of sale or assignment; provided Landlord, at its election, may
require Tenant to execute such documentation as Landlord may require to
evidence such transfer. Tenant shall not remove any Tangible Personal
Property from the Property upon termination of the Lease. If any of such
Tangible Personal Property is stored away from the Property, Tenant will
provide Landlord with proper access to the storage facility.
8.3 TENANT'S OBLIGATIONS. Tenant shall provide and maintain, or
cause to be provided and maintained, during the entire term of the Lease, all
Tangible Personal Property, as well as merchandise for sale to the public, and
food and beverage, as shall be necessary in order to operate the Property in
compliance with (a) all applicable Legal Requirements, (b) customary practices
in the golf industry, (c) past practices of the Transferor, and (d) such other
reasonable requirements imposed by Landlord from time to time.
8.4 LANDLORD'S WAIVERS. Any lessor of Tenant's Personal Property
may, upon notice to Landlord and during reasonable hours, enter the Property and
take possession of any of Tenant's Personal Property without liability for
trespass or conversion upon a default by Tenant, provided that such lessor
provide Landlord with the opportunity to cure the defaults of Tenant on terms
and conditions satisfactory to such lessor and Landlord.
ARTICLE 9
USE OF PROPERTY
9.1 USE. After the Commencement Date and during the Term, Tenant
shall use or cause to be used the Property and the improvements thereon for its
Primary Intended Use. Tenant shall not use the Property or any portion thereof
for any other use without the prior written consent of Landlord, in Landlord's
absolute discretion. No use shall be made or permitted to be made of the
Property, and no acts shall be done, which will cause the cancellation of any
insurance policy covering the Property or any part thereof, nor shall Tenant
sell or otherwise provide to patrons, or permit to be kept, used or sold in or
about the Property any article which may be prohibited by law or by the standard
form of fire insurance policies, or any other insurance policies required to be
carried hereunder, or fire underwriters regulations. Tenant shall, at its sole
cost, comply with all of the requirements pertaining to the Property or other
improvements
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of any insurance board, association, organization or company necessary for
the maintenance of insurance, as herein provided, covering the Property and
Tenant's Personal Property.
9.2 SPECIFIC PROHIBITED USES. Tenant shall not use or occupy or
permit the Property to be used or occupied, nor do or permit anything to be done
in or on the Property, in a manner which would (i) violate or fail to comply
with any law, rule or regulation or Legal Requirement, (ii) subject to Article
12, cause structural injury to any of the Improvements or (iii) constitute a
public or private nuisance or waste. Tenant shall not allow any Hazardous
Material to be located in, on or under the Property, or any adjacent property,
or incorporated in the Property or any improvements thereon except in compliance
with applicable law (including any Environmental Laws). Tenant shall not allow
the Property to be used as a landfill or a waste disposal site, or a
manufacturing, distribution or disposal facility for any Hazardous Materials.
Tenant shall neither suffer nor permit the Property or any portion thereof,
including Tenant's Personal Property, to be used in such a manner as (i) might
reasonably tend to impair Landlord's title thereto or to any portion thereof, or
(ii) may reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or of implied dedication of the Property or
any portion thereof, or (iii) is in material violation of any applicable
Environmental Law.
9.3 MEMBERSHIP SALES. Tenant shall not sell and/or classify or
reclassify memberships, or set initiation fees, dues and other charges or
materially increase or decrease the number of memberships available at the
Property, except as follows:
(a) in accordance with Transferor's past practice, as reasonably
approved by Landlord, or
(b) membership plans and fees proposed by Tenant and approved by
Landlord, in Landlord's reasonable discretion.
9.4 LANDLORD TO GRANT EASEMENTS, ETC. Landlord shall, from time to
time so long as no Event of Default has occurred and is continuing, at the
request of Tenant and at Tenant's cost and expense (but subject to the approval
of Landlord, which approval shall not be unreasonably withheld or delayed): (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Property; (iii) dedicate or transfer unimproved portions of the
Property for road, highway or other public purposes; (iv) execute petitions to
have the Property annexed to any municipal corporation or utility district; (v)
execute amendments to any covenants and restrictions affecting the Property; and
(vi) execute and deliver to any person any instrument appropriate to confirm or
effect such grants, releases, dedications and transfers (to the extent
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of its interest in the Property), but only upon delivery to Landlord of an
Officer's Certificate (which Officer's Certificate, if contested by Landlord,
shall not be binding on Landlord) stating that such grant, release,
dedication, transfer, petition or amendment is not detrimental to the proper
conduct of the business of Tenant on the Property and does not reduce its
value or usefulness for the Primary Intended Use. Landlord shall not grant,
release, dedicate or execute any of the foregoing items in this Section 9.4
without obtaining Tenant's approval, which approval shall not be unreasonably
withheld or delayed.
9.5 TENANT'S ADDITIONAL COVENANTS. Tenant shall (a) join the
Advisory Association and cooperate in the activities of such association; (b) at
its election, engage in reasonable cross-marketing endeavors with the members of
the Advisory Association; and (c) at its election, provide signage on the
Property which references that the Property is owned by Landlord, which signage
may include an appropriate logo selected by Landlord. In addition, it is the
intent of the parties that Tenant be a single-purpose entity with no business
operations except for those related solely to the operation of the Property for
its Primary Intended Use and other property of Landlord which may be leased to
Tenant. Tenant shall, therefore, not engage in or undertake any activities
other than those respecting the operation of the Property for its Primary
Intended Use, including leasing, managing, and operating golf courses in
accordance with this Lease.
9.6 VALUATION OF REMAINDER INTEREST IN LEASE. Tenant hereby
represents that, at the end of the Term, including all Extended Terms, it
expects that the Land and each of the Improvements will have a fair market value
(determined without regard to any increase or decrease for inflation or
deflation during the Term) equal to at least twenty percent (20%) of the fair
market value of the Land and each of the Improvements at the Commencement Date.
Tenant further represents that, at the end of the Term, including all Extended
Terms, it expects that the Land and each of the Improvements will have a
remaining useful life equal to at least twenty percent (20%) of its expected
useful life at the Commencement Date.
ARTICLE 10
HAZARDOUS MATERIALS
Tenant hereby represents, warrants, and covenants to Landlord as
follows:
10.1 OPERATIONS. Except as set forth in the Agreement, the Property
is presently operated in compliance in all material respects with all
Environmental Laws.
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10.2 REMEDIATION. Except as set forth in the Agreement, and to the
best knowledge of Tenant, there are no Environmental Laws requiring any material
remediation, cleanup, repairs or construction (other than normal maintenance)
with respect to the Property.
10.3 VIOLATIONS; ORDERS. Except as set forth in the Agreement, and to
the best knowledge of Tenant, (a) no notices of any violation or alleged
violation of any Environmental Laws relating to the Property or its uses have
been received by either Tenant, or, to the best knowledge of Tenant, by any
prior owner, operator or occupant of the Property, and (b) there are no writs,
injunctions, decrees, orders or judgments outstanding, or any actions, suits,
claims, proceedings or investigations pending or threatened, relating to the
ownership, use, maintenance or operation of the Property.
10.4 PERMITS. Except as set forth in the Agreement, all material
permits and licenses required under any Environmental Laws in respect of the
operations of the Property have been obtained or are in the process of being
obtained, and Tenant shall be in compliance, in all material respects, with the
terms and conditions of such permits and licenses.
10.5 REPORTS. All material reports of environmental surveys, audits,
investigations and assessments relating to the Property in the possession or
control of Tenant, Transferor or their Affiliates are set forth or described in
the Agreement.
10.6 REMEDIATION. If Tenant becomes aware of the presence of any
Hazardous Material in a quantity sufficient to require remediation or reporting
under any Environmental Law in, on or under the Property or if Tenant, Landlord,
or the Property becomes subject to any order of any federal, state or local
agency to investigate, remove, remediate, repair, close, detoxify, decontaminate
or otherwise clean up the Property, Tenant shall, at its sole expense, but
subject to the last sentence of Section 10.7, carry out and complete any
required investigation, removal, remediation, repair, closure, detoxification,
decontamination or other cleanup of the Property. If Tenant fails to implement
and diligently pursue any such repair, closure, detoxification, decontamination
or other cleanup of the Property in a timely manner, Landlord shall have the
right, but not the obligation, to carry out such action and to recover its costs
and expenses therefor from Tenant as Additional Charges.
10.7 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall pay, protect,
indemnify, save, hold harmless and defend Landlord, the Company, Affiliates of
the Company and Landlord (including, without limitation, their respective
officers, directors and controlling persons), and any Facility Mortgagee from
and against all liabilities, obligations, claims, damages
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(including punitive or consequential damages), penalties, causes of action,
demands, judgments, costs and expenses (including reasonable attorneys' fees
and expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against Landlord or the Property by reason of any Environmental Law
(irrespective of whether there has occurred any violation of any
Environmental Law) in respect of the Property howsoever arising, without
regard to fault on the part of Tenant, including (a) liability for response
costs and for costs of removal and remedial action incurred by the United
States Government, any state or local governmental unit to any other Person,
or damages from injury to or destruction or loss of natural resources,
including the reasonable costs of assessing such injury, destruction or loss,
incurred pursuant to any Environmental Law, (b) liability for costs and
expenses of abatement, investigation, removal, remediation, correction or
clean-up, fines, damages, response costs or penalties which arise from the
provisions of any Environmental Law, (c) liability for personal injury or
property damage arising under any statutory or common-law tort theory,
including damages assessed for the maintenance of a public or private
nuisance or for carrying on of a dangerous activity, or (d) by reason of a
breach of a representation or warranty in Sections 10.1 through 10.5 of this
Lease. Notwithstanding the foregoing or any other provision of this Lease
(including, without limitation, Section 7.2, Section 10.9 and Article 23),
Tenant shall not be liable, or otherwise be required to indemnify Landlord or
the Company or any Affiliates of the Company for (i) any matters or events
that arise after the Commencement Date that are not caused by any act or
omission on the part of Tenant, or (ii) any matters or events that arise
after the Commencement Date that are directly caused by a breach by Landlord
of the terms of this Lease.
10.8 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Tenant's obligations
and/or liability under this Article 10 arising during the Term hereof shall
survive any termination of this Lease.
10.9 ENVIRONMENTAL VIOLATIONS AT EXPIRATION OR TERMINATION OF LEASE.
Notwithstanding any other provision of this Lease (except the last sentence of
Section 10.7), if, at a time when the Term would otherwise terminate or expire,
a violation of any Environmental Law has been asserted by Landlord and has not
been resolved in a manner reasonably satisfactory to Landlord, or has been
acknowledged by Tenant to exist or has been found to exist at the Property or
has been asserted by any governmental authority and Tenant's failure to have
completed all action required to correct, abate or remediate such a violation of
any Environmental Law materially impairs the leasability of the Property upon
the expiration of the Term, then, at the option of Landlord, the Term shall be
automatically extended with respect to the Property beyond the date of
termination or expiration and this Lease shall remain in full force and effect
under the same terms and conditions beyond such date with respect
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to the Property until the earlier to occur of (i) the completion of all
remedial action in accordance with applicable Environmental Laws or (ii) 12
months beyond such expiration or termination date; PROVIDED, that Tenant may,
upon any such extension of the Term, terminate the Term by paying to Landlord
such amount as is necessary in the reasonable judgment of Landlord to complete
or perform such remedial action.
ARTICLE 11
MAINTENANCE AND REPAIR
11.1 TENANT'S OBLIGATIONS. Tenant, at its expense, will operate and
maintain the Property in good order, repair and appearance (whether or not the
need for such repairs occurs as a result of Tenant's use, any prior use, the
elements or the age of the Property or any portion thereof) and in accordance
with any applicable Legal Requirements, and, except as otherwise provided in
Article 15, with reasonable promptness, make all necessary and appropriate
repairs thereto of every kind and nature, whether interior or exterior,
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition existing prior to the Commencement Date
(concealed or otherwise). Tenant shall operate and maintain the Property in
accordance with the operation and maintenance practices of the Property at the
Commencement Date and otherwise in a manner comparable to other comparable golf
course facilities in the vicinity of the Property. Landlord may consult with
the Advisory Association from time to time with respect to Tenant's compliance
with its maintenance and operation obligations under this Section 11.1, and
Landlord and representatives of Advisory Association shall have the right from
time to time to enter the Property for the purpose of inspecting the Property.
If Landlord, in consultation with the Advisory Association, determines that
Tenant has failed to comply with its maintenance and operation obligations under
this Section 11.1, Landlord shall provide written notice to Tenant setting forth
a list of remedial work and/or steps to be performed by Tenant. Tenant shall
promptly and diligently perform such remedial work and/or steps as recommended
by Landlord, provided if Tenant objects to one or more of the remedial
obligations proposed by Landlord, then the matter shall be submitted to the
dispute resolution procedure set forth in Section 12.7. Tenant will not take or
omit to take any action the taking or omission of which could reasonably be
expected to impair the value or the usefulness of the Property or any part
thereof for its Primary Intended Use.
11.2 WAIVER OF STATUTORY OBLIGATIONS. Landlord shall not under any
circumstances be required to build or rebuild any improvements on the Property,
or to make any repairs, replacements, alterations, restorations or renewals of
any nature or description to the Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect
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thereto, in connection with this Lease, or to maintain the Property in any way.
Tenant hereby waives, to the extent permitted by law, the right to make
repairs at the expense of Landlord pursuant to any law in effect at the time of
the execution of this Lease or hereafter enacted.
11.3 MECHANIC'S LIENS. Nothing contained in this Lease and no action
or inaction by Landlord shall be construed as (i) constituting the consent or
request of Landlord expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Property
or any part thereof; or (ii) giving Tenant any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property, in either case, in such fashion
as would permit the making of any claim against Landlord in respect thereof or
to make any agreement that may create, or in any way be the basis for, any
right, title, interest, lien, claim or other encumbrance upon the estate of
Landlord in the Property, or any portion thereof.
11.4 SURRENDER OF PROPERTY. Unless the Lease shall have been
terminated pursuant to the provisions of Article 15, Tenant shall, upon the
expiration or prior termination of the Term, vacate and surrender the Property
to Landlord in the condition in which the Property was originally received from
Landlord, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for ordinary
wear and tear (subject to the obligation of Tenant to maintain the Property in
good order and repair during the entire Term of the Lease).
ARTICLE 12
TENANT IMPROVEMENTS; SUBMITTAL OF BUDGETS; FINANCIAL STATEMENTS
12.1 TENANT'S RIGHT TO CONSTRUCT. Subject to the prior written
approval of Landlord in its reasonable discretion, during the Lease Term Tenant
may make alterations, additions, changes and/or improvements to the Property
(individually, a "Tenant Improvement," and collectively, "Tenant
Improvements"). Any such Tenant Improvement shall be made at Tenant's sole
expense and shall become the property of Landlord upon termination of this
Lease. Unless made on an emergency basis to prevent injury to Person or
property, Tenant will submit plans and specifications for any Tenant
Improvements, in the form necessary for any required building permits, to
Landlord for Landlord's prior written approval, such approval not to be
unreasonably withheld or delayed.
Upon approval by Landlord:
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(a) Tenant shall diligently seek all governmental approvals and any
other necessary private approvals (E.G., ground lessor, mortgagee, etc.)
relating to the construction of any Tenant Improvement; and
(b) once Tenant begins the construction of any Tenant Improvement,
Tenant shall diligently prosecute any such Tenant Improvement to completion
in accordance with applicable insurance requirements and the laws, rules
and regulations of all governmental bodies or agencies having jurisdiction
over the Property; and
(c) Tenant shall not suffer or permit any mechanics' liens or any
other claims or demands arising from the work of construction of any Tenant
Improvement to be enforced against the Property or any part thereof, and
Tenant agrees to hold Landlord and the Property free and harmless from all
liability from any such liens, claims or demands, together with all costs
and expenses in connection therewith; and
(d) all work shall be performed in a good and workmanlike manner.
12.2 SCOPE OF RIGHT. Subject to Section 12.1, at Tenant's cost and
expense, Tenant shall have the right to:
(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need that Tenant
requires to construct any Tenant Improvement;
(b) erect upon the Property such Tenant Improvements as Tenant deems
desirable; and
(c) engage in any other lawful activities that Tenant determines are
necessary or desirable for the development of the Property in accordance
with its Primary Intended Use.
12.3 COOPERATION OF LANDLORD. Landlord shall cooperate with Tenant
and take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental approvals sought by Tenant to construct any Tenant
Improvement approved by Landlord in accordance with Section 12.1 of this Lease
within ten (10) Business Days following the later of (a) the date Landlord
receives Tenant's request, or (b) the date of delivery of any such application
or document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there is a cost to Landlord, such cost shall be reimbursed by Tenant),
and will not cause Landlord to be in violation of any law, ordinance or
regulation.
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Landlord shall have the right at any time and from time to time to
post and maintain upon the Property such notices as may be necessary to protect
Landlord's interest from mechanics' liens, materialmen's liens or liens of a
similar nature.
12.4 CAPITAL REPLACEMENT FUND. Solely from the payment of Rent
received hereunder, Landlord shall be obligated to accrue the Capital
Replacement Reserve. The Capital Replacement Reserve shall accrue quarterly
based on the Officer's Certificate and shall be placed in the Capital
Replacement Fund. Amounts in the Capital Replacement Fund from time to time
shall be deemed to accrue interest at a money market rate as reasonably
determined by Landlord and such interest shall be credited to the Capital
Replacement Fund. Upon the written request by Tenant to Landlord stating the
specific use to be made and subject to the reasonable approval of Landlord, the
Capital Replacement Fund shall be made available to Tenant for Capital
Expenditures; PROVIDED, HOWEVER, no portion of amounts credited to the Capital
Replacement Fund shall be used to purchase property to the extent that doing so
would cause Landlord to recognize income other than "rents from real property"
as defined in Section 856(d) of the Code. Tenant shall have no rights with
respect to any amounts in the Capital Replacement Fund except as provided
herein. Subject to Landlord's approval of the Capital Expenditures, Landlord
shall make available to Tenant amounts from the Capital Replacement Fund under
the following conditions:
(a) No Event of Default exists and is continuing;
(b) Tenant presents paid qualifying receipts for reimbursement, or
qualifying invoices for direct payment to the vendor;
(c) Such expenditures are included in the Capital Budget submitted to
and approved by Landlord in accordance with Section 12.7; and
(d) If from time to time Tenant shall expend monies beyond the
balance in the Capital Replacement Fund, then Tenant shall be afforded the
opportunity to present such paid invoices for reimbursement at later dates
when the Tenant's reserve balance shall be replenished to a level that can
support such expenditure.
12.5 RIGHTS IN TENANT IMPROVEMENTS. All Tenant Improvements shall be
the property of Landlord. However, Tenant shall be entitled to all federal and
state income tax benefits associated with any Tenant Improvement during the
Lease Term exclusive of any Capital Expenditures paid for from amounts credited
to the Capital Replacement Fund, as to which Landlord shall be entitled all
income tax benefits.
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12.6 LANDLORD'S RIGHT TO AUDIT CALCULATION OF GROSS GOLF REVENUE.
Landlord, at its own expense except as provided hereinbelow, shall have the
right from time to time directly or though its accountants to audit the
information set forth in the Officer's Certificate referred to in Section 4.4
and in connection with such audits to examine Tenant's book and records with
respect thereto (including supporting data, sales tax returns and Tenant's work
papers). If any such audit discloses a deficiency in the payment of Percentage
Rent, Tenant shall forthwith pay to Landlord the amount of the deficiency as
finally agreed or determined, together with interest at the Overdue Rate from
the date when said payment should have been made to the date of payment thereof;
PROVIDED, HOWEVER, that as to any audit that is commenced more than twelve (12)
months after the date Gross Golf Revenue for any Fiscal Year is reported by
Tenant to Landlord in the Officer's Certificate, the deficiency, if any, with
respect to such Gross Golf Revenue shall bear interest as permitted herein only
from the date such determination of deficiency is made unless such deficiency is
the result of gross negligence or willful misconduct on the part of Tenant. If
any such audit discloses that the Gross Golf Revenue actually received by Tenant
for any Fiscal Year exceeds the Gross Golf Revenue reported by Tenant in the
Officer's Certificate by more than two percent (2%), then Tenant shall pay all
reasonable costs of such audit and examination; provided Tenant shall have the
right to submit the audit determination to arbitration in accordance with the
procedures set forth in Article 28. Landlord shall also have the right to
review and audit from time to time Tenant's business operations including all
books, records and financial statements of Tenant. Tenant shall promptly
provide to Landlord copies of all such books, records, financial statements or
any other documentation of Tenant's business operations reasonably requested by
Landlord.
12.7 ANNUAL BUDGET. Not later than forty-five (45) days prior to the
commencement of each Fiscal Year, Tenant shall prepare and submit to Landlord an
operating budget (the "Operating Budget") and a capital budget (the "Capital
Budget") prepared in accordance with the requirements of this Section 12.7. The
Operating Budget and the Capital Budget (together, the "Annual Budget") shall be
prepared in a form approved by Landlord for use throughout the Lease Term and
show by quarter and for the year as a whole the following:
(a) Tenant's reasonable estimate of Gross Golf Revenue (including
membership dues, daily use fees and other sources of Gross Golf Revenue) and
other revenue for the forthcoming Fiscal Year itemized on schedules on a
quarterly basis as approved by Landlord and Tenant, together with assumptions,
in narrative form, forming the basis of such schedules.
(b) An estimate of any amounts Landlord will be requested to provide
for Capital Expenditures during the next
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four Fiscal Years, subject to the limitations set forth in Section 12.4.
(c) A cash flow projection.
(d) A narrative description of any anticipated significant events,
including, if requested by Landlord, a narrative description of any category of
operating expenses that decrease or increase by five percent (5%) or more from
the prior year's expenses.
(e) Tenant's reasonable estimate for each Fiscal Quarter of the
Percentage Rent to be paid for such quarter.
Landlord shall have thirty (30) days after the date on which it
receives the Annual Budget to review, approve or disapprove the Annual Budget.
If the parties are not able to reach agreement on the Annual Budget for any
Fiscal Year during Landlord's thirty (30) day review period, the parties shall
attempt in good faith during the subsequent thirty (30) day period to resolve
any disputes, which attempts shall include, if requested by either party, at
least one (1) meeting of executive-level officers of Landlord and Tenant and one
(1) meeting with the directors of the Advisory Association. In the event the
parties are still not able to reach agreement on the Annual Budget for any
particular Fiscal Year after complying with the foregoing requirements of this
Section 12.7, the parties shall adopt such portions of the Operating Budget and
the Capital Budget as they may have agreed upon, and any matters not agreed upon
shall be referred to a dispute resolution committee composed of three (3)
members of the Advisory Association unaffiliated with Tenant and two (2) members
of the board of directors of the Company. Such committee shall be responsible
for resolving any such disagreement and the parties agree that the determination
of such dispute resolution committee shall be binding on the parties. Pending
the results of such resolution or the earlier agreement of the parties, (i) if
the Operating Budget has not been agreed upon, the Property will be operated in
a manner consistent with the prior year's Operating Budget until a new Operating
Budget is adopted, and (ii) if the Capital Budget has not been agreed upon, no
Capital Expenditures shall be made unless the same are set forth in a previously
approved Capital Budget or are specifically required by Landlord or are
otherwise required to comply with Legal Requirements or Insurance Requirements.
Tenant shall operate the Property in a manner reasonably consistent with the
Annual Budget.
12.8 FINANCIAL STATEMENTS.
(a) Tenant shall utilize, or cause to be utilized, an accounting
system for the Property in accordance with its usual and customary practice, and
in accordance with GAAP, that will accurately record all data necessary to
compute Percentage Rent,
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and Tenant shall retain for at least five (5) years after the expiration of
each Fiscal Year, reasonably adequate records conforming to such accounting
system showing all data necessary to compute Percentage Rent. The books of
account and all other records relating to or reflecting the operation of the
Property shall be kept either at the Property or at Tenant's offices in
__________________, ____________. Such books and records shall be available to
Landlord and its representatives for examination, audit, inspection and
transcription.
(b) Tenant shall furnish to Landlord within thirty (30) days of the
end of each Fiscal Quarter (i) unaudited financial statements for the Fiscal
Quarter and year to date, together with the same information for the comparable
prior Fiscal Quarter and year to date, including the following: results of
operations, a balance sheet, statements of cash flows and statement of changes
in owner's equity. If Landlord requests, Tenant shall provide reviewed
financial statements for such Fiscal Quarter; provided, however, such review
(except as provided for in clause (ii)) shall be at Landlord's expense. Each
quarterly report shall also include a narrative explaining any deviation in any
major revenue or expense category or operating expenses (by category) of more
than ten percent (10%) from the amounts set forth on the Annual Budget, together
with, if appropriate a revised Annual Budget, which budget shall be subject to
Landlord's review and approval as provided in Section 12.7. Each quarterly
report shall also forecast any projected Percentage Rent payable for the
following Fiscal Quarter.
(c) For each Fiscal Year, Tenant shall deliver to Landlord within
sixty (60) days of the end of such Fiscal Year financial statements prepared in
accordance with GAAP and audited by an independent accounting firm approved by
Landlord, in its reasonable discretion. Notwithstanding the foregoing, Landlord
shall only require audited financial statements of Gross Golf Revenue if
Tenant's financial statements are not required to be separately stated by the
Securities and Exchange Commission.
(d) If requested by Landlord, Tenant will make available to Landlord
and the Company and their respective lenders, underwriters, counsel, accountants
and advisors such additional information and financial statements with respect
to Tenant and the Property as Landlord may reasonably request without any
additional cost to Tenant, and Tenant agrees to reasonably cooperate with
Landlord and the Company in effecting public or private debt or equity
financings by the Landlord or the Company, without any additional cost to
Tenant, modifications to this Lease or the requirement of additional collateral
from Tenant.
ARTICLE 13
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
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13.1 LIENS. Subject to the provisions of Article 14 relating to
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Property or any
attachment, levy, claim or encumbrance emanating from Tenant's actions or
negligence, not including, however:
(a) this Lease;
(b) the matters, if any, that existed as of the Commencement Date, as
set forth on the title policy received by Landlord;
(c) restrictions, liens and other encumbrances which are consented to
in writing by Landlord, or any easements granted pursuant to the provisions
of Section 9.4 of this Lease;
(d) liens for those taxes of Landlord which Tenant is not required to
pay hereunder;
(e) subleases or licenses permitted by Article 23;
(f) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet payable or are
payable without the addition of any fine or penalty or (2) such liens are
in the process of being contested as permitted by Article 14;
(g) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed (PROVIDED THAT such liens are in the process of
being contested as permitted by Article 14) or not yet due; and
(h) any liens which are the responsibility of Landlord pursuant to
the provisions of Article 25.
13.2 ENCROACHMENTS AND OTHER TITLE MATTERS. Subject to Article 21 and
excepting any matters granted or created by Landlord after the Commencement
Date, if any of the Improvements shall, at any time, encroach upon any property,
street or right-of-way adjacent to the Property, or shall violate the agreements
or conditions contained in any lawful restrictive covenant or other agreement
affecting the Property, or any part thereof, or shall impair the rights of
others under any easement or right-of-way to which the Property is subject, or
the use of the Property is impaired, limited or interfered with by reason of the
exercise of the right of surface entry or any other rights under a lease or
reservation of any oil, gas, water or other minerals, then promptly upon request
of Landlord or at the behest of any person affected by any such encroachment,
violation or impairment, Tenant, at its sole cost and expense (subject to its
right to
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contest the existence of any such encroachment, violation or impairment), shall
protect, indemnify, save harmless and defend Landlord, the Company and
Affiliates of the Company from and against all losses, liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses) based on or arising by
reason of any such encroachment, violation or impairment and in such case, in
the event of an adverse final determination, either (i) obtain valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the
same shall affect Landlord or Tenant; or (ii) make such changes in the
Improvements, and take such other actions, as Tenant in the good faith exercise
of its judgment deems reasonably practicable, to remove such encroachment, and
to end such violation or impairment, including, if necessary, the alteration of
any of the Improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Improvements for
the Primary Intended Use substantially in the manner and to the extent the
Improvements were operated prior to the assertion of such violation or
encroachment. Tenant's obligation under this Section 13.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer
under any policy of title or other insurance and Tenant shall be entitled to a
credit for any sums recovered by Landlord under any such policy of title or
other insurance.
ARTICLE 14
PERMITTED CONTESTS
14.1 AUTHORIZATION. Tenant, on its own or on Landlord's behalf (or in
Landlord's name) but at Tenant's expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount, validity
or application, in whole or in part, of any Imposition or any Legal Requirement
or Insurance Requirement, or any lien, attachment, levy, encumbrance, charge or
claim not otherwise permitted by Section 13.1; provided, however, that nothing
in this Section 14.1 shall limit the right of Landlord to contest the amount,
validity or application, in whole or in part, of any Imposition, Legal
Requirement, Insurance Requirement, or any lien, attachment, levy, encumbrance,
charge or claim with respect to the Property (and Tenant shall reasonably
cooperate with Landlord with respect to such contest), and, FURTHER PROVIDED
THAT:
(a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Landlord and from the
Property, and neither the Property nor any Rent therefrom nor any part
thereof or interest therein would be in any danger of being sold,
forfeited, attached or lost pending the outcome of such proceedings;
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(b) in the case of a Legal Requirement, Landlord would not be subject
to criminal or material civil liability for failure to comply therewith
pending the outcome of such proceedings. Nothing in this Section 14.1(b),
however, shall permit Tenant to delay compliance with any requirement of an
Environmental Law to the extent such non-compliance poses an immediate
threat of injury to any Person or to the public health or safety or of
material damage to any real or personal property;
(c) in the case of a Legal Requirement and/or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security, if any,
as may be demanded by Landlord to insure ultimate payment of the same and
to prevent any sale or forfeiture of the affected Property or the Rent by
reason of such non-payment or noncompliance, PROVIDED, HOWEVER, the
provisions of this Article 14 shall not be construed to permit Tenant to
contest the payment of Rent (except as to contests concerning the method of
computation or the basis of levy of any Imposition or the basis for the
assertion of any other claim) or any other sums payable by Tenant to
Landlord hereunder;
(d) no such contest shall interfere in any material respect with the
use or occupancy of the Property;
(e) in the case of an Insurance Requirement, the coverage required by
Article 15 shall be maintained; and
(f) if such contest be finally resolved against Landlord or Tenant,
Tenant shall, as Additional Charges due hereunder, promptly pay the amount
required to be paid, together with all interest and penalties accrued
thereon, or comply with the applicable Legal Requirement or Insurance
Requirement.
14.2 INDEMNIFICATION OF LANDLORD. Landlord, at Tenant's expense,
shall execute and deliver to Tenant such authorizations and other documents as
may reasonably be required in any such contest, and, if reasonably requested by
Tenant or if Landlord so desires, Landlord shall join as a party therein.
Tenant shall indemnify and save Landlord harmless against any liability, cost or
expense of any kind that may be imposed upon Landlord in connection with any
such contest and any loss resulting therefrom.
ARTICLE 15
INSURANCE
15.1 GENERAL INSURANCE REQUIREMENTS. During the Lease Term, Tenant
shall at all times keep the Property, and all
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property located in or on the Property, including all Tenant's Personal
Property and any Tenant Improvements, insured with the kinds and amounts of
insurance described below. This insurance shall be written by companies
authorized to do insurance business in the State, and shall otherwise meet the
requirements set forth in Section 15.5 of this Lease. The policies must name
Landlord as an additional insured or loss payee, as applicable. Losses shall
be payable to Landlord and/or Tenant as provided in this Article 15. In
addition, the policies shall name as a loss payee any Facility Mortgagee by way
of a standard form of mortgagee's loss payable endorsement. Any loss
adjustment shall require the written consent of Landlord, Tenant, and each
Facility Mortgagee, if any. Evidence of insurance shall be deposited with
Landlord and, if requested, with any Facility Mortgagee(s). The policies on
the Property, including the Improvements, Fixtures, Tangible and Intangible
Personal Property and any Tenant Improvements, shall insure against the
following risks:
(a) ALL RISK. Loss or damage by all risks or perils including, but
not limited to, fire, vandalism, malicious mischief and extended coverages,
including sprinkler leakage, in an amount not less than 100% of the then
Full Replacement Cost thereof covering all structures built on the Property
and all Tangible Personal Property; and further provided the Tangible
Personal Property may be insured at its fair market value.
(b) LIABILITY. Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance with amounts not
less than five million dollars ($5,000,000) per occurrence and in the
aggregate.
(c) FLOOD. Flood insurance (when the Property is located in whole or
in material part a designated flood plain area) in an amount similar to the
amount insured by comparable golf course properties in the area.
Notwithstanding the foregoing, Tenant shall not be required to participate
in the National Flood Insurance Program or otherwise obtain flood insurance
to the extent not available at commercially reasonable rates; provided
Tenant shall give Landlord written notice thereof prior to cancelling or
not obtaining any flood insurance. Tenant may opt to insure the structures
only, and not the Land, subject to the approval of Landlord, in Landlord's
reasonable discretion.
(d) WORKER'S COMPENSATION. Adequate worker's compensation insurance
coverage for all Persons employed by Tenant on the Property in accordance
with the requirements of applicable federal, state and local laws. Tenant
shall have the option to self-insure up to five thousand dollars ($5,000)
of the amount of insurance required in the event State law permits such
self-insurance, subject to the
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approval of Landlord, in Landlord's sole and absolute discretion.
15.2 OTHER INSURANCE. Such other insurance on or in connection with
any of the Property as Landlord or any Facility Mortgagee may reasonably
require, which at the time is usual and commonly obtained in connection with
properties similar in type of building size and use to the Property and located
in the geographic area where the Property is located.
15.3 REPLACEMENT COST. In the event either party believes that the
Full Replacement Cost of the insured property has increased or decreased at any
time during the Lease Term, it shall have the right to have such Full
Replacement Cost redetermined by the Impartial Appraiser. The party desiring to
have the Full Replacement Cost so redetermined shall forthwith, on receipt of
such determination by such Impartial Appraiser, give written notice thereof to
the other party hereto. The determination of such Impartial Appraiser shall be
final and binding on the parties hereto, and Tenant shall forthwith increase, or
may decrease, the amount of the insurance carried pursuant to this Section 15.3,
as the case may be, to the amount so determined by the Impartial Appraiser.
Each party shall pay one-half of the fee, if any, of the Impartial Appraiser.
15.4 WAIVER OF SUBROGATION. All insurance policies carried by either
party covering the Property including contents, fire and casualty insurance,
shall expressly waive any right of subrogation on the part of the insurer
against the other party (including any Facility Mortgagee). The parties hereto
agree that their policies will include such waiver clause or endorsement so long
as the same are obtainable without extra cost, and in the event of such an extra
charge the other party, at its election, may pay the same, but shall not be
obligated to do so.
15.5 FORM SATISFACTORY, ETC. All of the policies of insurance
referred to in this Article 15 shall be written in a form reasonably
satisfactory to Landlord and by insurance companies rated not less than XV by
A.M. Best's Insurance Guide. Tenant shall pay all premiums for the policies of
insurance referred to in Sections 15.1 and 15.2 and shall deliver certificates
thereof to Landlord prior to their effective date (and with respect to any
renewal policy, at least ten (10) days prior to the expiration of the existing
policy). In the event Tenant fails to satisfy its obligations under this
Article 15, Landlord shall be entitled, but shall have no obligation, to effect
such insurance and pay the premiums therefore, which premiums shall be repayable
to Landlord upon written demand as Additional Charges. Each insurer issuing
policies pursuant to this Article 15 shall agree, by endorsement on the policy
or policies issued by it, or by independent instrument furnished to Landlord,
that it will give to Landlord thirty (30) days' written
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notice before the policy or policies in question shall be altered, allowed to
expire or cancelled. Each such policy shall also provide that any loss
otherwise payable thereunder shall be payable notwithstanding (i) any act or
omission of Landlord or Tenant which might, absent such provision, result in
a forfeiture of all or a part of such insurance payment, (ii) the occupation
or use of the Property for purposes more hazardous than those permitted by
the provisions of such policy, (iii) any foreclosure or other action or
proceeding taken by any Facility Mortgagee pursuant to any provision of a
mortgage, note, assignment or other document evidencing or securing a loan
upon the happening of an event of default therein or (iv) any change in title
to or ownership of the Property.
15.6 CHANGE IN LIMITS. In the event that Landlord shall at any time
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Sections 15.1 and 15.2 is
either excessive or insufficient, the parties shall endeavor to agree on the
proper and reasonable limits for such insurance to be carried; and such
insurance shall thereafter be carried with the limits thus agreed on until
further changed pursuant to the provisions of this Article 15; PROVIDED,
HOWEVER, that the deductibles for such insurance or the amount of such insurance
which is self-retained by Tenant shall be as reasonably determined by Tenant so
long as Tenant can reasonably demonstrate its ability to satisfy such deductible
or amount of such self-retained insurance.
15.7 BLANKET POLICY. Notwithstanding anything to the contrary
contained in this Article 15, Tenant's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Tenant; PROVIDED,
HOWEVER, that the coverage afforded Landlord will not be reduced or diminished
or otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
Article 15 are otherwise satisfied. The amount of this total insurance
allocated to each of the Leased Properties, which amount shall be not less than
the amounts required pursuant to Sections 15.1 and 15.2, shall be specified
either (i) in each such "blanket" or umbrella policy or (ii) in a written
statement, which Tenant shall deliver to Landlord and Facility Mortgagee, from
the insurer thereunder. A certificate of each such "blanket" or umbrella policy
shall promptly be delivered to Landlord and Facility Mortgagee.
15.8 INSURANCE PROCEEDS. All proceeds of insurance payable by reason
of any loss or damage to the Property, or any portion thereof, and insured under
any policy of insurance required by this Article 15 shall (i) if greater than
$100,000, be paid to Landlord and held by Landlord and (ii) if less than
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such amount, be paid to Tenant and held by Tenant. All such proceeds shall
be held in trust and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Property, or any
portion thereof.
15.9 DISBURSEMENT OF PROCEEDS. Any proceeds held by Landlord or
Tenant shall be paid out by Landlord or Tenant from time to time for the
reasonable costs of such reconstruction or repair; PROVIDED, HOWEVER, that
Landlord shall disburse proceeds subject to the following requirements:
(a) prior to commencement of restoration, (i) the architects,
contracts, contractors, plans and specifications for the restoration shall
have been approved by Landlord, which approval shall not be unreasonably
withheld or delayed and (ii) appropriate waivers of mechanics' and
materialmen's liens shall have been filed;
(b) Tenant shall have obtained and delivered to Landlord copies of
all necessary governmental and private approvals necessary to complete the
reconstruction or repair, including building permits, licenses, conditional
use permits and certificates of need;
(c) at the time of any disbursement, subject to Article 14, no
mechanics' or materialmen's liens shall have been filed against any of the
Property and remain undischarged, unless a satisfactory bond shall have
been posted in accordance with the laws of the State;
(d) disbursements shall be made from time to time in an amount not
exceeding the cost of the work completed since the last disbursement, upon
receipt of (i) satisfactory evidence of the stage of completion, the
estimated total cost of completion and performance of the work to date in a
good and workmanlike manner in accordance with the contracts, plans and
specifications, (ii) waivers of liens, (iii) a satisfactory bring down of
title insurance and (iv) other evidence of cost and payment so that
Landlord and Facility Mortgagee can verify that the amounts disbursed from
time to time are represented by work that is completed, in place and free
and clear of mechanics' and materialmen's lien claims;
(e) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by a senior member or officer of Tenant,
describing the work for which payment is requested, stating the cost
incurred in connection therewith, stating that Tenant has not previously
received payment for such work and, upon completion of the work, also
stating that the work has been fully completed and complies with the
applicable requirements of this Lease;
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(f) to the extent actually held by Landlord and not a Facility
Mortgagee, (1) the proceeds shall be held in a separate account and shall
not be commingled with Landlord's other funds, and (2) interest shall
accrue on funds so held at the money market rate of interest and such
interest shall constitute part of the proceeds; and
(g) such other reasonable conditions as Landlord or Facility
Mortgagee may reasonably impose, including, without limitation, payment by
Tenant of reasonable costs of administration imposed by or on behalf of
Facility Mortgagee should the proceeds be held by Facility Mortgagee.
15.10 EXCESS PROCEEDS, DEFICIENCY OF PROCEEDS. Any excess
proceeds of insurance remaining after the completion of the restoration or
reconstruction of the Property (or in the event neither Landlord nor Tenant is
required to or elects to repair and restore) shall be paid to Landlord and
deposited in the Capital Replacement Fund except for any portion specifically
applicable to Tenant's merchandise and inventory. All salvage resulting from
any risk covered by insurance shall belong to Landlord.
If the costs of restoration or reconstruction exceeds the amount of
proceeds received by Landlord or Tenant from insurance, Tenant shall pay for
such excess cost of restoration or reconstruction, except that Tenant may
petition Landlord for withdrawal from the Capital Replacement Fund to cover some
or all of such excess, subject to the approval of Landlord in Landlord's sole
and absolute discretion.
15.11 RECONSTRUCTION COVERED BY INSURANCE.
(a) DESTRUCTION RENDERING PROPERTY UNSUITABLE FOR ITS PRIMARY
USE. If during the term the Property is totally or partially destroyed
from a risk covered by the insurance described in Article 15 and the
Property thereby is rendered Unsuitable For Its Primary Intended Use as
reasonably determined by Landlord, Tenant shall, at its election, either
(i) diligently restore the Property to substantially the same condition as
existed immediately before the damage or destruction, or (ii) terminate the
Lease as provided in Section 21.2 and assign all of its rights to any
insurance proceeds required under this Lease to Landlord.
(b) DESTRUCTION NOT RENDERING PROPERTY UNSUITABLE FOR ITS
PRIMARY USE. If during the term, the Property is totally or partially
destroyed from a risk covered by the insurance described in Article 15, but
the Real Property is not thereby rendered Unsuitable For Its Primary
Intended Use, Tenant shall diligently restore the Property to substantially
the same condition as existed immediately before the damage or destruction;
PROVIDED, HOWEVER, Tenant
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shall not be required to restore certain Tangible Personal Property and/or
any Tenant Improvements if failure to do so does not adversely affect the
amount of Rent payable hereunder or the Primary Intended Use in
substantially the same manner immediately prior to such damage or
destruction. Such damage or destruction shall not terminate this
Lease; PROVIDED FURTHER, HOWEVER, if Tenant cannot within eighteen (18)
months obtain all necessary governmental approvals, including building
permits, licenses, conditional use permits and any certificates of need,
after diligent efforts to do so in order to be able to perform all required
repair and restoration work and to operate the Property for its Primary
Intended Use in substantially the same manner immediately prior to such
damage or destruction, Tenant may terminate the Lease.
15.12 RECONSTRUCTION NOT COVERED BY INSURANCE. If during the
Term, the Property is totally or materially destroyed from a risk not covered by
the insurance described in Article 15, whether or not such damage or destruction
renders the Property Unsuitable For Its Primary Intended Use, Tenant shall
restore the Property to substantially the same condition as existed immediately
before the damage or destruction. Tenant shall have the right to use proceeds
from the Capital Replacement Fund to perform such work, subject to the
conditions set forth in Section 12.4 hereof.
15.13 NO ABATEMENT OF RENT. This Lease shall remain in full force
and effect and Tenant's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during the period required
for repair and restoration.
15.14 WAIVER. Tenant hereby waives any statutory rights of
termination which may arise by reason of any damage or destruction of the
Property which Landlord or Tenant is obligated to restore or may restore under
any of the provisions of this Lease.
15.15 DAMAGE NEAR END OF TERM. Notwithstanding any other
provision to the contrary in this Article 15, if damage to or destruction of the
Property occurs during the last twenty-four (24) months of the Lease Term, and
if such damage or destruction cannot reasonably be expected by Landlord to be
fully repaired or restored prior to the date that is twelve (12) months prior to
the end of the then-applicable Term, then either Landlord or Tenant shall have
the right to terminate the Lease on thirty (30) days' prior notice to the other
by giving notice thereof within sixty (60) days after the date of such damage or
destruction. Upon any such termination, Landlord shall be entitled to retain
all insurance proceeds, grossed up by Tenant to account for the deductible or
any self-insured retention. If Landlord shall give Tenant a notice under this
Section 15.15 that it seeks to
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terminate this Lease at a time when Tenant has a remaining Extended Term,
then such termination notice shall be of no effect if Tenant shall exercise
its rights to extend the Term not later than the earlier of the time required
by Section 3.2 or thirty (30) days after Landlord's notice given under this
Section 15.15.
ARTICLE 16
CONDEMNATION
16.1 TOTAL TAKING. If at any time during the Term the Property is
totally and permanently taken by Condemnation, this Lease shall terminate on the
Date of Taking and Tenant shall promptly pay all outstanding rent and other
charges through the date of termination.
16.2 PARTIAL TAKING. If a portion of the Property is taken by
Condemnation, this Lease shall remain in effect if the Property is not thereby
rendered Unsuitable For Its Primary Intended Use, but if the Property is thereby
rendered Unsuitable For Its Primary Intended Use, this Lease shall terminate on
the Date of Taking.
16.3 RESTORATION. If there is a partial taking of the Property and
this Lease remains in full force and effect pursuant to Section 16.2, Landlord
at its cost shall accomplish all necessary restoration up to but not exceeding
the amount of the Award payable to Landlord, as provided herein. If Tenant
receives an Award under Section 16.4, Tenant shall repair or restore any Tenant
Improvements up to but not exceeding the amount of the Award payable to Tenant
therefor.
16.4 AWARD-DISTRIBUTION. The entire Award shall belong to and be paid
to Landlord, except that, subject to the rights of the Facility Mortgagee,
Tenant shall be entitled to receive from the Award, if and to the extent such
Award specifically includes such items, a sum attributable to the value, if any,
of: (i) the loss of Tenant's business during the remaining term, (ii) any Tenant
Improvements and (iii) the leasehold interest of Tenant under this Lease.
16.5 TEMPORARY TAKING. The taking of the Property, or any part
thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than six (6) months. During any such six (6) month period,
which shall be a temporary taking, all the provisions of this Lease shall remain
in full force and effect with no abatement of rent payable by Tenant hereunder.
In the event of any such temporary taking, the entire amount of any such Award
made for such temporary taking allocable to the Lease Term, whether paid by way
of damages, rent or otherwise, shall be paid to Tenant.
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ARTICLE 17
EVENTS OF DEFAULT
17.1 EVENTS OF DEFAULT. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) if Tenant shall fail to make payment of the Rent payable by
Tenant under this Lease when the same becomes due and payable and such
failure is not cured by Tenant within a period of ten (10) days after
receipt by Tenant of notice thereof from Landlord; PROVIDED, HOWEVER,
Tenant is only entitled to three (3) such notices per twelve (12) month
period and that such notice shall be in lieu of and not in addition to any
notice required under applicable law;
(b) if Tenant shall fail to observe or perform any material term,
covenant or condition of this Lease and such failure is not cured by Tenant
within a period of thirty (30) days after receipt by Tenant of notice
thereof from Landlord, unless such failure cannot with due diligence be
cured within a period of thirty (30) days, in which case such failure shall
not be deemed to continue if Tenant proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof
within one hundred twenty (120) days of receipt of notice from Landlord of
the default; PROVIDED, HOWEVER, that such notice shall be in lieu of and
not in addition to any notice required under applicable law; PROVIDED
FURTHER, HOWEVER, that the cure period shall not extend beyond thirty
(30) days as otherwise provided by this Section 17.1(b) if the facts or
circumstances giving rise to the default are creating a further harm to
Landlord or the Property and Landlord makes a good faith determination that
Tenant is not undertaking remedial steps that Landlord would cause to be
taken if this Lease were then to terminate;
(c) if Tenant shall:
(i) admit in writing its inability to pay its debts as they
become due,
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act,
(iii) make an assignment for the benefit of its creditors,
(iv) be unable to pay its debts as they mature,
(v) consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property, or
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(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof;
(d) if Tenant shall, on a petition in bankruptcy filed against it, be
adjudicated as bankrupt or a court of competent jurisdiction shall enter an
order or decree appointing, without the consent of Tenant, a receiver of
Tenant or of the whole or substantially all of its property, or approving a
petition filed against it seeking reorganization or arrangement of Tenant
under the federal bankruptcy laws or any other applicable law or statute of
the United States of America or any state thereof, and such judgment, order
or decree shall not be vacated or set aside or stayed within sixty
(60) days from the date of the entry thereof;
(e) if Tenant shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(f) if the estate or interest of Tenant in the Property or any part
thereof shall be levied upon or attached in any proceeding and the same
shall not be vacated or discharged within the later of ninety (90) days
after commencement thereof or thirty (30) days after receipt by Tenant of
notice thereof from Landlord (unless Tenant shall be contesting such lien
or attachment in accordance with Article 14); PROVIDED, HOWEVER, that such
notice shall be in lieu of and not in addition to any notice required under
applicable law;
(g) if, except as a result of damage, destruction or a partial or
complete Condemnation or other Unavoidable Delays, Tenant voluntarily
ceases operations on the Property;
(h) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be incorrect,
now or hereafter, in any material respect; or
(i) an "Event of Default" (as defined in such lease) by Tenant or any
Affiliate of Tenant in any other lease by and between such party and
Landlord or any Affiliate of Landlord, or an "Event of Default" under the
Pledge Agreement;
THEN, Tenant shall be declared to have breached this Lease. Landlord
may terminate this Lease by giving Tenant not less than ten (10) days' notice
(or no notice for clauses (c), (d), (e), (f) and (g)) of such termination and
upon the
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expiration of the time fixed in such notice, the Term shall terminate and all
rights of Tenant under this Lease shall cease. Landlord shall have all
rights at law and in equity available to Landlord as a result of Tenant's
breach of this Lease.
17.2 PAYMENT OF COSTS. Tenant shall, to the extent permitted by law,
pay as Additional Charges all costs and expenses incurred by or on behalf of
Landlord, including reasonable attorneys' fees and expenses, as a result of any
Event of Default hereunder.
17.3 CERTAIN REMEDIES. If an Event of Default shall have occurred and
be continuing, whether or not this Lease has been terminated pursuant to Section
17.1, Tenant shall, to the extent permitted by law, if required by Landlord to
do so, immediately surrender to Landlord the Property pursuant to the provisions
of Section 17.1 and quit the same and Landlord may enter upon and repossess the
Property by reasonable force, summary proceedings, ejectment or otherwise, and
may remove Tenant and all other Persons and any and all Tenant's Personal
Property from the Property subject to any requirement of law.
17.4 DAMAGES. None of the following events shall relieve Tenant of
its liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting: (a) the termination of this Lease
pursuant to Section 17.1, (b) the repossession of the Property, (c) the failure
of Landlord, notwithstanding reasonable good faith efforts, to relet the
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Landlord to collect or receive any rentals due upon any such reletting. In
the event of any such termination, Tenant shall forthwith pay to Landlord all
Rent due and payable with respect to the Property to, and including, the date of
such termination. Thereafter, Tenant shall forthwith pay to Landlord, at
Landlord's option, as and for liquidated and agreed current damages for Tenant's
default, and not as a penalty, either:
(a) the sum of:
(i) the worth at the time of award of the unpaid Rent which had
been earned at the time of termination,
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such unpaid Rent that Tenant
proves could have been reasonably avoided,
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such unpaid Rent that Tenant proves could be
reasonably avoided, and
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(iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom.
In making the above determinations, the "worth at the time of the
award" in subsections (i) and (iii) shall be determined by the court having
jurisdiction thereof including interest at the Overdue Rate and the "worth at
the time of the award" in subsection (iii) shall be determined by the court
having jurisdiction thereof using a discount rate equal to the discount rate of
the Federal Reserve Bank of San Francisco at the time of the award plus one
percent (1%) and the Percentage Rent shall be deemed to be the same as for the
then-current Fiscal Year or, if not determinable, the immediately preceding
Fiscal Year, for the remainder of the Term, or such other amount as either party
shall prove reasonably could have been earned during the remainder of the Term
or any portion thereof; or
(b) without termination of Tenant's right to possession of the
Property, each installment of said Rent and other sums payable by Tenant to
Landlord under the Lease as the same becomes due and payable, which Rent and
other sums shall bear interest at the Overdue Rate from the date when due until
paid, and Landlord may enforce, by action or otherwise, any other term or
covenant of this Lease.
17.5 ADDITIONAL REMEDIES. Landlord has all other remedies that may be
available under applicable law.
17.6 APPOINTMENT OF RECEIVER. Upon the occurrence of an Event of
Default, and upon filing of a suit or other commencement of judicial proceedings
to enforce the rights of Landlord hereunder, Landlord shall be entitled, as a
matter or right, to the appointment of a receiver or receivers acceptable to
Landlord of the Property and of the revenues, earnings, income, products and
profits thereof, pending such proceedings, with such powers as the court making
such appointment shall confer.
17.7 WAIVER. If this Lease is terminated pursuant to Section 17.1,
Tenant waives, to the extent permitted by applicable law (a) any right of
redemption, re-entry or repossession and (b) any right to a trial by jury.
17.8 APPLICATION OF FUNDS. Any payments received by Landlord under
any of the provisions of this Lease during the existence or continuance of any
Event of Default (and such payment is made to Landlord rather than Tenant due to
the existence of an Event of Default) shall be applied to Tenant's obligations
in the order which Landlord may determine or as may be prescribed by the laws of
the State.
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17.9 IMPOUNDS. Landlord shall have the right during the continuance
of an Event of Default to require Tenant to pay to Landlord an additional
monthly sum (each an "Impound Payment") sufficient to pay the Impound Charges
(as hereinafter defined) as they become due. As used herein, "Impound Charges"
shall mean real estate taxes on the Property or payments in lieu thereof and
premiums on any insurance required by this Lease. Landlord shall determine the
amount of the Impound Charges and of each Impound Payment. The Impound Payments
shall be held in a separate account and shall not be commingled with other funds
of Landlord and interest thereon shall be held for the account of Tenant.
Landlord shall apply the Impound Payments to the payment of the Impound Charges
in such order or priority as Landlord shall determine or as required by law. If
at any time the Impound Payments theretofore paid to Landlord shall be
insufficient for the payment of the Impound Charges, Tenant, within ten
(10) days after Landlord's demand therefor, shall pay the amount of the
deficiency to Landlord.
ARTICLE 18
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant shall fail to make any payment or to perform any act
required to be made or performed under this Lease, and to cure the same within
the relevant time periods provided in Article 17, Landlord, after notice to and
demand upon Tenant, and without waiving or releasing any obligation or default,
may (but shall be under no obligation to) at any time thereafter make such
payment or perform such act for the account and at the expense of Tenant.
Landlord may, to the extent permitted by law, enter upon the Property for such
purpose and take all such action thereon as, in Landlord's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses (including
reasonable attorneys' fees and expenses, to the extent permitted by law) so
incurred, together with a late charge thereon at the Overdue Rate from the date
on which such sums or expenses are paid or incurred by Landlord, shall be paid
by Tenant to Landlord on demand. The obligations of Tenant and rights of
Landlord contained in this Article 18 shall survive the expiration or earlier
termination of this Lease.
ARTICLE 19
LEGAL REQUIREMENTS
Subject to Article 14 regarding permitted contests, Tenant, at its
expense, shall promptly (a) comply with all Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Property, whether or not compliance therewith shall require
structural changes in any of the Improvements or interfere with the use and
enjoyment of the Property; and (b) procure, maintain and comply with all
licenses and other authorizations required for any use
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of the Property then being made, and for the proper erection, installation,
operation and maintenance of the Property or any party thereof.
ARTICLE 20
HOLDING OVER
If Tenant shall for any reason remain in possession of the Property
after the expiration of the Term or earlier termination of the Term hereof, such
possession shall be deemed to be a tenant at sufferance during which time Tenant
shall pay as rental each month, 125% of the aggregate of (i) the aggregate Base
Rent and monthly portion of the Percentage Rent payable with respect to that
month in the last Fiscal Year; (ii) all Additional Charges accruing during the
month; and (iii) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Property. During such period of
month-to-month tenancy, Tenant shall be obligated to perform and observe all of
the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to month-to-month
tenancies, to continue its occupancy and use of the Property. Nothing contained
herein shall constitute the consent, express or implied, of Landlord to the
holding over of Tenant after the expiration or earlier termination of this
Lease.
ARTICLE 21
RISK OF LOSS
During the Lease Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Property as a consequence of the damage or
destruction thereof by fire, flood, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than by Landlord and those claiming from, through or under
Landlord) is assumed by Tenant. In the absence of gross negligence, willful
misconduct or breach of this Lease by Landlord pursuant to Section 28.2,
Landlord shall in no event be answerable or accountable therefor nor shall any
of the events mentioned in this Article 21 entitle Tenant to any abatement of
Rent.
ARTICLE 22
INDEMNIFICATION
22.1 TENANT'S INDEMNIFICATION OF LANDLORD. Except as otherwise
provided in Section 10.7 and notwithstanding the existence of any insurance
provided for in Article 15, and without regard to the policy limits of any such
insurance, Tenant will protect, indemnify, save harmless and defend Landlord,
the Company and Affiliates of the Company from and against all liabilities,
obligations, claims, actual or consequential
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damages, penalties, causes of action, costs and expenses (including
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Landlord, the Company or
Affiliates of the Company by reason of:
(a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Property or adjoining property,
including, but not limited to, any accident, injury to or death of Person
or loss of or damage to property resulting from golf balls, golf clubs,
golf shoes, lawn mowers or other equipment, pesticides, fertilizers or
other substances, golf carts, tractors or other motorized vehicles present
on or adjacent to the Property;
(b) any use, misuse, non-use, condition, maintenance or repair of the
Property;
(c) any Impositions (which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease);
(d) any failure on the part of Tenant to perform or comply with any
of the terms of this Lease;
(e) any so-called "dram shop" liability associated with the sale
and/or consumption of alcohol at the Property;
(f) the non-performance of any of the terms and provisions of any and
all existing and future subleases of the Property to be performed by the
landlord (Tenant) thereunder;
(g) the negligence or alleged negligence of Landlord with respect to
the Property; or
(h) any liability Landlord may incur or suffer as a result of any
permitted contest by Tenant pursuant to Article 14.
22.2 LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall protect,
indemnify, save harmless and defend Tenant from and against all liabilities,
obligations, claims, actual or consequential damages, penalties, causes of
action, costs and expenses (including reasonable attorneys' fees) imposed upon
or incurred by or asserted against Tenant as a result of Landlord's active,
gross negligence or willful misconduct.
22.3 MECHANICS OF INDEMNIFICATION. As soon as reasonably practicable
after receipt by the indemnified party of notice of any liability or claim
incurred by or asserted against the indemnified party that is subject to
indemnification under
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this Article 22, the indemnified party shall give notice thereof to the
indemnifying party. The indemnified party may at its option demand indemnity
under this Article 22 as soon as a claim has been threatened by a third
party, regardless of whether an actual loss has been suffered, so long as the
indemnified party shall in good faith determine that such claim is not
frivolous and that the indemnified party may be liable for, or otherwise
incur, a loss as a result thereof and shall give notice of such determination
to the indemnifying party. The indemnified party shall permit the
indemnifying party, at its option and expense, to assume the defense of any
such claim by counsel selected by the indemnifying party and reasonably
satisfactory to the indemnified party, and to settle or otherwise dispose of
the same; PROVIDED, HOWEVER, that the indemnified party may at all times
participate in such defense at its expense, and PROVIDED FURTHER, HOWEVER,
that the indemnifying party shall not, in defense of any such claim, except
with the prior written consent of the indemnified party, consent to the entry
of any judgment or to enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in
question to the indemnified party and its affiliates a release of all
liabilities in respect of such claims, or that does not result only in the
payment of money damages by the indemnifying party. If the indemnifying
party shall fail to undertake such defense within thirty (30) days after such
notice, or within such shorter time as may be reasonable under the
circumstances, then the indemnified party shall have the right to undertake
the defense, compromise or settlement of such liability or claim on behalf of
and for the account of the indemnifying party.
22.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS; AVAILABLE INSURANCE
PROCEEDS. Tenant's or Landlord's liability for a breach of the provisions of
this Article 22 arising during the term hereof shall survive any termination of
this Lease. Notwithstanding anything herein to the contrary, each party agrees
to look first to the available proceeds from any insurance it carries in
connection with the Property prior to seeking indemnification or otherwise
seeking to recover any amounts to compensate a party for its damages and then to
seek indemnification only to the extent of any loss not covered by their
available insurance proceeds.
ARTICLE 23
SUBLETTING AND ASSIGNMENT
23.1 PROHIBITION AGAINST ASSIGNMENT. Tenant shall not, without the
prior written consent of Landlord, which consent Landlord may withhold in its
sole discretion, assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer (except to an Affiliate of Tenant or a Permitted Assignee) the Lease or
any interest therein, all or any part of the Property, whether voluntarily,
involuntarily or by operation of law. For purposes
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of this Article 23, a Change in Control of the Tenant shall constitute an
assignment of this Lease.
23.2 SUBLEASES.
(a) PERMITTED SUBLEASES. Tenant shall not, without the prior
written consent of Landlord, which consent Landlord may withhold in its
sole discretion, further sublease or license portions of the Property to
third parties, including concessionaires or licensees. Without limiting
the foregoing, Tenant's proposed sublease or any of the following transfers
shall require Landlord's prior written consent, which consent Landlord may
withhold in its sole discretion:
(i) sublease or license to operate golf courses;
(ii) sublease or license to operate golf professionals' shops;
(iii) sublease or license to operate golf driving
ranges;
(iv) sublease or license to provide golf lessons by other than
a resident professional;
(v) sublease or license to operate restaurants;
(vi) sublease or license to operate bars;
(vii) sublease or license to operate spa or health
clubs; and
(viii) sublease or license to operate any other portions
(but not the entirety) of the Property customarily associated with or
incidental to the operation of the golf course.
(b) TERMS OF SUBLEASE. Each sublease with respect to the
Property shall be subject and subordinate to the provisions of this Lease.
No sublease made as permitted by this Section 23.2 shall affect or reduce
any of the obligations of Tenant hereunder, and all such obligations shall
continue in full force and effect as if no sublease had been made. No
sublease shall impose any additional obligations on Landlord under this
Lease.
(c) COPIES. Tenant shall, not less than sixty (60) days prior
to any proposed assignment or sublease, deliver to Landlord written notice
of its intent to assign or sublease, which notice shall identify the
intended assignee or sublessee by name and address, shall specify the
effective date of the intended assignment or sublease, and
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shall be accompanied by an exact copy of the proposed assignment or
sublease. Tenant shall provide Landlord with such additional information or
documents reasonably requested by Landlord with respect to the proposed
transaction and the proposed assignee or subtenant, and an opportunity to
meet and interview the proposed assignee or subtenant, if requested.
(d) ASSIGNMENT OF RIGHTS IN SUBLEASES. As security for
performance of its obligations under this Lease, Tenant hereby grants,
conveys and assigns to Landlord all right, title and interest of Tenant in
and to all subleases now in existence or hereinafter entered into for any
or all of the Property, and all extensions, modifications and renewals
thereof and all rents, issues and profits therefrom. Landlord hereby
grants to Tenant a license to collect and enjoy all rents and other sums of
money payable under any sublease of any of the Property; provided, however,
that Landlord shall have the absolute right at any time after the
occurrence and continuance of an Event of Default upon notice to Tenant and
any subtenants to revoke said license and to collect such rents and sums of
money and to retain the same. Tenant shall not (i) consent to, cause or
allow any material modification or alteration of any of the terms,
conditions or covenants of any of the subleases or the termination thereof,
without the prior written approval of Landlord nor (ii) accept any rents
(other than customary security deposits) more than ninety (90) days in
advance of the accrual thereof nor permit anything to be done, the doing of
which, nor omit or refrain from doing anything, the omission of which, will
or could be a breach of or default in the terms of any of the subleases.
(e) LICENSES, ETC. For purposes of this Section 23.2, subleases
shall be deemed to include any licenses, concession arrangements,
management contracts (except to an Affiliate of the Lessee) or other
arrangements relating to the possession or use of all or any part of the
Property.
23.3 TRANSFERS. No assignment or sublease shall in any way impair the
continuing primary liability of Tenant hereunder, as a principal and not as a
surety or guarantor, and no consent to any assignment or sublease in a
particular instance shall be deemed to be a waiver of the prohibition set forth
in Section 23.1. Any assignment shall be solely of Tenant's entire interest in
this Lease. Any assignment or other transfer of all or any portion of Tenant's
interest in the Lease in contravention of the terms of this Lease shall be
voidable at Landlord's option. Anything in this Lease to the contrary
notwithstanding, Tenant shall not sublet all or any portion of the Property or
enter into any other agreement which has the effect of reducing the Percentage
Rent payable to Landlord hereunder.
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23.4 REIT LIMITATIONS. Anything contained in this Lease to the
contrary notwithstanding, Tenant shall not (i) sublet or assign or enter into
other arrangements such that the amounts to be paid by the sublessee or assignee
thereunder would be based, in whole or in part, on the income or profits derived
by the business activities of the sublessee or assignee; (ii) sublet or assign
the Property or this Lease to any person that Landlord owns, directly or
indirectly (by applying constructive ownership rules set forth in Section
856(d)(5) of the Code), a 10% or greater interest; or (iii) sublet or assign the
Property or this Lease in any other manner or otherwise derive any income which
could cause any portion of the amounts received by Landlord pursuant to this
Lease or any sublease to fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or which could cause any other income
received by Landlord to fail to qualify as income described in Section 856(c)(2)
of the Code. The requirements of this Section 23.4 shall likewise apply to any
further subleasing by any subtenant.
23.5 RIGHT OF FIRST OFFER OF LANDLORD TO ACQUIRE LEASEHOLD. In
addition to Landlord's rights in Section 23.1, Landlord or its designee shall
have, for a period of sixty (60) days following receipt of the written notice of
Tenant's intent to assign its interest in the Lease to a third party
unaffiliated with Tenant (and in which management of the Tenant shall have no
continuing management or ownership interest), the right to elect to purchase the
leasehold interest on the terms and conditions at which Tenant proposes to sell
or assign its interest. If Landlord or its designee elects not to purchase such
interest of Tenant, then Tenant shall be free to sell its interest to a third
party, subject to Landlord's prior written consent as provided in Section 23.1.
However, if (i) the price at which Tenant intends to sell its interest is
reduced by five percent (5%) or more, or (ii) the assignment to the third party
is not completed within one hundred eighty (180) days of Landlord's receipt of
written notice of Tenant's intention to assign its interest in the Lease, then
Tenant shall again offer Landlord the right to acquire its interest; provided,
however, that in the case of a change in price, Landlord shall have only fifteen
(15) days to accept such revised offer.
23.6 BANKRUPTCY LIMITATIONS.
(a) Tenant acknowledges that this Lease is a lease of nonresidential
real property and therefore agrees that Tenant, as the debtor in possession, or
the trustee for Tenant (collectively, the "Trustee") in any proceeding under
Title 11 of the United States Bankruptcy Code relating to Bankruptcy, as amended
(the "Bankruptcy Code"), shall not seek or request any extension of time to
assume or reject this Lease or to perform
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any obligations of this Lease which arise from or after the order of relief.
(b) If the Trustee proposes to assume or to assign this Lease or
sublet the Property (or any portion thereof) to any Person which shall have made
a bona fide offer to accept an assignment of this Lease or a subletting on terms
acceptable to the Trustee, the Trustee shall give Landlord, and lessors and
mortgagees of Landlord of which Tenant has notice, written notice setting forth
the name and address of such person and the terms and conditions of such offer,
no later than twenty (20) days after receipt of such offer, but in any event no
later than ten (10) days prior to the date on which the Trustee makes
application to the bankruptcy court for authority and approval to enter into
such assumption and assignment or subletting. Landlord shall have the prior
right and option, to be exercised by written notice to the Trustee given at any
time prior to the effective date of such proposed assignment or subletting, to
receive and assignment of this Lease or subletting of the Property to Landlord
or Landlord's designee upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such person, less any
brokerage commissions which may be payable out of the consideration to be paid
by such person for the assignment or subletting of this Lease.
(c) The Trustee shall have the right to assume Tenant's rights and
obligations under this Lease only if the Trustee: (a) promptly cures any Event
of Default then existing or provides adequate assurance that the Trustee will
promptly compensate Landlord for any actual pecuniary loss incurred by Landlord
as a result of Tenant's default under this Lease; and (c) provides adequate
assurance of future performance under this Lease. Adequate assurance of future
performance by the proposed assignee shall include, as a minimum, that: (i) any
proposed assignee of this Lease shall provide to Landlord an audited financial
statement, dated no later than six (6) months prior to the effective date of
such proposed assignment or sublease, with no material change therein as of the
effective date, which financial statement shall show the proposed assignee to
have a net worth equal to at least or, in the alternative,
the proposed assignee shall provide a guarantor of such proposed assignee's
obligations under this Lease, which guarantor shall provide an audited financial
statement meeting the requirements of (i) above and shall execute and deliver to
Landlord a guaranty agreement in form and substance acceptable to Landlord; and
(ii) any proposed assignee shall grant to Landlord a security interest in favor
of Landlord in all furniture, fixtures, and other personal property to be used
by such proposed assignee in the Property. All payments required of Tenant
under this Lease, whether or not expressly denominated as such in this Lease,
shall constitute rent for the purposes of Title 11 of the Bankruptcy Code.
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(d) The parties agree that for the purposes of the Bankruptcy code
relating to (a) the obligation of the Trustee to provide adequate assurance that
the Trustee will "promptly" cure defaults and compensate Landlord for actual
pecuniary loss, the word "promptly" shall mean that cure of defaults and
compensation will occur no later than sixty (60) days following the filing of
any motion or application to assume this Lease; and (b) the obligation of the
Trustee to compensate or to provide adequate assurance that the Trustee will
promptly compensate Landlord for "actual pecuniary loss", (the term "actual
pecuniary loss" shall mean, in addition to any other provisions contained herein
relating to Landlord's damages upon default obligations of Tenant to pay money
under this Lease and all attorneys' fees and related costs of Landlord incurred
in connection with any default of Tenant in connection with Tenant's bankruptcy
proceedings).
(e) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease and each
of the conditions and provisions hereof on and after the date of such
assignment. Any such assignee shall, upon the request of Landlord, forthwith
execute and deliver to Landlord an instrument, in form and substance acceptable
to Landlord, confirming such assumption.
23.7 MANAGEMENT AGREEMENT. Tenant shall not enter into any
management agreement that provides for the management and operation of the
entire Property by an unaffiliated third party without the prior written consent
of Landlord.
ARTICLE 24
OFFICER'S CERTIFICATES AND OTHER STATEMENTS
24.1 OFFICER'S CERTIFICATES. At any time, and from time to time upon
Tenant's receipt of not less than ten (10) days' prior written request by
Landlord, Tenant will furnish to Landlord an Officer's Certificate certifying
that:
(a) this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Tenant, Landlord is in
default in the performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of which
Tenant may have knowledge;
(d) that, except as otherwise specified, there are no proceedings
pending or, to the knowledge of the
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signatory, threatened, against Tenant before or by any court or
administrative agency which, if adversely decided, would materially and
adversely affect the financial condition and operations of Tenant; and
(e) responding to such other questions or statements of fact as
Landlord shall reasonably request.
Tenant's failure to deliver such Officer's Certificate within such
time shall constitute an acknowledgement by Tenant that this Lease is unmodified
and in full force and effect except as may be represented to the contrary by
Landlord, Landlord is not in default in the performance of any covenant,
agreement or condition contained in this Lease and the other matters set forth
in such request, if any, are true and correct. Any such Officer's Certificate
furnished pursuant to this Section 24.1 may be relied upon by Landlord and any
prospective lender or purchaser.
24.2 ENVIRONMENTAL STATEMENTS. Immediately upon Tenant's learning, or
having reasonable cause to believe, that any Hazardous Material in a quantity
sufficient to require remediation or reporting under applicable law is located
in, on or under the Property or any adjacent property, Tenant shall notify
Landlord in writing of (a) the existence of any such Hazardous Material; (b) any
enforcement, cleanup, removal, or other governmental or regulatory action
instituted, completed or threatened; (c) any claim made or threatened by any
Person against Tenant or the Property relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from or claimed to result from
any Hazardous Material; and (d) any reports made to any federal, state or local
environmental agency arising out of or in connection with any Hazardous Material
in or removed from the Property, including any complaints, notices, warnings or
asserted violations in connection therewith.
ARTICLE 25
LANDLORD MORTGAGES
25.1 LANDLORD MAY GRANT LIENS. Subject to Section 25.2, without the
consent of Tenant, Landlord may, from time to time, directly or indirectly,
create or otherwise cause to exist any Landlord's Encumbrance upon the Property,
or any portion thereof or interest therein, whether to secure any borrowing or
other means of financing or refinancing. This Lease is and at all times shall
be subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Property and
to all renewals, modifications, consolidations, replacements and extensions of
any such lease, mortgage, trust deed or like encumbrance. This clause shall be
self-operative and no further instrument of subordination shall be required by
any ground or underlying lessor or by any mortgagee or beneficiary, affecting
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any lease or the Property. In confirmation of such subordination, Tenant shall
execute promptly any certificate that Landlord may request for such purposes.
25.2 TENANT'S NON-DISTURBANCE RIGHTS. So long as Tenant shall pay all
Rent as the same becomes due and shall fully comply with all of the terms of
this Lease and fully perform its obligations hereunder, none of Tenant's rights
under this Lease shall be disturbed by the holder of any Landlord's Encumbrance
which is created or otherwise comes into existence after the Commencement Date.
25.3 FACILITY MORTGAGE PROTECTION. Tenant agrees that the holder of
any Landlord Encumbrance shall have no duty, liability or obligation to perform
any of the obligations of Landlord under this Lease, but that in the event of
Landlord's default with respect to any such obligation, Tenant will give any
such holder whose name and address have been furnished Tenant in writing for
such purpose notice of Landlord's default and allow such holder thirty (30) days
following receipt of such notice for the cure of said default before invoking
any remedies Tenant may have by reason thereof.
ARTICLE 26
SALE OF FEE INTEREST
26.1 RIGHT OF FIRST OFFER TO PURCHASE. If Landlord intends to sell
the Property during the Lease Term, and provided no Event of Default then
exists, Tenant shall have a right of first offer to purchase the Property
("Tenant's Right of First Offer to Purchase") on the terms and conditions at
which Landlord proposes to sell the Property to a third party. Landlord shall
give Tenant written notice of its intent to sell and shall indicate the terms
and conditions (including the sale price) upon which Landlord intends to sell
the Property to a third party. Tenant shall thereafter have sixty (60) days to
elect in writing to purchase the Property and execute a Purchase and Sale
Agreement with respect thereto and shall have an additional fifty (50) days to
close on the acquisition of the Property on the terms and conditions set forth
in the notice provided by Landlord to Tenant; provided that prior to the
execution of a binding purchase and sale agreement, Landlord shall retain the
right to elect not to sell the Property. If Tenant does not elect to purchase
the Property, then Landlord shall be free to sell the Property to a third party.
However, if the price at which Landlord intends to sell the Property to a third
party is less than 95% of the price set forth in the notice provided by Landlord
to Tenant, then Landlord shall again offer Tenant the right to acquire the
Property upon the same terms and conditions, provided that Tenant shall have
only thirty (30) days thereafter to complete the acquisition at such price,
terms and conditions.
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26.2 CONVEYANCE BY LANDLORD. If Landlord shall convey the Property in
accordance with the terms hereof other than as security for a debt, Landlord
shall, upon the written assumption by the transferee of the Property of all
liabilities and obligations of the Lease be released from all future liabilities
and obligations under this Lease arising or accruing from and after the date of
such conveyance or other transfer as to the Property. All such future
liabilities and obligations shall thereupon be binding upon the new owner.
ARTICLE 27
ARBITRATION
27.1 ARBITRATION. In each case specified in this Lease in which it
shall become necessary to resort to arbitration, such arbitration shall be
determined as provided in this Section 27.1. The party desiring such
arbitration shall give notice to that effect to the other party, and an
arbitrator shall be selected by mutual agreement of the parties, or if they
cannot agree within thirty (30) days of such notice, by appointment made by the
American Arbitration Association ("AAA") from among the members of its panels
who are qualified and who have experience in resolving matters of a nature
similar to the matter to be resolved by arbitration.
27.2 ARBITRATION PROCEDURES. In any arbitration commenced pursuant to
Section 27.1 a single arbitrator shall be designated and shall resolve the
dispute. The arbitrator's decision shall be binding on all parties and shall
not be subject to further review or appeal except as otherwise allowed by
applicable law. Upon the failure of either party (the "non-complying party") to
comply with his decision, the arbitrator shall be empowered, at the request of
the other party, to order such compliance by the non-complying party and to
supervise or arrange for the supervision of the non-complying party. To the
maximum extent practicable, the arbitrator and the parties, and the AAA if
applicable, shall take any action necessary to insure that the arbitration shall
be concluded within ninety (90) days of the filing of such dispute. The fees
and expenses of the arbitrator shall be shared equally by Landlord and Tenant
except as otherwise specified above in this Section 27.2. Unless otherwise
agreed in writing by the parties or required by the arbitrator or AAA, if
applicable, arbitration proceedings hereunder shall be conducted in the State.
Notwithstanding formal rules of evidence, each party may submit such evidence as
each party deems appropriate to support its position and the arbitrator shall
have access to and right to examine all books and records of Landlord and Tenant
regarding the Property during the arbitration.
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ARTICLE 28
MISCELLANEOUS
28.1 LANDLORD'S RIGHT TO INSPECT. Tenant shall permit
Landlord and its authorized representatives to inspect the Property during
usual business hours subject to any security, health, safety or
confidentiality requirements of Tenant or any governmental agency or
insurance requirement relating to the Property, or imposed by law or
applicable regulations. Landlord shall indemnify Tenant for all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against Tenant by reason of Landlord's
inspection pursuant to this Section 28.1.
28.2 BREACH BY LANDLORD. It shall be a breach of this Lease if
Landlord shall fail to observe or perform any material term, covenant or
condition of this Lease on its part to be performed and such failure shall
continue for a period of thirty (30) days after notice thereof from Tenant,
unless such failure cannot with due diligence be cured within a period of
thirty (30) days, in which case such failure shall not be deemed to continue
if Landlord, within said thirty (30)-day period, proceeds promptly and with
due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of
any Unavoidable Delay. In no event shall any breach by Landlord permit
Tenant to terminate this Lease or permit Tenant to offset any Rent due and
owing hereunder or otherwise excuse Tenant from any of its obligations
hereunder.
28.3 COMPETITION BETWEEN LANDLORD AND TENANT. Landlord and Tenant
agree that neither party shall be restricted as to other relationships and
competition. Affiliates of Tenant shall be allowed to own, lease and/or
manage other golf courses that are not affiliated with Landlord, provided
that such other ownership, leasing or management arrangements are disclosed
to Landlord in writing. Landlord may acquire or own golf courses that may be
geographically proximate to one or more golf courses that Tenant or
Affiliates of Tenant may own, manage or lease.
28.4 NO WAIVER. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or
remedy consequent upon a breach thereof, and no acceptance of full or partial
payment of Rent during the continuance of any such breach, shall constitute a
waiver of any such breach or of any such term. To the extent permitted by
law, no waiver of any breach shall affect or alter
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this Lease, which shall continue in full force and effect with respect to any
other then existing or subsequent breach.
28.5 REMEDIES CUMULATIVE. To the extent permitted by law, each
legal, equitable or contractual rights, power and remedy of Landlord or
Tenant now or hereafter provided either in this Lease or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to
every other right, power and remedy. The exercise or beginning of the
exercise by Landlord or Tenant of any one or more of such rights, powers and
remedies shall not preclude the simultaneous or subsequent exercise by
Landlord or Tenant of any or all of such other rights, powers and remedies.
28.6 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this
Lease or of the Property or any part thereof, or of any interest therein,
shall be valid or effective unless agreed to and accepted in writing by
Landlord and no act by Landlord or any representative or agent of Landlord,
other than such a written acceptance by Landlord, shall constitute an
acceptance of any such surrender.
28.7 NO MERGER OF TITLE. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, (a) this Lease or
the leasehold estate created hereby or any interest in this Lease or such
leasehold estate and (b) the fee estate in the Property.
28.8 QUIET ENJOYMENT. So long as Tenant shall pay all Rent as the
same becomes due and shall fully comply with all of the terms of this Lease
and fully perform its obligations hereunder, Tenant shall peaceably and
quietly have, hold and enjoy the Property for the Term hereof, free of any
claim or other action by Landlord or anyone claiming by, through or under
Landlord, but subject to all liens and encumbrances of record as of the date
hereof or any Landlord's Encumbrances.
28.9 NOTICES. All notices, demands, requests, consents, approvals
and other communications hereunder shall be in writing and delivered or
mailed (by registered or certified mail, return receipt requested and postage
prepaid), addressed to the respective parties, as set forth below:
If to Landlord: Golf Trust of America, L.P.
190 King Street
Charleston, South Carolina 29401
With a copy to: ___________________________
___________________________
___________________________
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If to Tenant: ___________________________
___________________________
___________________________
___________________________
With a copy to: ___________________________
___________________________
___________________________
28.10 SURVIVAL OF CLAIMS. Anything contained in this Lease to
the contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination of this Lease shall
survive such termination.
28.11 INVALIDITY OF TERMS OR PROVISIONS. If any term or
provision of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby.
28.12 PROHIBITION AGAINST USURY. If any late charges provided
for in any provision of this Lease are based upon a rate in excess of the
maximum rate permitted by applicable law, the parties agree that such charges
shall be fixed at the maximum permissible rate.
28.13 AMENDMENTS TO LEASE. Neither this Lease nor any provision
hereof may be changed, waived, discharged or terminated except by an
instrument in writing and in recordable form signed by Landlord and Tenant.
28.14 SUCCESSORS AND ASSIGNS. All the terms and provisions of
this Lease shall be binding upon and inure to the benefit of the parties
hereto. All permitted assignees or sublessees shall be subject to the terms
and provisions of this Lease.
28.15 TITLES. The headings in this Lease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
28.16 GOVERNING LAW. This Lease shall be governed by and
construed in accordance with the laws of the State (but not including its
conflict of laws rules).
28.17 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly
upon the request of either, enter into a short form memorandum of this Lease,
in form and substance satisfactory to Landlord and suitable for recording
under the State, in which reference to this Lease, and all options contained
herein, shall be made. Tenant shall pay all costs and expenses of recording
such Memorandum of Lease.
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28.18 ATTORNEYS' FEES. In the event of any dispute between the
parties hereto involving the covenants or conditions contained in this Lease
or arising out of the subject matter of this Lease, the prevailing party
shall be entitled to recover against the other party reasonable attorneys'
fees and court costs.
28.19 NON-RECOURSE AS TO LANDLORD. Anything contained herein to
the contrary notwithstanding, any claim based on or in respect of any
liability of Landlord under this Lease shall be enforced only against the
Property and not against any other assets, properties or funds of (a)
Landlord, (b) any director, officer, general partner, limited partner,
employee or agent of Landlord, or any general partner of Landlord, any of
their respective general partners or stockholders (or any legal
representative, heir, estate, successor or assign of any thereof), (c) any
predecessor or successor partnership or corporation (or other entity) of
Landlord, or any of their respective general partners, either directly or
through either Landlord or their respective general partners or any
predecessor or successor partnership or corporation or their stockholders,
officers, directors, employees or agents (or other entity), or (d) any other
Person affiliated with any of the foregoing, or any director, officer,
employee or agent of any thereof.
28.20 NO RELATIONSHIP. Landlord shall in no event be construed
for any purpose to be a partner, joint venturer or associate of Tenant or of
any subtenant, operator, concessionaire or licensee of Tenant with respect to
the Property or any of the Other Leased Properties or otherwise in the
conduct of their respective businesses.
28.21 RELETTING. If Tenant does not exercise its option to
extend or further extend the Term under Section 3.2 or if an Event of Default
occurs, then Landlord shall have the right during the remainder of the Term
then in effect to advertise the availability of the Property for sale or
reletting and to show the Property to prospective purchasers or tenants or
their agents at such reasonable times as Landlord may elect.
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LANDLORD: GOLF TRUST OF AMERICA, L.P.,
a Delaware limited partnership
By: GTA GP, Inc., a Maryland corporation
Its: General Partner
By: ________________________
Its: _______________________
TENANT: _____________________________,
a ____________________________
By: _________________________
Its: ________________________
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EXHIBIT A
LEGAL DESCRIPTION OF THE LAND
A-1
<PAGE>
EXHIBIT B
SCHEDULE OF IMPROVEMENTS
[To come]
B-1
<PAGE>
ENTIRE EXHIBIT DELETED
B-1
<PAGE>
EXHIBIT C
OTHER LEASED PROPERTIES
[To come]
C-1
<PAGE>
EXHIBIT D
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is entered into as of this
_____ day of ________________, 19__, by and between (i) GOLF TRUST OF
AMERICA, L.P., a Delaware limited partnership ("Secured Party"), and (ii) ____
________________ ("Pledgor").
RECITALS:
This Agreement is entered into based on the following understandings:
A. Pursuant to that certain Contribution and Leaseback Agreement
(the "Contribution Agreement") dated as of _______________, 1996, by and
between Secured Party and Pledgor, Pledgor transferred to Secured Party all
of its right, title and interest in and to certain real and personal property
as described in the Contribution Agreement (collectively, the "Property").
B. Pursuant to that certain lease dated as of _______________ ,
1997, (the "Lease") Secured Party leased its interest in the Property to ____
___________, an affiliate of Pledgor ("Tenant").
C. As a condition to (i) Secured Party entering into the Lease
with Tenant; and (ii) Secured Party entering into the Contribution Agreement
with Pledgor, Secured Party has required that Pledgor pledge the Pledged
Owner's Shares (as hereinafter defined) as security for the Obligations (as
hereinafter defined).
1. DEFINITIONS
(a) Capitalized terms not otherwise defined herein shall have
the meaning given to them in the Lease.
(b) The following terms shall have the indicated meanings:
"AGREEMENT" has the meaning set forth in the introductory
Paragraph of this Agreement.
"CONTRIBUTION AGREEMENT" has the meaning set forth in Recital A
of this Agreement.
"EVENT OF DEFAULT" has the meaning set forth in Section 14(a)
of this Agreement.
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"INDEMNITY EVENT" has the meaning set forth in Section 2(a) of
this Agreement.
"LEASE" has the meaning set forth in Recital B of this
Agreement.
"OBLIGATIONS" has the meaning set forth in Section 2(a) of this
Agreement.
"PLEDGED OWNER'S SHARES" has the meaning set forth in Section
2(a) of this Agreement.
"PLEDGOR" has the meaning set forth in the introductory
Paragraph of this Agreement.
"PLEDGOR'S GUARANTY" has the meaning set forth in Section 3(a)
of this Agreement.
"PROPERTY" has the meaning set forth in Recital A of this
Agreement.
"SECURED PARTY" has the meaning set forth in the introductory
Paragraph of this Agreement.
"SECURITY FUND" has the meaning set forth in Section 2(a) of
this Agreement.
"TENANT" has the meaning set forth in Recital B of this
Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Secured Party and Pledgor
hereby agree as follows:
2. GRANT OF SECURITY INTEREST.
(a) As security for the payment and performance of all
obligations and liabilities (including, without limitation, indemnities, fees
and interest thereon) of Pledgor, Tenant or any of Pledgor's direct or
indirect subsidiaries arising under: (i) Pledgor's obligation to indemnify
Secured Party for breaches of the representations and warranties made by
Pledgor pursuant to Article 3 of the Contribution Agreement (which
obligations shall expire one (1) year from the date of the Contribution
Agreement); (ii) the Lease; (iii) the Pledgor's Guaranty pursuant to Section
3 of this Agreement and all other provisions of this Agreement; or (iv) in
connection with any agreement, instrument or extension contemplated by the
foregoing documents (collectively, the "Obligations"), Pledgor hereby
pledges, hypothecates and grants to Secured Party a first and prior security
interest in ______________ Owner's Shares (the "Pledged Owner's Shares", which
shall
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include any increase or decrease in the Pledged Owners's Shares, in accordance
with the formula set forth on EXHIBIT D-1 attached hereto), together with, after
an occurrence and during the continuance of an Event of Default hereunder or if
any representation or warranty in Article 3 of the Contribution Agreement is
breached by Pledgor or proves to be false, as applicable (an "Indemnity Event"),
any and all proceeds thereof, including without limitation, any and all
dividends, income, interest and distributions earned from or attributable to the
investment or deposit of the Pledged Owner's Shares (the Pledged Owner's Shares,
together with all of the foregoing being collectively referred to herein as the
"Security Fund"). Pledgor shall have the right to pledge, as substitute
collateral, cash or other security that is acceptable to Secured Party in its
sole and absolute discretion. Prior to (x) any Event of Default under the Lease
(and after the cure or satisfaction thereof by Tenant or Pledgor, at its sole
election), (y) an Indemnity Event, or (z) an Event of Default (defined below)
all dividends, income, interest and/or distributions earned from or attributable
to the investment or deposit of the Security Fund shall be payable to Pledgor;
following an Event of Default under the Lease such amounts shall be added to and
become a part of the Security Fund and shall only be disbursed in accordance
with the terms of this Agreement. By its execution of this Agreement, Pledgor
acknowledges that it has delivered the Pledged Owner's Shares to Secured Party
as required by this Agreement. The word "Obligations" is used herein in its
most comprehensive sense and includes without limitation any and all debts,
obligations and liabilities of Pledgor, Tenant or any of Pledgor's direct or
indirect subsidiaries, arising as a result of a breach of any of the
representations and warranties made by Pledgor pursuant to Article 3 of the
Contribution Agreement, the Lease or this Agreement, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Pledgor, Tenant or any of Pledgor's
direct or indirect subsidiaries may be liable individually or jointly, or
whether recovery upon such Obligations may be or hereafter become unenforceable.
(b) If the Pledgor shall become entitled to receive or shall
receive, in connection with any of the Security Fund, any:
(i) Stock certificate, including, without limitation, any
certificate representing a stock dividend or in connection with any increase or
reduction of capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split, spin-off or split-off;
(ii) Option, warrant, or right, whether as an addition to or
in substitution or in exchange for any of the Security Fund, or otherwise;
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(iii) Dividend or distribution payable in property,
including securities issued by a person other than the issuer of any of the
Pledged Owner's Shares; or
(iv) Dividends or distributions of any sort,
then Pledgor shall accept the same as the agent of Secured Party, in trust for
Secured Party, and shall deliver them forthwith to Secured Party, in the exact
form received, with, as applicable, the Pledgor's endorsement when necessary, or
appropriate stock powers duly executed in blank by Pledgor, to be held by
Secured Party, subject to the terms hereof, as part of the Security Fund.
(c) Pledgor shall execute and deliver to Secured Party such
financing and continuation statements covering the Security Fund and take such
other actions as Secured Party may from time to time require to perfect and
continue the perfection of Secured Party's security interest in the Security
Fund.
3. GUARANTY OF OBLIGATIONS.
(a) Pledgor irrevocably and unconditionally guarantees the full
and prompt payment when due of the Obligations and the due performance and
compliance with any of the terms of the Lease ("Pledgor's Guaranty").
(b) Pledgor hereby waives notice of acceptance of this Agreement
and notice of any liability to which it may apply, and waives presentment,
demand of payment, protest, notice of dishonor or nonpayment of any such
liability, suit or taking of other action by Secured Party against Pledgor or
Tenant.
(c) Pledgor's Guaranty shall not be released, modified, impaired
or otherwise affected by the following (whether or not Pledgor shall have had
notice or knowledge of the same): (i) any extension or indulgence by Secured
Party in respect to the performance of or compliance with the Obligations; (ii)
any failure, omission or inability of Secured Party to enforce any right, power
or remedy in respect to the Lease, the Contribution Agreement or this Agreement;
(iii) any amendment of the Lease or the Contribution Agreement; (iv) any receipt
of security including, without limitation, the Security Fund, or any sale,
exchange, release or subordination of security held by Secured Party with
respect to the Obligations; (v) any release from any liability of any person
liable under the terms of the Lease, the Contribution Agreement or this
Agreement or any other guarantor; (vi) any limitation or impairment of Secured
Party's remedies against Tenant or any other party liable under the terms of the
Lease, the Contribution Agreement or this Agreement; (vii) any action or
inaction of Secured Party with respect to the Lease, the Contribution Agreement
or this Agreement; (viii) any change in the name or identity of Tenant or any
other person or entity referred to in this Agreement; (ix) the invalidity or
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unenforceability of the Lease or the Contribution Agreement; or (x) the death or
incapacity of Tenant or any other person or entity referred to in this
Agreement.
(d) If all or any portion of the Obligations of Pledgor as
described in Section 3(a) of this Agreement are paid or performed, the
responsibilities of Pledgor pursuant to Pledgor's Guaranty shall continue and
remain in full force and effect in the event that all or any part of such
payment(s) or performance(s) is avoided or recovered directly or indirectly from
Secured Party as a preference, fraudulent transfer or otherwise, irrespective of
payment in full of all sums due pursuant to such obligations.
(e) The liability of Pledgor pursuant to Pledgor's Guaranty is
not conditioned or contingent upon the genuineness, validity, regularity or
enforceability of the Lease or the Contribution Agreement or the pursuit by
Secured Party of any remedies which it now has or may hereafter have with
respect thereto, at law, in equity or otherwise, and Pledgor hereby waives any
and all benefits and defenses that it may have to the contrary and agrees that
by doing so Pledgor shall be liable even if Tenant had no liability at the time
of the execution of the Lease or thereafter ceases to be liable. Pledgor
further agrees that by doing so Pledgor's liability may be larger in amount and
more burdensome than that of Tenant, notwithstanding any benefits or defenses
that Pledgor may have to the contrary. Pledgor agrees that its liability
hereunder shall continue and shall not be limited or affected in any way by an
impairment or any diminution in loss of value in any security or collateral for
the Lease (including, but not limited to the Security Fund, the leased premises
or any personal property or fixtures thereon), whether caused by hazardous
substance or otherwise, or Secured Party's failure to perfect a security
interest in the Security Fund.
(f) Pledgor hereby waives: (i) all notices to Pledgor, to
Tenant, or to any other person, including, but not limited to, the creation,
renewal, extension, assignment, modification or accrual of any of the
Obligations and enforcement of any right or remedy with respect thereto, and
notice of any other matters relating thereto; (ii) demand of payment,
presentation and protest; (iii) any right to require Secured Party to apply to
any default the Security Fund or other security it may hold under the Lease; (v)
notice of any sale of personal property security of Tenant held by Secured
Party; (vi) any and all statutes of limitations affecting Pledgor's and/or
Tenant's liability under this Agreement or the Lease, as applicable, and/or the
enforcement of this Agreement or the Lease, as applicable; and (vii) all
principles or provisions of law which conflict with the terms of this Agreement.
Pledgor further agrees that Landlord may enforce Pledgor's Guaranty upon the
occurrence of a default under the Lease, notwithstanding any dispute between
Secured Party and Tenant or Pledgor with respect
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<PAGE>
to the existence of said default or the payment or performance of the
Obligations or any counterclaim, set-off or other claim which Tenant or
Pledgor may allege against Secured Party with respect thereto. Pledgor also
agrees that upon the abandonment of the Property by Tenant, even if accepted
by Secured Party, or the eviction of Tenant, Pledgor shall remain liable for
future payments of rent, subject to Secured Party's reasonable efforts to
mitigate damages.
(g) Pledgor hereby waives any and all benefits and defenses it
may have with respect to the right to require Landlord to: (i) proceed against
Tenant or any other guarantor of the Obligations; (ii) proceed against or
exhaust any security or collateral Secured Party may hold, including without
limitation, the Security Fund; or (iii) pursue any other right or remedy for
Pledgor's benefit; and Pledgor agrees that Secured Party may proceed against
Pledgor for the Obligations without taking any action against Tenant or any
other guarantor and without proceeding against or exhausting any security or
collateral Secured Party holds, including, without limitation, the Security
Fund. Pledgor agrees that Secured Party may unqualifiedly exercise in its sole
discretion any or all rights and remedies available to it against Tenant or any
other guarantor without impairing Secured Party's rights and remedies in
enforcing Pledgor's Guaranty, under which Pledgor's liabilities shall remain
independent and unconditional. Pledgor agrees that Secured Party's exercise of
certain of such rights or remedies may affect or eliminate Pledgor's right of
subrogation or recovery against Tenant and that, as a result thereof, Pledgor
may incur a partially or totally nonreimbursable liability under Pledgor's
Guaranty.
(h) Pledgor hereby agrees that Pledgor shall have no right of
subrogation or reimbursement against Tenant or any right of contribution against
any other guarantor unless and until all rentals and all other sums due under
the Lease have been paid in full and all of the Obligations have been satisfied
and waives any benefits or defenses that Pledgor may have to the contrary.
Pledgor further agrees that, to the extent of the waiver of Pledgor's rights of
subrogation, reimbursement and contribution as set forth herein is found by a
court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation or reimbursement Pledgor may have against Tenant shall be
junior and subordinate to any rights Secured Party may have against Tenant, and
any rights of contribution Pledgor may have against any other guarantor shall be
junior and subordinate to any rights Secured Party may have against such other
guarantor. Pledgor also agrees that Pledgor's Guaranty is in addition to the
guaranty of any other guarantor and any and all of Pledgor's other guarantees of
Tenant's obligations or liabilities to Secured Party and that this Guaranty
shall in no way limit or lessen any other liability, however arising, that
Pledgor may have for the payment of any other indebtedness of Tenant to Secured
Party.
D-6
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(i) To the extent any dispute exists at any time (whether or not
this Agreement or the Lease shall have previously terminated) between or among
Tenant and/or any other guarantor as to any rights to subrogation,
reimbursement, contribution or otherwise, Pledgor agrees to indemnify, defend
and hold Secured Party harmless from and against any loss, damage, claim,
demand, cost or any other liability (including, without limitation, reasonable
attorneys' fees and costs) Secured Party may suffer as a result of such dispute.
(j) The obligations of Pledgor under Pledgor's Guaranty shall
not be altered, limited or affected by any case, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization,
liquidation or arrangement of Tenant or by any defense which Tenant may have
by reason of the order, decree or decision of any court or administrative
body resulting from any such case. Secured Party shall have the sole right
to accept or reject any plan on behalf of Pledgor proposed in such case and
to take any other action which Pledgor would be entitled to take, including,
without limitation, the decision to file or not file a claim. Pledgor
acknowledges and agrees that any payment which accrues with respect to
Tenant's obligations under the Lease (including, without limitation, the
payment of rent) after the commencement of any such proceeding (or, if any
such payment ceases to accrue by operation of law by reason of the
commencement of said proceeding, such payment as would have accrued if said
proceedings had not been commenced) shall be included in the Obligations
because it is the intention of the parties that said Obligations be
determined without regard to any rule or law or order which may relieve
Tenant of any of its obligations under the Lease. Pledgor hereby permits any
trustee in bankruptcy, receiver, debtor-in-possession, assignee for the
benefit of creditors or similar person to pay Secured Party, or allow the
claim of Secured Party in respect of, any such payment accruing after the
date on which such proceeding is commenced. Pledgor assigns to Secured Party
Pledgor's right to receive any payments from any trustee in bankruptcy,
receiver, debtor-in-possession, assignee for the benefit of creditors or
similar person by way of dividend, adequate protection payment or otherwise.
4. CONTINUING AGREEMENT; REVOCATION; OBLIGATION UNDER OTHER
AGREEMENTS. This is a continuing agreement and all rights, powers and remedies
hereunder shall apply to all past, present and future obligations of Tenant or
Pledgor to Secured Party under the Lease or the Contribution Agreement. This
Agreement shall not terminate except in accordance with its terms or Secured
Party's written release of Pledgor from its Obligations under this Agreement.
5. OBLIGATIONS INDEPENDENT; SEPARATE ACTIONS; WAIVER OF STATUTE OF
LIMITATIONS; REINSTATEMENT OF LIABILITY. The Obligations hereunder are
independent of the obligations of Tenant and Pledgor (including, without
limitation, those
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obligations made pursuant to the Contribution Agreement), and a separate
action or actions may be brought and prosecuted against Pledgor hereunder
whether action is brought against Tenant, Pledgor (under the Contribution
Agreement), or any other person, or whether Tenant or any other person is
joined in any such action or actions. Pledgor acknowledges that there are no
conditions precedent to the effectiveness of this Agreement, and that this
Agreement is in full force and effect and is binding on Pledgor as of the
date written below, regardless of whether Secured Party obtains additional
collateral or any guaranties from others or takes any other action
contemplated by Pledgor. Pledgor waives the benefit of any statute of
limitations affecting Pledgor's liability hereunder or the enforcement
thereof, and Pledgor agrees that any payment of any Obligations or other act
which shall toll any statute of limitations applicable thereto shall
similarly operate to toll such statute of limitations applicable to Pledgor's
liability under this Agreement. The liability of Pledgor under this
Agreement shall be reinstated and revived and the rights of Secured Party
shall continue if and to the extent for any reason any amount at any time
paid on account of the Obligations is rescinded or must be otherwise restored
by Secured Party, whether as a result of any proceedings in bankruptcy,
insolvency, reorganization or otherwise, all as though such amount had not
been paid. The determination as to whether any amount so paid must be
rescinded or restored shall be made by Secured Party in its sole discretion;
provided, however, that if Secured Party chooses to contest any such matter
at the request of Pledgor, Pledgor agrees to indemnify and hold Secured Party
harmless from and against all costs and expenses, including reasonable
attorneys' fees, expended or incurred by Secured Party in connection
therewith, including without limitation, in any litigation with respect
thereto.
6. REPRESENTATIONS AND WARRANTIES.
(a) Pledgor represents and warrants to Secured Party that:
(i) Pledgor is the owner, directly or indirectly, and has possession or control
of the Pledged Owner's Shares; (ii) Pledgor has the right to pledge the Pledged
Owner's Shares; (iii) the Pledged Owner's Shares are genuine, free from liens,
adverse claims, setoffs, default, prepayment, defenses and conditions precedent
of any kind or character, except as previously disclosed to Secured Party in
writing by Pledgor; (iv) specifically with respect to Pledged Owner's Shares
consisting of investment securities, instruments, chattel paper, documents,
contracts, insurance policies or any like property, all persons appearing to be
obligated thereon have authority and capacity to contract and are bound as they
appear to be, and the same comply with applicable laws concerning form, content
and manner of preparation and execution; (v) all statements contained herein
and, where applicable, in the Pledged Owner's Shares are true and complete; and
(vi) no financing statement covering any
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of the Pledged Owner's Shares and naming any secured party other than Secured
Party, is on file in any public office.
(b) Pledgor further represents and warrants to Secured Party
that with respect to the Pledged Owner's Shares securing Tenant's obligations
under the Lease pursuant to this Agreement: (i) such Pledged Owner's Shares are
so pledged at Tenant's request; (ii) Secured Party has made no representation to
Pledgor as to the creditworthiness of Tenant; and (iii) Pledgor has established
adequate means of obtaining from Tenant on a continuing basis financial and
other information pertaining to Tenant's financial condition. Pledgor agrees to
keep adequately informed by such means of any facts, events or circumstances
which might in any way affect Pledgor's risks hereunder, and Pledgor further
agrees that Secured Party shall have no obligation to disclose to Pledgor any
information or material about Tenant which is acquired by Secured Party in any
manner. Pledgor further warrants and represents that it has reviewed and
approved copies of the Lease and is fully informed of the remedies that Secured
Party may pursue under the Lease or at law or in equity, with or without notice
to Pledgor, in the event of a default under the Lease.
(c) Pledgor understands that but for Pledgor's pledge of the
Pledged Owner's Shares and the other agreements contained herein, Secured Party
would not enter into the Lease with Tenant or the Contribution Agreement and
that the Security Fund pledged pursuant to this Agreement will serve as
collateral for the Lease and the Contribution Agreement on the terms and
conditions of this Agreement.
7. COVENANTS OF PLEDGOR.
(a) PLEDGOR AGREES IN GENERAL: (i) to indemnify Secured Party
against all losses, claims, demands, liabilities and expenses of every kind
caused by property subject hereto; (ii) to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Secured Party any time after the
occurrence of an Event of Default under the Lease or as such costs and expenses
relate to a breach by Pledgor of any representation or warranty contained in
Article 3 of the Contribution Agreement, in the realization, enforcement and
exercise of its rights, powers and remedies hereunder; (iii) to permit Secured
Party to exercise its powers; (iv) to execute and deliver such documents as
Secured Party deems necessary to create, perfect and continue the security
interests contemplated hereby; and (v) not to change its chief place of business
or the place where Pledgor keeps any records concerning the Pledged Owner's
Shares without first giving Secured Party written notice of the address to which
Pledgor is moving same.
(b) PLEDGOR AGREES WITH REGARD TO THE SECURITY FUND: (i) not to
permit any lien on the Security Fund except in favor of Secured Party; (ii) not
to withdraw any funds from any
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deposit account pledged to Secured Party hereunder without Secured Party's
prior written consent; (iii) not to sell, hypothecate or otherwise dispose of
any of the Pledged Owner's Shares or any interest therein, without the prior
written consent of Secured Party; (iv) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Pledged Owner's Shares and to permit Secured Party to inspect the same at any
reasonable time; (v) if requested by Secured Party following an Event of
Default under the Lease or an Indemnity Event, to receive and use reasonable
diligence to collect proceeds from the Pledged Owner's Shares, in trust and
as part of the Security Fund to be held in accordance with Section 2(a)
above; (vi) not to commingle Pledged Owner's Shares with other property;
(vii) to provide any service and do any other acts or things necessary to
keep the Pledged Owner's Shares free and clear of all defenses, rights of
offset and counterclaims; and (viii) if the Pledged Owner's Shares consists
of securities and so long as no Event of Default or Indemnity Event exists,
to vote said securities and to give consents, waivers and ratifications with
respect thereto, provided that no vote shall be cast or consent, waiver or
ratification given or action taken which would impair Secured Party's
interest in the Security Fund or be inconsistent with or violate any
provisions of this Agreement.
8. POWERS OF SECURED PARTY. Pledgor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest and are irrevocable until this Agreement has been terminated
pursuant to its terms and may be exercised from time to time by Secured Party's
officers and employees: (a) to perform any obligation of Pledgor hereunder in
Pledgor's name or otherwise; (b) to notify any person obligated on any security,
instrument or other document subject to this Agreement of Secured Party's rights
hereunder; (c) to collect by legal proceedings or otherwise all dividends,
interest, principal or other sums now or hereafter payable upon or on account of
the Security Fund; (d) to enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any other agreement relating to or
affecting the Security Fund and in connection therewith to deposit or surrender
control of the Security Fund to accept other property in exchange for the
Security Fund, and to do and perform such acts and things as Secured Party may
deem proper, with any money or property received in exchange for the Security
Fund at Secured Party's option, to be applied to the Obligations or held by
Secured Party under this Agreement; (e) to make any compromise or settlement
Secured Party deems desirable or proper in respect of the Security Fund; (f) to
insure, process and preserve the Security Fund; (g) to exercise all rights,
powers and remedies which Pledgor would have, but for this Agreement, under all
the Pledged Owner's Shares subject to this Agreement; (h) to do all acts and
things and execute all documents in the name of Pledgor or otherwise that are
deemed by Secured Party as necessary, proper or convenient in connection with
the preservation,
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perfection or enforcement of its rights hereunder; and (i) to execute and
file in Pledgor's name any financing statements and amendments thereto
required to perfect Secured Party's security interest hereunder; provided,
however, that until the occurrence and only during the continuation of an
Event of Default or an Indemnity Event shall Secured Party have the right to
exercise the power of attorney for the purposes described in paragraphs (a),
(c), (d), (e), (f), (g), or (h). If an Event of Default or Indemnity Event
has occurred and is continuing, any or all of the Security Fund consisting of
securities may be registered, without notice, in the name of Secured Party or
its nominee, and thereafter Secured Party or its nominee may exercise,
without notice, all voting and partnership rights at any meeting of the
partners of the issuer thereof, any and all rights of conversion, exchange or
subscription, or any other rights, privileges or options pertaining to any
Pledged Owner's Shares all as if it were the absolute owner thereof. The
foregoing shall include, without limitation, the right of Secured Party or
its nominee to exchange, at its discretion, any and all Pledged Owner's
Shares upon the merger, consolidation, reorganization, recapitalization or
other readjustment of the issuer thereof, or upon the exercise by the issuer
thereof or Secured Party of any right, privilege or option pertaining to any
Pledged Owner's Shares and in connection therewith, the right to deposit and
deliver any and all of the Pledged Owner's Shares with any committee,
depository, transfer agent, registrar or other designated agent upon such
terms and conditions as Secured Party may determine. All of the foregoing
rights, privileges or options may be exercised without liability except to
account for property actually received by Secured Party. Secured Party shall
have no duty to exercise any of the foregoing, or any other rights,
privileges or options with respect to the Pledged Owner's Shares and shall
not be responsible for any failure to do so or delay in so doing.
9. CASH COLLATERAL ACCOUNT. Any money received by Secured Party in
respect of the Security Fund will be retained in an interest bearing cash
collateral account and the same shall, for all purposes, be deemed part of the
Security Fund hereunder.
10. SECURED PARTY'S CARE AND DELIVERY OF PLEDGED OWNER'S SHARES.
Secured Party's obligation with respect to the Security Fund in its possession
shall be strictly limited to the duty to exercise reasonable care in the custody
and preservation of the Security Fund, and such duty shall not include any
obligation to ascertain or to initiate any action with respect to or to inform
Pledgor of maturity dates, conversion, call or exchange rights, or offers to
purchase the Pledged Owner's Shares or any similar matters, notwithstanding
Secured Party's knowledge of the same. Secured Party shall have no duty to take
any steps necessary to preserve the rights of Pledgor against prior parties, or
to initiate any action to protect against the possibility of a decline in the
market value of the Pledged Owner's Shares. Secured Party shall not be
obligated to take any
D-11
<PAGE>
actions with respect to the Pledged Owner's Shares requested by Pledgor
unless such request is made in writing and Secured Party determines, in its
sole discretion, that the requested action would not unreasonably jeopardize
the value of the Pledged Owner's Shares as security for the Obligations.
Secured Party may at any time deliver the Security Fund, or any part thereof,
to Pledgor, and the receipt thereof by Pledgor shall be a complete and full
acquittance for the Security Fund so delivered, and Secured Party shall
thereafter be discharged from any liability or responsibility therefor.
11. PLEDGOR'S WAIVERS.
(a) Pledgor waives any right to require Secured Party to:
(i) proceed against any person, including Tenant or Pledgor under the
Contribution Agreement; (ii) proceed against or exhaust any security held from
Tenant; (iii) give notice of the terms, time and place of any public or private
sale of personal property security held from Tenant or any other person or
otherwise comply with any other provisions of Section 9-504 Uniform Commercial
Code; (iv) pursue any other remedy in Secured Party's power; or (v) make any
presentments or demands for performance, or give any notices of nonperformance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Secured Party as security or
which constitute in whole or in part the Obligations secured hereunder, or in
connection with the creation of new or additional Obligations.
(b) Pledgor waives any defense arising by reason of: (i) any
disability or other defense of Tenant, Pledgor or any other person; (ii) the
cessation or limitation from any cause whatsoever, other than payment in full,
of the Obligations of Tenant, Pledgor or any other person; (iii) any lack of
authority of any officer, director, partner, agent or any other person acting or
purporting to act on behalf of Tenant or Pledgor which is a corporation,
partnership or other type of entity, or any defect in the formation of Tenant or
Pledgor; (iv) any act or omission by Secured Party which directly or indirectly
results in or aids the discharge of Tenant or Pledgor or any Obligations by
operation of law or otherwise; or (v) any modification of the Obligations, in
any form whatsoever, including any modification made after revocation hereof to
any Obligations incurred prior to such revocation, and including, without
limitation, the renewal, extension, acceleration or other change in time for
payment of the Obligations, or other change in the terms of the Obligations, or
any part thereof. Until all Obligations shall have been paid in full, Pledgor
shall have no right of subrogation, and Pledgor waives any defense Pledgor may
have based upon an election of remedies by Secured Party which destroys
Pledgor's subrogation rights or Pledgor's rights to proceed against Tenant for
reimbursement, including without limitation, any loss of rights Pledgor may
suffer by reason of any rights, powers or remedies of Tenant in connection with
any anti-deficiency laws or any other
D-12
<PAGE>
laws limiting, qualifying or discharging Tenant's Obligations. Until all
Obligations of Tenant to Secured Party shall have been paid in full, Pledgor
further waives any right to enforce any remedy which Secured Party now has or
may hereafter have against Tenant or any other person, and waives any benefit
of, or any right to participate in, any security whatsoever now or hereafter
held by Secured Party.
12. AUTHORIZATIONS TO SECURED PARTY. Pledgor authorizes Secured
Party either before or after revocation hereof, without notice or demand and
without affecting Pledgor's liability hereunder, from time to time to: (a)
alter, compromise, renew, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of the Obligations or any part
thereof; (b) take and hold security, other than the Pledged Owner's Shares, for
the payment of the Obligations or any part thereof and exchange, enforce, waive
and release the Pledged Owner's Shares, or any part thereof, or any such other
security; (c) apply the Pledged Owner's Shares or any other security and direct
the order or manner of sale thereof, including without limitation, a
non-judicial sale permitted by the terms of this Agreement, as Secured Party in
its discretion may determine; (d) release or substitute any one or more of the
endorsers or guarantors of the Obligations, or any part thereof, or any other
parties thereto; and (e) apply payments received by Secured Party from Tenant or
Pledgor to any Obligations of Tenant or Pledgor to Secured Party, in such order
as Secured Party shall determine in its sole discretion, whether or not any such
Obligations is covered by this Agreement, and Pledgor hereby waives any
provision of law regarding application of payments which specifies otherwise.
13. PAYMENT OF TAXES, CHARGES, LIENS AND ASSESSMENTS. Pledgor agrees
to pay, prior to delinquency, all taxes, charges, liens and assessments against
the Security Fund, and upon the failure of Pledgor to do so, Secured Party at
its option may pay any of them and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same. Any such
payments made by Secured Party shall be obligations of Pledgor to Secured Party,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 17 of this Agreement,
and shall be secured by the Security Fund, subject to all terms and conditions
of this Agreement.
14. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default, after
any applicable cure or grace period under the Lease which has not been cured by
Pledgor within ten (10) days of the date such cure period of Tenant expired; or
(b) any representation or warranty made by Pledgor herein shall prove to be
incorrect in any material respect when made; or (c) an Indemnity Event; or
(d) Pledgor
D-13
<PAGE>
shall fail to observe or perform any obligation or agreement contained herein
after Secured Party has provided written notice describing such failure and
Pledgor has failed within thirty (30) days of receipt of such notice to cure
such failure, provided if such cure cannot be completed within such thirty (30)
day period, then such cure period shall be extended for so long as Pledgor is
diligently prosecuting such cure to completion up to a maximum of ninety (90)
days.
15. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have and may exercise without demand any and all rights, powers,
privileges and remedies granted to a secured party upon default under the
Uniform Commercial Code or otherwise provided to Secured Party by law. All
rights, powers, privileges and remedies of Secured Party shall be cumulative.
Secured Party may exercise its right of setoff with respect to the Obligations
in the same manner as if the Obligations were unsecured. No delay, failure or
discontinuance of Secured Party in exercising any right, power, privilege or
remedy hereunder shall affect or operate as a waiver of such right, power,
privilege or remedy; nor shall any single or partial exercise of any such right,
power, privilege or remedy preclude, waive or otherwise affect any other or
further exercise thereof or the exercise of any other right, power, privilege or
remedy. Any waiver, permit, consent or approval of any kind by Secured Party of
any default hereunder, or any such waiver of any provisions or conditions
hereof, must be in writing and shall be effective only to the extent set forth
in writing. While an Event of Default exists: (a) Secured Party may, at any
time and at Secured Party's sole option, liquidate any time deposits pledged to
Secured Party hereunder, whether or not said time deposits have matured and
notwithstanding the fact that such liquidation may give rise to penalties for
early withdrawal of funds; (b) Secured Party may appropriate the Security Fund
and apply all proceeds toward repayment of the Obligations in such order as
Secured Party may from time to time elect or, at Secured Party's sole option,
place any proceeds in a cash collateral account; and (c) at Secured Party's
request, Pledgor will assemble and deliver all Pledged Owner's Shares not
already in the possession of Secured Party, and books and records pertaining
thereto, to Secured Party at a reasonably convenient place designated by Secured
Party. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales. For any part of the Security Fund consisting of securities, Secured
Party shall be under no obligation to delay a sale of any portion thereof for
the period of time necessary to permit the issuer thereof to register such
securities for public sale under any applicable state or federal law, even if
the issuer thereof would agree to do so.
D-14
<PAGE>
16. DISPOSITION OF PLEDGED OWNER'S SHARES. Secured Party shall not
transfer all or any part of the Pledged Owner's Shares or Security Fund except
in connection with the exercise of remedies as provided in Section 15 above.
Any proceeds of any disposition of any of the Pledged Owner's Shares or any part
thereof, shall be applied by Secured Party to the payment of expenses incurred
by Secured Party in connection with the foregoing, including reasonable
attorneys' fees, and the balance of such proceeds shall be applied by Secured
Party toward the payment of the Obligations in such order of application as
Secured Party may from time to time elect.
17. COSTS, EXPENSES AND ATTORNEYS' FEES. Pledgor shall pay to
Secured Party immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees incurred by
Secured Party after the occurrence and during the continuance of any Event of
Default in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, including any of the foregoing incurred
in connection with any bankruptcy proceeding relating to Pledgor or the
valuation of the Pledged Owner's Shares including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid to
Secured Party by Pledgor with interest at a rate per annum equal to the lesser
of ten percent (10%) or the maximum rate permitted by law.
18. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the state in which the
Property is located, and shall be binding upon and inure to the benefit of the
heirs, executors, administrators, legal representatives, successors and assigns
of the parties.
19. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without
D-15
<PAGE>
invalidating the remainder of such provision or any remaining provisions of
this Agreement.
20. NON-RECOURSE. The obligations of Pledgor hereunder with respect
to the Lease and the obligations of Tenant thereunder are specifically
non-recourse to Pledgor except to the extent of the Pledged Owner's Shares. In
no event shall Pledgor or any assets of Pledgor or any general partner or
affiliate of Pledgor be liable for a default by Tenant under the Lease except
to the extent of the Pledged Owner's Shares then pledged to Secured Party.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
PLEDGOR
________________________________
Name:
________________________________
Name:
SECURED PARTY
GOLF TRUST OF AMERICA, L.P.,
a Delaware limited partnership
By: ____________________________
Name:: ____________________
Its: ______________________
D-16
<PAGE>
EXHIBIT D-1
SCHEDULE OF ADJUSTMENTS IN THE NUMBER OF PLEDGED OWNER'S SHARES
The Pledged Owner's Shares shall be adjusted as follows:
1. INCREASE OF PLEDGED OWNER'S SHARES. If Pledgor elects to receive
additional Owner's Shares as described in the Contribution Agreement, then the
Pledged Owner's Shares shall be increased such that the value of the Pledged
Owner's Shares held by Secured Party in the Security Fund shall equal the sum of
(i) the value of the initial Pledged Owner's Shares (valued as the date of the
Pledge Agreement), and (ii) fifteen percent (15%) of the Contingent Purchase
Price (such shares valued as of the date of the pledge). This adjustment to the
number of Pledged Owner's Shares shall occur simultaneously with the
circumstances triggering such an adjustment as described above, without the
necessity for any further action on the part of Pledgor or Secured Party.
Pledgor shall deliver to Secured Party certificates evidencing such additional
Pledged Owner's Shares immediately upon the occurrence of such triggering
circumstances.
2. RELEASE OF PLEDGED OWNER'S SHARES. The Pledged Owner's Shares
shall be released and subtracted from the Security Fund in accordance with the
following schedule:
(a). One-third (1/3) of the Pledged Owner's Shares (or an
equivalent dollar amount if held in cash or other securities) at such time as
the Net Operating Income with respect to the Property shall have been, for each
of the two (2) prior Fiscal Years, at least one hundred twenty percent (120%) of
the Rent payable by Tenant for each such Fiscal Year.
(b). An aggregate of two-thirds (2/3) of the Pledged Owner's
Shares (or an equivalent dollar amount if held in cash or other securities) at
such time as the Net Operating Income with respect to the Property shall have
been, for each of the two (2) prior Fiscal Years, at least one hundred and
thirty percent (130%) of the Rent payable by Tenant for each such Fiscal Year
(based on the Rent adjusted in accordance with the terms of the Lease, if
applicable).
(c). All of the Pledged Owner's Shares (or an equivalent
dollar amount if held in cash or other securities) provided that the Net
Operating Income with respect to the Property shall have been, for each of the
two (2) prior Fiscal Years, one hundred and forty percent (140%) of the Rent
payable by Tenant for each such Fiscal Year (based on the Rent adjusted in
accordance with the terms of the Lease, if applicable).
This adjustment to the number of Pledged Owner's Shares shall occur
simultaneously with the circumstances triggering such an adjustment as described
above, without the necessity for any further action on the part of Pledgor or
Secured Party.
D-1-1
<PAGE>
EXHIBIT E
ADJUSTMENTS TO CALCULATION OF GROSS GOLF REVENUE
FOR PRIVATE CLUBS
E-1
<PAGE>
EXHIBIT F
CALCULATION
F-1
<PAGE>
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 STOCK INCENTIVE PLAN
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following stock option grant (the
"Option") to purchase shares (the "Option Shares") of the Common Stock of Golf
Trust of America, Inc. (the "Corporation"):
OPTIONEE: ____________________
GRANT DATE: ______________, 1997
EXERCISE PRICE: $_________ per share
NUMBER OF OPTION SHARES: _____________ shares
EXPIRATION DATE: ______________, 2007
TYPE OF OPTION: Incentive Stock Option
EXERCISE SCHEDULE: The Option shall become exercisable for thirty-
three and thirty-three hundredths percent (33.33%) of the Option
Shares upon Optionee's completion of one (1) year of Service (as
defined in the attached Stock Option Agreement) measured from the
Grant Date and shall become exercisable for the balance of the Option
Shares in a series of two (2) successive equal annual installments
upon Optionee's completion of each additional year of Service
thereafter. In no event shall the Option become exercisable for any
additional Option Shares following Optionee's cessation of Service.
The Option will be exercisable for ten (10) years from the Grant Date.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the express terms and conditions of the Golf Trust of
America, Inc. 1997 Stock Incentive Plan (the "Plan," terms defined therein and
not otherwise defined herein are used herein as therein defined). Optionee
further agrees to be bound by the terms and conditions of the Plan and the terms
and conditions of the Option as set forth in the Stock Option Agreement attached
hereto as EXHIBIT A and incorporated herein by reference. Optionee understands
that any Option Shares purchased under the Option will be subject to certain
restrictions on transfer set forth in the Stock Purchase Agreement attached
hereto as EXHIBIT B and incorporated herein by reference. Optionee also
acknowledges receipt of a copy of the Plan attached hereto as EXHIBIT C and
incorporated herein by reference.
<PAGE>
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice of Grant,
the attached Agreement or the Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any parent or
subsidiary employing Optionee) or Optionee, which rights are hereby expressly
reserved by each, to terminate Optionee's Service at any time for any reason
whatsoever, with or without cause.
Dated: ______________, 1997
GOLF TRUST OF AMERICA, INC.
By: ________________________________
Name: ________________________________
Title:
______________________________________
OPTIONEE
Name: ________________________________
Address: _______________________________
_____________________
ATTACHMENTS:
Exhibit A: Stock Option Agreement
Exhibit B: Stock Purchase Agreement
Exhibit C: 1997 Stock Incentive Plan
2
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors (the "Board") of Golf Trust of America, Inc.
(the "Corporation") has adopted, and the Corporation's stockholders have
approved, the Corporation's 1997 Stock Incentive Plan (the "Plan," terms defined
therein and not otherwise defined herein are used herein as therein defined) for
the purpose of attracting and retaining the services of employees (including
officers), consultants and other advisors (and their respective employees).
B. Optionee is an individual who is to render valuable services to the
Corporation or one or more parent or subsidiary corporations, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the grant of a stock option to purchase shares of the
Corporation's common stock ("Common Stock") under the Plan.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions
set forth in this Stock Option Agreement (this "Agreement"), the Corporation
hereby grants to Optionee, as of the grant date (the "Grant Date") specified in
the accompanying Notice of Grant of Stock Option (the "Grant Notice"), a stock
option to purchase up to that number of shares of the Corporation's Common Stock
as is specified in the Grant Notice (the "Option Shares"). Such Option Shares
shall be purchasable from time to time during the option term at the Exercise
Price specified in the Grant Notice (the "Exercise Price").
2. OPTION TERM. This option shall expire at the close of business
on the expiration date specified in the Grant Notice (the "Expiration Date"),
unless sooner terminated in accordance with Paragraph 5 or Paragraph 7 hereof.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee, other than a transfer of this option
effected by will or by the laws of descent and distribution following Optionee's
death, and may be exercised, during Optionee's lifetime, only by Optionee.
4. EXERCISABILITY. This option shall become exercisable for the
Option Shares in accordance with the Exercise Schedule specified in the Grant
Notice (the "Exercise Schedule"). As the option becomes exercisable for one or
more installments, those installments shall accumulate, and the option shall
remain exercisable for the accumulated installments until the Expiration Date or
sooner termination of the option term under Paragraph 5 or Paragraph 7 hereof.
In no event shall this option become exercisable for any additional Option
Shares following Optionee's cessation of Service.
<PAGE>
5. TERMINATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to remain outstanding) prior to the
Expiration Date in accordance with the following provisions:
a. Upon Optionee's cessation of Service for any reason, this option
shall immediately terminate and cease to remain outstanding for any Option
Shares for which the option is not otherwise at that time exercisable.
b. Should Optionee cease Service for any reason other than death or
permanent disability while this option remains outstanding, then Optionee shall
have a three (3) month period measured from the date of such cessation of
Service in which to exercise this option for any or all of the Option Shares for
which this option is exercisable at the time of such cessation of Service. In
no event, however, may this option be exercised at any time after the specified
Expiration Date of the option term. Upon the expiration of such three (3) month
period or (if earlier) upon the specified Expiration Date of the option term,
this option shall terminate and cease to remain outstanding.
c. Should Optionee die while in Service or within three (3) months
after cessation of Service, then the personal representative of Optionee's
estate or the person or persons to whom this option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and distribution shall
have the right to exercise the option for any or all of the Option Shares for
which this option is exercisable at the time of Optionee's cessation of Service
(less any Option Shares subsequently purchased by Optionee prior to death).
Such right shall lapse, and this option shall terminate and cease to remain
outstanding, upon the earlier of (i) the first anniversary of Optionee's death
or (ii) the Expiration Date.
d. Should Optionee become Permanently Disabled and cease by reason
thereof to remain in Service at any time during the option term, then Optionee
shall have a twelve (12) month period commencing with the date of such cessation
of Service in which to exercise this option for any or all of the Option Shares
for which this option is exercisable at the time of such cessation of Service.
In no event, however, may this option be exercised at any time after the
specified Expiration Date. Upon the expiration of such limited period of
exercisability or (if earlier) upon the Expiration Date, this portion shall
terminate and cease to be outstanding.
e. During the limited period of post-Service exercisability
applicable pursuant to Paragraphs 5.b through 5.d hereof, this option may not be
exercised in the aggregate for more than the number of Option Shares (if any)
for which this option is, at the time of Optionee's cessation of Service,
exercisable in accordance with either the normal exercise provisions specified
in the Grant Notice or the special acceleration provisions of Paragraph 7
hereof.
f. Should Optionee's Service be terminated for Misconduct, then this
option shall terminate immediately and cease to remain outstanding.
2
<PAGE>
6. DEFINITIONS. For purposes of this Agreement, the following
definitions shall be in effect:
(a) CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related group
of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than twenty-five percent (25%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept; or
(ii) a change in the composition of the Board over a period of twenty-
four (24) consecutive months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or
more contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for election
as Board members during such period by at least two-thirds (2/3) of the
Board members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board.
(b) CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different than the persons holding
those securities immediately prior to such merger.
(c) EMPLOYEE: Optionee shall be considered to be an Employee for so
long as such individual performs services while in the employ of the Corporation
or one or more parent or subsidiary corporations, subject to the control and
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
3
<PAGE>
(d) MISCONDUCT: Optionee's Service shall be deemed to have been
terminated for Misconduct if such termination occurs by reason of Optionee's
commission of any act of fraud, embezzlement or dishonesty, any unauthorized use
or disclosure by Optionee of confidential information or trade secrets of the
Corporation or its Parent or Subsidiary corporations, or any other willful
misconduct by Optionee adversely affecting the business or affairs of the
Corporation in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation or any parent
or subsidiary may consider as grounds for the dismissal or discharge of Optionee
or any other individual in the Service of the Corporation.
(e) PARENT: A corporation shall be considered to be a Parent of the
Corporation if it is a member of an unbroken chain of corporations ending with
the Corporation, provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
(f) PERMANENT DISABILITY or PERMANENTLY DISABLED: Optionee shall be
deemed to be Permanently Disabled and to have incurred a Permanent Disability if
Optionee is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
(g) SERVICE: Optionee shall be deemed to remain in Service for so
long as such individual performs services on a periodic basis to the Corporation
(or any Parent or Subsidiary corporation) in the capacity of an Employee, a Non-
Employee member of the board of directors or an independent consultant or
advisor.
(h) SUBSIDIARY: A corporation shall be considered to be a Subsidiary
of the Corporation if it is a member of an unbroken chain of corporations which
begins with the Corporation, provided each such corporation in the unbroken
chain (other than the last corporation) owns, at the time of determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
7. CORPORATE TRANSACTION/CHANGE IN CONTROL.
a. CORPORATE TRANSACTION.
(i) ACCELERATION. In the event of a Corporate Transaction, this
option, to the extent outstanding at such time but not otherwise
exercisable, shall automatically accelerate so that this option shall,
immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all the Option Shares at the time subject to
this option and may be exercised for all or any portion of such shares as
fully vested shares of Common Stock.
4
<PAGE>
(ii) TERMINATION. This option, to the extent not previously
exercised, shall terminate and cease to be outstanding immediately
following the consummation of such Corporate Transaction except to the
extent it is assumed by the successor corporation or its parent company.
b. CHANGE IN CONTROL.
(i) ACCELERATION. In the event of any Change in Control, this
option, to the extent outstanding at such time but not otherwise
exercisable, shall automatically accelerate so that each such option shall,
immediately prior to Change in Control, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for all the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares as fully vested shares of Common Stock.
(ii) OPTION TERM. If accelerated pursuant to a Change in Control,
this Option, to the extent not previously exercised, shall remain fully
exercisable until the expiration of the option term.
c. The portion of this option accelerated in connection with any
Corporate Transaction or Change in Control shall remain exercisable (to the
extent it is exercisable under the above provisions) as an Incentive Stock
Option under the federal tax laws (if the option is designated as such in the
Grant Notice) only to the extent the applicable dollar limitation of Paragraph
18 hereof is not exceeded in the calendar year of such Corporate Transaction or
Change in Control.
d. This Agreement shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
8. ADJUSTMENT IN OPTION SHARES.
a. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class effected without the Corporation's receipt
of consideration, the Plan Administrator shall make appropriate adjustments to
(i) the number and/or class of securities subject to this option and (ii) the
Exercise Price payable per share in order to prevent any dilution or enlargement
of rights and benefits hereunder. Such adjustments shall be final, binding and
conclusive.
b. If this option is to be assumed in connection with a Corporate
Transaction under Paragraph 7 hereof, then this option shall, immediately after
such Corporate Transaction, be appropriately adjusted to apply and pertain to
the number and class of securities which would have been issued to Optionee in
the consummation of such Corporate Transaction had the option
5
<PAGE>
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the Exercise Price payable per share such that
the aggregate Exercise Price payable hereunder shall remain the same.
9. PRIVILEGES OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a stockholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Exercise Price for
the purchased Option Shares.
10. MANNER OF EXERCISING OPTION.
a. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Deliver to the Secretary of the Corporation a stock purchase
agreement (the "Purchase Agreement") in substantially the form of EXHIBIT B
to the Grant Notice.
(ii) Pay the aggregate Exercise Price for the purchased shares in one
of the following alternative forms:
(A) full payment in cash or by check made payable to the order
of the Corporation;
(B) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes valued at Fair Market Value
on the Exercise Date (as such terms are defined below);
(C) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check payable to
the order of the Corporation; or
(D) full payment through a broker-dealer sale and remittance
procedure pursuant to which Optionee shall provide concurrent
irrevocable written instructions (1) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable federal,
state and local income and employment taxes required to be withheld in
connection with such purchase and (2) to the Corporation to deliver
the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
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<PAGE>
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
b. For purposes of this Agreement, the Exercise Date shall be the
date on which the executed Purchase Agreement is delivered to the Secretary of
the Corporation. Except to the extent the sale and remittance procedure
specified above is utilized in connection with the option exercise, payment of
the Exercise Price for the purchased shares must accompany such Purchase
Agreement.
c. For all valuation purposes under this Agreement, the Fair Market
Value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers through the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative
of Fair Market Value.
(ii) If the Common Stock is at the time listed or admitted to trading
on any national securities exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the
securities exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
Fair Market Value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists.
d. As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option in accordance herewith) a certificate or certificates
representing the purchased Option Shares.
e. In no event may this option be exercised for any fractional
shares.
11. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or in
the Plan shall confer upon Optionee any right to continue in the Service of the
Corporation (or any Parent or Subsidiary employing or retaining Optionee) for
any period of specific duration or interfere with or otherwise restrict in any
way the rights, as may be more fully set forth in a separate employment
agreement, of the Corporation (or any such Parent or Subsidiary) or Optionee,
which rights are hereby expressly reserved by each party, to terminate
Optionee's Service at any time for any reason whatsoever, with or without cause.
7
<PAGE>
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option and
the issuance of Option Shares upon such exercise shall be subject to compliance
by the Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any securities exchange on which
shares of the Corporation's Common Stock may be listed at the time of such
exercise and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 or 7 hereof, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs and legal
representatives of Optionee and the successors and assigns of the Corporation.
14. LIABILITY OF CORPORATION.
a. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares which may without stockholder approval be
issued under the Plan, then this option shall be void with respect to such
excess shares unless stockholder approval of an amendment sufficiently
increasing the number of shares issuable under the Plan is obtained in
accordance with the provisions of Section II of Article Five of the Plan.
b. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
15. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at the Corporation's
principal offices at 190 King Street, Charleston, South Carolina 29401, and any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated on the Grant Notice, or to such
other address as either party may from time to time designate in writing to the
other party. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail by registered or certified
mail, postage prepaid and properly addressed to the party to be notified.
16. CONSTRUCTION. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan. All decisions of the Plan
Administrator with respect to any question or issue arising under the Plan or
this Agreement shall be conclusive and binding on all persons having an interest
in this option.
8
<PAGE>
17. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of Maryland, as such
laws are applied to contracts entered into and performed in such State, without
resort to that State's conflict-of-laws rules.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an Incentive Stock Option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
a. This option shall cease to qualify for favorable tax treatment as
an Incentive Stock Option under the federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: more than (i) three (3)
months after the date Optionee ceases to be an Employee for any reason other
than death or permanent disability (as such term is defined in Paragraph 6
hereof) or (ii) one (1) year after the date Optionee ceases to be an Employee by
reason of Permanent Disability.
b. If this option is to become exercisable in a series of
installments as indicated in the Grant Notice, no such installment shall qualify
for favorable tax treatment as an Incentive Stock Option under the federal tax
laws if (and to the extent) the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock for which such installment first becomes
exercisable hereunder would, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other securities
for which this option or one or more other Incentive Stock Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any parent or subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in any calendar year, the option may nevertheless be
exercised for the excess shares in such calendar year as a Nonqualified Stock
Option.
c. Should the exercisability of this option be accelerated upon a
Corporate Transaction or Change in Control in accordance with Paragraph 7
hereof, then this option shall qualify for favorable tax treatment as an
Incentive Stock Option under the federal tax laws only to the extent the
aggregate Fair Market Value (determined at the Grant Date) of the number of
shares of Common Stock for which this option first becomes exercisable in the
calendar year in which the Corporate Transaction or Change in Control occurs
does not, when added to the aggregate value (determined as of the respective
date or dates of grant) of the shares of Common Stock or other securities for
which this option or one or more other Incentive Stock Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any Parent or Subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in the calendar year of such Corporate Transaction or
Change in Control, the option may nevertheless be exercised for the excess
shares in such calendar year as a Nonqualified Stock Option.
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<PAGE>
d. Should Optionee hold, in addition to this option, one or more
other options to purchase shares of Common Stock which become exercisable for
the first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Stock Options
under the federal tax laws shall be applied on the basis of the order in which
such options are granted.
e. To the extent this option should fail to qualify for incentive
stock option treatment under the federal tax laws, Optionee shall recognize
compensation income at the time the option is exercised in an amount equal to
the Fair Market Value of the purchased Option Shares less the aggregate Exercise
Price paid for those shares, and Optionee must make appropriate arrangements
with the Corporation or any Parent or Subsidiary employing Optionee for the
satisfaction of all federal, state or local income and employment tax
withholding requirements applicable to such compensation income.
19. ADDITIONAL TERMS APPLICABLE TO A NONQUALIFIED STOCK OPTION. In the
event this option is designated a Nonqualified Stock Option in the Grant Notice,
Optionee shall make appropriate arrangements with the Corporation or any parent
or subsidiary employing Optionee for the satisfaction of all federal, state or
local income and employment tax withholding requirements applicable to the
exercise of this option.
20. HEADINGS. The headings contained herein are for reference purposes
only and shall in no way affect the meaning or interpretation of this Agreement.
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<PAGE>
EXHIBIT B
STOCK PURCHASE AGREEMENT
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 STOCK INCENTIVE PLAN
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the ___ day
of _______, 19 ___, by and between Golf Trust of America, Inc., a Maryland
corporation (the "Corporation") and _________________________ ("Optionee"), the
holder of a stock option under the Corporation's 1997 Stock Incentive Plan (the
"Plan").
A. EXERCISE OF OPTION.
1. EXERCISE. Optionee hereby purchases shares of the Corporation's
common stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on ______________, 1997 (the "Grant Date"); to
purchase up to ________________ shares of the Corporation's common stock under
the Plan at the exercise price of $____________ per share (the "Exercise
Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Exercise Price for the
Purchased Shares in accordance with the provisions of the Stock Option Agreement
between the Corporation and Optionee evidencing the Option.
B. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee hereby
represents and warrants that:
1. ACQUISITION ENTIRELY FOR OWN ACCOUNT. The Purchased Shares shall
be acquired for investment purposes only and for Optionee's own account, and not
as a nominee or agent and not with a view to, or for sale in connection with,
any distribution of all or any part of the Purchased Shares. Optionee is
prepared to hold the Purchased Shares for an indefinite period and has no
present intention of selling, granting any participating interest in, or
otherwise distributing the Purchased Shares. Optionee further represents that
Optionee does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant any participating interest in the
Purchased Shares to such person or any other person.
2. DISCLOSURE OF INFORMATION. Optionee believes Optionee has
received all the information Optionee considers necessary or appropriate for
deciding whether to invest in the Purchased Shares. Optionee represents and
acknowledges that Optionee has had an opportunity to ask questions and receive
answers from the Corporation regarding the terms and conditions of the
investment in the Purchased Shares.
<PAGE>
3. INVESTMENT EXPERIENCE. Optionee is able to fend for him or
herself in the transaction contemplated by this Agreement, can bear the economic
risk of his or her investment in the Purchased Shares and has such knowledge and
experience in financial or business matters that Optionee is capable of
evaluating the merits and risks of the investment in the Purchased Shares.
4. RESTRICTED SECURITIES. Optionee understands that the Purchased
Shares have not been registered under the Securities Act of 1933, as amended
(the "1933 Act") and are "restricted securities" under the 1933 Act.
Accordingly, the Purchased Shares may not be resold or transferred unless the
Purchased Shares are first registered under the 1933 Act or unless an exemption
from such registration is available. In this connection, Optionee represents
that Optionee is familiar with Rule 144 of the Securities and Exchange
Commission promulgated under the 1933 Act, as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act,
including the two (2) year minimum holding period for restricted securities
imposed under Rule 144. Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period.
C. MARKET STAND-OFF.
1. In connection with the Corporation's initial public offering,
Optionee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to, any Purchased Shares without the prior written consent of the Corporation or
its underwriters, other than a transfer of title to the Purchased Shares
effected pursuant to Optionee's will or the laws of intestate succession. Such
limitations shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be requested by
the Corporation or such underwriters; PROVIDED, HOWEVER, that in no event shall
such period exceed one hundred eighty (180) days. The limitations of this
Section C shall in all events terminate two (2) years after the effective date
of the Corporation's initial public offering.
2. Optionee shall be subject to the market stand-off provisions of
this Section C IF AND ONLY IF the officers and directors of the Corporation are
also subject to similar arrangements.
3. In the event of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding common stock effected as a class without
the Corporation's receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this Section C, to the same extent the
Purchased Shares are at such time covered by such provisions.
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<PAGE>
4. In order to enforce the limitations of this Section C, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Optionee further agrees not to make any
disposition of all or any portion of the Purchased Shares unless and until
Optionee (i) shall have notified the Corporation of the proposed disposition and
shall have furnished the Corporation with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Corporation, shall have furnished the Corporation with an
opinion of counsel, reasonably satisfactory to the Corporation, that such
disposition will not require registration of such shares under the 1933 Act. It
is agreed that the Corporation will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
E. LEGENDS. Optionee understands that the certificates evidencing the
Purchased Shares may bear the following legend:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Corporation that such registration is not required or unless sold pursuant to
Rule 144 of such Act."
F. MISCELLANEOUS PROVISIONS.
1. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Optionee any right to continue in Service (as
defined in the Plan) for any period of specific duration or interfere with or
otherwise restrict in any way the rights, as may be more fully set forth in a
separate employment agreement, of the Corporation (or any parent or subsidiary)
or Optionee, which rights are hereby expressly reserved by each party, to
terminate Optionee's Service at any time for any reason whatsoever, with or
without cause.
2. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the express provisions of this Agreement.
3. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
3
<PAGE>
4. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, as such laws
are applied to contracts entered into and performed in such State, without
resort to that State's conflict-of-laws rules.
5. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
6. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and Optionee and Optionee's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
7. HEADINGS. The headings contained herein are for reference
purposes only and shall in no way affect the meaning of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first indicated above.
GOLF TRUST OF AMERICA, INC.
By: ___________________________
Title: ________________________
Address: 190 King Street
Charleston, South Carolina
29401
_____________________________________
OPTIONEE
Name: _______________________________
Address: ___________________________
___________________________
Print name in exact manner
it is to appear on the
stock certificate: _______________________________________
Social Security Number: _______________________________________
4
<PAGE>
EXHIBIT C
1997 STOCK INCENTIVE PLAN
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL
I. GENERAL
A. PURPOSE. This 1997 Stock Incentive Plan (the "Plan") is intended to
promote the interests of Golf Trust of America, Inc., a Maryland corporation, or
any successor corporation adopting the Plan (the "Corporation") by providing (i)
employees (including officers) of the Corporation (or its parent or subsidiary
corporations) who are responsible for the management, growth and financial
success of the Corporation (or its parent or subsidiary corporations) and (ii)
consultants and other advisors (and their respective employees) who provide
valuable services to the Corporation (or its parent or subsidiary corporations)
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
maximize the Company's cash flow available for distribution and to remain in the
service of the Corporation (or its parent or subsidiary corporations).
B. EFFECTIVE DATE. The Plan shall become effective on the date on which
the registration statement relating to the Corporation's initial public offering
is declared effective by the Securities and Exchange Commission. The effective
date of such registration statement is hereby designated as the Effective Date
of the Plan.
II. DEFINITIONS
A. GENERAL DEFINITIONS. For purposes of the Plan, the following
definitions shall be in effect:
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
a. the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than twenty-
five percent (25%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept; or
<PAGE>
b. a change in the composition of the Board over a period of twenty-
four (24) consecutive months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or
more contested elections for Board membership, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period or (ii) have been elected or nominated for
election as Board members during such period by at least two-thirds (2/3)
of the Board members described in clause (i) who were still in office at
the time such election or nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: a committee of the Board comprised of at least two (2) Board
members, which shall assume responsibility for the administration of one or more
functions under the Plan, either to the extent expressly provided in the Plan or
as specifically authorized by Compensation Committee resolution pursuant to
Section IV of this Article One.
COMMON STOCK: shares of the Corporation's common stock.
COMPENSATION COMMITTEE: a Committee appointed pursuant to Section IV of
this Article One and charged with certain responsibilities as described herein.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Corporation is incorporated;
b. the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation; or
c. any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different from the persons holding
those securities immediately prior to such merger.
EFFECTIVE DATE: the date specified in Section I of this Article One on
which the Plan shall become effective.
EMPLOYEE: an individual who performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
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EXERCISE DATE: the date on which the Corporation shall have received
written notice of the exercise of an option granted pursuant to the
Discretionary Option Grant Program of Article Two of the Plan.
FAIR MARKET VALUE: the value per share of Common Stock determined in
accordance with the following provisions:
a. For any option grants or direct stock issuances made on the
Effective Date, the Fair Market Value shall be the price per share at which
the Common Stock is to be sold in the initial public offering of the Common
Stock pursuant to the Underwriting Agreement. For all other purposes, the
Fair Market Value shall be determined in accordance with the provisions of
subparagraphs b through c below.
b. If the Common Stock is at the time traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative
of Fair Market Value.
c. If the Common Stock is at the time listed or admitted to trading
on any national securities exchange, then the Fair Market Value shall be
the closing selling pace per share on the date in question on the
securities exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
Fair Market Value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists.
INCENTIVE STOCK OPTION: a stock option which satisfies the requirements of
Code Section 422.
1934 ACT: the Securities Exchange Act of 1934, as amended from time to
time.
NON-EMPLOYEE: any individual who is not an Employee.
NONQUALIFIED STOCK OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: any person to whom an option is granted under the Discretionary
Option Grant Program in effect under Article Two of the Plan.
3
<PAGE>
PARTICIPANT: any person who receives an award of Performance Shares under
the Performance Share Program of Article Three or a direct issuance of Common
Stock under the Restricted Stock Issuance Program of Article Four of the Plan.
PERFORMANCE AWARD: an award made under Article Three of the Plan consisting
of Performance Shares and/or Stock Appreciation Rights.
PERFORMANCE SHARE: an equity-like participating interest in the Corporation
which may be awarded to a Participant pursuant to the Performance Share Program
of Article Three of the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of an Optionee
or a Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
PLAN ADMINISTRATOR: either the Compensation Committee of the Board or a
secondary Committee to the extent any such Committee is at the time responsible
for the administration of the Plan in accordance with Section IV of Article One.
RESTRICTED STOCK: the shares issued pursuant to the Restricted Stock
Issuance Program of Article Four of the Plan.
SECTION 12(G) REGISTRATION DATE: the date on which the initial registration
of the Common Stock under Section 12(g) of the 1934 Act becomes effective.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a Non-Employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided
in the applicable stock option grant, Performance Share award, or stock
issuance agreement.
STOCK APPRECIATION RIGHT: an award made under Section III of Article Three
of the Plan.
B. PARENT/SUBSIDIARY DETERMINATION. The following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:
1. Any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation shall be considered to be a PARENT
of the Corporation, provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
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2. Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation in the unbroken
chain (other than the last corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three (3) separate
components: the Discretionary Option Grant Program specified in Article Two, the
Performance Award Program specified in Article Three and the Restricted Stock
Issuance Program specified in Article Four. Under the Discretionary Option
Grant Program, eligible individuals may be granted options to purchase shares of
Common Stock. Under the Performance Award Program, Participants may be awarded
either Performance Shares, entitling them to receive a payment equal to the Fair
Market Value of a specified number of shares on certain conditions, or Stock
Appreciation Rights, entitling them to the appreciation in aggregate value of a
specified number of shares of Common Stock over the aggregate base price in
effect for those shares. Performance Awards may be made either as a bonus or
subject to such performance goals and conditions as the Plan Administrator shall
determine. Under the Restricted Stock Issuance Program, eligible individuals
may be issued shares of Common Stock directly, either through the immediate
purchase of such shares at a price determined by the Plan Administrator, but not
less than the shares' par value, or as a bonus tied to the performance of
services or the Corporation's attainment of financial objectives.
B. GENERAL PROVISIONS. Unless the context clearly indicates otherwise,
the provisions of Articles One and Five shall apply to the Discretionary Option
Grant Program, the Performance Award Program and the Restricted Stock Issuance
Program and shall accordingly govern the interests of all individuals under the
Plan.
IV. ADMINISTRATION OF THE PLAN
A. DESIGNATION OF PLAN ADMINISTRATOR. The Plan shall be administered by
the Compensation Committee in accordance with the following provisions:
1. COMPENSATION COMMITTEE. Prior to the closing of the Company's
initial public offering of equity securities (the "Offering"), the Compensation
Committee shall consist of the entire Board. Following the closing of the
Offering, the Compensation Committee shall consist solely of three or more Non-
Employee members of the Board appointed by and holding office at the pleasure of
the Board. Appointment of Compensation Committee members shall be effective
upon acceptance of appointment. Compensation Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the
Compensation Committee may be filled by the Board.
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2. DUTIES AND POWERS OF COMPENSATION COMMITTEE.
a. The Compensation Committee shall have sole and exclusive
authority to administer the Plan with respect to those individuals subject
to the short-swing profit restrictions of the federal securities laws; and
the Compensation Committee is hereby designated as the Plan Administrator
with respect to such individuals.
b. Administration of the Plan with respect to all or any other
individuals eligible to participate in the Plan shall be vested in the
Compensation Committee but may, at the Compensation Committee's discretion,
be delegated to a secondary Committee of two (2) or more Board members
appointed by the Compensation Committee and designated by the Compensation
Committee as the Plan Administrator with respect to said individuals. The
membership of any such secondary Committee may include Board members who
are Employees eligible to receive option grants, Performance Awards or
Restricted Stock issuances under this Plan or any other stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any
parent or subsidiary corporation). Members of any secondary Committee
shall serve for such period as the Compensation Committee may determine and
shall be subject to removal by the Board or the Compensation Committee at
any time. The Compensation Committee may at any time reassume any or all
administrative powers and authority delegated under the Plan to any
secondary Committee.
B. PLAN ADMINISTRATOR'S AUTHORITY.
1. RULES, REGULATIONS AND INTERPRETATIONS. The Plan Administrator
shall, within the scope of its administrative authority under the Plan, have
full power and discretion (subject to the express provisions of the Plan) to
establish such rules and regulations as it may deem appropriate for the proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the provisions of each program established under the Plan
and any outstanding option grants, Performance Awards or Restricted Stock
issuances thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator within the scope of its administrative authority under the
Plan shall be final and binding on all parties who have an interest in the Plan
or any outstanding option, Performance Award or Restricted Stock issuance
thereunder.
2. SELECTION, TERMS AND CONDITIONS. The Plan Administrator shall
have full authority to determine (i) with respect to the grants made under the
Discretionary Option Grant Program, which eligible individuals are to be granted
stock options, the time or times each such grants are to be made, the number of
shares to be covered by each such grant, the status of any granted option as
either an Incentive Stock Option or a Nonqualified Stock Option, the time or
times at which each granted option is to become exercisable and the maximum term
for which the option may remain outstanding, (ii) with respect to awards made
under the Performance Award Program, which eligible individuals are to receive
Performance Shares or Stock Appreciation Rights, the number of Performance
Shares to be awarded, the number of shares
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to be covered by and the base price of the Stock Appreciation Right, the
performance-related objectives to be achieved, or the period of Service to be
completed, in order for such Performance Shares to become fully vested or for
the Stock Appreciation Right to become exercisable, and the form in which the
Performance Award payment is to be made, and (iii) with respect to direct
issuances under the Restricted Stock Issuance Program, which eligible
individuals are to receive such issuances, the number of shares subject to each
such issuance, the vesting schedule (if any) to be applicable to the issued
shares and the consideration to be paid by the individual for those shares.
C. INDEMNIFICATION AND REIMBURSEMENT. Service on the Compensation
Committee or any secondary Committee shall constitute service as a Board member,
and members of each such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
committee. No member of either committee shall be liable for any act or
omission made in good faith with respect to the Plan or in connection with any
option grant, Performance Award or Restricted Stock issuance made under the
Plan.
V. ELIGIBILITY
A. The following persons shall be eligible to participate in the Plan:
1. executive officers and other key Employees of the Corporation (or
its parent or subsidiary corporations) who render services which contribute to
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations); and
2. those consultants or other advisors (and their respective
employees) who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. Non-Employee Board members shall not be eligible to participate in the
Plan. Such individuals may, however, be eligible to receive automatic option
grants and direct stock issuances pursuant to the Corporation's 1997 Non-
Employee Directors' Plan.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
500,000 shares, subject to adjustment from time to time in accordance with the
provisions of this Section VI.
B. In no event shall the aggregate number of shares of Common Stock for
which any one individual participating in the Plan may be granted stock options
and separately exercisable Stock Appreciation Rights exceed __________ shares in
any calendar year. In addition, the aggregate number of shares of Common Stock
for which any one individual participating in the
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Plan may receive Performance Shares and direct stock issuances in any one
calendar year shall not exceed ___________ shares.
C. Should one or more outstanding options under Article Two of this Plan
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two), then the shares subject to the portion of each
option not so exercised shall be available for subsequent issuance under the
Plan. Should one or more Performance Shares awarded under Article Three of this
Plan terminate or expire prior to vesting, the number of shares underlying those
expired or terminated Performance Share award shall be available for subsequent
issuance under the Plan. Shares subject to any Stock Appreciation Rights
exercised in accordance with Article Three or any vested Performance Shares
liquidated pursuant to the payout provisions of Article Three and all Restricted
Stock issuances under the Plan, whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent issuance the Plan. In addition, should the exercise
price of an outstanding option under the Plan be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection to the exercise of an outstanding option under Article Two or the
vesting of a Restricted Stock issuance under Article Four, then the number of
shares of Common Stock available for issuance under the Plan shall be reduced by
the gross number of shares for which the option is exercised or which vest under
the stock issuance, and not by the net number of shares of Common Stock actually
issued to the holder of such option or stock issuance.
D. Should any change be made to the Common Stock issuable under the Plan
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one individual participating in the Plan may be granted
stock options, Stock Appreciation Rights, Performance Shares and Restricted
Stock issuances in the aggregate per calendar year, (iii) the number and/or
class of securities and price per share in effect under each outstanding option
or Stock Appreciation Right and (iv) the number and/or class of securities
underlying the Performance Shares outstanding under the Performance Share
Program. Such adjustments are to be effected by the Plan Administrator in a
manner which shall preclude the enlargement or dilution of rights and benefits
under the Plan, and such adjustments shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
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I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program shall
be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Stock Options or Nonqualified
Stock Options. Individuals who are not Employees of the Corporation or its
parent or subsidiary corporations may only be granted Nonqualified Stock
Options. Each granted option shall be evidenced by one or more instruments in
the form approved by the Plan Administrator; PROVIDED, HOWEVER, that each such
instrument shall comply with the terms and conditions specified below. Each
instrument evidencing an Incentive Stock Option shall, in addition, be subject
to the applicable provisions of Section II of this Article Two.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall in no event be less than the par value of the Common
Stock.
2. The exercise price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the alternative
forms specified below:
a. full payment in cash or check made payable to the order of the
Corporation;
b. full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date;
c. full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value
on the Exercise Date and cash or check made payable to the order of the
Corporation; or
d. to the extent the option is exercised for vested shares, full
payment through a broker-dealer sale and remittance procedure pursuant to
which the option-holder shall provide concurrent irrevocable written
instructions (i) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable federal, state and local income and employment taxes
required to be withheld by the Corporation in connection with such purchase
and (ii) to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
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3. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the exercise
price for the purchased shares must accompany the written notice to the
Corporation evidencing the option exercise.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years measured from the grant date. The
option shall be exercisable only by the Optionee and during the Optionee's
lifetime shall not be assignable or transferable by the Optionee except for a
transfer of the option effected by will or by the laws of descent and
distribution following the Optionee's death.
C. TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
a. Should an Optionee cease Service for any reason (including death
or Permanent Disability) while holding one or more outstanding options
under this Article Two, then none of those options shall (except to the
extent otherwise provided pursuant to subparagraph 3 below) remain
exercisable for more than a thirty-six (36) month period (or such shorter
period determined by the Plan Administrator and set forth in the instrument
evidencing the grant) measured from the date of such cessation of Service.
b. Any option held by the Optionee under this Article Two and
exercisable in whole or in part on the date of his or her death may be
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution.
However, the right to exercise such option shall lapse upon the earlier of
(i) the third anniversary of the date of the Optionee's death (or such
shorter period determined by the Plan Administrator and set forth in the
instrument evidencing the grant) or (ii) the specified expiration date of
the option term. Accordingly, upon the occurrence of the earlier event,
the option shall terminate and cease to remain outstanding.
c. Under no circumstances shall any such option be exercisable after
the specified expiration date of the option term.
d. During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of shares
(if any) in which the Optionee is vested at the time of his or her
cessation of Service. Upon the expiration of the limited post-Service
exercise period or (if earlier) upon the specified expiration date of the
option term, each such option shall terminate and cease to remain
outstanding with respect to any vested shares for which the option has not
otherwise been exercised.
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However, each outstanding option shall immediately terminate and cease to
remain outstanding, at the time of the Optionee's cessation of Service,
with respect to any shares for which the option is not otherwise at that
time exercisable or in which the Optionee is not otherwise vested.
e. Should (i) the Optionee's Service be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful misconduct,
fraud or embezzlement) or (ii) the Optionee make any unauthorized use or
disclosure of confidential information or trade secrets of the Corporation
or its parent or subsidiary corporations, then in any such event all
outstanding options held by the Optionee under this Article Two shall
immediately terminate and cease to remain outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under this paragraph C, not only with respect to the number of
vested shares of Common Stock for which each such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have subsequently vested had
the Optionee continued in Service.
3. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service or death
from the limited period in effect under subparagraph C.1 above to such greater
period of time as the Plan Administrator shall deem appropriate. In no event,
however, shall such option be exercisable after the specified expiration date of
the option term.
D. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights with
respect to any shares covered by the option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
E. REPURCHASE RIGHTS. The shares of Common Stock acquired upon the
exercise of any Article Two option grant shall be subject to repurchase by the
Corporation in accordance with the following provisions:
1. The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase any or all of those unvested shares at the exercise
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the instrument evidencing such
repurchase right.
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2. All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject to such
terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction or Change in Control.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the Optionee under this Discretionary
Option Grant Program and thereby accelerate the vesting of such shares in whole
or in part at any time.
II. INCENTIVE STOCK OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Stock Options granted under this Article Two. Incentive Stock Options
may only be granted to individuals who are Employees. Options which are
specifically designated as Nonqualified Stock Options when issued under the Plan
shall not be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under this Plan (or any other option plan of the
Corporation or its parent or subsidiary corporations) may for the first time
become exercisable as Incentive Stock Options under the federal tax laws during
any one calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Stock Options
under the federal tax laws shall be applied on the basis of the order in which
such options are granted. Should the number of shares of Common Stock for which
any Incentive Stock Option first becomes exercisable in any calendar year exceed
the applicable One Hundred Thousand Dollar ($100,000) limitation, then that
option may nevertheless be exercised in such calendar year for the excess number
of shares as a Nonqualified Stock Option under the federal tax laws.
B. EXERCISE PRICE.
1. FAIR MARKET VALUE. The per share exercise price of any Incentive
Stock Option shall be fixed by the Plan Administrator, but shall in no event be
less than one hundred percent (100%) of the Fair Market Value per share of the
Common Stock on the date of grant.
2. 10% STOCKHOLDER. If any individual to whom an Incentive Stock
Option is granted is the owner of stock (as determined under Section 424(d) of
the Code) possessing ten percent (10%) or more of the total combined voting
power of all classes of stock of the Corporation or any one of its parent or
subsidiary corporations, then the exercise price per share shall not be less
than one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the grant date, and the option term shall not exceed five (5) years
measured from the grant date.
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C. Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Stock Options granted hereunder.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. CORPORATE TRANSACTION.
1. ACCELERATION. In the event of any Corporate Transaction, each
option which is at the time outstanding under this Article Two shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares as fully vested shares of Common Stock.
2. TERMINATION. Immediately following the consummation of the
Corporate Transaction, outstanding options under this Article Two shall
terminate and cease to remain outstanding, except to the extent assumed by the
successor corporation or its parent company.
B. CHANGE IN CONTROL.
1. ACCELERATION. In the event of any Change in Control, each option
which is at the time outstanding under this Article Two shall automatically
accelerate so that each such option shall, immediately prior to the Change in
Control, become fully exercisable with respect to the total number of shares of
Common Stock at the time subject to such option and may be exercised for all or
any portion of such shares as fully vested shares of Common Stock.
2. OPTION TERM. Options accelerated in connection with the Change
in Control shall remain fully exercisable until the expiration of the option
term.
C. The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
D. The portion of any Incentive Stock Option accelerated under this
Section III in connection with a Corporate Transaction or Change in Control
shall remain exercisable (to the extent it is exercisable under the above
provisions) as an Incentive Stock Option under the federal laws only to the
extent the dollar limitation of Section II of this Article Two is not exceeded.
To the extent such dollar limitation is exceeded, the accelerated portion of
such option shall be exercisable as a Nonqualified Stock Option under the
federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
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The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected Optionees, the cancellation
of any or all outstanding options under this Article Two and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but with an exercise price per share not less
than the par value per share of Common Stock and in the case of Incentive Stock
Options not less than the Fair Market Value per share of Common Stock on the new
grant date.
ARTICLE THREE
PERFORMANCE AWARD PROGRAM
I. PERFORMANCE AWARDS
The Plan Administrator shall have the power to award Performance Awards
consisting of Performance Shares and/or Stock Appreciation Rights as described
below.
II. PERFORMANCE SHARES
A. GENERALLY.
1. The Plan Administrator shall have full power and authority,
exercisable in its sole discretion but subject to the provisions of the Plan, to
award Performance Shares. Each Performance Share shall function as an
"equity-type" participating interest in the Corporation and shall entitle the
Participant to receive a payment equal to the Fair Market Value per share of
Common Stock on the date on which the Performance Share vests. The Plan
Administrator may award Performance Shares as a performance bonus or may
condition vesting of Performance Shares upon the attainment of specified
performance objectives or upon other such factors or criteria as the Plan
Administrator shall determine, including (without limitation) continued Service,
appreciation in the Fair Market Value of the Common Stock, increased return on
assets or earnings per share growth.
2. Performance objectives, if any, may vary from Participant to
Participant and among groups of Participants and shall be based, without
limitation, upon such corporate-wide, subsidiary, group or division factors or
criteria as the Plan Administrator may deem appropriate.
3. Each Participant who is awarded Performance Shares shall be
issued a written agreement evidencing the total number of Performance Shares
awarded him or her and the terms and conditions upon which such Performance
Shares are to vest and become payable.
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4. The award of Performance Shares under this Article Three shall
not entitle the holder to any stockholder rights, including, without limitation,
any voting, dividend or liquidation rights, with respect to the underlying
shares of Common Stock which serve to determine the value of the award.
5. The award of Performance Shares under this Article Three shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
B. VESTING OF PERFORMANCE SHARES.
1. No Performance Share shall vest prior to the first anniversary of
the date on which the Performance Share award is approved by the Plan
Administrator. Subject to the foregoing restriction, the Plan Administrator
shall have full power and discretion to establish the vesting schedule
applicable to the Performance Shares.
2. All unvested Performance Shares held by a Participant at the time
of his or her cessation of Service shall automatically terminate and cease to be
outstanding, without any payment due the Participant on the terminated shares.
However, the Plan Administrator shall have full and complete discretion,
exercisable at any time, to accelerate in whole or in part the vesting schedule
in effect for one or more Performance Shares held by a Participant.
C. LIQUIDATION OF PERFORMANCE SHARES.
1. A Participant's Performance Shares shall be liquidated upon the
occurrence of the vesting event applicable to those Performance Shares, and the
Participant shall accordingly become entitled to a payment in an amount
determined by multiplying the number of vested Performance Shares by the Fair
Market Value of those Performance Shares on the vesting date.
2. Payment for the liquidated Performance Shares shall be made to
the Participant within thirty (30) days after the vesting event. Payment may,
in the Plan Administrator's sole discretion, be made in cash or shares of Common
Stock valued at Fair Market Value on the vesting date or in any combination
thereof.
D. CANCELLATION OF PERFORMANCE SHARES.
Each outstanding Performance Share shall terminate, and each Participant
holding one or more Performance Shares shall cease to have any further rights or
benefit entitlement thereunder, upon the receipt of the amount (if any) which
becomes due and payable to such individual under the liquidation provisions of
Subsection C of this Section II of Article Three.
III. STOCK APPRECIATION RIGHTS.
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A. The Plan Administrator shall have full power and authority,
exercisable in its sole discretion but subject to the provisions of the Plan, to
grant Stock Appreciation Rights to selected individuals eligible under the Plan.
The Plan Administrator may award Stock Appreciation Rights either as a
performance bonus or may condition the Stock Appreciation Right on the
attainment of specified performance objectives or upon other such factors or
criteria as the Plan Administrator shall determine, including (without
limitation) continued Service, increased return on assets or earnings per share
growth.
B. Performance objectives, if any, may vary from individual to individual
and among groups of individuals and shall be based, without limitation, upon
such corporate-wide, subsidiary, group or division factors or criteria as the
Plan Administrator may deem appropriate.
C. Stock Appreciation Rights shall be independent rights not tied to any
underlying Article Two stock option, Article Three Performance Share or Article
Four Restricted Stock. The Stock Appreciation Right shall be exercisable upon
such terms and conditions as the Plan Administrator may establish and shall
entitle the holder to receive a distribution from the Corporation in an amount
equal to the excess of (i) the aggregate Fair Market Value (on the exercise date
of such right) of the shares of Common Stock underlying the exercised right over
(ii) the aggregate base price in effect for those shares.
D. The number of shares of Common Stock underlying the Stock Appreciation
Right and the base price in effect for those shares shall be determined by the
Plan Administrator in its sole discretion at the time the Stock Appreciation
Right is granted. The base price may not be less than the Fair Market Value (on
the grant date of the right) of the shares of Common Stock underlying that
right.
E. Each individual who is awarded Stock Appreciation Rights shall be
issued a written notice specifying the terms and conditions under which the
Stock Appreciation Right shall be exercisable.
F. Grantees of Stock Appreciation Rights may, in the discretion of the
Plan Administrator, be required to comply with any timing or other restrictions
including a window-period requirement deemed advisable or prudent by the Plan
Administrator or otherwise with respect tot he settlement or exercise of a Stock
Appreciation Right.
G. The distribution to which the holder of the Stock Appreciation Right
may become entitled under this Section III may be made in shares of Common Stock
valued at Fair Market Value on the exercise date of such right, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
IV. NON-TRANSFERABILITY/DEATH
Neither the Performance Shares nor the Stock Appreciation Rights issued
under this Article Three nor any rights or interests pertaining thereto may be
transferred, assigned, pledged
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or encumbered, other than a transfer effected pursuant to the Participant's will
or in accordance with the laws of descent and distribution following the
Participant's death. Any unpaid amounts due the Participant with respect to
vested Performance Shares liquidated prior to his or her death or Stock
Appreciation Rights exercised prior to death shall be paid to the administrator
or executor of such individual's estate.
V. WITHHOLDING
All payments under this Article Three shall be subject to the Corporation's
collection of all applicable federal, state and local income and employment
taxes required to be withheld therefrom.
VI. UNFUNDED AND UNSECURED OBLIGATION
The Corporation's obligation to pay the amounts which become due and
payable under this Article Three shall at all times be an unfunded and unsecured
obligation of the Corporation, and no trust fund, escrow arrangement or other
segregated account shall be established as a funding vehicle for any payments to
be made hereunder. Accordingly, holders of Performance Shares and Stock
Appreciation Rights shall only have the status of general creditors with respect
to any amounts which may actually become due and payable to them under this
Article Three and shall look solely and exclusively to the general assets of the
Corporation for payment.
ARTICLE FOUR
RESTRICTED STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF RESTRICTED STOCK ISSUANCES
Shares of Common Stock ("Restricted Stock" shares) may be issued under the
Restricted Stock Issuance Program through direct and immediate purchases without
any intervening stock option grants. The Restricted Stock shares shall be
evidenced by a Restricted Stock Issuance Agreement ("Issuance Agreement") that
complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. AMOUNT. The Restricted Stock shares shall, in all instances, be
issued for consideration in an amount determined by the Plan Administrator;
PROVIDED, HOWEVER, that the consideration per share shall be no less than the
par value per share.
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<PAGE>
2. TYPE. Shares of Restricted Stock shall be issued under the
Restricted Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
a. full payment in cash or check made payable to the order of the
Corporation;
b. a promissory note payable to the order of the Corporation in one
or more installments, which may be subject to cancellation in whole or in
part upon terms and conditions established by the Plan Administrator; or
c. past services rendered to the Corporation or any parent or
subsidiary corporation.
B. VESTING PROVISIONS.
1. Subject to Subsection 2 below, shares of Restricted Stock issued
under the Restricted Stock Issuance Program may, in the absolute discretion of
the Plan Administrator, be fully and immediately vested upon issuance or may
vest in one or more installments over the Participant's period of Service or
upon the attainment of performance milestones. The elements of the vesting
schedule applicable to any unvested shares of Restricted Stock shall be
determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued. Such elements may include, without limitation:
a. the Service period to be completed by the Participant or the
performance milestones to be achieved by the Corporation or the
Participant,
b. restrictions on sale, transfer and hypothecation of the
Restricted Shares, including the right of the Corporation to repurchase the
shares for the original amount of consideration if certain conditions are
not met,
c. such other restrictions as the Plan Administrator deems
appropriate,
d. the number of installments in which the shares are to vest,
e. the interval or intervals (if any) which are to lapse between
installments, and
f. the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule.
2. Notwithstanding Subsection 1 above, (a) in the event that the
Plan Administrator determines that certain performance objectives are to be
achieved before the
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<PAGE>
shares vest, such shares may not vest sooner than one year following the date of
the stock issuance, and (b) in the event that the issued shares are to vest in
installments over the Participant's period of Service, full vesting of such
shares may not occur within the three (3) year period immediately following the
date of the stock issuance.
3. PARTICIPANT'S STOCKHOLDER RIGHTS. The Participant shall have
full stockholder rights with respect to any shares of Restricted Stock issued to
him or her under the Plan, whether or not his or her interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares. Any new,
additional or different shares of stock or other property (including money paid
other than as a regular cash dividend) which the Participant may have the right
to receive with respect to his or her unvested shares by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration shall be issued, subject to (i) the
same vesting requirements applicable to his or her unvested shares and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.
4. CESSATION OF SERVICE. Should the Participant cease to remain in
Service while holding one or more unvested shares of Restricted Stock under the
Restricted Stock Issuance Program, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
promissory note), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.
5. WAIVER. The following waivers may be effected at any time,
whether before or after the Participant's cessation of Service or the attainment
or non-attainment of the applicable performance objectives.
a. The Plan Administrator may in its discretion elect to waive any
of the restrictions imposed upon shares of Restricted Stock.
b. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Restricted
Stock (or other assets attributable thereto) which would otherwise occur
upon the non-completion of the vesting schedule applicable to such shares.
Such waiver shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the waiver applies.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
19
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Upon the occurrence of any Corporate Transaction or Change in Control, all
unvested shares of Restricted Stock at the time outstanding under this
Restricted Stock Issuance Program shall immediately vest in full and the
Corporation's repurchase rights shall terminate.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Restricted Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift or other disposition
of such shares, whether voluntary or involuntary. Upon any such attempted
transfer, the unvested shares shall immediately be cancelled in accordance with
substantially the same procedure in effect under Subsection I.B.4 of this
Article Four, and neither the Participant nor the proposed transferee shall have
any rights with respect to such cancelled shares. However, the Participant
shall have the right to make a gift of unvested shares acquired under the
Restricted Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the donee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Restricted Stock Issuance Program and the
Issuance Agreement applicable to the gifted shares.
ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant, if such Optionee or Participant is an Employee (including an
Optionee or Participant who is an officer of the Corporation), in the exercise
of one or more options granted to such Optionee under the Discretionary Option
Grant Program or the purchase of one or more shares issued to such Participant
under the Restricted Stock Issuance Program, including the satisfaction of any
federal, state and local income and employment tax obligations arising
therefrom, by (i) authorizing the extension of a loan from the Corporation to
such Optionee or Participant or (ii) permitting the Optionee or Participant to
pay the exercise price or purchase price for the purchased shares in
installments. Any loan or installment method of payment shall be upon such
terms (including the interest rate and terms of repayment) as the Plan
Administrator specifies in the applicable option or issuance agreement or
otherwise deems appropriate under the circumstances. Loans or installment
payments may be authorized with or without security or collateral. However, the
maximum credit available to the Optionee or Participant may not
20
<PAGE>
exceed the exercise or purchase price of the acquired shares plus any federal,
state and local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Compensation Committee of the Board has complete and exclusive
power and authority to amend or modify the Plan (or any component thereof) in
any or all respects whatsoever. However, (i) no such amendment or modification
shall adversely affect rights and obligations with respect to options at the
time outstanding under the Plan, nor adversely affect the rights of any
individual with respect to outstanding Performance Awards or unvested Restricted
Stock under the Performance Award or Restricted Stock Issuance Programs, unless
the affected individual consents to such amendment. In addition, the
Compensation Committee may not, without the approval of the Corporation's
stockholders, amend the Plan (i) to materially increase the maximum number of
shares issuable over the term of the Plan or the maximum number of shares for
which any one individual participating in the Plan may be granted stock options,
Stock Appreciation Rights, Performance Shares and Restricted Stock issuances in
the aggregate per calendar year, except for permissible adjustments under
Subsection VI.D of Article One, (ii) to materially modify the eligibility
requirements for plan participation or (iii) to materially increase the benefits
accruing to plan participants.
B. In no event may Performance Shares be awarded under Article Three
which are in excess of the number of shares of Common Stock then available for
issuance under the Plan. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program, and shares of Restricted
Stock may be issued under the Restricted Stock Issuance Program which are in
both instances in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under the
Discretionary Option Grant Program or the Restricted Stock Issuance Program are
held in escrow until stockholder approval is obtained for a sufficient increase
in the number of shares available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess option grants or excess stock issuances are made, then (i)
any unexercised excess options shall terminate and cease to be exercisable and
(ii) the Corporation shall promptly refund the purchase price paid for any
excess shares actually issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow.
III. TAX WITHHOLDING
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A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section III and such supplemental rules as the Plan
Administrator may from time to time adopt (including the applicable safe-harbor
provisions of Securities and Exchange Commission Rule 16b-3), provide any or all
holders of Nonqualified Stock Options or unvested shares of Common Stock under
the Plan with the right to use shares of Common Stock in satisfaction of all or
part of the federal, state and local income and employment tax liabilities
incurred by such holders in connection with the exercise of their options or the
vesting of their shares (the "Taxes"). Such right may be provided to any such
holder in either or both of the following formats:
1. STOCK WITHHOLDING: The holder of the Nonqualified Stock Option
or unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Nonqualified Stock Option or the vesting of such shares, a portion of
those shares with an aggregate Fair Market Value to exceed one hundred percent
(100%) of the applicable Taxes.
2. STOCK DELIVERY: The Plan Administrator may, in its discretion,
provide the holder of the Nonqualified Stock Option or the unvested shares with
the election to deliver to the Corporation, at the time the Nonqualified Stock
Option is exercised or the shares vest, one or more shares of Common Stock
previously acquired by such individual (other than in connection with the option
exercise or share vesting triggering the Taxes) with an aggregate Fair Market
Value not to exceed one hundred percent (100%) of the Taxes incurred in
connection with such option exercise or share vesting.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan was adopted by the Board on _______________, 1997 and
approved by the Corporation's stockholders on ____________, 1997. The Plan
became effective on ___________, 19___, the date on which the Registration
Statement relating to the Corporation's initial public offering was declared
effective by the Securities and Exchange Commission.
B. The Plan shall terminate upon the earliest of (i) December 31, 2006,
(ii) the date the Plan is terminated by the Board or (iii) the date on which all
shares available for issuance under the Plan shall have been issued or cancelled
pursuant to the exercise of the stock options granted under the Discretionary
Option Grant Program, the exercise of Stock Appreciation Rights and the award of
Performance Shares under the Performance Award Program or the issuance of shares
(whether vested or unvested) under the Restricted Stock Issuance Program. If
the date of termination is determined under clauses (i) or (ii) above, then all
stock options, Stock Appreciation Rights, Performance Shares and Restricted
Stock issuances outstanding on
22
<PAGE>
such date shall thereafter continue to have force and effect in accordance with
the provisions of the instruments evidencing such grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or stock issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Discretionary Option Grant Program, the award of any Stock Appreciation
Right or Performance Shares under the Performance Share Program, the issuance of
any shares under the Restricted Stock Issuance Program and the issuance of
Common Stock upon the exercise of the stock options or stock appreciation rights
granted hereunder shall each be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options, Stock Appreciation Rights and Performance
Shares granted under it and the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of federal and state securities laws and all applicable
listing requirements of any securities exchange on which the Common Stock is
then listed for trading.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
Service of the Corporation (or any parent or subsidiary corporation) for any
period of specific duration, and the Corporation (or any parent or subsidiary
corporation retaining the services of such individual) retain all rights to
terminate such individual's Service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. TRANSFER LIMITATION. Except to the extent otherwise expressly
provided in the Plan, the right to acquire Common Stock or other assets under
the Plan may not be assigned, encumbered or otherwise transferred by any
Optionee or Participant.
B. GOVERNING LAW. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the State of
Maryland without resort to that State's conflict-of-laws rules, as such laws are
applied to contracts entered into and performed in such State.
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<PAGE>
C. SUCCESSORS AND ASSIGNS. The provisions of the Plan shall inure to the
benefit of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate Transaction or otherwise, and the Participants and the
Optionees, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
D. HEADINGS. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of the Plan.
24
<PAGE>
EXHIBIT 10.7
FORM OF NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 NON-EMPLOYEE DIRECTORS' PLAN
NOTICE OF GRANT OF AUTOMATIC STOCK OPTION
Notice is hereby given of the following stock option (the "Option") to
purchase shares (the "Option Shares") of the common stock of Golf Trust of
America, Inc. (the "Corporation") which has been granted pursuant to the
Corporation's 1997 Non-Employee Directors' Plan (the "Plan"):
OPTIONEE: ____________________
GRANT DATE: ____________________
TYPE OF OPTION: Nonqualified Stock Option
EXERCISE PRICE: $_________ per share
NUMBER OF OPTION SHARES: __________ shares
EXPIRATION DATE: ____________________
EXERCISE SCHEDULE: The Option is immediately exercisable
for all the Option Shares.
VESTING SCHEDULE: The Option Shares are fully vested.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the express terms and conditions of the Plan governing
automatic option grants to Board members. Optionee further agrees to be bound
by the terms and conditions of the Plan and the terms and conditions of the
Option as set forth in the Automatic Stock Option Agreement attached hereto as
EXHIBIT A and incorporated herein by reference. Optionee understands that any
Option Shares purchased under the Option will be subject to certain restrictions
on transfer set forth in the Stock Purchase Agreement attached hereto as EXHIBIT
B and incorporated herein by reference. Optionee hereby acknowledges receipt of
a copy of the Plan attached hereto as EXHIBIT C and incorporated herein by
reference.
<PAGE>
NO SERVICE CONTRACT. No provision of this Notice of Grant, the
attached agreements or the Plan shall in any way be construed or interpreted so
as to affect adversely or otherwise impair the right of the Corporation or the
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.
DATED: ____________, 1997
GOLF TRUST OF AMERICA, INC.
By: ________________________________
Title: ______________________
_____________________________________
OPTIONEE
Name: ___________________________
Address: ___________________________
___________________________
Exhibit A: Automatic Stock Option Agreement
Exhibit B: Stock Purchase Agreement
Exhibit C: 1997 Directors Plan
2
<PAGE>
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 NON-EMPLOYEE DIRECTORS' PLAN
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors (the "Board") of Golf Trust of America,
Inc. (the "Corporation") have approved an automatic option grant program under
Article Two of the 1997 Non-Employee Directors' Plan (the "Plan"), pursuant to
which special option grants are to be made to eligible non-employee members of
the Board at periodic intervals over their period of Board service in order to
encourage such individuals to remain in the Corporation's service.
B. Optionee is an eligible non-employee Board member and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the automatic grant of a stock option to purchase
shares of the Corporation's common stock ("Common Stock") under the Plan.
C. The granted option is intended to be a nonqualified option which
does NOT meet the requirements of Section 422 of the Internal Revenue Code and
is designed to provide Optionee with a meaningful incentive to continue to serve
as a member of the Board.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions
set forth in this Agreement, there is hereby granted to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Automatic Stock Option (the "Grant Notice"), a stock option to purchase up to
that number of shares of Common Stock (the "Option Shares") as is specified in
the Grant Notice. Such Option Shares shall be purchasable from time to time
during the option term at the price per share (the "Exercise Price") specified
in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of business on
the Expiration Date specified in the Grant Notice, unless sooner terminated in
accordance with Paragraph 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee, other than a transfer of this option
effected by will or by the laws of descent and distribution following Optionee's
death, and may be exercised, during Optionee's lifetime, only by Optionee.
4. EXERCISABILITY. This option shall be immediately exercisable for
any or all of the Option Shares and shall remain so exercisable until the
Expiration Date specified in
<PAGE>
the Grant Notice, whether or not Optionee continues to serve as a Board
member, unless sooner terminated in accordance with the provisions of
Paragraph 6.
5. DEATH OF OPTIONEE. Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have the right
to exercise the option for any or all of the outstanding Option Shares. Such
right shall lapse, and this option shall terminate and cease to remain
outstanding, upon the Expiration Date specified in the Grant Notice unless
sooner terminated in accordance with the provisions of Paragraph 6.
6. CORPORATE TRANSACTION. Upon the event of any of the following
stockholder-approved transactions to which the Corporation is a party (a
"Corporate Transaction"):
a. a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different from the persons holding
those securities immediately prior to such merger,
this option shall terminate and cease to be outstanding immediately following
the consummation of such Corporate Transaction, except to the extent assumed by
the successor corporation or its parent company.
7. ADJUSTMENT IN OPTION SHARES.
a. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting such Common
Stock as a class without the Corporation's receipt of consideration, then the
number and class of securities purchasable under this option and the Exercise
Price payable per share shall be appropriately adjusted to prevent the dilution
or enlargement of Optionee's rights hereunder; provided, however, the aggregate
Exercise Price shall remain the same.
b. If this option is to be assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate
2
<PAGE>
Transaction, to apply and pertain to the number and class of securities which
would have been issuable to Optionee in the consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price payable per share, provided the aggregate Exercise Price payable
hereunder shall remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any of the rights of a stockholder with respect to the Option Shares
until such individual shall have exercised this option and paid the Exercise
Price for the purchased shares.
9. MANNER OF EXERCISING OPTION.
a. In order to exercise this option for all or any part of the
Option Shares, Optionee (or in the case of exercise after Optionee's death,
Optionee's executor, administrator, heir or legatee, as the case may be) must
take the following actions:
(1) Deliver to the Secretary of the Corporation a stock
purchase agreement (the "Purchase Agreement") in substantially the form of
EXHIBIT B to the Grant Notice.
(2) Pay the aggregate Exercise Price for the purchased
shares in one of the following alternative forms:
(a) full payment in cash or check made payable to the
order of the Corporation;
(b) full payment in shares of Common Stock held by
Optionee for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date (as defined below);
(c) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check made payable
to the Corporation's order; or
(d) full payment effected through a broker-dealer sale
and remittance procedure pursuant to which Optionee shall provide
concurrent irrevocable written instructions (i) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price payable for those shares and (ii) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
3
<PAGE>
(3) Furnish to the Corporation appropriate documentation
evidencing that the person or persons exercising the option (if other than
Optionee) have the right to exercise this Option.
b. For all valuation purposes under this Agreement, the Fair
Market Value per share of Common Stock on any relevant date shall be determined
in accordance with the following provisions:
(1) If the Common Stock is at the time traded on the Nasdaq
National Market, the Fair Market Value shall be the closing selling price
per share on the date in question, as such price is reported by the
National Association of Securities Dealers through the Nasdaq National
Market or any successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the closing
selling price on the last preceding date for which such quotation exists
shall be determinative of Fair Market Value.
(2) If the Common Stock is at the time listed or admitted
to trading on any national securities exchange, then the Fair Market Value
shall be the closing selling price per share on the date in question on the
securities exchange serving as the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on such
exchange on the date in question, then the Fair Market Value shall be the
closing selling price on the exchange on the last preceding date for which
such quotation exists.
c. The Exercise Date shall be the date on which the executed
Purchase Agreement is delivered to the Secretary of the Corporation. Except to
the extent the sale and remittance procedure specified above is utilized in
connection with the exercise of the option, payment of the Exercise Price for
the purchased shares must accompany the Purchase Agreement.
d. As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or other person or persons
exercising this option) a certificate or certificates representing the purchased
Option Shares.
e. In no event may this option be exercised for any fractional
share.
10. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
4
<PAGE>
11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any securities
exchange on which shares of the Common Stock may be listed at the time of such
exercise and issuance.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 or 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the Corporation's successors and
assigns.
13. LIABILITY OF CORPORATION. The inability of the Corporation to
obtain approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common Stock
pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such
approval shall not have been obtained. However, the Corporation shall use its
best efforts to obtain all such applicable approvals.
14. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at the Corporate Offices
at 190 King Street, Charleston, South Carolina 29401, and any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice, or
to such other address as either party may from time to time designate in writing
to the other party. All notices shall be deemed to have been given or delivered
upon personal delivery or upon deposit in the U.S. mail, postage prepaid and
properly addressed to the party to be notified.
15. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and provisions of the Plan,
including the automatic option grant provisions of Article Two of the Plan. The
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of Maryland, as such laws are applied to contracts
entered into and performed in such State, without resort to that State's
conflict-of-laws rules.
16. HEADINGS. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
5
<PAGE>
EXHIBIT B
STOCK PURCHASE AGREEMENT
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 NON-EMPLOYEE DIRECTORS' PLAN
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the
_____ day of _________ 199__, by and between Golf Trust of America, Inc., a
Maryland corporation (the "Corporation") and _______________________________
("Optionee"), the holder of a stock option under the Corporation's 1997
Non-Employee Directors' Plan (the "Plan").
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases shares of the Corporation's
common stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on __________, 199__ (the "Grant Date"), under the
Automatic Option Grant Program of Article Two of the Plan, to purchase up to
_________ shares of the Corporation's common stock at the exercise price of
$_____ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Exercise Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option.
B. REPRESENTATIONS AND WARRANTIES OF OPTIONEE
Optionee hereby represents and warrants that:
1. ACQUISITION ENTIRELY FOR OWN ACCOUNT. The Purchased Shares shall
be acquired for investment purposes only and for Optionee's own account, and not
as a nominee or agent and not with a view to, or for sale in connection with,
any distribution of all or any part of the Purchased Shares. Optionee is
prepared to hold the Purchased Shares for an indefinite period and has no
present intention of selling, granting any participating interest in, or
otherwise distributing the Purchased Shares. Optionee further represents that
Optionee does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant any participating interest in the
Purchased Shares to such person or any other person.
2. DISCLOSURE OF INFORMATION. Optionee believes Optionee has
received all the information Optionee considers necessary or appropriate for
deciding whether to invest in the Purchased Shares. Optionee represents and
acknowledges that Optionee has had an Opportunity to ask questions and receive
answers from the Corporation regarding the terms and conditions of the
investment in the Purchased Shares.
<PAGE>
3. INVESTMENT EXPERIENCE. Optionee is able to fend for him or
herself in the transaction contemplated by this Agreement, can bear the economic
risk of his or her investment in the Purchased Shares and has such knowledge and
experience in financial or business matters that Optionee is capable of
evaluating the merits and risks of the investment in the Purchased Shares.
4. RESTRICTED SECURITIES. Optionee understands that the Purchased
Shares have not been registered under the Securities Act of 1933, as amended
(the "1933 Act") and are "restricted securities" under the 1933 Act.
Accordingly, the Purchased Shares may not be resold or transferred unless the
Purchased Shares are first registered under the 1933 Act or unless an exemption
from such registration is available. In this connection, Optionee represents
that Optionee is familiar with Rule 144 of the Securities and Exchange
Commission issued under the 1933 Act, as presently in effect, and understands
the resale limitations imposed thereby and by the 1933 Act, including the two
(2) year minimum holding period for restricted securities imposed under Rule
144. Optionee hereby acknowledges that Optionee is prepared to hold the
Purchased Shares for an indefinite period.
C. MARKET STAND-OFF
1. In connection with the Corporation's initial public offering,
Optionee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to, any Purchased Shares without the prior written consent of the Corporation or
its underwriters, other than a transfer of title to the Purchased Shares
effected pursuant to Optionee's will or the laws of intestate succession. Such
limitations shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be requested by
the Corporation or such underwriters; PROVIDED, HOWEVER, that in no event shall
such period exceed one hundred eighty (180) days. The limitations of this
Section C shall in all events terminate two (2) years after the effective date
of the Corporation's initial public offering.
2. Optionee shall be subject to the market stand-off provisions of
this Section C IF AND ONLY IF the officers and directors of the Corporation are
also subject to similar arrangements.
3. In the event of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding common stock effected as a class without
the Corporation's receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this Section C, to the same extent the
Purchased Shares are at such time covered by such provisions.
4. In order to enforce the limitations of this Section C, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
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<PAGE>
D. FURTHER LIMITATIONS ON DISPOSITION
Without in any way limiting the representations set forth above,
Optionee further agrees not to make any disposition of all or any portion of the
Purchased Shares unless and until Optionee (i) shall have notified the
Corporation of the proposed disposition and shall have furnished the Corporation
with a detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Corporation, shall have
furnished the Corporation with an opinion of counsel, reasonably satisfactory to
the Corporation, that such disposition will not require registration of such
shares under the 1933 Act. It is agreed that the Corporation will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
E. LEGENDS
Optionee understands that the certificates evidencing the Purchased
Shares may bear the following legend:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
satisfactory to the Corporation that such registration is not required
or unless sold pursuant to Rule 144 of such Act."
F. MISCELLANEOUS PROVISIONS
1. NO IMPAIRMENT OF RIGHTS. Nothing in this Agreement or in the
Plan shall in any way be construed or interpreted so as to affect adversely or
otherwise impair the right of the Corporation or the stockholders to remove
Optionee from the Board of Directors of the Corporation at any time in
accordance with the provisions of applicable law.
2. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the express provisions of this Agreement.
3. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
4. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, as such laws
are applied to contracts entered into and performed in such State, without
resort to that State's conflict-of-laws rules.
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<PAGE>
5. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and Optionee and Optionee's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
7. HEADINGS. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first indicated above.
GOLF TRUST OF AMERICA, INC.
By: __________________________________________
Title: _______________________________________
Address: 190 King Street
Charleston, South Carolina 29401
______________________________________________
OPTIONEE
Name: ____________________________________
Address: ____________________________________
Print name in exact manner ____________________________________
it is to appear on the
stock certificate: _________________________________________
Address to which certificate
is to be sent, if different
from address above: _________________________________________
_________________________________________
Social Security Number: _________________________________________
4
<PAGE>
EXHIBIT C
1997 NON-EMPLOYEE DIRECTORS' PLAN
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 NON-EMPLOYEE DIRECTORS' PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. GENERAL
A. PURPOSE. This 1997 Non-Employee Directors' Plan (the "Plan") is
intended to promote the interests of Golf Trust of America, Inc., a Maryland
corporation or any successor corporation (the "Corporation"), by offering
Non-Employee members of the Board the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
B. EFFECTIVE DATE. The Plan will become effective immediately upon the
execution and final pricing of the Underwriting Agreement for the initial public
offering of the Corporation's Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Effective Date of the Plan.
II. DEFINITIONS
A. GENERAL DEFINITIONS. For purposes of the Plan, the following
definitions shall be in effect:
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated;
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation; or
c. any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined
<PAGE>
voting power of the Corporation's outstanding securities are transferred to
a person or persons different from the persons holding those securities
immediately prior to such merger.
EFFECTIVE DATE: the date specified in Section I of this Article One
on which the Plan shall become effective.
ELIGIBLE DIRECTOR: a Non-Employee member of the Board eligible to
participate in the Plan according to the provisions of Section IV of this
Article One.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have received
written notice of the exercise of an option granted pursuant to the Automatic
Option Grant Program of Article Two.
FAIR MARKET VALUE: the value per share of Common Stock determined in
accordance with the following provisions:
a. For any option grants made on the Effective Date, the Fair
Market Value shall be the price per share at which the Common Stock is to
be sold in the initial public offering of the Common Stock pursuant to the
Underwriting Agreement. For all other purposes, the Fair Market Value
shall be determined in accordance with the provisions of subparagraphs b
through c below.
b. If the Common Stock is at the time traded on the Nasdaq
National Market, the Fair Market Value shall be the closing selling price
per share on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative
of Fair Market Value.
c. If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair Market Value
shall be the closing selling price per share on the date in question on the
securities exchange serving as the primary market for the Common Stock as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on such
exchange on the date in question, then the Fair Market Value shall be the
closing selling price on the exchange on the last preceding date for which
such quotation exists.
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<PAGE>
FOUNDING DIRECTOR: Any individual who was a member of the Board on
the Effective Date.
1933 ACT: the Securities Act of 1933, as amended.
1934 ACT: the Securities Exchange Act of 1934, as amended.
NON-EMPLOYEE: any individual who is not an Employee.
NON-FOUNDING DIRECTOR: any member of the Board who was not a member
of the Board on the Effective Date.
NONQUALIFIED OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: any person to whom an option is granted under the Automatic
Option Grant Program of Article Two.
PRIOR OWNER: any person who contributed any golf course to the
Corporation or to any of its affiliates.
B. PARENT/SUBSIDIARY DETERMINATION. The following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:
1. Any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation shall be considered to be a PARENT
of the Corporation, provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
2. Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation in the unbroken
chain (other than the last corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. Under the Automatic Option Grant Program of Article
Two, Non-Employee members of the Board will automatically receive option grants
to purchase shares of Common Stock at periodic intervals over their period of
Board service.
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<PAGE>
B. GENERAL PROVISIONS. Unless the context clearly indicates otherwise,
the provisions of Articles One and Three shall apply to all aspects of the
Automatic Option Grant Program and accordingly shall govern the interests of all
individuals under the Plan.
IV. ELIGIBILITY
A. ELIGIBLE DIRECTORS.
1. The individuals eligible to receive automatic option grants
pursuant to the provisions of this Plan shall be limited to (i) Non-Employees
who are serving as members of the Board on the Effective Date, (ii)
Non-Employees who are first elected or appointed as Board members after the
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders and (iv) individuals who cease to serve as Board
members at any time after the Effective Date but who subsequently resume Board
membership as Non-Employee members, whether through appointment by the Board or
election by the Corporation's stockholders.
2. A Non-Employee member of the Board shall not be eligible to
receive an automatic option grant under this Plan if such individual is a Prior
Owner or is, on the date the option grant would otherwise occur, an Employee of
any parent or subsidiary of the Corporation.
3. Any Board member eligible to participate in the Plan pursuant to
the foregoing criteria shall be designated an Eligible Director.
B. LIMITATION. An Eligible Director shall not be entitled to receive any
option grants or stock issuances under any other stock plan of the Corporation
(or its parent or subsidiaries) during his or her period of Board service.
V. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
100,000 shares, subject to adjustment from time to time in accordance with the
provisions of this Section V.
B. In no event shall the aggregate number of shares granted pursuant to
the Automatic Option Grant Program of Article Two exceed 35,000 shares in any
calendar year. Once this limitation is reached in any calendar year, no further
stock option grants will be made under the Plan for the balance of that year.
However, any Eligible Directors who fail to receive their stock option grants in
any calendar year by reason of such limitation shall receive those grants on the
first trading day of the succeeding calendar year, and such grants shall have
priority over all other grants to be made in that calendar year.
4
<PAGE>
C. Should the number of shares which remain available for issuance under
the Plan not be sufficient for the automatic option grants to be made at a
particular time, then the available shares shall be allocated proportionately
among all the automatic option grants to be made at that time.
D. Should one or more outstanding options under the Automatic Option
Grant Program expire or terminate for any reason prior to exercise in full, then
the shares subject to the portion of each option not so exercised shall be
available for subsequent issuance under the Plan. All share issuances under the
Plan shall reduce on a share-for-share basis the number of shares of Common
Stock available for subsequent issuance under the Plan. In addition, should the
exercise price of an outstanding option under the Automatic Option Grant Program
be paid with shares of Common Stock, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the gross number of
shares for which the option is exercised, and not by the net number of shares
actually issued to the holder of such option.
E. Should any change be made to the Common Stock issuable under the Plan
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments will be made to (i) the maximum number and/or class of
securities available for issuance under the Plan, (ii) the number and/or class
of securities to be made the subject of each subsequent automatic option grant
and direct stock issuance, (iii) the number and/or class of securities
purchasable under each outstanding option and the exercise price payable per
share and (iv) the aggregate number and/or class of securities which may be made
the subject of automatic option grants in any calendar year. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the dilution or enlargement of rights and benefits under such options.
ARTICLE TWO
AUTOMATIC OPTION GRANT PROGRAM
I. GRANT DATES
Option grants shall be made under this Article Two on the dates specified
below.
A. INITIAL GRANT.
1. On the Effective Date, each Founding Director who is an Eligible
Director shall automatically be granted Nonqualified Options to purchase 5,000
shares of Common Stock upon the terms and conditions of this Article Two (an
"Initial Grant").
2. Each Non-Founding Director who is an Eligible Director shall
automatically be granted, on the date such director first becomes an Eligible
Director, a
5
<PAGE>
Nonqualified Option to purchase 5,000 shares of Common Stock upon the terms and
conditions of this Article Two.
B. ANNUAL GRANT. On each anniversary of the later of (i) the Effective
Date or (ii) the date on which the Eligible Director first became an Eligible
Director, each Eligible Director shall automatically be granted a Nonqualified
Option to purchase an additional 5,000 shares of Common Stock upon the terms and
conditions of this Article Two, provided such individual's service on the Board
continues without interruption through such anniversary date.
C. RE-ELECTION GRANT. Each Eligible Director who ceases to serve on the
Board at any time after the Effective Date but who is subsequently re-elected to
the Board, whether through appointment by the Board or election by the
Corporation's stockholders, shall automatically be granted, on the date of the
first Board meeting following the annual meeting of the Corporation's
stockholders at which such individual is re-elected as a Board member by the
stockholders, a Nonqualified Option to purchase 5,000 shares of Common Stock
upon the terms and conditions of this Article Two, provided such individual
continues to serve as an Eligible Director through the date of such Board
meeting.
D. The number of shares for which the automatic option grants are to be
made to each newly elected or continuing Eligible Director shall be subject to
periodic adjustment pursuant to the applicable provisions of Section V.E of
Article One.
II. EXERCISE PRICE
The exercise price per share of Common Stock subject to each automatic
option grant made under this Article Two shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date; PROVIDED, HOWEVER that the Exercise Price of the Initial Grant to Founding
Directors shall be equal to the initial public offering price.
III. PAYMENT
A. The exercise price shall become immediately due upon exercise of the
option.
B. The exercise price shall be payable in one of the alternative forms
specified below:
1. full payment in cash or check made payable to the order of the
Corporation;
2. full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date;
6
<PAGE>
3. full payment in a combination acceptable to the Compensation
Committee of shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date and cash or check made
payable to the Corporation's order; or
4. full payment through a sale and remittance procedure pursuant to
which the option holder shall provide concurrent irrevocable written
instructions (i) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares and (ii) to the
Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
IV. OPTION TERM
Each automatic grant under this Article Two shall have a maximum term of
ten (10) years measured from the automatic grant date and shall accordingly
terminate and cease to be outstanding for any option shares at the close of
business on the day immediately preceding the tenth (10th) anniversary of the
automatic grant date, unless sooner terminated in accordance with the provisions
of Section VIII of this Article Two.
V. EXERCISABILITY/VESTING
Each automatic grant shall be immediately exercisable for any or all of the
option shares and shall remain so exercisable until the expiration date of such
option, whether or not the Optionee continues to serve as a Board member. The
option shares shall be fully vested on the date of grant.
VI. NON-TRANSFERABILITY
Each automatic option grant shall be exercisable only by the Optionee
during his or her lifetime and shall not be assignable or transferable by the
Optionee, other than a transfer of the option effected by will or by the laws of
descent and distribution following the Optionee's death.
VII. STOCKHOLDER RIGHTS
The holder of an automatic option grant under this Article Two shall have
none of the rights of a stockholder with respect to the shares subject to that
option until such individual shall have exercised the option and paid the
exercise price for the purchased shares.
VIII. CORPORATE TRANSACTION
A. Immediately following the consummation of a Corporate Transaction, all
automatic option grants outstanding under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
7
<PAGE>
B. Each outstanding option under this Article Two which is assumed in
connection with a Corporate Transaction shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply and pertain to the number
and class of securities which would have been issued to the option holder in
consummation of such Corporate Transaction, had such person exercised the option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the exercise price payable per share, provided the aggregate
exercise price payable for such securities shall remain the same. In addition,
the class and number of securities available for issuance under the Plan on both
an aggregate and per calendar year basis following the consummation of the
Corporate Transaction shall be appropriately adjusted.
IX. REMAINING TERMS
The remaining terms and conditions of each automatic option grant shall be
as set forth in the Automatic Stock Option Agreement attached as EXHIBIT A.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
I. AMENDMENT OF THE PLAN
The provisions of this Plan relating to the amount, price and timing of
awards under the Plan, together with the automatic option grants outstanding
under Article Two, may not be amended at intervals more frequently than once
every six (6) months, other than to the extent necessary to comply with
applicable requirements of the federal income tax laws and regulations.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options on unvested stock issuances at the time
outstanding under the Plan, unless the Optionee consents to such amendment. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan (i) materially to increase the maximum number of
shares issuable under the Plan, except for permissible adjustments under Section
V.E of Article One, (ii) materially to modify the eligibility requirements for
Plan participation or (iii) materially to increase the benefits accruing to Plan
participants.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was adopted by the Board on _______________, 1997 and
approved by the Corporation's stockholders on ___________, 1997. The Plan
became effective on _______________, 1997, the date on which the registration
statement relating to the Corporation's initial public offering was declared
effective by the Securities and Exchange Commission.
B. The Plan shall terminate upon the earliest to occur of (i) December
31, 2006, (ii) the date the Plan is terminated by the Board or (iii) the date on
which all shares available for
8
<PAGE>
issuance under the Plan shall have been issued pursuant to the exercise of the
automatic option grants made under the Automatic Option Grant Program of
Article Two (whether vested or unvested). If the date of termination is
determined under clauses (i) or (ii) above, then any option grants outstanding
on such date shall not be affected by the termination of the Plan and shall
continue to have force and effect in accordance with the provisions of the
instruments evidencing those grants.
III. CASH PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to the Plan shall be used for general corporate purposes.
IV. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under the
Automatic Option Grant Program and the issuance of Common Stock upon the
exercise of any such option shall each be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the stock options granted under it and the
Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of federal and state securities laws and all applicable
listing requirements of any securities exchange on which the Common Stock is
then listed for trading.
V. NO IMPAIRMENT OF RIGHTS
No provision of the Plan shall in any way be construed or interpreted so as
to affect adversely or otherwise impair the right of the Corporation or the
stockholders to remove any Optionee from the Board at any time in accordance
with the provisions of applicable law.
VI. MISCELLANEOUS PROVISIONS
A. TRANSFER LIMITATION. Except to the extent otherwise expressly provided
in the Plan, the right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee.
B. GOVERNING LAW. The provisions of the Plan relating to the exercise of
options shall be governed by the laws of the State of Maryland without resort to
that State's conflict-of-laws rules, as such laws are applied to contracts
entered into and performed in such State.
C. SUCCESSORS AND ASSIGNS. The provisions of the Plan shall inure to the
benefit of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate
9
<PAGE>
Transaction or otherwise and the Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
D. HEADINGS. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of the Plan.
10
<PAGE>
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE>
EMPLOYMENT AGREEMENT
(W. Bradley Blair, II)
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is dated as of
_______________, 1997, between Golf Trust of America, Inc., a Maryland
corporation, having its principal place of business at 190 King Street,
Charleston, South Carolina 29401 (the "COMPANY"), and W. Bradley Blair, II, an
individual residing at the address set forth below his name on the signature
page hereof (the "EXECUTIVE").
COMPANY AND EXECUTIVE ENTER THIS AGREEMENT on the basis of the
following facts, understandings and intentions:
A. the Executive has been an executive of the Company; and
B. the Company values Executive's knowledge and familiarity with the
business of the Company and desires to assure itself of the continued services
of Executive.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Company and Executive agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. TERM. The employment of the Executive by the Company as provided in
Section 1 above will commence on the date set forth above (the "COMMENCEMENT
DATE"), and will terminate on the fourth anniversary of the Commencement Date
(such term being the "ORIGINAL TERM"), unless earlier terminated pursuant to the
provisions of Section 5 of this Agreement. On the final day of the Original
Term and on each one (1) year anniversary thereafter, the term of this Agreement
shall be extended automatically for one (1) additional year (each such extension
being a "RENEWAL TERM"), unless written notice that this Agreement will not be
extended is given by either party to the other one hundred eighty (180) days
prior to the expiration of the Original Term or the then-current Renewal Term,
as the case may be. The Original Term and any Renewal Terms, in their full
duration, are herein individually referred to as "EMPLOYMENT TERMS," and the
period of the Executive's employment under this Agreement consisting of the
Original Term and all Renewal Terms, except as may be terminated early pursuant
to Section 5, is herein referred to as the "EMPLOYMENT PERIOD."
3. POSITION.
(a) TITLE AND POSITION. During the Employment Period, the Executive
shall be employed as an executive officer of the Company with the title of
President or in such
<PAGE>
other executive position as the Board of Directors of the Company (the
"BOARD") may from time to time determine with the consent of the Executive.
In addition, for so long as the Executive is an employee of the Company and
is elected by the Company's stockholders, the Executive hereby agrees to
serve as a member of the Board. The Executive understands that his position
as a member of the Board is subject to the nomination by the Company;
PROVIDED that the Executive shall be a member of the Board with a three (3)
year term prior to the time the Company consummates any public offering of
securities and the Company agrees to use permissible commercially reasonable
efforts (subject to the exercise of its fiduciary duties) to cause the
nomination and election of the Executive to the Board following any such
public offering, subject to the terms and conditions of this Agreement. In
the performance of his duties as an officer, the Executive shall be subject
to the direction of the Board, and shall not be required to take direction
from or report to any other person. Employee's duties and authority shall be
commensurate with his title and position with the Company.
(b) PLACE OF EMPLOYMENT. During the term of this Agreement, the
Executive shall perform the services required by this Agreement at the Company's
place of business in Charleston, South Carolina; PROVIDED, HOWEVER, that the
Company may require the Executive to travel to other locations on the Company's
business.
(c) DUTIES. The Executive shall devote commercially reasonable
efforts and substantially full working time and attention to the promotion and
advancement of the Company and its welfare. The Executive shall serve the
Company faithfully and to the best of his ability, and shall perform such
services and duties in connection with the business, affairs and operations of
the Company as may be assigned or delegated to him from time to time by or
under, and in accordance with, the authority and direction of the Board. The
Company shall retain the right to direct and control the means and methods by
which the Executive performs the above services.
(d) OTHER ACTIVITIES. Except with the prior written approval of the
Board (which the Board may grant or withhold in its sole and absolute
discretion) and except as may be set forth in Section 9 of this Agreement, the
Executive, during the Employment Period, will not (i) accept any other
employment, or (ii) engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to, that of
the Company or any of its affiliates. Notwithstanding the foregoing, the
Company agrees that the Executive (or affiliates of the Executive) shall be
permitted (i) to undertake the activities set forth in Section 9, and (ii) to
make any other passive personal investment that is not in a business activity
competitive with the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Company shall pay the Executive a base salary
at a rate of Two Hundred Fifty Thousand Dollars ($250,000) per year during the
first full calendar year of the Original Term. The Executive's base salary for
each succeeding year
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shall, at a minimum, be increased over the prior year by a factor measured by
the increase, if any, in the Consumer Price Index for Wage Earners and
Clerical Workers (as published by the Bureau of Labor Statistics). The base
salary may further be increased, but not decreased, in succeeding years by an
amount determined by the Compensation Committee of the Board. All salary
shall be paid according to the standard payroll practices of the Company
(regarding, E.G., timing of payments, standard employee deductions, income
tax withholdings, social security deductions, and etc.) as in place from time
to time.
(b) BUSINESS EXPENSES. The Company shall reimburse the Executive for
personal expenditures incurred in connection with the conduct of the Company's
business upon presentation of sufficient evidence of such expenditures as may be
required by the Company's policies as in place from time to time.
(c) BENEFIT PLAN ELIGIBILITY. During the Employment Period, the
Executive shall be entitled to participate in any benefit plans that are made
generally available to executive officers of the Company from time to time,
including, without limitation, any deferred compensation, health, dental, life
insurance, long-term disability insurance, retirement, pension or 401(k) savings
plan. Nothing in this Section 4(c) is intended, or shall be construed, to
require the Company to institute or to continue any, or any particular, plan or
benefit.
(d) PERFORMANCE BONUS. The Compensation Committee of the Board may
establish and administer a performance bonus program for the Executive to
provide for payment of a cash bonus to the Executive upon the achievement of
certain performance objectives to be established by the Compensation Committee
for the Executive. If such a program is established, the Compensation Committee
of the Board shall monitor, review and modify the program from time to time as
necessary to reflect the Executive's contributions to the Company.
(e) STOCK INCENTIVE PLAN. The Compensation Committee of the Board
shall establish and administer a Stock Incentive Plan, substantially in the form
attached as EXHIBIT A hereto, in which the Executive shall be eligible to
participate according to its terms; PROVIDED, HOWEVER, that the Board of
Directors shall approve, prior to the completion of the Company's initial public
offering, a grant of options to the Executive to purchase up to one hundred
fifty thousand (150,000) shares of the Company's common stock, which options
shall become exercisable in three (3) equal installments commencing upon the
first anniversary of the date of grant and each of the two (2) years thereafter,
and shall be exercisable for ten (10) years from the date of grant at the fair
market value of the common stock on the date of grant.
(f) FRINGE BENEFITS. The Executive will be entitled to fringe
benefits as may be determined or granted from time-to-time under the authority
of the Board.
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(g) VACATION AND HOLIDAYS. The Executive shall be entitled to four
(4) weeks (twenty (20) business days) of paid vacation time in each calendar
year on a pro-rated basis. The Executive shall be entitled to all paid Company
holidays.
(h) DIRECTORS AND OFFICERS INSURANCE AND INDEMNIFICATION. The
Company shall maintain insurance to insure the Executive against any claim
arising out of an alleged wrongful act by the Executive while acting as a
director or officer of the Company. The Company shall further indemnify and
exculpate from money damages the Executive to the fullest extent permitted under
applicable law.
(i) PERFORMANCE REVIEWS. At the end of each fiscal year, the Board
or the Compensation Committee thereof will review the Executive's job
performance and will provide the Executive a written review of the Executive's
job performance during the prior year and implement any Board authorized
revisions to the Executive's position, compensation and duties at the Company;
PROVIDED, HOWEVER, that the provisions set forth in this Agreement with respect
to the Executive's compensation, and other terms and conditions of the
Executive's employment at the Company shall not be modified by the Board in a
manner which would result in less favorable or less beneficial terms or
conditions thereof being imposed on the Executive without the Executive's full
concurrence and consent.
5. TERMINATION. The Executive's employment hereunder shall be, or may
be, as the case may be, terminated under the following circumstances:
(a) DEATH. The Executive's employment under this Agreement shall
terminate upon his death.
(b) DISABILITY. The Executive's employment under this Agreement
shall terminate upon the Executive's physical or mental disability or infirmity
which, in the opinion of a competent physician selected by the Board, renders
the Executive unable to perform his duties under this Agreement for more than
one hundred twenty (120) days during any one hundred eighty (180) day period.
(c) EMPLOYMENT-AT-WILL; TERMINATION BY COMPANY FOR ANY REASON. The
Executive's employment hereunder is "at will" and may be terminated by the
Company at any time with or without Good Reason (as defined in Section 7(c)
below), by a majority vote of all of the members of the Board of Directors upon
written Notice of Termination (as defined below) to Employee, subject only to
the severance provisions specifically set forth in Section 7 below.
(d) VOLUNTARY RESIGNATION. The Executive may voluntarily resign his
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "NOTICE OF RESIGNATION").
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "DATE OF RESIGNATION"), which date shall in any event, be at
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. The
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Notice of Resignation shall be sufficient notice under Section 2 above to
prevent the automatic extension of this Agreement, if timely given according
to the terms of Section 2.
(e) NOTICE. Any termination of the Executive's employment by the
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice
that indicates the specific termination provision in this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The Notice of Termination shall be sufficient notice
under Section 2 above to prevent the automatic extension of this Agreement, if
timely given according to the terms of Section 2.
(f) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death; (ii)
if the Executive's employment is terminated by reason of his disability, the
date of the opinion of the physician referred to in Section 5(b), above; (iii)
if the Executive's employment is terminated by the Company for Good Reason or
without Good Reason by the Company pursuant to Section 5(c) above, the date
specified in the Notice of Termination; and (iv) if the Executive voluntarily
resigns pursuant to Section 5(d) above, the Date of Resignation set forth in the
Notice of Resignation.
6. OBLIGATIONS UPON TERMINATION.
(a) RETURN OF PROPERTY. The Executive hereby acknowledges and agrees
that all personal property and equipment furnished to or prepared by the
Executive in the course of or incident to his employment belongs to the Company
and shall be promptly returned to the Company upon termination of the Employment
Period.
(b) COMPLETE RESIGNATION. Upon the expiration of the Employment
Period or any termination of employment under Section 5 above, the Executive
shall be deemed to have resigned from all offices and directorships then held
with the Company or any of its subsidiaries.
(c) SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER
PROVISIONS. The representations and warranties contained in this Agreement and
the parties' obligations under this Section 6 and Sections 7 through 9 and 16
through 18, inclusively, shall survive termination of the Employment Period and
the expiration of this Agreement.
(d) RELEASE. In exchange for the Company entering into this
Agreement, the Executive agrees that, at the time of his resignation or
termination from the Company, he will resign from the Board and will execute a
release acceptable to the Company of all liability of the Company and its
officers, shareholders, employees and directors to the Executive in connection
with or arising out of his employment with the Company, except with respect to
(i) any then-vested rights under the Company's Stock Incentive Plan; (ii) any
deferred compensation held in trust under the Company's Deferred Compensation
Plan; (iii)
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any Severance Payments or benefits which may be payable to him under
Section 7 or other provisions of this Agreement; and (iv) any continuation of
health or other benefit plans in accordance with this Agreement or as may be
required by law.
7. COMPENSATION UPON TERMINATION. The Executive shall be entitled to the
following post-termination payments:
(a) DEATH. If the Executive's employment is terminated by reason of
death pursuant to Section 5(a), the Company shall pay the Executive monthly his
base salary payable under Section 4(a), and one-twelfth (1/12) of the most
recent annual amount received, or entitled to be received, by the Executive as a
performance bonus payable under Section 4(d) (collectively the "SEVERANCE
PAYMENTS") for the greater of (i) two (2) years following the Date of
Termination, or (ii) the time period beginning on the Date of Termination and
ending on the final day of the final Employment Term determined according to
Section 2, above. In addition, during the full time period described in the
preceding clause (ii), the Executive, his estate and dependents shall continue
to participate, at their option, in all benefit plans described in Section 4(c)
and pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Termination, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at their own expense, the Executive's dependents shall be
entitled to any continuation of health insurance coverage rights required by any
applicable law.
(b) DISABILITY. If the Executive's employment is terminated by
reason of disability pursuant to Section 5(b), the Executive shall receive
Severance Payments for the greater of (i) two years following the Date of
Termination, or (ii) the time period beginning on the Date of Termination and
ending on the final day of the final Employment Term determined according to
Section 2, above; PROVIDED, HOWEVER, that Severance Payments otherwise payable
to the Executive under this Section 7(b) shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
Severance Payment under any disability benefit plan of the Company. In
addition, during the full time period described in the preceding clause (ii),
the Executive shall continue to participate, at his option, in all benefit plans
described in Section 4(c) and pursuant thereto shall receive benefits
substantially comparable to those in effect on the day before the Date of
Termination, subject to any reduction or termination of such benefits similarly
affecting all management personnel of the Company. Thereafter, at the
Executive's own expense, the Executive and his dependents shall be entitled to
any continuation of health insurance coverage rights required by any applicable
law.
(c) TERMINATION BY COMPANY.
(i) FOR GOOD REASON. If the Executive's employment is terminated
by the Company pursuant to Section 5(c) for Good Reason (as defined below), the
Company shall pay the Executive his base salary and any bonus due and payable
pursuant to Section
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4(d) through the Date of Termination. At the Executive's own expense, the
Executive and his dependents shall also be entitled to any continuation of
health insurance coverage rights required by any applicable law.
(ii) WITHOUT GOOD REASON. If the Executive's employment is
terminated by the Company pursuant to Section 5(c) without any Good Reason, the
Company shall pay the Executive the Severance Payment for the greater of (A) two
(2) years following the Date of Termination, or (B) the time period beginning on
the Date of Termination and ending on the final day of the final Employment Term
determined according to Section 2, above. In addition, during the full time
period described in the preceding clause (B), the Executive shall continue to
participate, at his option, in all benefit plans described in Section 4(c) and
pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Termination, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at the Executive's own expense, the Executive and his
dependents shall be entitled to any continuation of health insurance coverage
rights required by any applicable law.
(iii) "GOOD REASON" means a finding by the Board that (A) the
Executive materially breached any of the material terms of this Agreement; or
(B) the Executive acted with gross negligence, willful misconduct or
fraudulently in the performance of his duties hereunder.
(d) VOLUNTARY RESIGNATION.
(i) FOR GOOD CAUSE. If the Executive terminates his employment
with the Company pursuant to Section 5(d) for Good Cause (as defined below), the
Company shall pay the Executive the Severance Payment for the greater of (A) two
(2) years following the Date of Termination, or (B) the time period beginning on
the Date of Termination and ending on the final day of the final Employment Term
determined according to Section 2, above. In addition, during the full time
period described in the preceding clause (B), the Executive shall continue to
participate, at his option, in all benefit plans described in Section 4(c) and
pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Termination, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at the Executive's own expense, the Executive and his
dependents shall be entitled to any continuation of health insurance coverage
rights required by any applicable law.
(ii) WITHOUT GOOD CAUSE. If the Executive terminates his
employment with the Company pursuant to Section 5(g) without Good Cause, the
Company shall have no obligation to compensate the Executive following the Date
of Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights required by any applicable law.
(iii) "GOOD CAUSE" means the occurrence, without the express
written consent of the Executive, of any of the following events, unless such
event is substantially
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corrected within ninety (90) days following written notification by Executive
to the Company that he intends to terminate his employment under this
Agreement because of such event:
(A) any material reduction or diminution in the compensation or benefits
of the Executive;
(B) any material breach or material default by the Company under any
material provision of this Agreement; or
(C) any Change in Control (as defined below).
(iv) "CHANGE IN CONTROL" means the occurrence of any of the
following events after the effective date of the first initial public offering
of the Company's common stock:
(A) the Board adopts a plan relating to the liquidation or dissolution of
the Company;
(B) a Person (as defined below) directly or indirectly becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Securities Exchange Act of 1934) of more than
twenty-five percent (25%) of the total voting power of the total
outstanding voting securities of the Company on a fully diluted basis;
(C) a Person directly or indirectly acquires or agrees to acquire all or
substantially all of the assets and business of the Company;
(D) for any reason during any period of two (2) consecutive years (not
including any period prior to the date of this Agreement) a majority
of the Board is constituted by individuals other than (1) individuals
who were directors immediately prior to the beginning of such period,
and (2) new directors whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors immediately prior to the beginning of the period
or whose election or nomination for election was previously so
approved.
(v) For purposes of this Section 7(d), "PERSON" means any natural
person, corporation, or any other entity; PROVIDED, HOWEVER, that the term
"Person" shall not include any stockholder or employee of the company on the
date immediately prior to the initial public offering of the Company's common
stock or any estate or member of the immediate family of such a stockholder or
employee.
(e) In the event of any termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase securities
of the Company granted
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to the Executive pursuant to the terms and conditions of the Stock Incentive
Plan or otherwise that have vested as of the date of such termination.
(f) Any Severance Payments made pursuant to this Section 7 shall be
payable in equal monthly installments over the required duration set forth
herein.
(g) If, in spite of the provisions above entitling the Executive to
benefits under any benefit plan, such benefits are not payable or provideable
under any such plan to the Executive, or to the Executive's dependents,
beneficiaries or estate, because the Executive is no longer deemed to be an
employee of the Company, then the Company shall independently pay or provide for
payment of such benefits for the remainder of the Employment Term.
(h) The continuing obligation of the Company to make any Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 6, 8
and 9 of this Agreement following termination of his employment with the
Company.
8. COVENANT OF CONFIDENTIALITY. In addition to the agreements set forth
in Section 6, the Executive hereby agrees that the Executive will not, during
the Employment Period or for one (1) year thereafter directly or indirectly
disclose or make available to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever, any Confidential Information.
As used in this Agreement, "CONFIDENTIAL INFORMATION" means: non-public
information disclosed to the Executive or known by the Executive as a
consequence of or through his relationship with the Company, about the Company's
subsidiaries, affiliates and partners thereof, owners, customers, employees,
business methods, public relations methods, organization, procedures or
finances, including, without limitation, information of or relating to
properties that the Company or any of its affiliates, subsidiaries or partners
thereof owns or may be considering acquiring an interest in; PROVIDED, HOWEVER,
that the Executive shall not be obligated to treat as confidential, or return to
the Company copies of, any Confidential Information that (i) was publicly known
at the time of disclosure to the Executive, (ii) becomes publicly known or
available thereafter other than by any means in violation of this Agreement or
any other duty owed to the Company by any person or entity, or (iii) the
Executive is required by law to disclose to a third party.
9. COVENANT NOT TO COMPETE.
(a) The Executive agrees that during the Employment Period he will
devote substantially his full working time to the business of the Company and
will not engage in any competitive business. Subject to such full-time
requirement and the other restrictions set forth in this Section 9 and Section
3(d) above, the Executive shall be permitted to continue his existing business
investments and activities and may pursue additional business investments.
Without limiting the foregoing, the Executive specifically covenants that during
and after his employment with the company he shall not:
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(i) compete directly with the Company in a business similar to
that of the Company;
(ii) compete directly or indirectly with the Company, its
subsidiaries and/or partners thereof with respect to any acquisition or
development of any real estate project undertaken or being considered by the
Company, its subsidiaries and/or partners thereof at the end of Executive's
Employment Period;
(iii) lend or allow his name or reputation to be used by or
in connection with any business competitive with the Company, its subsidiaries
and/or partners thereof; or
(iv) intentionally interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the Company, its
subsidiaries and/or partners thereof, and any lessee, tenant, supplier,
contractor, lender, employee or governmental agency or authority.
(b) Notwithstanding anything to the contrary in this Section 9 or
elsewhere in this Agreement, the Executive shall be permitted, at his option, to
invest in residential real estate developments in which Larry D. Young or his
affiliates participate.
(c) The provisions of this Section 9 shall survive for one (1) year
and no longer following the termination of the Employment Period regardless of
whether such termination is for Good Cause or without Good Reason or otherwise;
PROVIDED, HOWEVER, that if the Executive resigns as a result of a Change in
Control (as defined in Section 7(d)) then the provisions of this Section 9 shall
not survive the Executive's resignation.
10. INJUNCTIVE RELIEF AND ENFORCEMENT. In the event of breach by the
Executive of the terms of Sections 6, 8 or 9, the Company shall be entitled to
institute legal proceedings to enforce the specific performance of this
Agreement by the Executive and to enjoin the Executive from any further
violation of Sections 6, 8 or 9 and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law and not otherwise
limited by this Agreement. The Executive acknowledges, however, that the
remedies at law for any breach by him of the provisions of Sections 6, 8 or 9
may be inadequate. In addition, in the event the agreements set forth in
Sections 6, 8 or 9 shall be determined by any court of competent jurisdiction to
be unenforceable by reason of extending for too great a period of time or over
too great a geographical area or by reason of being too extensive in any other
respect, each such agreement shall be interpreted to extend over the maximum
period of time for which it may be enforceable and to the maximum extent in all
other respects as to which it may be enforceable, and enforced as so
interpreted, all as determined by such court in such action.
11. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered, when
transmitted by telecopy with receipt
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confirmed, or one day after delivery to an overnight air courier guaranteeing
next day delivery, addressed as follows:
If to the Executive: W. Bradley Blair, II
___________________________
___________________________
If to the Company: Golf Trust of America, Inc.
190 King Street
Charleston, South Carolina 29401
With a copy to: Peter T. Healy, Esq.
O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street, Suite 2600
San Francisco, California 94111-3305
or to such other address as either party may furnish to the other from time to
time in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
12. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; PROVIDED, HOWEVER, that if any one or more of the terms contained in
Sections 6, 8 or 9 hereto shall for any reason be held to be excessively broad
with regard to time, duration, geographic scope or activity, that term shall not
be deleted but shall be reformed and constructed in a manner to enable it to be
enforced to the extent compatible with applicable law.
13. ASSIGNMENT. This Agreement may not be assigned by the Executive, but
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. HEADINGS. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
16. CHOICE OF LAW. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
South Carolina (without reference to the choice of law provisions of the State
of South Carolina), except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a
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party to or the subject of this Agreement, and as to those matters the law of
the jurisdiction under which the respective entity derives its powers shall
govern.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby and no
representations promises agreements or understandings written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges (a) that he
has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first written above.
"COMPANY"
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GOLF TRUST OF AMERICA, INC., a Maryland corporation
By: _____________________________
Its _____________________________
"EXECUTIVE"
______________________________
W. BRADLEY BLAIR, II
Residing at:
______________________________
______________________________
______________________________
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EXHIBIT A
[Form of Stock Incentive Plan]
14
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EMPLOYMENT AGREEMENT
(David J. Dick)
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is dated as of
_______________, 1997, between Golf Trust of America, Inc., a Maryland
corporation, having its principal place of business at 190 King Street,
Charleston, South Carolina 29401 (the "COMPANY"), and David J. Dick, an
individual residing at the address set forth below his name on the signature
page hereof (the "EXECUTIVE").
COMPANY AND EXECUTIVE ENTER THIS AGREEMENT on the basis of the
following facts, understandings and intentions:
A. the Executive has been an executive of the Company; and
B. the Company values Executive's knowledge and familiarity with the
business of the Company and desires to assure itself of the continued services
of Executive.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Company and Executive agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. TERM. The employment of the Executive by the Company as provided in
Section 1 above will commence on the date set forth above (the "COMMENCEMENT
DATE"), and will terminate on the third anniversary of the Commencement Date
(such term being the "ORIGINAL TERM"), unless earlier terminated pursuant to the
provisions of Section 5 of this Agreement. On the final day of the Original
Term and on each one (1) year anniversary thereafter, the term of this Agreement
shall be extended automatically for one (1) additional year (each such extension
being a "RENEWAL TERM"), unless written notice that this Agreement will not be
extended is given by either party to the other one hundred eight (180) days
prior to the expiration of the Original Term or the then-current Renewal Term,
as the case may be. The Original Term and any Renewal Terms, in their full
duration, are herein individually referred to as "EMPLOYMENT TERMS," and the
period of the Executive's employment under this Agreement consisting of the
Original Term and all Renewal Terms, except as may be terminated early pursuant
to Section 5, is herein referred to as the "EMPLOYMENT PERIOD."
3. POSITION.
(a) TITLE AND POSITION. During the Employment Period, the Executive
shall be employed as an executive officer of the Company with the title of
Executive Vice
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President or in such other executive position as the Board of Directors of
the Company (the "BOARD") may from time to time determine with the consent of
the Executive. In addition, for so long as the Executive is an employee of
the Company and is elected by the Company's stockholders, the Executive
hereby agrees to serve as a member of the Board. The Executive understands
that his position as a member of the Board is subject to the nomination by
the Company; PROVIDED that the Executive shall be a member of the Board with
a two (2) year term prior to the time the Company consummates any public
offering of securities and the Company agrees to use permissible commercially
reasonable efforts (subject to the exercise of its fiduciary duties) to cause
the nomination and election of the Executive to the Board following any such
public offering, subject to the terms and conditions of this Agreement. In
the performance of his duties as an officer, the Executive shall be subject
to the direction of the Board and the President, and shall not be required to
take direction from or report to any other person. Employee's duties and
authority shall be commensurate with his title and position with the Company.
(b) PLACE OF EMPLOYMENT. During the term of this Agreement, the
Executive shall perform the services required by this Agreement at the Company's
place of business in Charleston, South Carolina; PROVIDED, HOWEVER, that the
Company may require the Executive to travel to other locations on the Company's
business.
(c) DUTIES. The Executive shall devote commercially reasonable
efforts and substantially full working time and attention to the promotion and
advancement of the Company and its welfare. The Executive shall serve the
Company faithfully and to the best of his ability, and shall perform such
services and duties in connection with the business, affairs and operations of
the Company as may be assigned or delegated to him from time to time by or
under, and in accordance with, the authority and direction of the Board. The
Company shall retain the right to direct and control the means and methods by
which the Executive performs the above services.
(d) OTHER ACTIVITIES. Except with the prior written approval of the
Board (which the Board may grant or withhold in its sole and absolute
discretion) and except as may be set forth in Section 9 of the Executive, during
the Employment Period, will not (i) accept any other employment, or (ii) engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to, that of the Company or any of its affiliates.
Notwithstanding the foregoing, the Company agrees that the Executive (or
affiliates of the Executive) shall be permitted (i) to undertake the activities
set forth in Section 9, and (ii) to make any other passive personal investment
that is not in a business activity competitive with the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Company shall pay the Executive a base salary
at a rate of One Hundred Fifty Thousand ($150,000) per year during the first
full calendar year of the Original Term. The Executive's base salary for each
succeeding year shall, at a
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minimum, be increased over the prior year by a factor measured by the
increase, if any, in the Consumer Price Index for Wage Earners and Clerical
Workers (as published by the Bureau of Labor Statistics). The base salary
may further be increased, but not decreased, in succeeding years by an amount
determined by the Compensation Committee of the Board. All salary shall be
paid according to the standard payroll practices of the Company (regarding,
E.G., timing of payments, standard employee deductions, income tax
withholdings, social security deductions, and etc.) as in place from time to
time.
(b) BUSINESS EXPENSES. The Company shall reimburse the Executive for
personal expenditures incurred in connection with the conduct of the Company's
business upon presentation of sufficient evidence of such expenditures as may be
required by the Company's policies as in place from time to time.
(c) BENEFIT PLAN ELIGIBILITY. During the Employment Period, the
Executive shall be entitled to participate in any benefit plans that are made
generally available to executive officers of the Company from time to time,
including, without limitation, any deferred compensation, health, dental, life
insurance, long-term disability insurance, retirement, pension or 401(k) savings
plan. Nothing in this Section 4(c) is intended, or shall be construed, to
require the Company to institute or to continue any, or any particular, plan or
benefit.
(d) PERFORMANCE BONUS. The Compensation Committee of the Board may
establish and administer a performance bonus program for the Executive to
provide for payment of a cash bonus to the Executive upon the achievement of
certain performance objectives to be established by the Compensation Committee
for the Executive. If such a program is established, the Compensation Committee
of the Board shall monitor, review and modify the program from time to time as
necessary to reflect the Executive's contributions to the Company.
(e) STOCK INCENTIVE PLAN. The Compensation Committee of the Board
shall establish and administer a Stock Incentive Plan, substantially in the form
attached as EXHIBIT A hereto, in which the Executive shall be eligible to
participate according to its terms; PROVIDED, HOWEVER, that the Board of
Directors shall approve, prior to the completion of the Company's initial public
offering, a grant of options to the Executive to purchase up to one hundred
twenty-five thousand (125,000) shares of the Company's common stock, which
options shall become exercisable in three (3) equal installments commencing upon
the first anniversary of the date of grant and each of the two (2) years
thereafter, and shall be exercisable for ten (10) years from the date of grant
at the fair market value of the common stock on the date of grant.
(f) FRINGE BENEFITS. The Executive will be entitled to fringe
benefits as may be determined or granted from time-to-time by the Board or by
the President acting under the authority of the Board.
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(g) VACATION AND HOLIDAYS. The Executive shall be entitled to four
(4) weeks (twenty (20) business days) of paid vacation time in each calendar
year on a pro-rated basis. The Executive shall be entitled to all paid Company
holidays.
(h) DIRECTORS AND OFFICERS INSURANCE AND INDEMNIFICATION. The
Company shall maintain insurance to insure the Executive against any claim
arising out of an alleged wrongful act by the Executive while acting as a
director or officer of the Company. The Company shall further indemnify and
exculpate from money damages the Executive to the fullest extent permitted under
applicable law.
(i) PERFORMANCE REVIEWS. At the end of each fiscal year, the Board
or the Compensation Committee thereof will review the Executive's job
performance and will provide the Executive a written review of the Executive's
job performance during the prior year and implement any Board authorized
revisions to the Executive's position, compensation and duties at the Company;
PROVIDED, HOWEVER, that the provisions set forth in this Agreement with respect
to the Executive's compensation, and other terms and conditions of the
Executive's employment at the Company shall not be modified by the Board in a
manner which would result in less favorable or less beneficial terms or
conditions thereof being imposed on the Executive without the Executive's full
concurrence and consent.
5. TERMINATION. The Executive's employment hereunder shall be, or may
be, as the case may be, terminated under the following circumstances:
(a) DEATH. The Executive's employment under this Agreement shall
terminate upon his death.
(b) DISABILITY. The Executive's employment under this Agreement
shall terminate upon the Executive's physical or mental disability or infirmity
which, in the opinion of a competent physician selected by the Board, renders
the Executive unable to perform his duties under this Agreement for more than
one hundred twenty (120) days during any one hundred eighty (180) day period.
(c) EMPLOYMENT-AT-WILL; TERMINATION BY COMPANY FOR ANY REASON. The
Executive's employment hereunder is "at will" and may be terminated by the
Company at any time with or without Good Reason (as defined in Section 7(c)
below), by a majority vote of all of the members of the Board of Directors upon
written Notice of Termination (as defined below) to Employee, subject only to
the severance provisions specifically set forth in Section 7 below.
(d) VOLUNTARY RESIGNATION. The Executive may voluntarily resign his
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "NOTICE OF RESIGNATION").
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "DATE OF RESIGNATION"), which date shall in any event, be at
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. The
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Notice of Resignation shall be sufficient notice under Section 2 above to
prevent the automatic extension of this Agreement, if timely given according
to the terms of Section 2.
(e) NOTICE. Any termination of the Executive's employment by the
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice
that indicates the specific termination provision in this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The Notice of Termination shall be sufficient notice
under Section 2 above to prevent the automatic extension of this Agreement, if
timely given according to the terms of Section 2.
(f) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death; (ii)
if the Executive's employment is terminated by reason of his disability, the
date of the opinion of the physician referred to in Section 5(b), above; (iii)
if the Executive's employment is terminated by the Company for Good Reason or
without Good Reason by the Company pursuant to Section 5(c) above, the date
specified in the Notice of Termination; and (iv) if the Executive voluntarily
resigns pursuant to Section 5(d) above, the Date of Resignation set forth in the
Notice of Resignation.
6. OBLIGATIONS UPON TERMINATION.
(a) RETURN OF PROPERTY. The Executive hereby acknowledges and agrees
that all personal property and equipment furnished to or prepared by the
Executive in the course of or incident to his employment belongs to the Company
and shall be promptly returned to the Company upon termination of the Employment
Period.
(b) COMPLETE RESIGNATION. Upon the expiration of the Employment
Period or any termination of employment under Section 5 above, the Executive
shall be deemed to have resigned from all offices and directorships then held
with the Company or any of its subsidiaries.
(c) SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER
PROVISIONS. The representations and warranties contained in this Agreement and
the parties' obligations under this Section 6 and Sections 7 through 9 and 16
through 18, inclusively, shall survive termination of the Employment Period and
the expiration of this Agreement.
(d) RELEASE. In exchange for the Company entering into this
Agreement, the Executive agrees that, at the time of his resignation or
termination from the Company, he will resign from the Board and will execute a
release acceptable to the Company of all liability of the Company and its
officers, shareholders, employees and directors to the Executive in connection
with or arising out of his employment with the Company, except with respect to
(i) any then-vested rights under the Company's Stock Incentive Plan; (ii) any
deferred compensation held in trust under the Company's Deferred Compensation
Plan; (iii)
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any Severance Payments or benefits which may be payable to him under Section
7 or other provisions of this Agreement; and (iv) any continuation of health
or other benefit plans in accordance with this Agreement or as may be
required by law.
7. COMPENSATION UPON TERMINATION. The Executive shall be entitled to the
following post-termination payments:
(a) DEATH. If the Executive's employment is terminated by reason of
death pursuant to Section 5(a), the Company shall pay the Executive monthly his
base salary payable under Section 4(a), and one-twelfth (1/12) of the most
recent annual amount received, or entitled to be received, by the Executive as a
performance bonus payable under Section 4(d) (collectively the "SEVERANCE
PAYMENTS") for the greater of (i) two (2) years following the Date of
Termination, or (ii) the time period beginning on the Date of Termination and
ending on the final day of the final Employment Term determined according to
Section 2, above. In addition, during the full time period described in the
preceding clause (ii), the Executive, his estate and dependents shall continue
to participate, at their option, in all benefit plans described in Section 4(c)
and pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Termination, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at their own expense, the Executive's dependents shall be
entitled to any continuation of health insurance coverage rights required by any
applicable law.
(b) DISABILITY. If the Executive's employment is terminated by
reason of disability pursuant to Section 5(b), the Executive shall receive
Severance Payments for the greater of (i) two years following the Date of
Termination, or (ii) the time period beginning on the Date of Termination and
ending on the final day of the final Employment Term determined according to
Section 2, above; PROVIDED, HOWEVER, that Severance Payments otherwise payable
to the Executive under this Section 7(b) shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
Severance Payment under any disability benefit plan of the Company. In
addition, during the full time period described in the preceding clause (ii),
the Executive shall continue to participate, at his option, in all benefit plans
described in Section 4(c) and pursuant thereto shall receive benefits
substantially comparable to those in effect on the day before the Date of
Termination, subject to any reduction or termination of such benefits similarly
affecting all management personnel of the Company. Thereafter, at the
Executive's own expense, the Executive and his dependents shall be entitled to
any continuation of health insurance coverage rights required by any applicable
law.
(c) TERMINATION BY COMPANY.
(i) FOR GOOD REASON. If the Executive's employment is terminated
by the Company pursuant to Section 5(c) for Good Reason (as defined below), the
Company shall pay the Executive his base salary and any bonus due and payable
pursuant to Section
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4(d) through the Date of Termination. At the Executive's own expense, the
Executive and his dependents shall also be entitled to any continuation of
health insurance coverage rights required by any applicable law.
(ii) WITHOUT GOOD REASON. If the Executive's employment is
terminated by the Company pursuant to Section 5(c) without any Good Reason, the
Company shall pay the Executive the Severance Payment for the greater of (A) two
(2) years following the Date of Termination, or (B) the time period beginning on
the Date of Termination and ending on the final day of the final Employment Term
determined according to Section 2, above. In addition, during the full time
period described in the preceding clause (B), the Executive shall continue to
participate, at his option, in all benefit plans described in Section 4(c) and
pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Termination, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at the Executive's own expense, the Executive and his
dependents shall be entitled to any continuation of health insurance coverage
rights required by any applicable law.
(iii) "GOOD REASON" means a finding by the Board that (A) the
Executive materially breached any of the material terms of this Agreement; or
(B) the Executive acted with gross negligence, willful misconduct or
fraudulently in the performance of his duties hereunder.
(d) VOLUNTARY RESIGNATION.
(i) FOR GOOD CAUSE. If the Executive terminates his employment
with the Company pursuant to Section 5(d) for Good Cause (as defined below), the
Company shall pay the Executive the Severance Payment for the greater of (A) two
(2) years following the Date of Termination, or (B) the time period beginning on
the Date of Termination and ending on the final day of the final Employment Term
determined according to Section 2, above. In addition, during the full time
period described in the preceding clause (B), the Executive shall continue to
participate, at his option, in all benefit plans described in Section 4(c) and
pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Termination, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at the Executive's own expense, the Executive and his
dependents shall be entitled to any continuation of health insurance coverage
rights required by any applicable law.
(ii) WITHOUT GOOD CAUSE. If the Executive terminates his
employment with the Company pursuant to Section 5(g) without Good Cause, the
Company shall have no obligation to compensate the Executive following the Date
of Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights required by any applicable law.
(iii) "GOOD CAUSE" means the occurrence, without the express
written consent of the Executive, of any of the following events, unless such
event is substantially
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corrected within ninety (90) days following written notification by Executive
to the Company that he intends to terminate his employment under this
Agreement because of such event:
(A) any material reduction or diminution in the compensation or benefits
of the Executive;
(B) any material breach or material default by the Company under any
material provision of this Agreement; or
(C) any Change in Control (as defined below).
(iv) "CHANGE IN CONTROL" means the occurrence of any of the
following events after the effective date of the first initial public offering
of the Company's common stock:
(A) the Board adopts a plan relating to the liquidation or dissolution of
the Company;
(B) a Person (as defined below) directly or indirectly becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Securities Exchange Act of 1934) of more than
twenty-five percent (25%) of the total voting power of the total
outstanding voting securities of the Company on a fully diluted basis;
(C) a Person directly or indirectly acquires or agrees to acquire all or
substantially all of the assets and business of the Company;
(D) for any reason during any period of two (2) consecutive years (not
including any period prior to the date of this Agreement) a majority
of the Board is constituted by individuals other than (1) individuals
who were directors immediately prior to the beginning of such period,
and (2) new directors whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors immediately prior to the beginning of the period
or whose election or nomination for election was previously so
approved.
(v) For purposes of this Section 7(d), "PERSON" means any natural
person, corporation, or any other entity; PROVIDED, HOWEVER, that the term
"Person" shall not include any stockholder or employee of the company on the
date immediately prior to the initial public offering of the Company's common
stock or any estate or member of the immediate family of such a stockholder or
employee.
(e) In the event of any termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase securities
of the Company granted
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to the Executive pursuant to the terms and conditions of the Stock Incentive
Plan or otherwise that have vested as of the date of such termination.
(f) Any Severance Payments made pursuant to this Section 7 shall be
payable in equal monthly installments over the required duration set forth
herein.
(g) If, in spite of the provisions above entitling the Executive to
benefits under any benefit plan, such benefits are not payable or provideable
under any such plan to the Executive, or to the Executive's dependents,
beneficiaries or estate, because the Executive is no longer deemed to be an
employee of the Company, then the Company shall independently pay or provide for
payment of such benefits for the remainder of the Employment Term.
(h) The continuing obligation of the Company to make any Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 6, 8
and 9 of this Agreement following termination of his employment with the
Company.
8. COVENANT OF CONFIDENTIALITY. In addition to the agreements set forth
in Section 6, the Executive hereby agrees that the Executive will not, during
the Employment Period or for one (1) year thereafter directly or indirectly
disclose or make available to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever, any Confidential Information.
As used in this Agreement, "CONFIDENTIAL INFORMATION" means: non-public
information disclosed to the Executive or known by the Executive as a
consequence of or through his relationship with the Company, about the Company's
subsidiaries, affiliates and partners thereof, owners, customers, employees,
business methods, public relations methods, organization, procedures or
finances, including, without limitation, information of or relating to
properties that the Company or any of its affiliates, subsidiaries or partners
thereof owns or may be considering acquiring an interest in; PROVIDED, HOWEVER,
that the Executive shall not be obligated to treat as confidential, or return to
the Company copies of, any Confidential Information that (i) was publicly known
at the time of disclosure to the Executive, (ii) becomes publicly known or
available thereafter other than by any means in violation of this Agreement or
any other duty owed to the Company by any person or entity, or (iii) the
Executive is required by law to disclose to a third party.
9. COVENANT NOT TO COMPETE.
(a) The Executive agrees that during the Employment Period he will
devote substantially his full working time to the business of the Company and
will not engage in any competitive business. Subject to such full-time
requirement and the other restrictions set forth in this Section 9 and Section
3(d) above, the Executive shall be permitted to continue his existing business
investments and activities and may pursue additional business investments.
Without limiting the foregoing, the Executive specifically covenants that during
and after his employment with the company he shall not:
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(i) compete directly with the Company in a business similar to
that of the Company;
(ii) compete directly or indirectly with the Company, its
subsidiaries and/or partners thereof with respect to any acquisition or
development of any real estate project undertaken or being considered by the
Company, its subsidiaries and/or partners thereof at the end of Executive's
Employment Period;
(iii) lend or allow his name or reputation to be used by or
in connection with any business competitive with the Company, its subsidiaries
and/or partners thereof; or
(iv) intentionally interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the Company, its
subsidiaries and/or partners thereof, and any lessee, tenant, supplier,
contractor, lender, employee or governmental agency or authority.
(b) The provisions of this Section 9 shall survive for one year and
no longer following the termination of the Employment Period regardless of
whether such termination is for Good Cause or without Good Reason or otherwise;
PROVIDED, HOWEVER, that if the Executive resigns as a result of a Change in
Control (as defined in Section 7(d)) then the provisions of this Section 9 shall
not survive the Executive's resignation.
10. INJUNCTIVE RELIEF AND ENFORCEMENT. In the event of breach by the
Executive of the terms of Sections 6, 8 or 9, the Company shall be entitled to
institute legal proceedings to enforce the specific performance of this
Agreement by the Executive and to enjoin the Executive from any further
violation of Sections 6, 8 or 9 and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law and not otherwise
limited by this Agreement. The Executive acknowledges, however, that the
remedies at law for any breach by him of the provisions of Sections 6, 8 or 9
may be inadequate. In addition, in the event the agreements set forth in
Sections 6, 8 or 9 shall be determined by any court of competent jurisdiction to
be unenforceable by reason of extending for too great a period of time or over
too great a geographical area or by reason of being too extensive in any other
respect, each such agreement shall be interpreted to extend over the maximum
period of time for which it may be enforceable and to the maximum extent in all
other respects as to which it may be enforceable, and enforced as so
interpreted, all as determined by such court in such action.
11. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered, when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: David J. Dick
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___________________________
___________________________
If to the Company: Golf Trust of America, Inc.
190 King Street
Charleston, South Carolina 29401
With a copy to: Peter T. Healy, Esq.
O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street, Suite 2600
San Francisco, California 94111-3305
or to such other address as either party may furnish to the other from time
to time in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
12. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; PROVIDED, HOWEVER, that if any one or more of the terms contained in
Sections 6, 8 or 9 hereto shall for any reason be held to be excessively broad
with regard to time, duration, geographic scope or activity, that term shall not
be deleted but shall be reformed and constructed in a manner to enable it to be
enforced to the extent compatible with applicable law.
13. ASSIGNMENT. This Agreement may not be assigned by the Executive, but
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. HEADINGS. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
16. CHOICE OF LAW. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
South Carolina (without reference to the choice of law provisions of the State
of South Carolina), except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a party to or the
subject of this Agreement, and as to those matters the law of the jurisdiction
under which the respective entity derives its powers shall govern.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH
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OR ACTION RELATED TO THIS AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN
THIS AGREEMENT (WHETHER EXPRESS OR IMPLIED BY EITHER LAW OR FACT), OR ANY
OTHER CAUSE OF ACTION BASED IN WHOLE OR IN PART ON ANY BREACH OF ANY
PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE LIMITED TO CONTRACTUAL
DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II) CONSEQUENTIAL AND/OR
INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER INDIRECT OR SPECULATIVE
DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY RECOVER FOR
ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT YET PAID)
TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM OR
THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE
MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S)
THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby and no
representations promises agreements or understandings written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges (a) that he
has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first written above.
"COMPANY"
GOLF TRUST OF AMERICA, INC., a Maryland corporation
By: _____________________________
Its: ____________________________
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"EXECUTIVE"
______________________________
DAVID J. DICK
Residing at:
______________________________
______________________________
______________________________
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EXHIBIT A
[Form of Stock Incentive Plan]
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EMPLOYMENT AGREEMENT
(Scott D. Peters)
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is dated as of
_______________, 1997, between Golf Trust of America, Inc., a Maryland
corporation, having its principal place of business at 190 King Street,
Charleston, South Carolina 29401 (the "COMPANY"), and Scott D. Peters, an
individual residing at the address set forth below his name on the signature
page hereof (the "EXECUTIVE").
COMPANY AND EXECUTIVE ENTER THIS AGREEMENT on the basis of the
following facts, understandings and intentions:
A. the Executive desires to be in the employ of the Company;
B. the Company desires to assure itself of the services of the
Executive; and
C. the Company intends to complete the initial public offering of
shares of the common stock of the Company in early 1997 (the "Initial Public
Offering").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Company and Executive agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. TERM. The employment of the Executive by the Company as provided in
Section 1 above will commence on the closing date of the Initial Public Offering
(the "COMMENCEMENT DATE"), and will terminate on the one-year (1) anniversary of
the Commencement Date (such term being the "ORIGINAL TERM"), unless earlier
terminated pursuant to the provisions of Section 5 of this Agreement. On the
final day of the Original Term and on each one-year (1) anniversary thereafter,
the term of this Agreement shall be extended automatically for one (1)
additional year (each such extension being a "RENEWAL TERM"), unless written
notice that this Agreement will not be extended is given by either party to the
other one hundred twenty (120) days prior to the expiration of the Original Term
or the then-current Renewal Term, as the case may be. The Original Term and any
Renewal Terms, in their full duration, are herein individually referred to as
"EMPLOYMENT TERMS," and the period of the Executive's employment under this
Agreement consisting of the Original Term and all Renewal Terms, except as may
be terminated early pursuant to Section 5, is herein referred to as the
"EMPLOYMENT PERIOD."
<PAGE>
3. POSITION.
(a) TITLE AND POSITION. During the Employment Period, the Executive
shall be employed as an executive officer of the Company with the title of
Senior Vice President and Chief Financial Officer or in such other executive
position as the Board of Directors of the Company (the "BOARD") may from time to
time determine with the consent of the Executive. In the performance of his
duties as an officer, the Executive shall be subject to the direction of the
Board and the President and shall not be required to take direction from or
report to any other person unless otherwise directed by the Board or the
President. The Executive's duties and authority shall be commensurate with his
title and position with the Company.
(b) PLACE OF EMPLOYMENT. During the term of this Agreement, the
Executive shall perform the services required by this Agreement at the Company's
place of business in Charleston, South Carolina; PROVIDED, HOWEVER, that the
Company may require the Executive to travel to other locations on the Company's
business.
(c) DUTIES. The Executive shall devote commercially reasonable
efforts and substantially full working time and attention to the promotion and
advancement of the Company and its welfare. The Executive shall serve the
Company faithfully and to the best of his ability, and shall perform such
services and duties in connection with the business, affairs and operations of
the Company as may be assigned or delegated to him from time to time by or
under, and in accordance with, the authority and direction of the Board. The
Company shall retain the right to direct and control the means and methods by
which the Executive performs the above services.
(d) OTHER ACTIVITIES. Except with the prior written approval of the
Board (which the Board may grant or withhold in its sole and absolute
discretion) and except as may be set forth in Section 9 of this Agreement, the
Executive, during the Employment Period, will not (i) accept any other
employment, or (ii) engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to, that of
the Company or any of its affiliates. Notwithstanding the foregoing, the
Company agrees that the Executive (or affiliates of the Executive) shall be
permitted (i) to undertake the activities set forth in Section 9, and (ii) to
make any other passive personal investment that is not in a business activity
competitive with the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Company shall pay the Executive a base salary
at a rate of one hundred twenty-five thousand dollars ($125,000) per year during
the Original Term. The Executive's base salary for each succeeding year shall,
at a minimum, be increased over the prior year by a factor measured by the
increase, if any, in the Consumer Price Index for Wage Earners and Clerical
Workers (as published by the Bureau of Labor Statistics). The base salary may
further be increased, but not decreased, in succeeding years
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<PAGE>
by an amount determined by the Compensation Committee of the Board. All
salary shall be paid according to the standard payroll practices of the
Company (regarding, E.G., timing of payments, standard employee deductions,
income tax withholdings, social security deductions, and etc.) as in place
from time to time.
(b) BUSINESS EXPENSES. The Company shall reimburse the Executive for
personal expenditures incurred in connection with the conduct of the Company's
business upon presentation of sufficient evidence of such expenditures as may be
required by the Company's policies as in place from time to time.
(c) BENEFIT PLAN ELIGIBILITY. During the Employment Period, the
Executive shall be entitled to participate in any benefit plans that are made
generally available to executive officers of the Company from time to time,
including, without limitation, any deferred compensation, health, dental, life
insurance, long-term disability insurance, retirement, pension or 401(k) savings
plan. Nothing in this Section 4(c) is intended, or shall be construed, to
require the Company to institute or to continue any, or any particular, plan or
benefit.
(d) PERFORMANCE BONUS. The Compensation Committee of the Board may
establish and administer a performance bonus program for the Executive to
provide for payment of a cash bonus to the Executive upon the achievement of
certain performance objectives to be established by the Compensation Committee
for the Executive. If such a program is established, the Compensation Committee
of the Board shall monitor, review and modify the program from time to time as
necessary to reflect the Executive's contributions to the Company.
(e) STOCK INCENTIVE PLAN. The Compensation Committee of the Board
shall establish and administer a Stock Incentive Plan, substantially in the form
attached as EXHIBIT A hereto, in which the Executive shall be eligible to
participate according to its terms; PROVIDED, HOWEVER, that the Board of
Directors shall approve, prior to the completion of the Company's initial public
offering, a grant of options to the Executive to purchase up to forty thousand
(40,000) shares of the Company's common stock, which options shall vest in three
(3) equal installments commencing upon the first anniversary of the date of
grant and each of the two (2) years thereafter, and shall be exercisable for ten
(10) years from the date of grant at the fair market value of the common stock
on the date of grant.
(f) FRINGE BENEFITS. The Executive will be entitled to fringe
benefits as may be determined or granted from time-to-time by the Board or by
the President acting under the authority of the Board.
(g) VACATION AND HOLIDAYS. The Executive shall be entitled to four
(4) weeks (twenty (20) business days) of paid vacation time in each calendar
year on a pro-rated basis. The Executive shall be entitled to all paid Company
holidays.
3
<PAGE>
(h) DIRECTORS AND OFFICERS INSURANCE AND INDEMNIFICATION. The
Company shall maintain insurance to insure the Executive against any claim
arising out of an alleged wrongful act by the Executive while acting as a
director or officer of the Company. The Company shall further indemnify and
exculpate from money damages the Executive to the fullest extent permitted under
applicable law.
(i) PERFORMANCE REVIEWS. At the end of each fiscal year, the Board
or the Compensation Committee thereof will review the Executive's job
performance and will provide the Executive a written review of the Executive's
job performance during the prior year and implement any Board authorized
revisions to the Executive's position, compensation and duties at the Company;
PROVIDED, HOWEVER, that the provisions set forth in this Agreement with respect
to the Executive's compensation, and other terms and conditions of the
Executive's employment at the Company shall not be modified by the Board in a
manner which would result in less favorable or less beneficial terms or
conditions thereof being imposed on the Executive without the Executive's full
concurrence and consent.
(j) MOVING AND TEMPORARY LIVING EXPENSES. The Company shall
reimburse the Executive for reasonable personal expenditures incurred in
connection with the move of his household goods from Los Angeles, California to
Charleston, South Carolina, including two trips by the Executive's wife to visit
Charleston for relocation purposes, upon presentation of sufficient evidence of
such expenditures as may reasonably be required by the Company. Employee will
be paid an additional allowance of One Thousand Five Hundred Dollars ($1500.00)
per month for temporary living expenses from the Commencement Date through the
earlier of (i) June 30, 1997 or (ii) the date on which Executive acquires
permanent housing in the Charleston, South Carolina area.
5. TERMINATION. The Executive's employment hereunder shall be, or may
be, as the case may be, terminated under the following circumstances:
(a) DEATH. The Executive's employment under this Agreement shall
terminate upon his death.
(b) DISABILITY. The Executive's employment under this Agreement
shall terminate upon the Executive's physical or mental disability or infirmity
which, in the opinion of a competent physician selected by the Board, renders
the Executive unable to perform his duties under this Agreement for more than
one hundred twenty (120) days during any one hundred eighty (180) day period.
(c) EMPLOYMENT-AT-WILL; TERMINATION BY COMPANY FOR ANY REASON. The
Executive's employment hereunder is "at will" and may be terminated by the
Company at any time with or without Good Reason (as defined in Section 7(c)
below), by the President or a majority vote of all of the members of the Board
of Directors upon written Notice of Termination (as defined below) to Employee,
subject only to the severance provisions specifically set forth in Section 7
below.
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<PAGE>
(d) VOLUNTARY RESIGNATION. The Executive may voluntarily resign his
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "NOTICE OF RESIGNATION").
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "DATE OF RESIGNATION"), which date shall in any event, be at
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. The Notice of Resignation shall be
sufficient notice under Section 2 above to prevent the automatic extension of
this Agreement, if timely given according to the terms of Section 2.
(e) NOTICE. Any termination of the Executive's employment by the
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice
that indicates the specific termination provision in this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The Notice of Termination shall be sufficient notice
under Section 2 above to prevent the automatic extension of this Agreement, if
timely given according to the terms of Section 2.
(f) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death; (ii)
if the Executive's employment is terminated by reason of his disability, the
date of the opinion of the physician referred to in Section 5(b), above; (iii)
if the Executive's employment is terminated by the Company for Good Reason or
without Good Reason by the Company pursuant to Section 5(c) above, the date
specified in the Notice of Termination; and (iv) if the Executive voluntarily
resigns pursuant to Section 5(d) above, the Date of Resignation set forth in the
Notice of Resignation.
6. OBLIGATIONS UPON TERMINATION.
(a) RETURN OF PROPERTY. The Executive hereby acknowledges and agrees
that all personal property and equipment furnished to or prepared by the
Executive in the course of or incident to his employment belongs to the Company
and shall be promptly returned to the Company upon termination of the Employment
Period.
(b) COMPLETE RESIGNATION. Upon the expiration of the Employment
Period or any termination of employment under Section 5 above, the Executive
shall be deemed to have resigned from all offices and directorships then held
with the Company or any of its subsidiaries.
(c) SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER
PROVISIONS. The representations and warranties contained in this Agreement and
the parties' obligations under this Section 6 and Sections 7 through 9 and 16
through 18, inclusively, shall survive termination of the Employment Period and
the expiration of this Agreement.
5
<PAGE>
(d) RELEASE. In exchange for the Company entering into this
Agreement, the Executive agrees that, at the time of his resignation or
termination from the Company, he will resign from the Board and will execute a
release acceptable to the Company of all liability of the Company and its
officers, shareholders, employees and directors to the Executive in connection
with or arising out of his employment with the Company, except with respect to
(i) any then-vested rights under the Company's Stock Incentive Plan; (ii) any
deferred compensation held in trust under the Company's Deferred Compensation
Plan; (iii) any Severance Payments or benefits which may be payable to him under
Section 7 or other provisions of this Agreement; and (iv) any continuation of
health or other benefit plans in accordance with this Agreement or as may be
required by law.
7. COMPENSATION UPON TERMINATION. The Executive shall be entitled to the
following post-termination payments and no others:
(a) DEATH. If the Executive's employment is terminated by reason of
death pursuant to Section 5(a), the Company shall pay the Executive monthly his
base salary payable under Section 4(a) (the "SEVERANCE PAYMENTS") for the
greater of (i) one (1) year following the Date of Termination, or (ii) the time
period beginning on the Date of Termination and ending on the final day of the
final Employment Term determined according to Section 2, above. In addition,
during the full time period described in the preceding clause (ii), the
Executive, his estate and dependents shall continue to participate, at their
option, in all benefit plans described in Section 4(c) and pursuant thereto
shall receive benefits substantially comparable to those in effect on the day
before the Date of Termination, subject to any reduction or termination of such
benefits similarly affecting all management personnel of the Company.
Thereafter, at their own expense, the Executive's dependents shall be entitled
to any continuation of health insurance coverage rights required by any
applicable law.
(b) DISABILITY. If the Executive's employment is terminated by
reason of disability pursuant to Section 5(b), the Executive shall receive
Severance Payments for the greater of (i) one (1) year following the Date of
Termination, or (ii) the time period beginning on the Date of Termination and
ending on the final day of the final Employment Term determined according to
Section 2, above; PROVIDED, HOWEVER, that Severance Payments otherwise payable
to the Executive under this Section 7(b) shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
Severance Payment under any disability benefit plan of the Company. In
addition, during the full time period described in the preceding clause (ii),
the Executive shall continue to participate, at his option, in all benefit plans
described in Section 4(c) and pursuant thereto shall receive benefits
substantially comparable to those in effect on the day before the Date of
Termination, subject to any reduction or termination of such benefits similarly
affecting all management personnel of the Company. Thereafter, at the
Executive's own expense, the Executive and his dependents shall be entitled to
any continuation of health insurance coverage rights required by any applicable
law.
6
<PAGE>
(c) TERMINATION BY COMPANY.
(i) FOR GOOD REASON. If the Executive's employment is terminated
by the Company pursuant to Section 5(c) for Good Reason (as defined below), the
Company shall pay the Executive his base salary and any bonus due and payable
pursuant to Section 4(d) through the Date of Termination. At the Executive's
own expense, the Executive and his dependents shall also be entitled to any
continuation of health insurance coverage rights required by any applicable law.
(ii) WITHOUT GOOD REASON. If the Executive's employment is
terminated by the Company pursuant to Section 5(c) without any Good Reason, the
Company shall pay to the Executive the Severance Payments for the following
period: (A) six (6) months, if the Date of Termination occurs during the first
year of the Executive's employment, or (B) four (4) months, if the Date of
Termination occurs subsequent to the first year of the Executive's employment.
In addition, during the time period beginning on the Date of Termination and
ending on the final day of the final Employment Term determined according to
Section 2, above, the Executive shall continue to participate, at his option, in
all benefit plans described in Section 4(c) and pursuant thereto shall receive
benefits substantially comparable to those in effect on the day before the Date
of Termination, subject to any reduction or termination of such benefits
similarly affecting all management personnel of the Company. Thereafter, at the
Executive's own expense, the Executive and his dependents shall be entitled to
any continuation of health insurance coverage rights required by any applicable
law.
(iii) "GOOD REASON" means a finding by the Board that (A) the
Executive materially breached any of the material terms of this Agreement; or
(B) the Executive acted with gross negligence, willful misconduct or
fraudulently in the performance of his duties hereunder.
(d) VOLUNTARY RESIGNATION.
(i) FOR GOOD CAUSE. If the Executive terminates his employment
with the Company pursuant to Section 5(d) for Good Cause (as defined below), the
Company shall pay the Executive the Severance Payments for one year following
the Date of Resignation. In addition, during the time period beginning on the
Date of Resignation and ending on the final day of the final Employment Term
determined according to Section 2, above, the Executive shall continue to
participate, at his option, in all benefit plans described in Section 4(c) and
pursuant thereto shall receive benefits substantially comparable to those in
effect on the day before the Date of Resignation, subject to any reduction or
termination of such benefits similarly affecting all management personnel of the
Company. Thereafter, at the Executive's own expense, the Executive and his
dependents shall be entitled to any continuation of health insurance coverage
rights required by any applicable law.
(ii) WITHOUT GOOD CAUSE. If the Executive terminates his
employment with the Company pursuant to Section 5(g) without Good Cause, the
Company shall have no
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<PAGE>
obligation to compensate the Executive following the Date of Resignation. In
any event, at the Executive's own expense, the Executive and his dependents
shall be entitled to any continuation of health insurance coverage rights
required by any applicable law.
(iii) "GOOD CAUSE" means the occurrence, without the express
written consent of the Executive, of any of the following events, unless such
event is substantially corrected within ninety (90) days following written
notification by Executive to the Company that he intends to terminate his
employment under this Agreement because of such event:
(A) any material reduction or diminution in the compensation or benefits
of the Executive;
(B) any material breach or material default by the Company under any
material provision of this Agreement; or
(C) any Change in Control (as defined below).
(iv) "CHANGE IN CONTROL" means the occurrence of any of the
following events after the effective date of the first initial public offering
of the Company's common stock:
(A) the Board adopts a plan relating to the liquidation or dissolution of
the Company;
(B) a Person (as defined below) directly or indirectly becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Securities Exchange Act of 1934) of more than
twenty-five percent (25%) of the total voting power of the total
outstanding voting securities of the Company on a fully diluted basis;
(C) a Person directly or indirectly acquires or agrees to acquire all or
substantially all of the assets and business of the Company;
(D) for any reason during any period of two (2) consecutive years (not
including any period prior to the date of this Agreement) a majority
of the Board is constituted by individuals other than (1) individuals
who were directors immediately prior to the beginning of such period,
and (2) new directors whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors immediately prior to the beginning of the period
or whose election or nomination for election was previously so
approved.
(v) For purposes of this Section 7(d), "PERSON" means any natural
person, corporation, or any other entity; PROVIDED, HOWEVER, that the term
"Person" shall not
8
<PAGE>
include any stockholder or employee of the company on the date immediately
prior to the initial public offering of the Company's common stock or any
estate or member of the immediate family of such a stockholder or employee.
(e) In the event of any termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase securities
of the Company granted to the Executive pursuant to the terms and conditions of
the Stock Incentive Plan or otherwise that have vested as of the date of such
termination.
(f) Any Severance Payments made pursuant to this Section 7 shall be
payable in equal monthly installments over the required duration set forth
herein.
(g) If, in spite of the provisions above entitling the Executive to
benefits under any benefit plan, such benefits are not payable or provideable
under any such plan to the Executive, or to the Executive's dependents,
beneficiaries or estate, because the Executive is no longer deemed to be an
employee of the Company, then the Company shall independently pay or provide for
payment of such benefits for the remainder of the Employment Term.
(h) The continuing obligation of the Company to make any Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 6, 8
and 9 of this Agreement following termination of his employment with the
Company.
8. COVENANT OF CONFIDENTIALITY. In addition to the agreements set forth
in Section 6, the Executive hereby agrees that the Executive will not, during
the Employment Period or for one (1) year thereafter directly or indirectly
disclose or make available to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever, any Confidential Information.
As used in this Agreement, "CONFIDENTIAL INFORMATION" means: non-public
information disclosed to the Executive or known by the Executive as a
consequence of or through his relationship with the Company, about the Company's
subsidiaries, affiliates and partners thereof, owners, customers, employees,
business methods, public relations methods, organization, procedures or
finances, including, without limitation, information of or relating to
properties that the Company or any of its affiliates, subsidiaries or partners
thereof owns or may be considering acquiring an interest in; PROVIDED, HOWEVER,
that the Executive shall not be obligated to treat as confidential, or return to
the Company copies of, any Confidential Information that (i) was publicly known
at the time of disclosure to the Executive, (ii) becomes publicly known or
available thereafter other than by any means in violation of this Agreement or
any other duty owed to the Company by any person or entity, or (iii) the
Executive is required by law to disclose to a third party.
9
<PAGE>
9. COVENANT NOT TO COMPETE.
(a) The Executive agrees that during the Employment Period he will
devote substantially his full working time to the business of the Company and
will not engage in any competitive business. Subject to such full-time
requirement and the other restrictions set forth in this Section 9 and Section
3(d) above, the Executive shall be permitted to continue his existing business
investments and activities and may pursue additional business investments.
Without limiting the foregoing, the Executive specifically covenants that during
and after his employment with the company he shall not:
(i) compete directly with the Company in a business similar to
that of the Company;
(ii) compete directly or indirectly with the Company, its
subsidiaries and/or partners thereof with respect to any acquisition or
development of any real estate project undertaken or being considered by the
Company, its subsidiaries and/or partners thereof at the end of Executive's
Employment Period;
(iii) lend or allow his name or reputation to be used by or
in connection with any business competitive with the Company, its subsidiaries
and/or partners thereof; or
(iv) intentionally interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the Company, its
subsidiaries and/or partners thereof, and any lessee, tenant, supplier,
contractor, lender, employee or governmental agency or authority.
(b) The provisions of this Section 9 shall survive for one year and
no longer following the termination of the Employment Period regardless of
whether such termination is for Good Cause or without Good Reason or otherwise;
PROVIDED, HOWEVER, that if the Executive resigns as a result of a Change in
Control (as defined in Section 7(d)) then the provisions of this Section 9 shall
not survive the Executive's resignation.
10. INJUNCTIVE RELIEF AND ENFORCEMENT. In the event of breach by the
Executive of the terms of Sections 6, 8 or 9, the Company shall be entitled to
institute legal proceedings to enforce the specific performance of this
Agreement by the Executive and to enjoin the Executive from any further
violation of Sections 6, 8 or 9 and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law and not otherwise
limited by this Agreement. The Executive acknowledges, however, that the
remedies at law for any breach by him of the provisions of Sections 6, 8 or 9
may be inadequate. In addition, in the event the agreements set forth in
Sections 6, 8 or 9 shall be determined by any court of competent jurisdiction to
be unenforceable by reason of extending for too great a period of time or over
too great a geographical area or by reason of being too extensive in any other
respect, each such agreement shall be interpreted to extend over the maximum
period of time for which it may be enforceable and to the maximum extent in all
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<PAGE>
other respects as to which it may be enforceable, and enforced as so
interpreted, all as determined by such court in such action.
11. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered, when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Scott D. Peters
5555 Alfredo Court
Agoura Hills, California 91301
If to the Company: Golf Trust of America, Inc.
190 King Street
Charleston, South Carolina 29401
With a copy to: Peter T. Healy, Esq.
O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street, Suite 2600
San Francisco, California 94111-3305
or to such other address as either party may furnish to the other from time to
time in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
12. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; PROVIDED, HOWEVER, that if any one or more of the terms contained in
Sections 6, 8 or 9 hereto shall for any reason be held to be excessively broad
with regard to time, duration, geographic scope or activity, that term shall not
be deleted but shall be reformed and constructed in a manner to enable it to be
enforced to the extent compatible with applicable law.
13. ASSIGNMENT. This Agreement may not be assigned by the Executive, but
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. HEADINGS. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
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16. CHOICE OF LAW. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
South Carolina (without reference to the choice of law provisions of the State
of South Carolina), except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a party to or the
subject of this Agreement, and as to those matters the law of the jurisdiction
under which the respective entity derives its powers shall govern.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby and no
representations promises agreements or understandings written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges (a) that he
has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first written above.
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"COMPANY"
GOLF TRUST OF AMERICA, INC., a Maryland corporation
By: _____________________________
Its: ____________________________
"EXECUTIVE"
______________________________
SCOTT D. PETERS
Residing at:
5555 Alfredo Court
Agoura Hills, California 91301
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EXHIBIT A
[Form of Stock Incentive Plan]
<PAGE>
LIST OF SUBSIDIARIES OF GOLF TRUST OF AMERICA, INC.
GTA GP, Inc., a Maryland corporation
GTA LP, Inc., a Maryland corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-11 of our report relating to the balance sheet
of the Company dated November 8, 1996 and our report relating to the
consolidated financial statements of Northgate Country Club dated December 13,
1996. We also consent to the references to us under the heading "Experts" in
such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
January 14, 1997
A-1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement of Golf Trust of
America, Inc. on Amendment No. 1 to Form S-11 of our report dated November 13,
1996 on the September 30, 1996 and December 31, 1995 and 1994 financial
statements of Olde Atlanta Golf Club Limited Partnership. We also consent to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
CROWE, CHIZEK AND COMPANY LLP
Oak Brook, Illinois
January 14, 1997
B-1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Golf Trust of
America on Form S-11 of our report dated December 6, 1996, on our audits of the
financial statements of Bright's Creek Development, L.L.C. as of September 30,
1996 and December 31, 1995 and 1994, and for the nine-month period ended
September 30, 1996, the year ended December 31, 1995, and for the period from
inception (May 17, 1994) through December 31, 1994. We also consent to the
reference of our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
January 13, 1997
C-1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-11 of our reports dated December 11, 1996,
relating to the financial statements of Legends Golf, Golf Legends, Ltd.,
Heritage Golf Club, Ltd., Seaside Resorts, Ltd., and Legends of Virginia, LC. We
also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Charlotte, North Carolina
January 13, 1997
D-1
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints W.
Bradley Blair, II as his true and lawful attorney-in-fact and agent, with full
powers of substitution, for him and his name, place and stead, in any and all
capacities, to sign and to file any and all amendments, specifically including
Amendment No. 1 to Registration Statement on Form S-11 of Golf Trust of America,
Inc. (file no. 333-15965), and also including post-effective amendments and any
registration statements filed pursuant to Rule 426(b), to this Registration
Statement with the Securities and Exchange Commission, granting to said
attorney-in-fact power and authority to perform any other act on behalf of the
undersigned required to be done in connection therewith.
<TABLE>
<S> <C> <C>
Dated: January 14, 1997 /s/ SCOTT D. PETERS
----------------------------------------
Scott D. Peters
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Golf Trust of America, Inc.
Dated: January 14, 1997 /s/ LARRY D. YOUNG
----------------------------------------
Larry D. Young
DIRECTOR
Golf Trust of America, Inc.
</TABLE>
E-1
<PAGE>
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Golf Trust of America, Inc. (the "Company") in the Company's
Registration Statement on Form S-11 (File No. 333-15965).
/s/ Fred W. Reams
--------------------------------
Fred W. Reams
<PAGE>
EXHIBIT 99.2
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Golf Trust of America, Inc. (the "Company") in the Company's
Registration Statement on Form S-11 (File No. 333-15965).
/s/ Roy C. Chapman
--------------------------------
Roy C. Chapman
<PAGE>
EXHIBIT 99.3
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Golf Trust of America, Inc. (the "Company") in the Company's
Registration Statement on Form S-11 (File No. 333-15965).
/s/ Edward L. Wax
--------------------------------
Edward L. Wax
<PAGE>
EXHIBIT 99.4
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Golf Trust of America, Inc. (the "Company") in the Company's
Registration Statement on Form S-11 (File No. 333-15965).
/s/ Raymond V. Jones
--------------------------------
Raymond V. Jones
