<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
/X/ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended JUNE 30, 1997.
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
.
------------------------
COMMISSION FILE NUMBER 000-22091
GOLF TRUST OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 33-0724736
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>
14 NORTH ADGER'S WHARF, CHARLESTON, SOUTH CAROLINA 29401
(Address of principal executive offices) (Zip Code)
(803) 723-4653
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes_X_ No___
On August 12, 1997 there were 4,069,326 common shares outstanding of the
registrant's only class of common stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GOLF TRUST OF AMERICA, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.......................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 31
Item 2. Changes in Securities......................................................................... 31
Item 3. Defaults upon Senior Securities............................................................... 31
Item 4. Submission of Matters to a Vote of Security Holders........................................... 31
Item 5. Other Information............................................................................. 31
Item 6. Exhibits and Reports on Form 8-K.............................................................. 32
SIGNATURES.................................................................................... 33
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLF TRUST OF AMERICA, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GOLF TRUST OF AMERICA, INC.:
Condensed Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997.......................... 4
Condensed Consolidated Statements of Income for the Three Months Ended June 30, 1997 and 1996............ 5
Condensed Consolidated Statements of Income for the Period from February 12, 1997 to June 30, 1997 and
Pro Forma Six Months Ended June 30, 1997 and 1996...................................................... 6
Condensed Consolidated Statement of Cash Flows from February 12, 1997 to June 30, 1997................... 7
Notes to Condensed Consolidated Financial Statements..................................................... 8
LEGENDS GOLF:
Condensed Combined Balance Sheets--December 31, 1996 and June 30, 1997................................... 15
Condensed Combined Statements of Income--Three Months and Six Months Ended June 30, 1996 and 1997........ 16
Condensed Combined Statements of Cash Flows--Six Months Ended June 30, 1996 and 1997..................... 17
Notes to Condensed Combined Financial Statements......................................................... 18
</TABLE>
3
<PAGE>
GOLF TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Property and equipment:
Land............................................. $ -- $ 15,919
Golf course improvements......................... -- 43,964
Buildings and improvements....................... -- 8,659
Furniture, fixtures, and equipment............... -- 5,159
-------------- ------------
Total property and equipment................... -- 73,701
Less accumulated depreciation and amortization... -- 11,977
-------------- ------------
Property and equipment, net.................... -- 61,724
-------------- ------------
Mortgage notes receivable.......................... -- 61,680
Cash and cash equivalents.......................... -- 2,271
Rents and interest receivable...................... -- 1,451
Other.............................................. -- 1,495
-------------- ------------
Total assets................................... $ -- $ 128,621
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable...................................... $ -- $ 43,900
Accounts payable and other liabilities............. -- 873
-------------- ------------
Total liabilities.............................. -- 44,773
-------------- ------------
Minority interest.................................. -- 43,487
-------------- ------------
Commitments and contingencies
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, 4,069,326 shares issued and
outstanding.................................... -- 41
Additional paid-in capital....................... -- 42,429
Note receivable from stock sale.................. -- (3,298 )
Retained earnings................................ -- 1,189
-------------- ------------
Stockholders' equity........................... -- 40,361
-------------- ------------
Total liabilities and stockholders' equity..... $ -- $ 128,621
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
GOLF TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
(PRO FORMA)
<S> <C> <C>
REVENUES:
Minimum rents..................................................... $ 3,563 $ 2,670
Capital expenditure reserve....................................... 180 150
Percentage rents.................................................. 74 --
Mortgage interest................................................. 181 --
------ ------
Total revenues.................................................. 3,998 2,820
------ ------
EXPENSES:
Depreciation and amortization..................................... 803 770
General and administrative........................................ 597 410
------ ------
Total expenses.................................................. 1,400 1,180
------ ------
Operating income................................................ 2,598 1,640
------ ------
OTHER INCOME (EXPENSE):
Interest income................................................... 317 --
Interest expense.................................................. (250) (92)
------ ------
Total other income (expense).................................... 67 (92)
------ ------
Net income before minority interest............................. 2,665 1,548
Income applicable to minority interest............................ 1,373 759
------ ------
Net income...................................................... 1,292 789
------ ------
------ ------
Net income per common share....................................... $ .32 $ .26
------ ------
------ ------
Weighted average number of common shares outstanding.............. 4,007 3,046
------ ------
------ ------
Distribution declared per common share outstanding................ $ .41 $ .41
------ ------
------ ------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
GOLF TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM FOR THE FOR THE
FEBRUARY 12 SIX MONTHS SIX MONTHS
TO ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C>
REVENUES:
Minimum rents........................................ $ 5,503 $ 7,190 $ 5,372
Capital expenditure reserve.......................... 247 310 268
Percentage rents..................................... 109 113 --
Mortgage interest.................................... 181 181 --
------ ------ ------
Total revenues..................................... 6,040 7,794 5,640
------ ------ ------
EXPENSES:
Depreciation and amortization........................ 1,149 2,120 1,540
General and administrative........................... 910 1,070 820
------ ------ ------
Total expenses..................................... 2,059 3,190 2,360
------ ------ ------
Operating income................................... 3,981 4,604 3,280
------ ------ ------
OTHER INCOME (EXPENSE):
Interest income...................................... 448 448 --
Interest expense..................................... (290) (290) (290)
------ ------ ------
Total other income (expense)....................... 158 158 (290)
------ ------ ------
Net income before minority interest................ 4,139 4,762 2,990
Income applicable to minority interest............... 2,129 2,384 1,538
------ ------ ------
Net income......................................... 2,010 2,378 1,452
------ ------ ------
------ ------ ------
Net income per common share.......................... $ .50 $ .59 $ .48
------ ------ ------
------ ------ ------
Weighted average number of common shares
outstanding........................................ 4,007 4,007 3,046
------ ------ ------
------ ------ ------
Distribution declared per common share outstanding... $ .62 $ .82 $ .82
------ ------ ------
------ ------ ------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
GOLF TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12
TO
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................................... $ 2,010
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................. 1,149
Income applicable to minority interest......................................................... 2,492
Increase in rents and interest receivable...................................................... (1,451)
Increase in other assets....................................................................... (1,495)
Increase in accounts payable and other liabilities............................................. 873
-------------
Net cash provided by operating activities.................................................... 3,578
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Golf course acquisitions......................................................................... (54,554)
Increase in mortgage notes receivable............................................................ (61,599)
Capital additions................................................................................ (344)
-------------
Net cash used in investing activities........................................................ (116,497)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt..................................................................... 43,825
Net proceeds from offering....................................................................... 73,055
Dividends paid................................................................................... (1,690)
-------------
Net cash provided by financing activities.................................................... 115,190
-------------
Net increase in cash......................................................................... 2,271
Cash and cash equivalents beginning of period................................................ --
-------------
Cash and cash equivalents end of period...................................................... $ 2,271
-------------
-------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Golf Trust of America, Inc. (the "Company") was incorporated in Maryland on
November 8, 1996. The Company is a self-administered real estate investment
trust ("REIT") formed to capitalize upon consolidation opportunities in the
ownership of golf courses in the United States. The principal business strategy
of the Company is to acquire high quality golf courses and to lease the golf
courses to qualified third party operators, including affiliates of the sellers.
Title to the acquired courses is held by Golf Trust of America, L.P., a Delaware
limited partnership (the "Operating Partnership"), in which the Company is the
sole general partner.
Golf Trust of America, Inc., through its wholly owned subsidiaries GTA GP,
Inc. ("GTA GP") and GTA LP, Inc. ("GTA LP"), holds a 48.0% interest in the
Operating Partnership. GTA GP is the sole general partner of the Operating
Partnership and owns a 0.2% interest therein. GTA LP is a limited partner in the
Operating Partnership and owns a 47.8% interest therein.
In February 1997, the Company raised net proceeds of approximately $73
million in its initial public offering ("the IPO"). In the IPO the Company sold
3,910,000 shares of common stock at $21.00 per share (including 510,000 shares
sold pursuant to the underwriters' over-allotment option, which was exercised in
full). The Company contributed the net proceeds of the IPO to the Operating
Partnership in exchange for 48.6% interest in the Operating Partnership.
Concurrently with the closing of the IPO, the Operating Partnership acquired ten
golf courses (the "Initial Courses") from their prior owners ( the "Prior
Owners").
The Prior Owners were paid an aggregate of approximately $6.2 million in
cash and approximately $43.1 million in repayment of mortgage and other
indebtedness and were issued approximately 4.1 million OP units which represents
a 51% limited partnership interest in the Operating Partnership. Control of the
Operating Partnership remains in the Company as the sole general partner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the management of the Company in accordance with generally
accepted accounting principles for interim financial information and in
conformity with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations for the period from February 12,
1997 through June 30, 1997 are not necessarily indicative of the results that
may be expected for the full year. These financial statements should be read in
conjunction with the Company's December 31, 1996 financial statement and notes
thereto included in the Company's Annual Report on Form 10-K.
The unaudited Pro Forma Condensed Consolidated Statements of Income for the
six months ended June 30, 1996 and 1997, is presented as if the formation
transactions had occurred January 1, 1996. In management's opinion, all
adjustments necessary to reflect the effects of the Formation Transaction have
been made. The Pro Forma Condensed Consolidated Statements of Income are not
necessarily indicative of what the Company's actual results of operations would
have been assuming the formation transactions
8
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
had occurred on January 1, 1996, nor do they purport to represent the future
operating results of the Company.
PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries, and the Operating
Partnership. All significant intercompany transactions and balances have been
eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes rental revenue on an accrual basis over the terms of
the leases. The Company recognizes interest income ratably over the term of the
loan.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company has cash and cash equivalents in a financial institution which
is insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000
per institution. On June 30, 1997, the Company had amounts in excess of FDIC
limits. The Company limits its risk by placing its cash and cash equivalents in
a high quality financial institution. Rents and interest receivable from the
Company's leassees and mortgagee are payable in arrears for the preceding month
were collected subsequent to the issuance of this report.
PROPERTY AND EQUIPMENT
Property and equipment is carried at the lower of cost or net realizable
value. Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Golf course improvements.......................................... 15 years
Buildings and improvements........................................ 30 years
Furniture, fixtures, and equipment................................ 3-8 years
</TABLE>
The leases presently provide that at the end or termination of the existing
leases, all improvements and fixtures placed on the rental property become
property of the Company. In addition, the leases provide for a capital
replacement reserve to be established by the Company for each property. The
Company will approve disbursements from this fund for capital improvements to
the properties.
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
9
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. ACQUISITION OF GOLF COURSES
On February 12, 1997, concurrent with the initial public offering of the
Company's stock, the Company acquired the ten initial golf courses in exchange
for $4.1 million Operating Partnership units, assumptions of $48.3 million of
notes payable and affiliate debt and $6.2 million cash. The debt was repaid
concurrent with the acquisition. The seven golf courses acquired from The
Legends Group have been accounted for at historical cost as The Legends Group is
considered the accounting acquirer under APB No. 16. The other three courses
have been accounted for as a purchase. The following is a summary of the golf
courses and related property and equipment at the acquisition:
<TABLE>
<CAPTION>
OTHER
LEGENDS COURSES TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Land....................................................... $ 4,532 $ 11,387 $ 15,919
Golf course improvements................................... 35,063 8,901 43,964
Buildings and improvements................................. 4,254 4,405 8,659
Furniture and equipment.................................... 3,299 1,516 4,815
---------- --------- ----------
Net property and equipment............................... 47,148 26,209 73,357
Less accumulated depreciation and amortization............. (10,827) -- (10,827)
---------- --------- ----------
Total property and equipment............................. $ 36,321 $ 26,209 $ 62,530
---------- --------- ----------
---------- --------- ----------
</TABLE>
4. MORTGAGE NOTES RECEIVABLE
On June 23, 1997 the Operating Partnership closed and funded an initial
$69.9 million participating loan to Golf Host Resorts, Inc., which is affiliated
with Starwood Capital Group LLC. The loan is secured by the Innisbrook Resort, a
63-hole destination golf and conference facility located near Tampa, Florida and
the Tamarron Resort, a 18-hole destination golf and conference facility located
near Durango, Colorado.
The Operating Partnership funded the loan with net proceeds from the
Company's initial public offering which closed in February 1997 and with
borrowings under the credit facility from NationsBank, N.A. described in Note 6.
The Company believes that the Innisbrook and Tamarron facilities represent
two of the preeminent, upscale destination golf and conference facilities in the
United States and that this transaction reinforces Golf Trust's strategy of
acquiring or participating in the growth of upscale golf courses. The
transaction was structured in a participating loan format that provides the
Company with an accretive rate of return that the Company believes is
competitive with its purchase/leaseback structure. Through the loan's structure,
the Company will participate in the growth in revenues through a participating
interest feature and will have the right to acquire the Innisbrook Resort at the
expiration of the loan term.
The initial loan of $69.9 million will be followed by a $9 million loan, a
portion of which was funded at closing, which will be used for a nine-hole
expansion and other improvements to the Innisbrook Resort
10
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. MORTGAGE NOTES RECEIVABLE (CONTINUED)
facilities, currently underway. The loan term is thirty (30) years, with an
initial base interest rate of 9.63% per annum, annual increases (of at least 5%
but no more than 7%) in the interest payment for the first five years, and a
participating interest feature throughout the term based upon the growth in
revenues, if any, over the base year.
Golf Host Resorts, Inc. has been admitted to the Operating Partnership as a
limited partner. Golf Host Resorts, Inc. used $8,975,000 of the proceeds of the
loan to purchase 274,039 OP Units (i.e. units of limited partnership interest in
the Operating Partnership) together with 159,326 shares of common stock of the
Company and an option to purchase an additional 150,000 shares of common stock
of the Company at a price (subject to certain adjustments) of $26.00 per share,
exercisable before December 31, 1997 (subject to extension in certain
circumstances). The purchase of shares and OP Units by Golf Host Resorts, Inc.
gives it an approximate 3.92% equity interest in the Company and an approximate
3.23% limited partner's interest in the Operating Partnership. Such interests
represent an approximate 5.11% economic interest in the Company and the
Operating Partnership, considered as one entity. The Company retains an
aggregate approximate 47.99% limited and general partner's interest in the
Operating Partnership through its two wholly-owned subsidiaries, GTA LP, Inc.
and GTA GP, Inc.
The $5,675,000 used to purchase the OP Units has been recorded as an
adjustment to minority interest and the $3,300,000 used to purchase common stock
has been recorded as a reduction of stockholders' equity.
According to SFAS No. 91 "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases," the present value of the future payments should be recognized over the
life of the loan. Accordingly, the Company recognizes revenue on a straight line
basis. Income recognized is approximately $30,000 in excess of the cash received
for the three months ended June 30, 1997, and the period from February 12 to
June 30, 1997.
5. LEASES
The Company leases its Golf Courses to affiliates of the prior owners under
non-cancelable lease agreements over an initial period of ten years. From the
minimum lease payments, the Company is required to make available a reserve
(totaling $267,000 as of June 30, 1997) of 2-3% of the annual gross golf revenue
of each course for course capital expenditure reimbursement to the lessor.
Capital expenditures are approved in advance by the Company.
11
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
5. LEASES (CONTINUED)
Future minimum rents to be received by the Company under the Leases for the
next five years ending December 31 and in total thereafter are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1997.................................................................. $ 13,222
1998.................................................................. 14,988
1999.................................................................. 14,988
2000.................................................................. 14,988
2001.................................................................. 14,988
Thereafter............................................................ 74,940
--------
$148,114
--------
--------
</TABLE>
The non-cancelable leases provide for the Company to receive, the greater of
the Base Rent Escalation or an amount equal to Participating Rent plus the Base
Rent Escalation payable under each non-cancelable lease. Participating rent will
be paid to the Company each year in the amount, if any, by which the sum of 33
and 1/3% of Gross Golf Revenue exceeds the cumulative Base Rent Escalation since
the commencement date of such Leases. The base rent will be increased each year
by the lesser of (i) 3% or (ii) 200% of the annual percentage increase in the
Consumer Price Index ("CPI"). Annual increases in lease payments are limited to
5% during the first five years of the initial lease term.
The Leasee has options to extend the term of each lease six consecutive
times for a period of 5 years.
6. NOTE PAYABLE
The Company has obtained a $100 million secured revolving credit facility
(the "Credit Facility") from a group of four commercial banks led by
NationsBank, N.A. Borrowings under the Credit Facility carry a floating interest
rate of LIBOR plus 2% (7.75% at June 30, 1997) with provisions for the rate to
be reduced to LIBOR plus 1.75% upon the attainment of Senior Debt Rating. The
Credit Facility availability is limited to a borrowing base calculation for each
"stabilized" location as defined in the Credit Facility. Additional financial
covenants include net worth, liquidity and cash flow covenants. Non-financial
covenants include restrictions on loans outstanding, construction in progress,
loans to officers and changes to Board of Directors. At the present time, these
covenants have been met.
The Company also has an additional unsecured $5 million working capital line
of credit available from Nationsbank N.A.
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS
In February, 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Plan") and the 1997 Non-Employee Directors' Plan (the "Directors' Plan").
The 1997 Plan authorized by the Compensation Committee of the Board of Directors
may grant stock awards relating to 500,000 shares of Common Stock. Under the
Directors' Plan, the Compensation Committee is authorized to grant stock awards
to purchase up to 100,000 shares of the Company's common stock at prices equal
to the fair value of the stock on the date of grant. Under the Directors plan
20,000 options have been granted to date. Option grants
12
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (CONTINUED)
under the 1997 Plan vest ratably over a period of three years from the date of
grant and expire ten years from the date of grant. Option granted under the
Directors plan vest immediately.
In May, 1997, the Company adopted the 1997 Stock-Based Incentive Plan (the
"New Stock Incentive Plan"). Under the New Stock Incentive Plan, the
Compensation Committee of the Board of Directors is authorized to grant awards
relating in the aggregate up to 600,000 shares of the Company's common stock.
Option grants generally vest ratably over a period of three years from the date
of grant and expire ten years from the date of grant. Restricted stock grants
generally vest at the end of four years from the date of grant.
Transactions involving both plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTION SHARES SHARES PRICE
- -------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Outstanding at December 31, 1996.................................... -- $ --
Granted............................................................. 940,000 23.88
Exercised........................................................... -- --
Expired and/or canceled............................................. -- --
--------- ------
Outstanding at June 30, 1997...................................... 940,000 $ 23.88
--------- ------
--------- ------
</TABLE>
The Company has adopted Statement of Financial Accounting Standards (SFAS)
123, "Accounting for Stock-Based Compensation," effective February, 1997. In
accordance with the provisions of SFAS No. 123, the Company continues to apply
APB Opinion 25 and related interpretations in accounting for its stock option
plans and, accordingly, has not recognized compensation cost. If the Company had
elected to recognize compensation cost based on fair value of the options
granted at the grant date as prescribed by SFAS No. 123, net income per quarter
and earnings per share would have been reduced to the pro forma amounts
indicated in the table below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS PERIOD FROM
ENDED FEBRUARY 12 TO
JUNE 30, 1997 JUNE 30, 1997
------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Net income--as reported........................................ $ 1,292 $ 2,010
Net income--pro forma.......................................... $ 349 $ 1,067
Earnings per share--as reported................................ $ .32 $ .50
Earnings per share--pro forma.................................. $ .09 $ .27
</TABLE>
13
<PAGE>
GOLF TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12
TO
JUNE 30, 1997
-------------
<S> <C>
Expected dividend yield........................................................ 5.9%
Expected stock price volatility................................................ 13.4%
Risk-free interest rate........................................................ 6.25%
Expected life of options....................................................... 4 years
</TABLE>
8. SUBSEQUENT EVENT
On July 25, 1997, the Board of Directors declared a distribution of $.41 per
share for the three months ended June 30, 1997, to stockholders of record on
August 4, 1997, which distribution will be paid on August 15, 1997.
14
<PAGE>
LEGENDS GOLF
COMBINED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 JUNE 30, 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current:
Cash............................................. $ 841 $ 1,119
Accounts receivable.............................. 1,290 1,907
Inventories...................................... 502 429
------------- -------------
Total current assets........................... 2,633 3,455
------------- -------------
Property and equipment, less accumulated
depreciation and amortization.................... 35,060 2,314
Other assets:
Investment in Golf Trust of America, LP.......... -- 2,959
Advances to affiliates........................... 11,673 13,237
Other............................................ 438 54
------------- -------------
Total other assets............................. 12,111 16,250
------------- -------------
$ 49,804 $ 22,019
------------- -------------
------------- -------------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............ $ 2,150 $ 1,691
Accrued rent..................................... -- 1,060
Current maturities of long-term debt............. 26,697 --
------------- -------------
Total current liabilities...................... 28,847 2,751
Advances from affiliates........................... 13,167 7,520
Long-term debt, less current maturities............ 616 748
------------- -------------
Total liabilities.............................. 42,630 11,019
------------- -------------
Commitments and contingencies
Owners' equity:
Common stock, $1 par--shares authorized, 300,000;
outstanding, 1,000............................. 3 3
Members' contributions........................... 1 7
Additional paid-in capital....................... 300 3,832
Members' accumulated deficit..................... (1,970 ) (2,742 )
Retained earnings................................ 8,840 9,900
------------- -------------
Total owners' equity........................... 7,174 11,000
------------- -------------
$ 49,804 $ 22,019
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to combined condensed financial statements.
15
<PAGE>
LEGENDS GOLF
COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------- -----------------
1996 1997 1996 1997
------ ------ ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Gross golf revenues................................................. $4,914 $6,076 $ 8,641 $10,082
Other revenues...................................................... 1,334 1,813 2,284 2,914
------ ------ ------- -------
Total revenues.................................................... 6,248 7,889 10,925 12,996
------ ------ ------- -------
COSTS AND EXPENSES:
General and administrative.......................................... 1,333 1,868 2,256 3,273
Operating expenses.................................................. 1,744 2,439 2,962 4,326
Depreciation and amortization....................................... 567 85 1,004 808
Rents............................................................... 329 3,245 539 4,941
------ ------ ------- -------
Total costs and expenses.......................................... 3,973 7,637 6,761 13,348
------ ------ ------- -------
Operating income (loss)............................................... 2,275 252 4,164 (352)
Equity in earnings of Golf Trust of America, LP....................... -- 1,231 -- 1,916
Interest expense...................................................... (295) (12) (515) (420)
------ ------ ------- -------
Net income........................................................ $1,980 $1,471 $ 3,649 $ 1,144
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
See accompanying notes to combined condensed financial statements.
16
<PAGE>
LEGENDS GOLF
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 3,649 $ 1,144
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................ 956 808
Equity in earnings of Golf Trust of America, LP.......................................... -- (1,916)
Decrease (increase) in:
Accounts receivable.................................................................... (1,118) (617)
Inventories............................................................................ (79) 73
Prepaid expenses/other assets.......................................................... (315) 142
Increase in accounts payable and accrued expenses........................................ 1,162 676
--------- ---------
Net cash provided by operating activities............................................ 4,255 310
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions........................................................... (2,571) (534)
Increase in Investment in Golf Trust of America, LP........................................ -- (173)
Distribution from Golf Trust of America, LP................................................ -- 785
Increase in advances to affiliates......................................................... (4,173) (1,564)
--------- ---------
Net cash used in investing activities................................................ (6,744) (1,486)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................................................... 1,413 202
Payments on long-term debt................................................................. (211) (70)
Increase in advances from affiliates....................................................... 1,145 2,389
Decrease in advances from stockholder...................................................... -- (211)
Distribution to owners..................................................................... -- (856)
--------- ---------
Net cash provided by financing activities............................................ 2,347 1,454
--------- ---------
Net increase (decrease) in cash...................................................... (142) 278
Cash, beginning of period............................................................ 400 841
--------- ---------
Cash, end of period.................................................................. $ 258 $ 1,119
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to combined condensed financial statements.
17
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined condensed financial statements include the
accounts of three S-Corporations (Seaside Resorts, Ltd. d/b/a Oyster Bay Golf
Club; Heritage Golf Club, Ltd.; and Golf Legends, Ltd.) and five limited
liability companies (Legends of Virginia, LC; Oyster Bay Golf Management, LLC;
Heritage Golf Management, LLC; Legends Golf Management, LLC; and Virginia
Legends Golf Management, LLC). The entities, referred to collectively as Legends
Golf, are engaged in the operation of golf courses in North Carolina, South
Carolina, and Virginia.
The accompanying combined condensed financial statements of Legends Golf
have been presented on a historical cost basis since Legends Golf was the
subject of a business combination upon the contribution of real estate and other
properties in exchange for interest in a limited partnership formed by the
operating partnership for inclusion in a public offering. 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
as under the terms of the operating leases implemented under the Formation
Transactions, the lease obligations are cross-collateralized among all four
Legends lessees. This presentation better presents the ability of the Lessees to
service the leases.
2. CONTRIBUTION OF ASSETS
On February 12, 1997, the Companies contributed the golf course land and
improvements, buildings and certain equipment with a net book value of $36,321
net of related debt of $26,454 to Golf Trust of America, LP (GTA, LP).
Concurrently with the contribution of assets, the majority owner contributed the
underlying land for four of the courses to the Companies. The majority owner's
basis in the land was $3,532. The contribution was concurrent with an initial
public offering of the common stock of Golf Trust of America, Inc. (GTA, Inc.),
its general partner. The Companies received limited partnership units
convertible to common shares of GTA, Inc. and cash of $8.4 million which was
used to repay certain affiliate indebtedness.
Concurrent with the contribution of assets, the Companies transferred the
operations of the golf courses along with related assets and liabilities to four
newly formed affiliated lessee companies, Oyster Bay Golf Management, LLC;
Heritage Golf Management, LLC; Legends Golf Management, LLC; and Virginia Golf
Management, LLC (Legends Lessees) which have entered into lease agreements with
GTA, LP (Note 3).
The remaining assets of the Companies consist of limited partnership units
in GTA, LP and receivables and payables from affiliates.
3. LEASES
Concurrent with the Formation Transactions, the Legends Lessees entered into
leases to operate the golf courses. The Company is obligated under the
non-cancelable lease agreements for an initial period of ten years. Under the
lease agreements, the Legends Lessees are responsible for all operating expenses
and
18
<PAGE>
LEGENDS GOLF
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
3. LEASES (CONTINUED)
fixed asset purchases and improvements. However, the Lessee is required to make
available 2 to 3 percent of the annual gross golf revenue to the Lessor for
reimbursement of fixed asset expenditures. Capital expenditures must be approved
in advance by the Lessor.
Future minimum rental obligations to be paid by the Company under the Leases
for the next five years ending December 31 and in total thereafter are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1997.............................................................................. $ 10,637
1998.............................................................................. 12,057
1999.............................................................................. 12,057
2000.............................................................................. 12,057
2001.............................................................................. 12,057
Thereafter........................................................................ 60,285
----------
$ 119,150
----------
----------
</TABLE>
The non-cancelable leases require the Company to pay, the greater of the
Base Rent Escalation or an amount equal to Participating Rent plus the Base Rent
Escalation payable under each non-cancelable lease. Participating rent will be
paid by the Company each year in the amount, if any, by which the sum of 33 and
1/3 percent of Gross Golf Revenue exceeds the cumulative Base Rent Escalation
since the commencement date of such Leases. Participating rent was $52,000 and
$68,000 for the three months and six months ended June 30, 1997, respectively.
The base rent will be increased each year by the lesser of (i) 3 percent or (ii)
200 percent of the annual percentage increase in the Consumer Price Index
("CPI"). Annual increases in lease payments are limited to 5 percent during the
first five years of the initial lease term.
The Company has options to extend the term of each lease six consecutive
times for a period of 5 years each.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
Golf Trust of America, Inc. (collectively with its subsidiaries, the
"Company") was incorporated in Maryland on November 8, 1996. The Company is a
self-administered real estate investment trust ("REIT") formed to capitalize
upon consolidation opportunities in the ownership of golf courses in the United
States. The Company's principal business strategy is to acquire high quality
golf courses and then lease the golf courses to qualified third party operators,
including affiliates of the sellers. Title to the acquired courses is held by
Golf Trust of America, L.P., a Delaware limited partnership (the "Operating
Partnership"), in which the Company is the sole general partner. The Company has
the ability to issue units of limited partnership interest ("OP Units") in the
Operating Partnership. OP Units are redeemable by their holder for cash or, at
the election of the Company, for shares of the Company's common stock ("Common
Stock") on a one-for-one basis (the "Redemption Rights"). When the Company
acquires a golf course in exchange for OP Units, in most instances the seller of
the course does not recognize taxable income until it exercises the OP Units'
Redemption Rights. OP Units can thus provide an attractive tax-deferred sale
structure for golf course sellers. The Company believes its ability to issue OP
Units and its utilization of the multiple independent lessee structure, together
with the substantial industry knowledge, experience and relationships within the
golf community of Company management and the golf course lessees provide it with
a distinct competitive advantage in the acquisition of high quality golf
courses, including those which might not otherwise be available for purchase.
In February 1997, the Company raised net proceeds of approximately $73
million in its initial public offering (the "IPO") and consummated the
transactions described below (collectively the "Formation Transactions"). In the
IPO the Company sold 3,910,000 shares of Common Stock at $21.00 per share
(including 510,000 shares sold pursuant to the underwriters' over-allotment
option, which was exercised in full). The Company contributed the net proceeds
of the IPO to the Operating Partnership in exchange for a 49% interest in the
Operating Partnership. Concurrently with the closing of the IPO, the Operating
Partnership acquired ten golf courses (the "Initial Courses") from their prior
owners (the "Prior Owners").
The ten Initial Courses are located in South Carolina (4), Virginia (2),
Alabama, Georgia, North Carolina and Texas. Title to the Initial Courses is held
by the Operating Partnership. The Initial Courses were contributed by their
Prior Owners to the Operating Partnership in exchange for approximately $6.2
million in cash, the assumption of approximately $43.1 million of mortgage and
other indebtedness and approximately 4.1 million OP Units, which represent a 51%
limited partnership interest in the Operating Partnership. Control of the
Operating Partnership remains in the hands of the Company, as the sole general
partner.
Concurrently with the closing of the IPO, the Initial Courses were leased to
newly formed entities (the "Initial Lessees"), each of whom is affiliated with
the Prior Owner of the leased course. The Company believes it will benefit from
the continuity of golf course management provided by the Initial Lessees, whose
affiliates developed and operated each of the Initial Courses since their
inception. Neither the Company nor its executive officers own any interest in,
or participate in the management of, the initial Lessees. The leases between the
Operating Partnership, as lessor, and each Initial Lessee (the "Participating
Leases") provide for the payment of lease payments ("Lease Payments") comprised
of fixed base rent ("Base Rent"), minimum rent increases and participating rent
based on growth in revenue at the Initial Course ("Participating Rent").
20
<PAGE>
RECENT DEVELOPMENTS
CLOSING OF MULTI-COURSE TRANSACTION
On June 23, 1997 the Operating Partnership closed and funded an initial
$69.9 million participating loan to Golf Host Resorts, Inc., which is affiliated
with Starwood Capital Group LLC. The loan is secured by the Innisbrook Resort, a
63-hole destination golf and conference facility located near Tampa, Florida and
the Tamarron Resort, a 18-hole destination golf and conference facility located
near Durango, Colorado.
The Operating Partnership funded the loan with net proceeds from the
Company's initial public offering which closed in February 1997 and with
borrowings under the credit facility from NationsBank, N.A. described below.
The Company believes that the Innisbrook and Tamarron facilities represent
two of the preeminent, upscale destination golf and conference facilities in the
United States and that this transaction reinforces Golf Trust's strategy of
acquiring or participating in the growth of upscale golf courses. The
transaction was structured in a participating loan format that provides the
Company with an accretive rate of return that the Company believes is
competitive with its purchase/leaseback structure. Through the loan's structure,
the Company will participate in the growth in revenues through a participating
interest feature and will have the right to acquire the Innisbrook Resort at the
expiration of the loan term.
The initial loan of $69.9 million will be followed by a $9 million loan, a
portion of which was funded at closing, which will be used for a nine-hole
expansion and other improvements to the Innisbrook Resort facilities, currently
underway. The loan term is thirty (30) years, with an initial base interest rate
of 9.63% per annum, annual increases (of at least 5% but no more than 7%) in the
interest payment for the first five years, and a participating interest feature
throughout the term based upon the growth in revenues, if any, over the base
year.
Golf Host Resorts, Inc. has been admitted to the Operating Partnership as a
limited partner. Golf Host Resorts, Inc. used $8,975,000 of the proceeds of the
loan to purchase 274,039 OP Units (i.e. units of limited partnership interest in
the Operating Partnership) together with 159,326 shares of common stock of the
Company and an option to purchase an additional 150,000 shares of common stock
of the Company at a price (subject to certain adjustments) of $26.00 per share,
exercisable before December 31, 1997 (subject to extension in certain
circumstances). The purchase of shares and OP Units by Golf Host Resorts, Inc.
gives it an approximate 3.92% equity interest in the Company and an approximate
3.23% limited partner's interest in the Operating Partnership. Such interests
represent an approximate 5.11% economic interest in the Company and the
Operating Partnership, considered as one entity. The Company retains an
aggregate approximate 47.99% limited and general partner's interest in the
Operating Partnership through its two wholly-owned subsidiaries, GTA LP, Inc.
and GTA GP, Inc.
According to SFAS No. 91 "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases", the present value of the future payments should be recognized over the
life of the loan. Accordingly, the Company recognizes revenue on a straight-line
basis. Income recognized is approximately $30,000 in excess of the cash received
for the three months ended June 30, 1997, and the period from February 12
through June 30, 1997.
The interest due from Golf Host Resorts, Inc. is approximately $562,000 per
month, or $6,700,000 annually. For 1997, the cash amounts received should
approximate $3,500,000 with an additional amount of $694,000 recognized as
income for the straight-line treatment. Certain operating revenue thresholds for
up to the first five years of the term have been guaranteed by Westin Hotel
Company, in an amount designated to insure payment of interest under the loan.
Under the terms of the loan agreement, the Company receives a percentage of
increases in gross revenue over a base year of 1996. The percentages are 17%,
20% and 25% of amounts in excess of
21
<PAGE>
$39,968,000, $43,000,000 and $50,000,000, respectively with the later two
amounts subject to annual CPI increases.
CLOSING OF CREDIT FACILITY
The Company has obtained a $100 million secured revolving credit facility
(the "Credit Facility") from a group of four commercial banks led by
NationsBank, N.A. Borrowings under the Credit Facility carry a floating interest
rate of LIBOR plus 2.00% (7.75% at June 30, 1997) with provisions for the rate
to be reduced to LIBOR plus 1.75% upon the attainment of Senior Debt Rating. The
Credit Facility availability is limited to a borrowing base calculation for each
"stabilized" location as defined in the Credit Facility. Additional financial
covenants include net worth, liquidity and cash flow covenants. Non-financial
covenants include restrictions on loans outstanding, construction in progress,
loans to officers and changes to Board of Directors. At the present time, these
covenants have been met.
The following discussion and analysis of financial condition and pro forma
results of operations of the Company, and certain Prior Owners and Initial
Lessees is based upon the Company's financial statements as of June 30, 1997,
the consolidated balance sheet for the year ended December 31, 1996, actual
results for the three month period ended June 30, 1997 and pro forma income
statements of the Company for the three and six months periods ended June 30,
1996. The Legends Lessees and the historical combined financial statements of
The Legends Group, the accounting acquiror, with respect to seven of the Initial
Courses have also been presented. The pro forma financial information for the
Company and the Initial Lessees reflects Base Rent and no Participating Rent.
RESULTS OF OPERATIONS OF THE COMPANY
FOR THE THREE MONTHS ENDED JUNE 30, 1997
For the three months ended June 30, 1997, the Company received $3,998,000 in
revenue from the Participating Leases for the Initial Courses and interest
received on the mortgage note receivable.
Total expenses before minority interest, totaling $1,333,000 for the three
months ended June 30, 1997, reflect depreciation and amortization, general and
administrative expenses and interest expense. Depreciation expense is based on
the Company's cost of acquiring the Initial Courses, except for the seven
Initial Courses acquired by the Company from The Legends Group. The contribution
of these seven Initial Courses is treated for accounting purposes as a
reorganization of the interests of The Legends Group in the contributed courses
and has been accounted for at historical cost.
Net income before minority interest for the three months ended June 30, 1997
is $2,665,000.
FOR THE PERIOD FROM FEBRUARY 12 TO JUNE 30, 1997
For the period from February 12 to June 30, 1997, the Company received
$6,040,000 in revenue from the Participating Leases for the Initial Courses and
interest received on the mortgage note receivable.
Total expenses before minority interest, totaling $1,901,000 for the period
from February 12 to June 30, 1997, reflect depreciation and amortization,
general and administrative expenses and interest expense.
Net income before minority interest for the period from February 12 to June
30, 1997 is $4,139,000.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
Cash flow from operating activities for the period from February 12 to June
30, 1997, was $3,578,000. This reflects net income before minority interest,
plus noncash charges to income for depreciation and loan fee amortization and
working capital changes. Cash flows used in investing activities reflect
mortgage
22
<PAGE>
receivable of $61,599,000 and original golf course acquisitions of $54,554,000.
Cash flows provided by financing activities, totaling $115,190,000 represents
the total borrowing of $43,825,000 under the Credit Facility (discussed below)
and offering proceeds of $73,055,000 less dividend distributions.
Concurrent with the closing of the IPO, the Company borrowed approximately
$4,325,000 which, together with the net proceeds of the IPO, was used to retire
mortgage indebtedness and other debt of the Prior Owners, to fund the cash
portion of the purchase of the Initial Courses and to provide initial working
capital. The 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 its contribution of one of the
Initial Courses to the Company. This loan has been rolled into the Credit
Facility.
On June 20, 1997, the Company finalized a $100 million Credit Facility
($43,900,000 outstanding as of June 30, 1997) to be used primarily for the
acquisition of additional golf courses, but a portion of which may also be used
for acquisition of the Expansion Facilities, for capital expenditures or for
general working capital purposes. The Company's Credit Facility imposes certain
conditions on the Company's ability to draw on the Credit Facility including
without limitation, a borrowing base calculation. The Company also has an
additional unsecured $5 million working-capital line of credit available from
NationsBank N.A.
The Company anticipates that future acquisitions would be funded with debt
financing provided by the line of credit, operating partnership units 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, longterm or
shortterm, fixed or variable interest rate and may be subject to such other
terms, as the Board of Directors deems prudent.
The Company's acquisition capabilities are enhanced by its initial capital
structure. The Company intends to maintain a capital structure with consolidated
indebtedness representing no more than 50% of its total market capitalization.
The Company intends to invest in additional golf courses as suitable
opportunities arise, but 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 additional golf courses. The Company is in
active negotiations including certain golf courses although there can be no
assurance that the Company will acquire any of these golf courses.
PRO FORMA RESULTS OF OPERATIONS OF THE COMPANY
On a pro forma basis for the three months ended June 30, 1996, and June 30,
1997, the Company would have received $2,820,000 and $3,998,000, respectively,
in revenue from the Participating Leases for the Initial Courses. This amount
does not include $926,000 in rent from Legends of Virginia LC for the three
months ended June 30, 1996 related to its two courses, Stonehouse Golf Club and
Royal New Kent, because such courses opened in June 1996 and August 1996
respectively. As these golf courses are now fully operational, the Company is
contractually entitled to receive base rent of approximately $14,988,000 in its
first full year of operation.
Total pro forma expenses before minority interest, totaling $1,272,000 and
$1,333,000 for the quarters ended June 30, 1996 and June 30, 1997, respectively,
reflect depreciation and amortization, general and administrative expenses and
interest expense. Pro forma expenses for the quarter ended June 30, 1996 does
not include depreciation related to the Legends of Virginia Golf Courses
totaling $276,000 related to the period these courses were not operational in
1996. If these courses had been operational in all of 1996, total pro forma
expenses for the quarter ended June 30, 1996 would have been $1,824,000.
23
<PAGE>
Pro forma net income before minority interest for the quarter ended June 30,
1996 is $1,548,000 ($650,000 higher if the Legends of Virginia Initial Courses
had been fully operational). Pro forma net income for the quarter ended June 30,
1997 is $2,665,000.
THE LEGENDS GROUP RESULTS OF OPERATIONS
As part of the Formation Transactions, the Company acquired the following
seven Initial Courses from The Legends Group: Heritage Golf Club, Heathland,
Moorland, Parkland, Oyster Bay, Royal New Kent and Stonehouse Golf Club. These
seven Initial Courses are 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 are leased by a single Legends Lessee
pursuant to a single Participating Lease. The newly-opened Initial
Courses--Royal New Kent and Stonehouse Golf Club--are in similar stages of
operation and are leased by a single Legends Lessee pursuant to separate
Participating Leases. Each of the other two Legends Initial Courses are leased
by separate Legends Lessees.
The following discussion and analysis addresses the combined historical
results of operations of the Initial Courses contributed by The Legends Group.
However, the results of operations of such courses do 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 Initial Courses contributed by The Legends Group,
Stonehouse Golf Club and Royal New Kent, opened in June and August 1996,
respectively.
For purposes of financial presentations, the term "Legends Golf" refers to
the combined operations of all seven Initial Courses contributed by The Legends
Group, and the term "Golf Legends" refers to operations of the three Initial
Courses located at the Legends Resort.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue from golf operations increased 23.7% from $4,914,000 to $6,076,000
while the revenue per player increased from $63.34 to $66.09, while the total
rounds played increased 18.5% from 77,587 to 91,930. The increase in total
number of rounds is primarily due to the opening of the two Legends of Virginia
courses in mid-1996. Of the 14,343 increase in rounds, Legends of Virginia, LC
accounted for 13,868 rounds and the increase in total revenue during the quarter
due to the two new courses approximated $982,000.
The number of rounds played significantly influences other revenue sources,
including food and beverage and merchandise sales. While the number of rounds
increased 18.5% other revenue increased 35.9% to $1,813,000 from $1,334,000
principally due to a 26.0% increase in food and beverage sales resulting from
additional demand created by occupants of the newly constructed golf villas at
the Legends Resort and sales at Legends of Virginia, LC as well as a 33.4%
increase in pro shops sales resulting principally from Legends of Virginia, LC
sales. Other income increased as a result of reinstituting the course
photography.
Operating expenses increased 90.0% to $7,637,000 from $3,993,000. Principal
components of the $3,644,000 increase were (i) operating costs exclusive of
lease payments to Golf Trust and depreciation of approximately $640,000
associated with the two Legends of Virginia courses opened in mid-1996, (ii)
lease payments to Golf Trust, land lease payments to the prior owner and
depreciation expense totaling $3,330,000 for 1997 compared to $896,000 for 1996
(increase $2,434,000 when there were no lease payments to Golf Trust), (iii)
$321,000 attributable to clubhouse repairs at Golf Legends and Oyster Bay along
with the addition of several maintenance personnel to improve the quality of the
course maintenance, and (iv) increased costs of the food and beverage operations
consistent with the increase in sales.
24
<PAGE>
Interest expense decreased 95.9% to $12,000 from $295,000 as a result of
lower borrowings outstanding related to debt for the courses which was
transferred in connection with the Formation Transaction's retirement of debt.
Equity in earnings of Golf Trust of America LP results from the
approximately 46% limited partnership interest held by Legends Golf.
Net income decreased $509,000 from $1,980,000 to $1,471,000.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue from golf operations increased 16.7% from $8,641,000 to $10,082,000
while the revenue per player decreased from $60.95 to $61.30, while the total
rounds played increased 16.0% from 141,780 to 164,482. The increase in total
number of rounds is primarily due to the opening of the two Legends of Virginia
courses in mid-1996. Of the 22,702 increase in rounds, Legends of Virginia, LC
accounted for 18,281 rounds and a total revenue increase of $1,253,000.
The number of rounds played significantly influences other revenue sources,
including food and beverage and merchandise sales. While the number of rounds
increased 16.0% other revenue increased 19.1% to $2,719,000 from $2,284,000
principally due to a 25.9% increase in food and beverage sales resulting from
additional demand created by occupants of the newly constructed golf villas at
the Legends Resort and sales at Legends of Virginia, LC as well as a 15.9%
increase in pro shops sales resulting principally from Legends of Virginia, LC
sales. Other income increased as a result of reinstituting the course
photography.
Operating expenses increased 97.3% to $13,348,000 from $6,761,000. Principal
components of the $6,587,000 increase were (i) operating costs exclusive of
lease payments to Golf Trust and depreciation expense of approximately
$1,774,000 associated with the two Legends of Virginia courses opened in
mid-1996, (ii) lease payments to Golf Trust, land lease payments to the prior
owner and depreciation expense totaling $6,287,000 for 1997 compared to
$1,543,000 for 1996 (increase $4,744,000) when there were no lease payments to
Golf Trust, (iii) $321,000 attributable to clubhouse repairs at Golf Legends and
Oyster Bay along with the addition of several maintenance personnel to improve
the quality of the course maintenance, and (iv) increased costs of the food and
beverage operations consistent with the increase in sales.
Interest expense decreased 18.5% to $420,000 from $515,000 as a result of
lower borrowings outstanding related to debt for the courses which was
transferred in connection with the Formation Transaction's retirement of debt.
Equity in earnings of Golf Trust of America LP results from the
approximately 46% limited partnership interest held by Legends Golf.
Net income decreased $2,505,000 from $3,649,000 to $1,144,000.
25
<PAGE>
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The preceding section, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other sections of this Quarterly
Report contain various "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and words
of similar import; and also including, without limitation, the following:
statements regarding the Company's continuing ability to target and acquire high
quality golf courses; the expected availability of the Line of Credit and other
debt and equity financing; the sufficiency of the Company's working capital,
cash flow and financing to support the Company's future operating and capital
requirements; the Initial Lessees' future cash flows, results of operations and
overall financial performance; the planned acquisition and/or financing of
certain golf courses; the expected completion and acquisition of the Expansion
Facilities; the expected dividend distribution rate; the intended limit on the
Company's level of consolidated indebtedness; the expected tax treatment of the
Company's operations; the Company's beliefs about continued growth in the golf
industry; statements regarding the possible redemption of OP Units and exercise
of the Lessee Performance Options; and the expected completion of real estate
developments near certain Initial Courses. Such forward-looking statements
relate to future events and the future financial performance of the Company and
the industry and involve known and unknown risks, uncertainties and other
important factors which could cause actual results, performance or achievements
of the Company or industry to differ materially from the future results,
performance or achievements expressed or implied by such forward-looking
statements.
Investors should carefully consider the various factors identified in the
preceding section, "Management's Discussion and Analysis of Financial Condition
and Results of Operation," and elsewhere in this Quarterly Report that could
cause actual results to differ materially from the results predicted in the
forward-looking statements. Further, the Company specifically cautions investors
to consider the following important factors in conjunction with the
forward-looking statements: the possible decline in the Company's ability to
locate and acquire quality golf courses and to negotiate acceptable lease terms;
the possibility that Company management lacks the skill to manage the Company's
planned process of acquisitions and expansions; the possible adverse effect of
changing economic conditions, including interest rate movements and changes in
the real estate market both locally and nationally; the effect of severe weather
or natural disasters; and the effect of competitive pressures from other golf
course acquirors and other golf course lessors. Because of the foregoing
factors, the actual results achieved by the Company in the future may differ
materially from the expected results described in the forward-looking
statements.
26
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
30
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
(C) RECENT SALES OF UNREGISTERED SECURITIES.
On June 20, 1997, the Company sold to Golf Host Resorts, Inc. 159,326 shares
of Common Stock and an option to purchase up to an additional 150,000 shares of
Common Stock at a price of $26.00 per share (subject to certain adjustments),
exercisable before December 31, 1997 (subject to extension in certain
circumstances); and concurrently, the Operating Partnership sold 274,039 OP
Units to Golf Host Resorts, Inc. The aggregate purchase price paid buy Golf Host
Resorts, Inc. was $8,975,000. The purchase price was not separately allocated
among the securities. There was no underwriter involved in the sale. Such
issuances were not registered under the Securities Act of 1933, as amended, and
were effected by the Company in reliance upon the exemptions from registration
contained in Section 4(2) thereof, as a transaction not involving a public
offering, and in Rule 506 of Regulation D promulgated thereunder, as a sale to
an accredited investor.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are part of this quarterly report on Form 10-Q for
the quarterly period ending June 30, 1997 (and are numbered in accordance with
Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.1 Credit Agreement, dated as of June 20, 1997, by and among Golf Trust of America, L.P., as Borrower,
Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to
therein, and NationsBank N.A., as Agent (previously filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by
reference).
10.2 Loan Agreement, dated as of June 20, 1997, by and between Golf Host Resorts, Inc., as Borrower, and
Golf Trust of America, L.P., as Lender (previously filed as Exhibit 10.2 to the Company's Current
Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by
reference).
10.3 Golf Trust of America, Inc. 1997 Stock-Based Incentive Plan (the "New Stock Incentive Plan")
10.4 Form of Nonqualified Stock Option Agreement for use under the New Stock Incentive Plan
10.5 Form of Employee Incentive Stock Option Agreement for use under the New Stock Incentive Plan
27.1 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated June 20, 1997, was filed on August 12,
1997. It contained disclosure under Items 5 and 7 regarding the Company's
closing of a line of credit facility and the closing of a multi-golf course
transaction.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
GOLF TRUST OF AMERICA, INC., registrant
Date: 8/14/97 /s/ W. BRADLEY BLAIR, II
- ---------------------------- ------------------------------------------
W. Bradley Blair, II
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN
OF THE BOARD OF DIRECTORS
Date: 8/14/97 /s/ SCOTT D. PETERS
- ---------------------------- ------------------------------------------
Scott D. Peters
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
33
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index immediately
precedes the exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.1 Credit Agreement, dated as of June 20, 1997, by and among Golf Trust of America, L.P., as Borrower,
Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to
therein, and NationsBank N.A., as Agent (previously filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by
reference).
10.2 Loan Agreement, dated as of June 20, 1997, by and between Golf Host Resorts, Inc., as Borrower, and
Golf Trust of America, L.P., as Lender (previously filed as Exhibit 10.2 to the Company's Current
Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by
reference).
10.3 Golf Trust of America, Inc. 1997 Stock-Based Incentive Plan (the "New Stock Incentive Plan")
10.4 Form of Nonqualified Stock Option Agreement for use under the New Stock Incentive Plan
10.5 Form of Employee Incentive Stock Option Agreement for use under the New Stock Incentive Plan
27.1 Financial Data Schedule
</TABLE>
34
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 STOCK-BASED INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
1. THE PLAN.................................................................................................. 1
1.1 Purpose........................................................................................ 1
1.2 Administration and Authorization; Power and Procedure.......................................... 1
1.3 Participation.................................................................................. 3
1.4 Shares Available for Awards; Share Limits...................................................... 3
1.5 Grant of Awards................................................................................ 4
1.6 Award Period................................................................................... 4
1.7 Limitations on Exercise and Vesting of Awards.................................................. 4
1.8 Acceptance of Notes to Finance Exercise........................................................ 5
1.9 No Transferability; Limited Exception to Transfer Restrictions................................. 6
2. OPTIONS................................................................................................... 7
2.1 Grants......................................................................................... 7
2.2 Option Price................................................................................... 7
2.3 Limitations on Grant and Terms of Incentive Stock Options...................................... 8
2.4 Limits on 10% Holders.......................................................................... 8
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions............................... 9
2.6 Effects of Termination of Employment; Termination of Subsidiary Status; Discretionary
Provisions................................................................................... 9
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS)...................................
10
3.1 Grants......................................................................................... 10
3.2 Exercise of Stock Appreciation Rights.......................................................... 11
3.3 Payment........................................................................................ 11
3.4 Limited Stock Appreciation Rights.............................................................. 12
4. RESTRICTED STOCK AWARDS................................................................................... 12
4.1 Grants......................................................................................... 12
4.2 Restrictions................................................................................... 13
4.3 Return to the Corporation...................................................................... 13
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES................................................................ 13
5.1 Grants of Performance Share Awards............................................................. 13
5.3 Grants of Stock Bonuses........................................................................ 14
5.4 Deferred Payments.............................................................................. 14
6. OTHER PROVISIONS.......................................................................................... 14
6.1 Rights of Eligible Persons, Participants and Beneficiaries..................................... 14
6.2 Adjustments; Acceleration...................................................................... 15
6.3 Effect of Termination of Employment............................................................ 16
6.4 Compliance with Laws........................................................................... 17
6.5 Tax Withholding................................................................................ 17
6.6 Plan Amendment, Termination and Suspension..................................................... 18
6.7 Privileges of Stock Ownership.................................................................. 18
6.8 Effective Date of the Plan..................................................................... 19
6.9 Term of the Plan............................................................................... 19
6.10 Governing Law/Construction/Severability........................................................ 19
6.11 Captions....................................................................................... 20
6.12 Effect of Change of Subsidiary Status.......................................................... 20
7. DEFINITIONS............................................................................................... 20
7.1 Definitions.................................................................................... 20
</TABLE>
i
<PAGE>
GOLF TRUST OF AMERICA, INC.
1997 STOCK-BASED INCENTIVE PLAN
1. THE PLAN
1.1 PURPOSE
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company. "Corporation"
means Golf Trust of America, Inc. and "Company" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms are defined
in Article 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
(a) COMMITTEE. This Plan shall be administered by and all Awards to
Eligible Employees shall be authorized by the Committee. Action of the Committee
with respect to the administration of this Plan shall be taken pursuant to a
majority vote or by written consent of its members.
(b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the particular
Eligible Employees who will receive any Awards;
(ii) to grant Awards to Eligible Employees, determine the price at which
securities will be offered or awarded and the amount of securities to be
offered or awarded to any of such persons, and determine the other specific
terms and conditions of such Awards consistent with the express limits of
this Plan, and establish the installments (if any) in which such Awards
shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining the
rights and obligations of the Company and Employee Participants under this
Plan, further define the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Employees, subject to any required consent under
Section 6.6;
(vi) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum ten-year term of
Awards under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
<PAGE>
(d) RELIANCE ON EXPERTS. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in good
faith.
(e) DELEGATION. The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 PARTICIPATION.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
(a) SHARES AVAILABLE. Subject to the provisions of Section 6.2, the
capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock and any shares of its Common
Stock held as treasury shares. The shares may be delivered for any lawful
consideration.
(b) SHARE LIMITS. The maximum number of shares of Common Stock that may be
delivered pursuant to Awards granted to Eligible Persons under this Plan shall
not exceed 600,000 shares (the "SHARE LIMIT"). The maximum number of shares of
Common Stock that may be delivered pursuant to options qualified as Incentive
Stock Options granted under this Plan is 600,000 shares. Each of the two
foregoing numerical limits shall be subject to adjustment as contemplated by
this Section 1.4 and Section 6.2.
(c) CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. Shares subject to
outstanding Awards of derivative securities (as defined in Rule 16a-1(c) under
the Exchange Act) shall be reserved for issuance. If any option or other right
to acquire shares of Common Stock under an Award shall expire or be cancelled or
terminated without having been exercised in full, or any Common Stock subject to
a Restricted Stock Award or other Award shall not vest or be delivered, the
unpurchased, unvested or undelivered shares subject thereto shall again be
available for the purposes of the Plan, subject to any applicable limitations
under Section 162(m) of the Code. If a Stock Appreciation Right or similar right
is exercised or a Performance Share Award based on the increased market value of
a specified number of shares of Common Stock is paid in shares, only the number
of shares actually issued shall be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan and, if
applicable, such Award. If the Corporation withholds shares of Common Stock
pursuant to Section 6.5, the number of shares that would have been deliverable
with respect to an Award but that are withheld pursuant to the provisions of
Section 6.5 may in effect not be issued, and the aggregate number of shares
issuable with respect to the applicable Award and under the Plan shall not be
reduced by the number of shares withheld and such shares shall be available for
additional Awards under this Plan. To the extent a performance share award or
dividend equivalent constitutes an equity security (as this phrase is defined in
Rule 16a-1 under the Exchange Act) issued by the Corporation and is paid in
shares of Common Stock, the number of shares of Common Stock (if any) subject to
such Performance Share Award or dividend equivalent shall be charged (but in the
case of tandem or substituted Awards or dividend equivalents, without
duplication) against the maximum number of shares of Common Stock that may be
delivered pursuant to Awards under this Plan. Notwithstanding the foregoing
provisions, but subject to Section 6.10(c), Awards payable solely in cash shall
not reduce the number of shares available for Awards under this Plan and any
imputed charges to the maximum number of shares deliverable under this Plan
pursuant to Awards payable in shares or cash shall be reversed to the extent the
Awards are actually paid in cash. To the extent any shares were previously
reserved in respect of such Awards payable in cash or shares, the number of
shares not issued shall again be available for purposes of this Plan.
2
<PAGE>
1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award, the price
(if any) to be paid for the shares or the Award and, in the case of performance
share awards, in addition to matters addressed in Section 1.2(b), the specific
objectives, goals and performance criteria (such as an increase in sales, market
value, earnings or book value over a base period, the years of service before
vesting, the relevant job classification or level of responsibility or other
factors) that further define the terms of the performance share award. Each
Award shall be evidenced by an Award Agreement signed by the Corporation and, if
required by the Committee, by the Participant. The Award Agreement shall set
forth the material terms and conditions of the Award established by the
Committee consistent with the specific provisions of this Plan.
1.6 AWARD PERIOD.
Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options or other rights to acquire Common Stock
not later than ten (10) years after the Award Date.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
(a) PROVISIONS FOR EXERCISE. Unless the Committee otherwise expressly
provides, no Award shall be exercisable or shall vest until at least six months
after the initial Award Date, and once exercisable an Award shall remain
exercisable until the expiration or earlier termination of the Award.
(b) PROCEDURE. Any exercisable Award shall be deemed to be exercised when
the Secretary of the Corporation receives written notice of such exercise from
the Participant, together with any required payment made in accordance with
Section 2.2(a), as the case may be.
(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Persons that cash, other securities, or other property will
be paid or transferred in lieu of any fractional share interests. No fewer than
100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE.
The Corporation may, with the Committee's approval, accept one or more notes
from any Eligible Person in connection with the exercise or receipt of any
outstanding Award; provided that any such note shall be subject to the following
terms and conditions:
(a) The principal of the note shall not exceed the amount required to be
paid to the Corporation upon the exercise or receipt of one or more Awards
under the Plan and the note shall be delivered directly to the Corporation
in consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
PROVIDED that the term of the note, including extensions, shall not exceed a
period of five years.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than
the interest rate necessary to avoid the imputation of interest under the
Code.
(d) If the employment of the Participant terminates, the unpaid
principal balance of the note shall become due and payable on the 10th
business day after such termination; provided, however, that if a sale of
such shares would cause such Participant to incur liability under Section
16(b) of the Exchange Act, the unpaid balance shall become due and payable
on the 10th business day after the first day on which a sale of such shares
could have been made without incurring such liability assuming
3
<PAGE>
for these purposes that there are no other transactions (or deemed
transactions in securities of this Corporation) by the Participant
subsequent to such termination.
(e) If required by the Committee or by applicable law, the note shall be
secured by a pledge of any shares or rights financed thereby in compliance
with applicable law.
(f) The terms, repayment provisions, and collateral release provisions
of the note and the pledge securing the note shall conform with applicable
rules and regulations of the Federal Reserve Board as then in effect.
1.9 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.
(a) LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly provided in
(or pursuant to) this Section 1.9, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; Awards shall be exercised only by the
Participant; and (ii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
(b) EXCEPTIONS. The Committee may permit Awards to be exercised by and
paid only to certain persons or entities related to the Participant, including
but not limited to members of the Participant's family, charitable institutions,
or trusts or other entities whose beneficiaries or beneficial owners are members
of the Participant's family and/or charitable institutions, or to such other
persons or entities as may be approved by the Committee, pursuant to such
conditions and procedures as the Committee may establish. Any permitted transfer
shall be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes on a gratuitous or donative basis and without consideration
(other than nominal consideration). Notwithstanding the foregoing, ISOs and
Restricted Stock Awards shall be subject to any and all additional transfer
restrictions under the Code.
(c) FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and transfer
restrictions in Section 1.9(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the event of
the Participant's death or, if the Participant has died, transfers to
or exercise by the Participant's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will or the laws of
descent and distribution,
(iii) transfers pursuant to a QDRO order,
(iv) if the Participant has suffered a disability, permitted transfers or
exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless exercise" procedures
with third parties who provide financing for the purpose of (or who
otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Committee.
2. OPTIONS.
2.1 GRANTS.
One or more Options may be granted under this Article to any Eligible
Person. Each Option granted shall be designated in the applicable Award
Agreement, by the Committee as either an Incentive Stock Option, subject to
Section 2.3, or a Non-Qualified Stock Option.
4
<PAGE>
2.2 OPTION PRICE.
(a) PRICING LIMITS. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the time of the
Award, but in the case of Incentive Stock Options shall not be less than 100%
(110% in the case of a Participant described in Section 2.4) of the Fair Market
Value of the Common Stock on the date of grant and in all cases shall not be
less than the par value thereof.
(b) PAYMENT PROVISIONS. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.8; (iv) by notice and third party payment in such
manner as may be authorized by the Committee; or (v) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, PROVIDED,
HOWEVER, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
(a) $100,000 LIMIT. To the extent that the aggregate "Fair Market Value"
of stock with respect to which incentive stock options first become exercisable
by a Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company or any
parent corporation, such options shall be treated as Nonqualified Stock Options.
For this purpose, the "Fair Market Value" of the stock subject to options shall
be determined as of the date the options were awarded. In reducing the number of
options treated as incentive stock options to meet the $100,000 limit, the most
recently granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
(b) OPTION PERIOD. Each Option and all rights thereunder shall expire no
later than 10 years after the Award Date.
(c) OTHER CODE LIMITS. Incentive Stock Options may only be granted to
Eligible Employees of the Corporation or a Subsidiary that satisfies the other
eligibility requirements of the Code. There shall be imposed in any Award
Agreement relating to Incentive Stock Options such other terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
5
<PAGE>
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person any
adjustment in the exercise or purchase price, the vesting schedule, the number
of shares subject to, the restrictions upon or the term of, an Award granted
under this Article by cancellation of an outstanding Award and a subsequent
regranting of an Award, by amendment, by substitution of an outstanding Award,
by waiver or by other legally valid means. Such amendment or other action may
result among other changes in an exercise or purchase price which is higher or
lower than the exercise or purchase price of the original or prior Award,
provide for a greater or lesser number of shares subject to the Award, or
provide for a longer or shorter vesting or exercise period.
2.6 EFFECTS OF TERMINATION OF EMPLOYMENT; TERMINATION OF SUBSIDIARY STATUS;
DISCRETIONARY PROVISIONS.
(a) OPTIONS--RESIGNATION OR DISMISSAL. If the Participant's employment by
(or other service specified in the Award Agreement to) the Company terminates
for any reason (the date of such termination being referred to as the "SEVERANCE
DATE") other than Retirement, Total Disability or death, the Participant shall
have, unless otherwise provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 6.2, three months
after the Severance Date to exercise any Option to the extent it shall have
become exercisable on the Severance Date. The Option, to the extent not
exercisable on the Severance Date, shall terminate.
(b) OPTIONS--DEATH OR DISABILITY. If the Participant's employment by (or
specified service to) the Company terminates as a result of Total Disability or
death, the Participant, Participant's Personal Representative or his or her
Beneficiary, as the case may be, shall have, unless otherwise provided in the
Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.2, until 12 months after the Severance Date to
exercise any Option to the extent it shall have become exercisable by the
Severance Date. Any Option to the extent not exercisable on the Severance Date
shall terminate.
(c) OPTIONS--RETIREMENT. If the Participant's employment by (or specified
service to) the Company terminates as a result of Retirement, the Participant,
Participant's Personal Representative or his or her Beneficiary, as the case may
be, shall have, unless otherwise provided in the Award Agreement and subject to
earlier termination pursuant to or as contemplated by Section 1.6 or 6.2, until
12 months after the Severance Date to exercise any Nonqualified Stock Option
(three months after the Severance Date in the case of an Incentive Stock Option)
to the extent it shall have become exercisable by the Severance Date. The
Option, to the extent not exercisable on the Severance Date, shall terminate.
(d) CERTAIN SARS. Any SAR granted concurrently or in tandem with an Option
shall have the same post-termination provisions and exercisability periods as
the Option to which it relates, unless the Committee otherwise provides.
(e) OTHER AWARDS. The Committee shall establish in respect of each other
Award granted hereunder the Participant's rights and benefits (if any) in the
event of a termination of employment and in so doing may make distinctions based
upon the cause of termination and the nature of the Award.
(f) COMMITTEE DISCRETION. Notwithstanding the foregoing provisions of this
Section 2.6, in the event of, or in anticipation of, a termination of employment
with the Company for any reason, other than discharge for cause, the Committee
may, in its discretion, increase the portion of the Participant's Award
available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, or, subject to the provisions of Section
1.6, extend the exercisability period upon such terms as the Committee shall
determine and expressly set forth in or by amendment to the Award Agreement.
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2.7 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS.
Options and Stock Appreciation Rights may be granted to Eligible Persons
under this Plan in substitution for employee stock options granted by other
entities to persons who are or who will become Eligible Persons in respect of
the Company, in connection with a distribution, merger or reorganization by or
with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the other entity.
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS).
3.1 GRANTS.
In its discretion, the Committee may grant to any Eligible Person Stock
Appreciation Rights either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
(a) EXERCISABILITY. Unless the Award Agreement or the Committee otherwise
provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.
(b) EFFECT ON AVAILABLE SHARES. To the extent that a Stock Appreciation
Right is exercised, only the actual number of delivered shares of Common Stock
shall be charged against the maximum amount of Common Stock that may be
delivered pursuant to Awards under this Plan. The number of shares subject to
the Stock Appreciation Right and the related Option of the Participant shall,
however, be reduced by the number of underlying shares as to which the exercise
related, unless the Award Agreement otherwise provides.
(c) STAND-ALONE SARS. A Stock Appreciation Right granted independently of
any other Award shall be exercisable pursuant to the terms of the Award
Agreement but in no event earlier than six months after the Award Date, except
in the case of death or Total Disability.
3.3 PAYMENT.
(a) AMOUNT. Unless the Committee otherwise provides, upon exercise of a
Stock Appreciation Right and the attendant surrender of an exercisable portion
of any related Award, the Participant shall be entitled to receive payment of an
amount determined by multiplying
(i) the difference obtained by subtracting the exercise price per share
of Common Stock under the related Award (if applicable) or the initial share
value specified in the Award from the Fair Market Value of a share of Common
Stock on the date of exercise of the Stock Appreciation Right, by
(ii) the number of shares with respect to which the Stock Appreciation
Right shall have been exercised.
(b) FORM OF PAYMENT. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount determined under
paragraph (a) above, either solely in cash, solely in shares of Common Stock
(valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right), or partly in such shares and partly in cash, provided that the Committee
shall have determined that such exercise and payment are consistent with
applicable law. If the Committee permits the Participant to elect to receive
cash or shares (or a combination thereof) on such exercise, any such election
shall be subject to such conditions as the Committee may impose.
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3.4 LIMITED STOCK APPRECIATION RIGHTS.
The Committee may grant to any Eligible Person Stock Appreciation Rights
exercisable only upon or in respect of a change in control or any other
specified event ("Limited SARs") and such Limited SARs may relate to or operate
in tandem or combination with or substitution for Options, other SARs or other
Awards (or any combination thereof), and may be payable in cash or shares based
on the spread between the base price of the SAR and a price based upon the Fair
Market Value of the Shares during a specified period or at a specified time
within a specified period before, after or including the date of such event.
4. RESTRICTED STOCK AWARDS.
4.1 GRANTS.
The Committee may, in its discretion, grant one or more Restricted Stock
Awards to any Eligible Person. Each Restricted Stock Award Agreement shall
specify the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent (if any) to which and the time (if ever) at which the Participant
shall be entitled to dividends, voting and other rights in respect of the shares
prior to vesting, and the restrictions (which may be based on performance
criteria, passage of time or other factors or any combination thereof) imposed
on such shares and the conditions of release or lapse of such restrictions. Such
restrictions shall not lapse earlier than six months after the Award Date,
except to the extent the Committee may otherwise provide. Stock certificates
evidencing shares of Restricted Stock pending the lapse of the restrictions
("Restricted Shares") shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.7. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the Committee may require to enforce the restrictions.
4.2 RESTRICTIONS.
(a) PRE-VESTING RESTRAINTS. Except as provided in Section 4.1 and 1.9,
restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.
(b) DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, provided that such rights shall terminate
immediately as to any Restricted Shares which cease to be eligible for vesting.
(c) CASH PAYMENTS. If the Participant shall have paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION.
Unless the Committee otherwise expressly provides, Restricted Shares that
remain subject to restrictions at the time of termination of employment or are
subject to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement shall not vest and shall be returned
to the Corporation in such manner and on such terms as the Committee shall
therein provide.
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5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 GRANTS OF PERFORMANCE SHARE AWARDS.
The Committee may, in its discretion, grant Performance Share Awards to
Eligible Persons based upon such factors as the Committee shall deem relevant in
light of the specific type and terms of the award. An Award Agreement shall
specify the maximum number of shares of Common Stock (if any) subject to the
Performance Share Award, the consideration (but not less than the minimum lawful
consideration) to be paid for any such shares as may be issuable to the
Participant, the duration of the Award and the conditions upon which delivery of
any shares or cash to the Participant shall be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award shall be
based upon the degree of attainment over a specified period of not more than 10
years (a "performance cycle") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may provide
for full or partial credit, prior to completion of such performance cycle or the
attainment of the performance achievement specified in the Award, in the event
of the Participant's death, Retirement, or Total Disability, a Change in Control
Event or in such other circumstances as the Committee consistent with Section
6.10(c)(2), if applicable may determine.
5.2 [RESERVED].
5.3 GRANTS OF STOCK BONUSES.
The Committee may grant a Stock Bonus to any Eligible Person to reward
exceptional or special services, contributions or achievements in the manner and
on such terms and conditions (including any restrictions on such shares) as
determined from time to time by the Committee. The number of shares so awarded
shall be determined by the Committee. The Award may be granted independently or
in lieu of a cash bonus.
5.4 DEFERRED PAYMENTS.
The Committee may authorize for the benefit of any Eligible Person the
deferral of any payment of cash or shares that may become due or of cash
otherwise payable under this Plan, and provide for accredited benefits thereon
based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
6. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
(a) EMPLOYMENT STATUS. Status as an Eligible Person shall not be construed
as a commitment that any Award will be made under this Plan to an Eligible
Person or to Eligible Persons generally.
(b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer upon any
Eligible Person or other Participant any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her consent thereto.
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(c) PLAN NOT FUNDED. Awards payable under this Plan shall be payable in
shares or from the general assets of the Corporation, and (except as provided in
Section 1.4(c)) no special or separate reserve, fund or deposit shall be made to
assure payment of such Awards. No Participant, Beneficiary or other person shall
have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise provided) of
the Company by reason of any Award hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right shall be no greater than the right
of any unsecured general creditor of the Company.
6.2 ADJUSTMENTS; ACCELERATION.
(a) ADJUSTMENTS. If there shall occur any extraordinary dividend or other
extraordinary distribution in respect of the Common Stock (whether in the form
of cash, Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, repurchase, or
exchange of Common Stock or other securities of the Corporation, or there shall
occur any similar, unusual or extraordinary corporate transaction or event in
respect of the Common Stock or a sale of substantially all the assets of the
Corporation as an entirety, then the Committee shall, in such manner and to such
extent (if any) as it deems appropriate and equitable (1) proportionately adjust
any or all of (a) the number and type of shares of Common Stock (or other
securities) which thereafter may be made the subject of Awards (including the
specific maxima and numbers of shares set forth elsewhere in this Plan), (b) the
number, amount and type of shares of Common Stock (or other securities or
property) subject to any or all outstanding Awards, (c) the grant, purchase, or
exercise price of any or all outstanding Awards, (d) the securities, cash or
other property deliverable upon exercise of any outstanding Awards, or (e) the
performance standards appropriate to any outstanding Awards, or (2) in the case
of an extraordinary dividend or other distribution, recapitalization,
reclassification, merger, reorganization, consolidation, combination, sale of
assets, split up, exchange, or spin off, make provision for a cash payment or
for the substitution or exchange of any or all outstanding Awards or the cash,
securities or property deliverable to the holder of any or all outstanding
Awards based upon the distribution or consideration payable to holders of the
Common Stock of the Corporation upon or in respect of such event; PROVIDED,
HOWEVER, in each case, that with respect to Awards of Incentive Stock Options,
no such adjustment shall be made which would cause the Plan to violate Section
424(a) of the Code or any successor provisions thereto without the written
consent of holders materially adversely affected thereby. In any of such events,
the Committee may take such action sufficiently prior to such event if necessary
to permit the Participant to realize the benefits intended to be conveyed with
respect to the underlying shares in the same manner as is available to
shareholders generally.
(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. As to any Participant,
unless prior to a Change in Control Event the Committee determines that, upon
its occurrence, there shall be no acceleration of benefits under Awards or
determines that only certain or limited benefits under Awards shall be
accelerated and the extent to which they shall be accelerated, and/or
establishes a different time in respect of such Event for such acceleration,
then upon the occurrence of a Change in Control Event (i) each Option and Stock
Appreciation Right shall become immediately exercisable, (ii) Restricted Stock
shall immediately vest free of restrictions, and (iii) each Performance Share
Award shall become payable to the Participant. The Committee may override the
limitations on acceleration in this Section 6.2(b) by express provision in the
Award Agreement and may accord any Eligible Person a right to refuse any
acceleration, whether pursuant to the Award Agreement or otherwise, in such
circumstances as the Committee may approve. Any acceleration of Awards shall
comply with applicable regulatory requirements, including without limitation
Section 422 of the Code.
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6.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted to an
Eligible Person the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination.
6.4 COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Awards under this Plan and the offer,
issuance and delivery of shares of Common Stock and/or the payment of money
under this Plan or under Awards granted hereunder are subject to compliance with
all applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements) and
to such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Corporation, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Corporation, provide such assurances and representations to the
Corporation as the Corporation may deem necessary or desirable to assure
compliance with all applicable legal requirements.
6.5 TAX WITHHOLDING.
(a) CASH OR SHARES. Upon any exercise, vesting, or payment of any Award or
upon the disposition of shares of Common Stock acquired pursuant to the exercise
of an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Company shall have the right at its
option to (i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the amount of
any taxes which the Company may be required to withhold with respect to such
Award event or payment or (ii) deduct from any amount payable in cash the amount
of any taxes which the Company may be required to withhold with respect to such
cash payment. In any case where a tax is required to be withheld in connection
with the delivery of shares of Common Stock under this Plan, the Committee may
in its sole discretion grant (either at the time of the Award or thereafter) to
the Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their then Fair Market Value, to satisfy such
withholding obligation.
(b) TAX LOANS. The Company may, in its discretion and to the extent
permitted by law, authorize a loan to an Eligible Person in the amount of any
taxes which the Company may be required to withhold, or for which the Eligible
Person may otherwise be liable, with respect to shares of Common Stock received
(or disposed of, as the case may be) pursuant to a transaction described in
Section 6.5(a). Such a loan shall be for a term, at a rate of interest and
pursuant to such other terms and conditions as the Company, under applicable law
may establish and such loan need not comply with the provisions of Section 1.8.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
(a) BOARD AUTHORIZATION. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No Awards
may be granted during any suspension of this Plan or after termination of this
Plan, but the Committee shall retain jurisdiction as to Awards then outstanding
in accordance with the terms of this Plan.
(b) SHAREHOLDER APPROVAL. Any amendment that would (i) materially increase
the benefits accruing to Participants under this Plan, (ii) materially increase
the aggregate number of securities that may be issued under this Plan, or (iii)
materially modify the requirements as to eligibility for participation in this
Plan, shall be subject to shareholder approval only to the extent then required
by Section 425 of the Code or applicable law, or deemed necessary or advisable
by the Board.
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(c) AMENDMENTS TO AWARDS. Without limiting any other express authority of
the Committee under but subject to the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Awards to Eligible Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, his or her rights and benefits under an
Award.
(d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment, suspension
or termination of this Plan or change of or affecting any outstanding Award
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.
6.7 PRIVILEGES OF STOCK OWNERSHIP.
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by him or
her. No adjustment will be made for dividends or other rights as a shareholders
for which a record date is prior to such date of delivery.
6.8 EFFECTIVE DATE OF THE PLAN.
This Plan shall be effective as of May 19, 1997, the date of Board approval,
subject to shareholder approval within 12 months thereafter.
6.9 TERM OF THE PLAN.
No Award shall be granted under this Plan after more than ten years after
the effective date of this Plan (the "termination date"). Unless otherwise
expressly provided in this Plan or in an applicable Award Agreement, any Award
granted prior to the termination date may extend beyond such date, and all
authority of the Committee with respect to Awards hereunder, including the
authority to amend an Award, shall continue during any suspension of this Plan
and in respect of Awards outstanding on the termination date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing Awards
and all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Corporation.
(b) SEVERABILITY. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue in effect.
(c) PLAN CONSTRUCTION.
(1) RULE 16b-3. It is the intent of the Corporation that transactions
in and affecting Awards in the case of Participants who are or may be
subject to Section 16 of the Exchange Act satisfy any then applicable
requirements of Rule 16b-3 so that such persons (unless they otherwise
agree) will be entitled to the benefits of Rule 16b-3 or other exemptive
rules under Section 16 of the Exchange Act in respect of those transactions
and will not be subjected to avoidable liability thereunder. If any
provision of this Plan or of any Award would otherwise frustrate or conflict
with the intent expressed above, that provision to the extent possible shall
be interpreted as to avoid such conflict. If the conflict remains
irreconcilable, the Committee may disregard the provision if it concludes
that to do so
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furthers the interest of the Corporation and is consistent with the purposes
of this Plan as to such persons in the circumstances.
6.11 CAPTIONS.
Captions and headings are given to the sections and subsections of this Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.
6.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
For purposes of this Plan and any Award hereunder, if an entity ceases to be
a Subsidiary a termination of employment and service shall be deemed to have
occurred with respect to each Eligible Person in respect of such Subsidiary who
does not continue as an Eligible Person in respect of another entity within the
Company.
6.13 NON-EXCLUSIVITY OF PLAN.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
7. DEFINITIONS.
7.1 DEFINITIONS.
(a) "AWARD" shall mean an award of any Option, Stock Appreciation Right,
Restricted Stock, Stock Bonus, performance share award, dividend equivalent or
deferred payment right or other right or security that would constitute a
"derivative security" under Rule 16a-1(c) of the Exchange Act, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.
(b) "AWARD AGREEMENT" shall mean any writing setting forth the terms of an
Award that has been authorized by the Committee.
(c) "AWARD DATE" shall mean the date upon which the Committee took the
action granting an Award or such later date as the Committee designates as the
Award Date at the time of the Award or, in the case of Awards under Article 8,
the applicable dates set forth therein.
(d) "AWARD PERIOD" shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.
(e) "BENEFICIARY" shall mean the person, persons, trust or trusts designated
by a Participant or, in the absence of a designation, entitled by will or the
laws of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participant's death, and shall
mean the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
(f) "BOARD" shall mean the Board of Directors of the Corporation.
(g) "CHANGE IN CONTROL EVENT" shall mean any of the following:
(1) Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation; or
(2) Approval by the shareholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities that are not Subsidiaries or other affiliates, as a result of which
less than 50% of the outstanding voting securities of the surviving or
resulting
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entity immediately after the reorganization are, or will be, owned, directly
or indirectly, by shareholders of the Corporation immediately before such
reorganization (assuming for purposes of such determination that there is no
change in the record ownership of the Corporation's securities from the
record date for such approval until such reorganization and that such record
owners hold no securities of the other parties to such reorganization); or
(3) Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person or
entity which is not a Subsidiary or other affiliate; or
(4) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder), becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 25% of the combined
voting power of the Corporation's then outstanding securities entitled to
then vote generally in the election of directors of the Corporation; or
(5) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board cease to
constitute at least a majority thereof, unless the election, or the
nomination for election by the Corporation's shareholders, of each new Board
member was approved by a vote of at least two-thirds of the Board members
then still in office who were Board members at the beginning of such period
(including for these purposes, new members whose election or nomination was
so approved).
(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(i) "COMMISSION" shall mean the Securities and Exchange Commission.
(j) "COMMITTEE" shall mean the Board or a committee appointed by the Board
to administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, in respect of any decision at a time when the
Participant affected by the decision may be subject to Section 162(m) of the
Code, shall be Disinterested.
(k) "COMMON STOCK" shall mean the Common Stock of the Corporation and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 6.2 of this
Plan.
(l) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.
(m) "CORPORATION" shall mean Golf Trust of America, Inc., a Maryland
corporation, and its successors.
(n) "DISINTERESTED" shall mean a disinterested director or an "outside
director" within the meaning of any mandatory legal or regulatory requirements,
including Section 162(m) of the Code.
(o) "ELIGIBLE EMPLOYEE" shall mean an officer (whether or not a director) or
key employee of the Company.
(p) "ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible
Person, as determined by the Committee in its discretion.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(r) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(s) "FAIR MARKET VALUE" on any date shall mean (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the Composite Tape, as published in the
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Western Edition of The Wall Street Journal, of the principal national securities
exchange on which the stock is so listed or admitted to trade, on such date, or,
if there is no trading of the stock on such date, then the closing price of the
stock as quoted on such Composite Tape on the next preceding date on which there
was trading in such shares; (ii) if the stock is not listed or admitted to trade
on a national securities exchange, the last price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization if
the NASD is no longer reporting such information; (iii) if the stock is not
listed or admitted to trade on a national securities exchange and is not
reported on the National Market Reporting System, the mean between the bid and
asked price for the stock on such date, as furnished by the NASD or a similar
organization; or (iv) if the stock is not listed or admitted to trade on a
national securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by the NASD
or a similar organization, the value as established by the Committee at such
time for purposes of this Plan.
(t) "INCENTIVE STOCK OPTION" shall mean an Option which is intended, as
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of shareholder approval of this Plan, if the
Award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.
(u) "NONQUALIFIED STOCK OPTION" shall mean an Option that is designated as a
Nonqualified Stock Option and shall include any Option intended as an Incentive
Stock Option that fails to meet the applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an incentive stock option
shall be deemed to be designated a nonqualified stock option under this Plan and
not an incentive stock option under the Code.
(v) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board of Directors of
the Corporation who is not an officer or employee of the Company.
(w) [reserved]
(x) "OPTION" shall mean an option to purchase Common Stock granted under
this Plan. The Committee shall designate any Option granted to an Eligible
Person as a Nonqualified Stock Option or an Incentive Stock Option.
(y) "OTHER ELIGIBLE PERSON" shall mean any Non-Employee Director or any
individual consultant or advisor who or (to the extent provided in the next
sentence) agent who renders or has rendered BONA FIDE services (other than
services in connection with the offering or sale of securities of the Company in
a capital raising transaction) to the Company, and who is selected to
participate in this Plan by the Committee. A non-employee agent providing BONA
FIDE services to the Company (other than as an eligible advisor or consultant)
may also be selected as an Other Eligible Person if such agent's participation
in this Plan would not adversely affect (x) the Corporation's eligibility to use
Form S-8 to register under the Securities Act of 1933, as amended, the offering
of shares issuable under this Plan by the Company or (y) the Corporation's
compliance with any other applicable laws.
(z) "PARTICIPANT" shall mean an Eligible Person who has been granted an
Award under this Plan.
(aa) "PERFORMANCE SHARE AWARD" shall mean an Award of a right to receive
shares of Common Stock under Section 5.1, or to receive shares of Common Stock
or other compensation (including cash) under Section 5.2, the issuance or
payment of which is contingent upon, among other conditions, the attainment of
performance objectives specified by the Committee.
(bb) "PERSONAL REPRESENTATIVE" shall mean the person or persons who, upon
the disability or incompetence of a Participant, shall have acquired on behalf
of the Participant, by legal proceeding or otherwise,
15
<PAGE>
the power to exercise the rights or receive benefits under this Plan and who
shall have become the legal representative of the Participant.
(cc) "PLAN" shall mean this Golf Trust of America, Inc. 1997 Stock-Based
Incentive Plan.
(dd) "QDRO" shall mean a qualified domestic relations order.
(ee) "RESTRICTED SHARES" or "RESTRICTED STOCK" shall mean shares of Common
Stock awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include, among
others, the passage of time, specified performance objectives or other factors)
and such transfer and other restrictions as are established in or pursuant to
this Plan and the related Award Agreement, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
(ff) "RETIREMENT" shall mean retirement with the consent of the Company or,
from active service as an employee or officer of the Company on or after
attaining age 55 with 10 or more years of service or after age 65.
(gg) "RULE 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.
(hh) "SECTION 16 PERSON" shall mean a person subject to Section 16(a) of
the Exchange Act.
(ii) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
(jj) "STOCK APPRECIATION RIGHT" shall mean a right authorized under this
Plan to receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
(kk) "STOCK BONUS" shall mean an Award of shares of Common Stock granted
under this Plan for no consideration other than past services and without
restriction other than such transfer or other restrictions as the Committee may
deem advisable to assure compliance with law.
(ll) "SUBSIDIARY" shall mean any corporation or other entity a majority of
whose outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
(mm) "TOTAL DISABILITY" shall mean a "permanent and total disability" within
the meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.
[sf1-268438.v3]
16
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is dated as of
the day of 199 , between Golf Trust of America, Inc., a Maryland
corporation (the "Corporation"), and (the "Optionee").
W I T N E S S E T H
WHEREAS, pursuant to the Corporation's 1997 Stock-Based Incentive Plan (the
"Plan"), the Corporation has granted to the Optionee effective as of the day
of , 19 (the "Award Date") a nonqualified stock option to purchase all
or any part of authorized but unissued or treasury shares of Common
Stock, $0.01 par value, of the Corporation upon the terms and conditions set
forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to such terms in the Plan.
2. GRANT OF OPTION. This Agreement evidences the Corporation's grant to
the Optionee of the right and option to purchase, on the terms and conditions
set forth herein and in the Plan, all or any part of an aggregate of
shares of the Common Stock at the price of $ per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Subject to the provisions for accelerated
exercisability contained in any employment agreement between the Optionee and
the Corporation, as the same may be amended and/or restated from time to time:
(a) except as earlier permitted by or pursuant to the Plan or by
resolution of the Committee adopted AFTER the date hereof, no shares may be
purchased by exercise of the Option until the expiration of six months after
the Award Date; and
(b) the Option may be exercised in installments as to % of the
aggregate number of shares set forth in Section 2 hereof (subject to
adjustment) on and after the first anniversary of the Award Date and as to
an additional % of such aggregate number of such shares (subject to
adjustment) on each of the second, , and anniversaries of the Award
Date.
To the extent the Optionee does not in any year purchase all or any part of
the shares to which the Optionee is entitled, the Optionee has the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the Option terminates or expires. Fractional share
interests shall be disregarded, but may be cumulated. No fewer than 100 shares
may be purchased at any one time, unless the number purchased is the total
number at the time available for purchase under the Option.
4. METHOD OF EXERCISE OF OPTION. The Option shall be exercisable by the
delivery to the Corporation of a written notice stating the number of shares to
be purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted by the Plan and reasonably acceptable to
the Committee for the full purchase price of the shares to be purchased, subject
to such further limitations and rules or procedures as the Committee may from
time to time establish as to any non-cash payment and as to the tax withholding
requirements of Section 6.5 of the Plan. Shares delivered in payment of the
exercise price must have been owned by Optionee for at least six months prior to
the exercise. In addition, the Optionee (or the Optionee's Beneficiary or
Personal Representative) shall furnish any written statements required pursuant
to the Plan.
1
<PAGE>
5. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH; CHANGE IN SUBSIDIARY
STATUS. The Option and all other rights hereunder, to the extent not exercised,
shall terminate and become null and void at such time as the Optionee ceases to
be employed by either the Corporation or any subsidiary, except that
(a) if the Optionee terminates by reason other than by death or
permanent disability (as defined in subsection (b) below), the Optionee may
at any time within a period of one year after such termination exercise the
Option to the extent the Option was exercisable at the date of such
termination;
(b) if the Optionee terminates by reason of becoming permanently
disabled (within the meaning of Code Section 22(e)(3) or as otherwise
defined by the Committee), or if the Optionee becomes permanently disabled
within three months after a termination described in subsection (a), then
the Option may be exercised within a period of one year after the Optionee
becomes permanently disabled (or, if earlier, the Optionee's termination
from employment), to the extent that the Option was exercisable on such
date; and
(c) if the Optionee dies prior to a termination of employment, or within
three months after a termination of employment under subsection (a) or (b)
above, then the Option may be exercised within a period of one year after
the Optionee's termination from employment, to the extent that the Option
was exercisable on such date;
provided, however, that in no event may the Option be exercised by anyone under
this Section or otherwise after the Expiration Date. If Optionee is employed by
an entity which ceases to be a Subsidiary, such event shall be deemed for
purposes of this Section 5 to be a termination of employment described in
subsection (a) in respect of Optionee. Absence from work caused by military
service or authorized sick leave shall not be considered as a termination of
employment for purposes of this Section.
6. [Intentionally Omitted].
7. NON-TRANSFERABILITY OF OPTION. The Option and any other rights of the
Optionee under this Agreement or the Plan are nontransferable as provided (and
except as provided) in Section 1.9 of the Plan.
8. NOTICES. Any notice to be given under the terms of this Agreement shall
be in writing and addressed to the Corporation at its principal office located
at 14 North Adger's Wharf; Charleston, South Carolina 29401, to the attention of
the Chief Financial Officer and to the Optionee at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other.
9. PLAN. The Option and all rights of Optionee thereunder are subject to,
and the Optionee agrees to be bound by, all of the terms and conditions of the
provisions of the Plan, incorporated herein by this reference, to the extent
such provisions are applicable to options granted to Eligible Persons. In the
event of any conflict between the terms of the Plan and the terms of this
Agreement, the terms of the Plan shall govern the Option granted hereby. The
Optionee acknowledges receipt of a copy of the Plan, which is made a part hereof
by this reference, and agrees to be bound by the terms thereof. Unless otherwise
expressly provided in other Sections of this Agreement, provisions of the Plan
that confer discretionary authority on the Committee do not (and shall not be
deemed to) create any rights in the Optionee unless such rights are expressly
set forth herein or are otherwise in the sole discretion of the Committee so
conferred by appropriate action of the Committee under the Plan after the date
hereof.
10. NOTICE OF DISPOSITION. The Optionee agrees to notify the Corporation
of any sale or other disposition of any shares of Common Stock received upon
exercise of the Option, if such sale or disposition occurs within two years
after the Award Date or within one year after the date of such exercise.
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed
on its behalf by a duly authorized officer and the Optionee has hereunto set his
hand.
GOLF TRUST OF AMERICA, INC.,
a Maryland corporation
By
------------------------------------
Title
---------------------------------
OPTIONEE
--------------------------------------
(Signature)
--------------------------------------
(Print Name)
--------------------------------------
(Address)
--------------------------------------
(City, State, Zip Code)
3
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Nonqualified Stock Option
Agreement by , I, , the spouse of the
Optionee herein named, do hereby join with my spouse in executing the foregoing
Nonqualified Stock Option Agreement and do hereby agree to be bound by all of
the terms and provisions thereof and of the Plan.
DATED: , 19 . --------------------------------------
Signature of Spouse
4
<PAGE>
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
THIS EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") is dated
as of the day of 199 , between Golf Trust of America, Inc., a
Maryland corporation (the "Corporation"), and (the
"Employee").
W I T N E S S E T H
WHEREAS, pursuant to the Corporation's 1997 Stock-Based Incentive Plan (the
"Plan"), the Corporation has granted to the Employee effective as of the day
of , 19 (the "Award Date") an option to purchase all or any part of
authorized but unissued or treasury shares of Common Stock, $0.01 par
value, of the Corporation upon the terms and conditions set forth herein and in
the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to such terms in the Plan.
2. GRANT OF OPTION. This Agreement evidences the Corporation's grant to
the Employee of the right and option to purchase, on the terms and conditions
set forth herein and in the Plan, all or any part of an aggregate of
shares of the Common Stock at the price of $ per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date"). Such price equals the Fair Market
Value of the Corporation's Common Stock as of the Award Date. It is the intent
of the Corporation that this Option constitute an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code").
3. EXERCISABILITY OF OPTION. Except as earlier permitted by or pursuant to
the Plan or by resolution of the Committee adopted AFTER the date hereof, no
shares may be purchased by exercise of the Option until the expiration of six
months after the Award Date. The Option may be exercised in installments as to
% of the aggregate number of shares set forth in Section 2 hereof (subject
to adjustment) on and after the first anniversary of the Award Date and as to an
additional % of such aggregate number of such shares (subject to
adjustment) on each of the second, , and anniversaries of the
Award Date.
To the extent the Employee does not in any year purchase all or any part of
the shares to which the Employee is entitled, the Employee has the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the Option terminates or expires. Fractional share
interests shall be disregarded, but may be cumulated. No fewer than 100 shares
may be purchased at any one time, unless the number purchased is the total
number at the time available for purchase under the Option.
4. LIMITATION ON EXERCISE OF OPTION. In the event the Employee is granted
incentive stock options (whether under this Award Agreement or any other
incentive stock option agreement) and the aggregate fair market value
(determined as of the respective dates of grant of such options) of the Common
Stock with respect to which such options are first exercisable in any calendar
year exceeds $100,000, the most recently granted options shall be treated as
nonqualified stock options to the extent of the excess. In addition, in the case
of simultaneously granted options, the Corporation may, in the manner and to the
extent permitted by law, designate which shares are to be treated as stock
acquired pursuant to the exercise of an incentive stock option.
5. METHOD OF EXERCISE OF OPTION. The Option shall be exercisable by the
delivery to the Corporation of a written notice stating the number of shares to
be purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted by the Plan and acceptable to the
Committee
1
<PAGE>
for the full purchase price of the shares to be purchased, subject to such
further limitations and rules or procedures as the Committee may from time to
time establish as to any non-cash payment and as to the tax withholding
requirements of Section 6.5 of the Plan. Shares delivered in payment of the
exercise price must have been owned by Employee for at least six months prior to
the exercise. In addition, the Employee (or the Employee's Beneficiary or
Personal Representative) shall furnish any written statements required pursuant
to the Plan.
6. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH; CHANGE IN SUBSIDIARY
STATUS. The Option and all other rights hereunder, to the extent not exercised,
shall terminate and become null and void at such time as the Employee ceases to
be employed by either the Corporation or any Subsidiary, except that
(a) if the Employee terminates by reason other than by death or
permanent disability (as defined in subsection (b) below), the Employee may
at any time within a period of one year after such termination exercise the
Option to the extent the Option was exercisable at the date of such
termination;
(b) if the Employee terminates by reason of becoming permanently
disabled (within the meaning of Code Section 22(e)(3) or as otherwise
defined by the Committee), or if the Employee becomes permanently disabled
within three months after a termination described in subsection (a), then
the Option may be exercised within a period of one year after the Employee
becomes permanently disabled (or, if earlier, the Employee's termination
from employment), to the extent that the Option was exercisable on such
date; and
(c) if the Employee dies prior to a termination of employment, or within
three months after a termination of employment under subsection (a) or (b)
above, then the Option may be exercised within a period of one year after
the Employee's termination from employment, to the extent that the Option
was exercisable on such date;
provided, however, that in no event may the Option be exercised by anyone under
this Section or otherwise after the Expiration Date. If Employee is employed by
an entity which ceases to be a Subsidiary, such event shall be deemed for
purposes of this Section 6 to be a termination of employment described in
subsection (a) in respect of Employee. Absence from work caused by military
service or authorized sick leave shall not be considered as a termination of
employment for purposes of this Section.
7. [Intentionally Omitted].
8. NON-TRANSFERABILITY OF OPTION. The Option and any other rights of the
Employee under this Agreement or the Plan are nontransferable as provided (and
except as provided) in Section 1.9 of the Plan.
9. NOTICES. Any notice to be given under the terms of this Agreement shall
be in writing and addressed to the Corporation at its principal office located
at 14 North Adger's Wharf; Charleston, South Carolina 29401, to the attention of
the Chief Financial Officer and to the Employee at the address given beneath the
Employee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other.
10. PLAN. The Option and all rights of Employee thereunder are subject to,
and the Employee agrees to be bound by, all of the terms and conditions of the
provisions of the Plan, incorporated herein by this reference, to the extent
such provisions are applicable to options granted to Eligible Employees. In the
event of any conflict between the terms of the Plan and the terms of this
Agreement, the terms of the Plan shall govern the Option granted hereby. The
Employee acknowledges receipt of a copy of the Plan, which is made a part hereof
by this reference, and agrees to be bound by the terms thereof. Unless otherwise
expressly provided in other Sections of this Agreement, provisions of the Plan
that confer discretionary authority on the Committee do not (and shall not be
deemed to) create any rights in the Employee unless such rights are expressly
set forth herein or are otherwise in the sole discretion of the Committee so
conferred by appropriate action of the Committee under the Plan after the date
hereof.
2
<PAGE>
11. NOTICE OF DISPOSITION. The Employee agrees to notify the Corporation
of any sale or other disposition of any shares of Common Stock received upon
exercise of the Option, if such sale or disposition occurs within two years
after the Award Date or within one year after the date of such exercise.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed
on its behalf by a duly authorized officer and the Employee has hereunto set his
or her hand.
GOLF TRUST OF AMERICA, INC.,
a Maryland corporation
By
------------------------------------
Title
---------------------------------
EMPLOYEE
--------------------------------------
(Signature)
--------------------------------------
(Print Name)
--------------------------------------
(Address)
--------------------------------------
(City, State, Zip Code)
3
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Incentive Stock Option
Agreement by Golf Trust of America, Inc., I, , the spouse
of the Employee herein named, do hereby join with my spouse in executing the
foregoing Incentive Stock Option Agreement and do hereby agree to be bound by
all of the terms and provisions thereof and of the Plan.
DATED: , 19 . --------------------------------------
Signature of Spouse
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLF TRUST
OF AMERICA INC'S FORM 10-Q FOR THE PERIOD FROM FEBRUARY 12 TO JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-12-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,271
<SECURITIES> 0
<RECEIVABLES> 1,451
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 61,724
<DEPRECIATION> 11,977
<TOTAL-ASSETS> 128,621
<CURRENT-LIABILITIES> 0
<BONDS> 43,900
0
0
<COMMON> 41
<OTHER-SE> 40,320
<TOTAL-LIABILITY-AND-EQUITY> 128,621
<SALES> 6,040
<TOTAL-REVENUES> 6,040
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> 4,139<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,139<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,139<F1>
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<FN>
<F1> BEFORE MINORITY INTEREST
</FN>
</TABLE>
