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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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GOLF TRUST OF AMERICA, INC.
(Exact Name of Registrant as Specified in its Governing Instruments)
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14 North Adger's Wharf
Charleston, South Carolina 29401
(843) 723-4653
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
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W. Bradley Blair, II
Chief Executive Officer
Golf Trust of America, Inc.
14 North Adger's Wharf
Charleston, South Carolina 29401
(843) 723-4653
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPY TO:
PETER T. HEALY, ESQ.
O'Melveny & Myers LLP
275 Battery Street, Suite 2600
San Francisco, California 94111
(415) 984-8833
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement, as determined
by the Company and/or the Selling Shareholders.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING AGGREGATE OFFER REGISTRATION FEE(2)
REGISTERED(1) PRICE(2)(3)
Common Stock, par value $300,000,000 $88,500
$0.01 per share
Preferred Stock, par value
$0.01 per share
Debt Securities
Warrants
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(1) Securities registered hereunder (the "Securities") may be sold separately,
together or as units with other Securities registered hereunder. The
Securities registered hereunder also include (i) an indeterminate number of
shares of Preferred Stock as may be sold, from time to time, by the
registrant, (ii) an indeterminate number of shares of Common Stock as may
be sold, from time to time, by the registrant or selling shareholders, and
an indeterminate number of shares of Common Stock, as shall be issuable
upon conversion of Warrants or Preferred Stock registered hereunder, (iii)
an indeterminate number of Warrants, representing rights to purchase Common
Stock or Preferred Stock registered hereunder, and (iv) an indeterminate
principal amount of Debt Securities.
(2) Estimated in accordance with Rule 457 under the Securities Act of 1933, as
amended (the "Securities Act"), solely for the purpose of computing the
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registration fee.
(3) Pursuant to Rule 457(o) under the Securities Act, which permits the
registration fee to be calculated on the basis of the maximum offering
price of all the securities listed, the table does not specify by each
class information as to the amount to be registered, proposed maximum
offering price per unit or proposed maximum aggregate offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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SUBJECT TO COMPLETION, DATED JUNE 5, 1998
GOLF TRUST
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O F A M E R I C A, I N C .
$300,000,000
COMMON STOCK, PREFERRED STOCK, DEBT SECURITIES AND WARRANTS
The purpose of this registration statement is to register (i) shares of
common stock, par value $0.01 per share (the "Common Stock"), (ii) shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), (iii)
unsecured debt securities (the "Debt Securities"), and (iv) warrants to purchase
Common Stock or Preferred Stock (the "Warrants"), all of which may be offered
from time to time by Golf Trust of America, Inc. (the "Company"), and, in the
case of the Common Stock, by certain selling shareholders, as named below (the
"Selling Shareholders"), with an aggregate public offering price of up to
$300,000,000. The Common Stock, Preferred Stock, Debt Securities and Warrants
(collectively, the "Securities") may be offered, separately or together, in one
of more series, in amounts, at prices and on terms to be described in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms to be described in the applicable Prospectus Supplement
will include, where applicable: (i) in the case of Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(iii) in the case of Debt Securities, the specific title, aggregate principal
amount, ranking, currency, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
the option of the Company or repayment at the option of the holder, terms for
sinking fund payments, terms for conversion into Preferred Stock or Common
Stock, covenants and any initial public offering price; and (iv) in the case of
Warrants, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
consistent with the Company's Articles of Incorporation or otherwise appropriate
to preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes. The applicable Prospectus Supplement will also
contain information, where appropriate, about certain United States federal
income tax considerations relating to, and any listing on a securities exchange
of, the Securities covered by such Prospectus Supplement.
The Securities may be offered directly by the Company or, in the case of
the Common Stock, by the Company or the Selling Shareholders, through agents
designated from time to time or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities, their
names, and any applicable purchase price, fee, commission or discount
arrangement between or among them will be set forth, or will be calculable from
the information set forth, in an accompanying Prospectus Supplement. See "Plan
of Distribution."
The shares of Common Stock which may be sold by the Selling Shareholders
will be obtained upon the redemption of units of limited partnership interest
(the "OP Units") in Golf Trust of America, L.P. (the "Operating Partnership"),
issued in connection with the purchase of certain properties. Under the First
Amended and Restated Agreement of Limited Partnership, as amended from time to
time (the "Partnership Agreement"), the unitholders have the right to redeem
their OP Units, generally starting one year after the OP Units were obtained.
The Company or GTA GP, the general partner of the Operating Partnership, has the
right to exchange any OP Units being redeemed for shares of the Common Stock, or
for cash. This registration statement is registering, among other things, the
possible resale by the Selling Shareholders of the shares of Common Stock they
may receive from the Company, or from GTA GP, if and when they request the
redemption of their OP Units. The registration of the Common Stock on behalf of
the Selling Shareholders does not necessarily mean that any Common Stock will be
offered for sale by the Selling Shareholders.
The Common Stock is listed on the American Stock Exchange ("AMEX") under
the symbol "GTA." Any Common Stock offered pursuant to a Prospectus Supplement
will be listed on such exchange, subject to official notice of issuance.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
SEE "RISK FACTORS" COMMENCING ON PAGE 2 FOR CERTAIN MATERIAL RISKS RELEVANT
TO AN INVESTMENT IN THE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
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PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is June 5, 1998
CERTAIN PERSONS PARTICIPATING IN AN OFFERING OF SECURITIES, IF ANY, MAY ENGAGE
IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THOSE ACTIVITIES, SEE "UNDERWRITING" IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
regional offices of the Commission located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
be obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, such as the Company, and the address is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, with respect to the Securities.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information concerning the Company and the Securities,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith, which may be obtained as described above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission, are
hereby incorporated by reference:
1. Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1997 (including portions of the Company's definitive Proxy
Statement incorporated therein by reference);
2. Quarterly Reports on Form 10-Q for the quarter ended March 31, 1998;
and
3. The description of the Common Stock of the Company included in the
Company's Registration Statement on Form 8-A, filed with the Commission on
February 7, 1997, including any amendment or reports filed for the purpose of
updating such description.
In addition, all reports and other documents subsequently filed by the
Company with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act after the date of this Prospectus and prior to the termination of the
offering shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of the filing of such documents (such
documents,
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and the documents enumerated above, being herein referred to as "Incorporated
Documents"; provided however, that the documents enumerated above or
subsequently filed by the Company pursuant to Section 13, 14 or 15(d) of the
Exchange Act prior to the filing by the Company of any subsequent Annual Report
on Form 10-K with the Commission shall not be Incorporated Documents or be
incorporated by reference in this Prospectus or be a part hereof from and after
any such filing of an Annual Report on Form 10-K). Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein (or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein)
modifies or supersedes such statement. Any statements so modified or superseded
shall not be deemed to constitute a part of this Prospectus, except as so
modified or superseded.
The Company will provide without charge to each person to whom this
Prospectus and the applicable Prospectus Supplement is delivered, upon written
or oral request of such person, a copy of any or all of the documents referred
to above which have been or may be incorporated by reference in this Prospectus
(other than certain exhibits to such documents). Requests for such documents
should be directed to Golf Trust of America, Inc., 14 North Adger's Wharf,
Charleston, South Carolina 29401, Attention: Secretary (telephone: (843)
723-4653).
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No dealer, sales representative or any other person has been authorized to give
any information or to make any representations in connection with this Offering
other than those contained in this Prospectus or any Prospectus Supplement, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any underwriter. This Prospectus and
any Prospectus Supplement does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities other than the registered
securities to which it relates or an offer to, or solicitation of, any person in
any jurisdiction where such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus and any Prospectus Supplement nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof.
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UNLESS THE CONTEXT OTHERWISE REQUIRES, (i) THE "COMPANY" SHALL MEAN GOLF
TRUST OF AMERICA, INC. AND ITS SUBSIDIARIES (AS DEFINED BELOW), (ii) THE
"SUBSIDIARIES" SHALL MEAN, COLLECTIVELY, GOLF TRUST OF AMERICA, L.P., A DELAWARE
LIMITED PARTNERSHIP (THE "OPERATING PARTNERSHIP"), GTA GP, INC. ("GTA GP"), GTA
LP, INC. ("GTA LP"), EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY OF GOLF TRUST OF
AMERICA, INC., SANDPIPER-GOLF TRUST, LLC, A DELAWARE LIMITED LIABILITY COMPANY,
A WHOLLY-OWNED SUBSIDIARY OF THE OPERATING PARTNERSHIP AND SANDPIPER GTA
DEVELOPMENT, INC., OWNER OF APPROXIMATELY 14 ACRES OF UNDEVELOPED LAND ADJACENT
TO A GOLF COURSE.
THE COMPANY
Golf Trust of America, Inc. ("GTA") is a self-administered real estate
investment trust ("REIT") formed to capitalize upon consolidation opportunities
in the ownership of upscale golf courses throughout the United States. As of
June 5, 1998, the Company holds participating interests in 33 golf courses (the
"Golf Courses"), 29 of which are owned and four of which serve as collateral for
a 30-year participating mortgage loan made by the Company to the owner of the
Westin Innisbrook Resort ("Participating Mortgage"). The Golf Courses are
located in Alabama, California, Florida, Georgia, Illinois, Kansas, Kentucky,
Michigan, Nebraska, New Mexico, North Carolina, Ohio, South Carolina, Texas
and Virginia.
The Company's goal is to increase cash available for distribution per share
and to enhance stockholder value by becoming a leading owner of, and
participating in increased revenue from, nationally or regionally recognized
golf courses. The Company's principal business strategy is to acquire upscale
golf courses and thereafter lease the golf courses to qualified third party
operators, including affiliates of the sellers. The Company believes the
continuity of management provided by these experienced operators facilitates the
Company's growth and profitability.
In addition to the Company's ability to acquire golf courses for cash
and/or the assumption of indebtedness, the Company may acquire golf courses
through the issuance of units of limited partnership interest in the Operating
Partnership ("OP Units") which are redeemable for cash or, at the Company's
option, shares of the Company's common stock ("Common Stock") on a one-for-one
basis. When the Company acquires a golf course in exchange for OP Units, the
golf course seller generally may defer tax recognition of the gain on the
exchange until the seller redeems its OP Units.
In February 1997, the Company raised net proceeds of approximately $73.0
million in its initial public offering of Common Stock (the"IPO") and acquired
ten Courses (the "Initial Courses") from their prior owners (together with the
prior owners of the Golf Courses acquired since the IPO, the "Prior Owners").
Each of the Initial Courses was leased-back to an affiliate of its Prior Owner.
In November 1997, the Company raised net proceeds of approximately $83.0 million
in a follow on public offering of Common Stock. Since the IPO, the Company has
acquired an interest in an additional 18 Golf Courses.
The Golf Courses which the Company owns are leased to multiple independent
third party lessees (the "Lessees") pursuant to leases ("Participating Leases")
which provide for payments ("Lease Payments") of fixed base rent ("Base Rent")
and participating rent ("Participating Rent") based on growth in revenue at the
Golf Courses. The interest payment under the Participating Mortgage is
structured similarly to the Participating Leases to provide the Company with
base interest payments and additional interest payments based on growth in
revenue at the Westin Innisbrook Resort. Neither the Company nor its executive
officers owns any interest in, or participates in the management of, the Lessees
or the owner of the Westin Innisbrook Resort, Golf Host Resorts, Inc..
The Company's executive offices are located at 14 North Adger's Wharf,
Charleston, South Carolina 29401 and its telephone number is (843) 723-GOLF
(4653).
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES INVOLVES VARIOUS RISKS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONJUNCTION
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING
SECURITIES.
WHEN USED IN THIS PROSPECTUS, THE WORDS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "CONTINUE," "ESTIMATE," "PROJECT," "INTEND" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS
THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY,
RESULTS OF OPERATIONS AND FINANCIAL POSITION. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF VARIOUS FACTORS.
USE OF ADJUSTMENTS AND PROJECTIONS IN ESTABLISHING LEASE PAYMENTS AND
PARTICIPATING MORTGAGE PAYMENTS
The Company generally values golf courses, and establishes Lease Payments
(and established the payments under the Participating Mortgage), based on
selected adjustments to historical operating results or estimates of future
performance that the Company believes are appropriate. These adjustments
include projected increases in revenues from golf course operations and
elimination of certain operating expenses. If such adjustments are not
appropriate, or if estimates of future performance are not met, an Operator may
not be able to make its scheduled payments to the Company. Failure of an
Operator to make such a payment would have a material adverse effect on the
operations of the Company.
DEPENDENCE ON PAYMENTS UNDER THE PARTICIPATING LEASES AND THE PARTICIPATING
MORTGAGE; DIFFICULTY OF FINDING REPLACEMENT OPERATORS
The Company's ability to make distributions to stockholders will depend
primarily upon the ability of the Operators to make lease or interest payments
which will be dependent primarily on the Operators' ability to generate
sufficient revenues in excess of operating expenses from the Golf Courses. Any
failure or delay by an Operator in making such payments may affect adversely the
Company's ability to make anticipated distributions to stockholders. Such
failure or delay may be caused by reductions in revenue from the Golf Courses or
in the net operating income of a Lessee or otherwise. In addition, the Lessees
are generally recently-organized limited purpose entities and have nominal
capitalization. Although failure on the part of a Lessee materially to comply
with the terms of its Participating Lease would give the Company the right to
terminate such Participating Lease, recover any OP Units pledged as a security
deposit, repossess the applicable Golf Course and enforce the Lease Payment
obligations under the Participating Lease, the Company then would be required to
find another lessee to lease such Golf Course or risk losing its ability to
elect or maintain REIT status, as applicable. It may be difficult for the
Company to find suitable replacement lessees following a default, particularly
in instances where the prior lessee was not able to operate profitably. In such
instances the Company would likely be required to reduce the Base Rent and
consequently the cash available for distribution on a per share basis would be
reduced.
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DURATION OF LEASE; NO RIGHT TO TERMINATE PARTICIPATING LEASES ON A SALE
The Participating Leases, with extensions, have terms of up to 40 years and
do not terminate when a Golf Course is sold. It may therefore be more difficult
to sell a Golf Course, and the value to a prospective buyer, and therefore the
price paid to the Company for a Golf Course, may be less than if the
Participating Leases were to terminate upon a sale.
NEED FOR CERTAIN CONSENTS FROM THE LIMITED PARTNERS
Under the Partnership Agreement the holders of at least 66.7% of the
interests in the Operating Partnership, including the Company which as of
June 5, 1998 owned a 59.7% interest in the Operating Partnership, must
approve a sale of all or substantially all of the assets of the Operating
Partnership or a merger or consolidation of the Operating Partnership. As of
June 5, 1998, Larry D. Young, majority owner of Legends Golf, which
contributed seven golf courses to the Company (together with its affiliates,
"Legends Golf") and a director of the Company, and his affiliates owned a
29.3% interest in the Operating Partnership and thus while not possessing
absolute veto power over such extraordinary transactions, could, with the
support of a few additional Prior Owners, hold such veto powers.
LACK OF CONTROL OVER DAY-TO-DAY OPERATIONS AND MANAGEMENT OF THE GOLF COURSES
In order to qualify as a REIT for federal income tax purposes, the Company
may not operate the Golf Courses or participate in the decisions affecting the
operations of the Golf Courses. Each of the Operators controls the operations of
the respective Golf Courses. The Participating Leases have initial terms of 10
years and generally may be extended at the option of each Lessee for up to six
five-year renewal terms. The Company will not have the authority to require any
Operator to operate the Golf Courses in a particular manner, or to govern any
particular aspect of their operation (e.g., setting green fees), except as set
forth in the Participating Leases or the Participating Mortgage. Thus, even if
the Company believes an Operator is operating a Golf Course inefficiently or in
a manner that does not result in a maximization of Participating Rent or
Participating Interest to the Company and, therefore, does not increase cash
available for distribution to the stockholders, the Company may not require an
Operator to change its method of operation. The Company is limited to seeking
redress only if an Operator violates the terms of the Participating Lease or the
Participating Mortgage, as applicable, in which case the Company's primary
remedy is to terminate the Participating Leases or the Participating Mortgage as
applicable and seek to recover damages from such Operator. If a Participating
Lease is terminated, the Company will be required to find another lessee or risk
losing its ability to elect or maintain REIT status, as applicable.
THE PARTICIPATING MORTGAGE
DEFAULT ON PARTICIPATING MORTGAGE
A default by the borrower under the Participating Mortgage (the "Borrower")
could materially and adversely affect the Company's results from operations. A
default under the Participating Mortgage may require the Company to become
involved in expensive and time-consuming proceedings, including bankruptcy,
reorganization or foreclosure proceedings, in an attempt to recover some or all
of its investment. It is anticipated that the Westin Innisbrook Resort, located
near Tampa, Florida, which is the property underlying the Participating
Mortgage, will be the primary
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source of any recovery for the Company. Because of the Company's status as a
REIT, the Company may not operate the Westin Innisbrook Resort in the event of
foreclosure. Accordingly, in the event of a foreclosure, the Company will be
materially dependent upon (i) its ability to lease the Westin Innisbrook Resort
on favorable economic terms and (ii) the value of the real property underlying
the Participating Mortgage, each of which may be affected by numerous factors
outside the control of the Company. See "-- Dependence on Payments Under the
Participating Leases; Difficulty of Finding Replacement Lessees."
LACK OF AMORTIZATION OF PARTICIPATING MORTGAGE
The Participating Mortgage does not provide for the amortization of
principal during its term. As a result, the entire principal balance of the
Participating Mortgage will be due at its maturity. Failure to amortize the
principal balance of the Participating Mortgage may increase the risk of a
default during the term, and at maturity, of the Participating Mortgage. A
default under the Participating Mortgage would have a material adverse effect on
the operations of the Company.
GOLF INDUSTRY RISKS
OPERATING RISKS
The Golf Courses will be subject to all operating risks common to the golf
industry. These risks include, among other things (i) increases in operating
costs due to inflation and other factors, which increases may not be offset by
increased dues and fees; (ii) dependence on tourism, particularly for the Resort
Courses, which may fluctuate and is seasonal; and (iii) adverse effects of
general and local economic conditions. These factors could adversely affect the
Golf Course Operators' ability to generate revenues and to make payments under
the Participating Leases and the Participating Mortgage and, in turn, the
Company's ability to make expected distributions to the Company's stockholders.
COMPETITION; SUPPLY OF GOLF COURSES
The Company's Golf Courses face competition for golfers from other golf
courses, either locally or nationally. A substantial number of new golf courses
have opened in recent years and a number of new courses currently are under
development, or planned for development including golf courses located near the
Golf Courses. These new golf courses could increase the competition faced by
one or more of the Golf Courses and reduce the rounds played and revenues
associated with one or more of the Golf Courses. Any such decrease in revenues
may adversely affect the net operating income of a Golf Course Operator and,
therefore, its ability to make its scheduled payments to the Company.
PRIMARY INVESTMENT IN SINGLE INDUSTRY
The Company's current strategy is to acquire primarily golf courses and
related facilities. As a result, the Company will be subject to risks inherent
in investments primarily in a single industry. The effects on cash available for
distribution to stockholders resulting from a downturn in the golf industry will
be more pronounced than if the Company had more fully diversified its
investments.
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SEASONALITY
The golf industry is seasonal. Seasonal variations in revenue at the Golf
Courses may require the Golf Course Operators to supplement revenue at the
applicable Golf Course to make scheduled payments to the Company. Failure of a
Golf Course Operator to manage properly its cash flow may result in such
Operator having insufficient cash to make its scheduled payments to the Company
during low seasons and, therefore, adversely affect cash available for
distribution to stockholders.
ADVERSE WEATHER CONDITIONS
Several climatological factors beyond the control of the Golf Course
Operators may influence the revenues at the Golf Courses, including adverse
weather such as hurricanes, heat waves, frosts and floods. In the event of
adverse weather or destruction of the turf grass at a Golf Course, the number of
rounds played at such Golf Course could decrease, which could have a negative
impact on any Participating Rent or Participating Interest received from the
affected Golf Course and the ability of the applicable Golf Course Operator to
make its scheduled payments to the Company. The Golf Courses in the
Southeastern United State are susceptible to damage from hurricanes, which
damage (including loss of revenue) is not generally insurable at commercially
reasonable rates. Consequently, a hurricane may adversely affect both the value
of the Company's investment in a particular Golf Course as well as the ability
of the Operator of such Golf Course to make its scheduled payments to the
Company. Additionally, hurricanes may damage local accommodations such as
hotels and condominiums, thereby limiting play, particularly at the Company's
"Resort Courses" (daily fee golf courses that attract a significant percentage
of players from outside the area and generate a significant amount of revenue
from golf vacation packages).
FACTORS AFFECTING GOLF PARTICIPATION
The success of efforts to attract and retain members at private country
clubs and the number of rounds played at public golf courses historically has
been dependent upon discretionary spending by consumers, which may be adversely
affected by regional and economic conditions. A decrease in the number of
golfers or their rates of participation or in consumer spending on golf could
have an adverse effect on the Gross Golf Revenue (all revenues from a given Golf
Course, including green fees, golf cart rentals, range fees, membership dues,
membership initiation fees, and transfer fees) generated per Golf Course and,
therefore, the Lease Payments to be paid under the Participating Leases or the
interest payable under the Participating Mortgage. For the period 1991 through
1996 golf participation decreased by 0.3%, according to the National Golf
Foundation.
COURSE CONDITIONS
General turf grass conditions must be satisfactory to attract play on the
Golf Courses. Severe weather or other factors, including disease and insect
infestation, could adversely affect the turf grass conditions at the Golf
Courses. Turf grass conditions at the Golf Courses also depend to a large extent
on the quality and quantity of water available. The quality and quantity of
water available is affected by various factors, many of which are beyond the
control of the Company. There can be no assurance that certain conditions,
including drought, governmental regulation or environmental concerns, which
could adversely affect the supply of water to a particular Golf Course, may not
arise in the future.
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DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of its founders W. Bradley Blair, II, who serves as the Company's
Chief Executive Officer and President, David J. Dick, who serves as Executive
Vice President, and Scott D. Peters, who serves as Senior Vice President and
Chief Financial Officer. The loss of the services of any of these individuals
could have a material adverse effect on the Company, its operations and its
business prospects. The Company's success is also dependent upon its ability to
attract and retain qualified personnel.
REAL ESTATE INVESTMENT TRUST AND PARTNERSHIP QUALIFICATION
The Company operates and intends to continue to operate so as to qualify as
a REIT under the Internal Revenue Code of 1986, as amended (the "Tax Code").
Although the Company believes that it is so organized and operates in such a
manner and has received a favorable opinion of its legal counsel, O'Melveny &
Myers LLP, as to its REIT status (which opinion is based on certain assumptions
and representations), no assurance can be given that the Company will qualify or
remain qualified as a REIT. Qualification as a REIT involves the application of
highly technical and complex Tax Code provisions for which there are only
limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Tax Code (the "Treasury Regulations") is greater in the
case of a REIT that holds its assets in partnership form. The determination of
various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. See "Description of Capital Stock -- Restrictions on
Ownership."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to stockholders in
computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the cash available for distribution to the
Company's stockholders would be reduced for each of the years involved.
Although the Company currently operates and intends to continue to operate in a
manner designed to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause the Company to fail to
qualify as a REIT or may cause the Company's Board of Directors (the "Board of
Directors") to revoke the REIT election.
The Operating Partnership has been structured to be classified as a
partnership for federal income tax purposes. If the Service were to challenge
successfully the tax status of the Operating Partnership as a partnership for
federal income tax purposes, the Operating Partnership would be treated as an
association taxable as a regular corporation. In such event, the character of
the Company's assets and items of gross income would change, possibly preventing
the Company from qualifying as a REIT. In addition, the imposition of a
corporate income tax on the Operating Partnership would reduce the amount of
cash available for distribution to the Company and its stockholders.
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RISKS RELATING TO CONSTRUCTION FINANCING
The Company has agreed to fund certain additional construction at certain
of the Golf Courses, including significant construction funding for the recently
acquired Sandpiper Golf Course, and anticipates that it may make other
construction advances or loans, generally either (i) as financing that repays
constructions costs, either in the form of a loan repayment or increase in the
Base Rent Payment or (ii) where the loan is secured by property with a
pre-construction value that is within the Company's investment guidelines.
Construction loans often involve a higher degree of risk than other lending
because, among other reasons, (i) repayment may be dependent upon successful
completion of the project, (ii) the project, as constructed or rehabilitated,
may lack any operating history upon which to base the loan's underwriting, (iii)
estimating construction costs and timing is difficult, (iv) construction costs
may exceed budgeted amounts and (v) timing delays may occur.
LIMITED OPERATING HISTORY
The Company was recently organized and has limited operating history. There
can be no assurance that the Company will be able to generate sufficient revenue
from operations to make anticipated distributions to stockholders. The Company
also is subject to the risks generally associated with the formation of any new
business. The Company's management has limited experience operating a public
company or a REIT and limited experience working together.
ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE ISSUANCE AND SALE ON MARKET PRICE
OF COMMON STOCK
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, may affect adversely prevailing market prices for
the Common Stock. In addition to the shares of Common Stock currently
outstanding, as of June 5, 1998, an aggregate of 12,779,307 OP Units was
outstanding (including OP Units held by subsidiaries of GTA). Subject to
certain restrictions and limitations, the OP Units issued in connection with the
Company's IPO may be tendered for redemption by the holders of such OP Units,
for cash or, at the Company's option, for shares of Common Stock on a
one-for-one basis. OP Units issued after the Company's IPO may generally be
tendered for redemption beginning one year after their issuance. The shares of
Common Stock issuable upon redemption of such OP Units may be sold in the public
market pursuant to this Prospectus and the accompanying Prospectus Supplement,
and the shelf registration statement it accompanies, or pursuant to any
available exemptions from registration. The Company also has granted the OP
Unit holders certain "piggyback" registration rights, subject to the requirement
that each such holder agree not to sell any of its redeemed shares not included
in such piggyback offering during the week prior to, and the month following,
such piggyback offering.
The Company's acquisition strategy depends in large part on access to
additional capital through sales and issuances of equity securities, including
OP Units. The market price of the Common Stock may be adversely affected by the
availability for future sale and issuance of shares of Common Stock that may be
issued upon redemption of the OP Units as well as any additional OP Units issued
in future acquisitions or in connection with a Lessee's exercise of the Lessee
Performance Option (an incentive based performance structure, under which,
during years three through five of certain of the Participating Leases or the
Participating Mortgage, as applicable, the Operator or its affiliate, subject to
certain qualifications and restrictions, may elect one time to increase the Base
Rent or Base Interest, as applicable, in order to receive additional OP Units or
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Common Stock, or, with respect to the Participating Mortgage, to require the
Company to make an additional advance under the Participating Mortgage). No
predictions can be made as to the effect, if any, that future sales of shares,
or the perception that such sales could occur, will have on the price of the
Common Stock.
RISKS RELATED TO THE COMPANY'S GROWTH STRATEGY
COMPETITION FOR ACQUISITIONS
The Company competes for golf course acquisition opportunities with
entities organized for purposes substantially similar to the Company's
objectives as well as other purchasers of golf courses. From time to time the
Company may compete for such golf course acquisition opportunities with entities
having substantially greater financial resources and a broader geographic
knowledge base than the Company. These entities may also be able to accept more
risk than the Company prudently can manage. Thus, competition may reduce the
number of suitable golf course acquisition opportunities available to the
Company.
POSSIBLE UNAVAILABILITY OF CAPITAL
The success of the Company's growth strategy depends, in large part, upon
its continuing access to capital necessary to acquire additional golf courses.
There can be no assurance that the Company's use of excess cash flow, borrowings
or subsequent issuances of Common Stock, OP Units or other securities will be
sufficient to raise such necessary capital.
INABILITY TO MANAGE GROWTH EFFECTIVELY
The Company's success will depend upon the ability of each Operator
effectively to manage all of its Golf Courses, as well as the ability of the
Company to continue to select an appropriate lessee for each additional golf
course it acquires. There can be no assurance that the current Operators or
future lessees will operate efficiently and, if not, cash available for
distribution to stockholders could be affected adversely.
CONCENTRATION OF INVESTMENTS
Seven of the Golf Courses are located in North Carolina and South Carolina
and nine of the Golf Courses are located in Florida. The concentration of the
Company's investments in these areas leaves the Company vulnerable to regionally
adverse events or conditions such as competition, hurricanes and other weather
conditions, overbuilding and economic recession. If South Carolina or Florida is
subject to such events or conditions, the Company's cash available for
distribution will be more adversely affected than it would have been if the
Company's investments were more geographically diverse.
RISKS OF LEVERAGE; NO LIMITATIONS ON INDEBTEDNESS
The Company's Articles of Incorporation (the "Charter") do not limit its
ability to incur indebtedness. On June 20, 1997, the Company closed a two-year,
$100 million secured revolving credit facility (the "Line of Credit") with a
group of four commercial banks led by NationsBank, N.A. On September 24, 1997,
the Company negotiated a reduction in the interest rate from LIBOR
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plus 2.0% to LIBOR plus 1.75% (7.72% on December 31, 1997.) On February 27,
1998, NationsBank, N.A. and Bank of America NT & SA, with a group of three
commercial banks, amended and restated the Credit Facility to increase the
Credit Facility to $125 million on an unsecured basis. Up to 20% of the Credit
Facility may be used for working capital needs. The Credit Facility
availability is limited to an "unencumbered pool calculation" as defined in the
Credit Facility. Financial covenants include minimum requirement for net worth,
liquidity and cash flow. Non-financial covenants include among others,
restrictions on loans outstanding, construction in progress, loans to officers
and changes to the Board of Directors. These covenants have been met. In May
1998, the Company negotiated an amendment to the Credit Facility whereby the
Company now has a grid pricing arrangement which provides incentives for the
Company to maintain a low ratio of total debt to total assets. The Company
expanded the definition of eligible properties in the unencumbered pool in a
manner consistent with the Company's own underwriting methods. The Company also
negotiated to reduce the coverage ratio for the unencumbered pool calculation to
offer greater flexibility for future capital needs. In May, 1998, the Company
set-up an additional $5 million Line of Credit with NationsBank, N.A. The
Company may borrow under the Line of Credit or from other lenders in the future,
or may issue corporate debt securities in public or private offerings. Certain
of such additional borrowings may be secured by the Golf Courses owned by the
Company. The Company has agreed to maintain up to $17.2 million of indebtedness
for a period of up to 10 years following the acquisition of two of the Golf
Courses to accommodate efforts by two Prior Owners to minimize certain adverse
tax consequences from the contribution of their respective Golf Courses to the
Company. In the event that the Company fails to maintain such indebtedness, the
Company will be liable for any resulting income tax liabilities to such Prior
Owner.
There can be no assurance that the Company, upon the incurrence of debt,
will be able to meet its debt service obligations and, to the extent that it
cannot, the Company risks the loss of some or all of its assets, including any
Golf Courses securing such debt, to foreclosure, which could result in a
financial loss to the Company. Adverse economic conditions could result in
higher interest rates on variable rate debt, including borrowings under the Line
of Credit, which could decrease cash available for distribution and increase the
risk of loss upon a sale or from a foreclosure.
LIMITS ON CHANGES IN CONTROL
The restrictions on the ownership of outstanding shares of Common Stock
intended to ensure compliance with certain requirements related to continued
qualification of the Company as a REIT and restrictions on changes in control
contained in the Company's Charter and bylaws (the "Bylaws"), including a
staggered Board of Directors and the ability of the Board of Directors to issue
Preferred Stock without stockholder approval, may have the effect of inhibiting
a change in control of the Company, even where such a change of control could be
beneficial to the Company's stockholders. See also "-- Anti-takeover Effect of
Certain Provisions of Maryland Law and the Company's Charter and Bylaws."
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES
One of the factors that may influence the price of the Securities in public
trading markets will be the annual yield from distributions by the Company on
the Securities as compared to yields on other financial instruments. Thus, an
increase in market interest rates will result in higher yields on other
financial instruments, which could adversely affect the market price of the
Securities. The Company finances a portion of its operations through its Line
of Credit, which bears interest at a
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floating rate. The Participating Mortgage bears interest at a fixed rate and
the Participating Leases have fixed rent payments (subject to certain
adjustments). Accordingly, increases in interest payable by the Company may not
be reflected in interest received under the Participating Mortgage or rent
received under the Participating Leases, exposing the Company to the risk of
rises in market interest rates. A significant rise in interest rates could
affect adversely the ability of the Company to make distributions to
stockholders.
REAL ESTATE INVESTMENT RISKS
GENERAL
The Company's holdings are subject to risks typically associated with
investments in real estate. Such risks include the possibility that the Golf
Courses and any additional golf courses will generate rent and capital
appreciation, if any, at rates lower than those anticipated or will yield
returns lower than those available through other investments. Income from the
Golf Courses may be affected by many factors, including changes in government
regulation, general or local economic conditions, the available local supply of
golf courses, a decrease in the number of golfers, adverse weather conditions or
other factors.
ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions is limited. The ground lessors of the Oyster Bay Golf Course and the
Mystic Creek Golf Course have a right of first refusal to acquire such
respective Golf Courses upon any proposed sale of such Golf Courses by the
Company. In addition, each Lessee generally has a right of first offer to
acquire the Golf Course(s) leased by it in the event of a proposed sale by the
Company. The right of first offer is void in the event of a default by the
Lessee under the Participating Lease. The three courses located at the Legends
Resort -- Heathland, Moorland and Parkland -- are subject to conservatory
easements that prohibit developments other than golf courses on the property,
limit the ability to materially modify the existing layouts at such Golf Courses
and require that such Golf Courses be open for public play. In the event that a
sale of a Golf Course will result in a taxable gain to the Prior Owner thereof,
the Company has agreed to use reasonable efforts to structure such a sale as a
tax-deferred exchange. All of these factors may make it more difficult to
transfer a Golf Course even where such transfer may be in the best interests of
the Company.
ENVIRONMENTAL MATTERS
Operations at the Golf Courses involve the use and storage of various
hazardous materials such as herbicides, pesticides, fertilizers, motor oil and
gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of certain hazardous substances released on or
in its property. Such laws often impose such liability without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous substances. The presence of such substances, or the failure to
remediate such substances properly, may adversely affect the owner's ability to
sell such real estate or to borrow using such real estate as collateral.
Although all of the Golf Courses have been subjected to a Phase I environmental
audit (which does not involve invasive procedures, such as soil sampling or
ground water analysis) by an independent environmental consultant, no assurance
can
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be given that these reports audit all potential environmental liabilities, that
no prior or adjacent owner created any material environmental condition not
known to the Company or the independent consultant or that future uses or
conditions (including, without limitation, changes in applicable environmental
laws and regulations) will not result in imposition of environmental liability
to the Company. While the Participating Leases and Participating Mortgage
provide that the Operators will indemnify the Company for certain potential
environmental liabilities at the Golf Courses, the current Operators have only
nominal capitalization.
A significant portion of the Sandpiper Golf Course was previously an
operating oil field and there is significant residual oil contamination on the
property. In connection with the acquisition of the property, the Company
obtained an indemnification from Atlantic Richfield Company ("ARCO") in a form
and in an amount which the Company believes is adequate to protect the Company
from liability for such contamination. Certain circumstances may require ARCO
to enter the property and perform remediation actions.
UNINSURED LOSSES
The Participating Leases and the Participating Mortgage require that each
Operator maintains insurance with respect to each of the Golf Courses it
operates, including comprehensive liability, fire, flood (but only to the extent
comparable golf courses in the area carry such insurance and such insurance is
available at commercially reasonable rates) and extended coverage insurance.
There are, however, certain types of losses (such as from hurricanes, floods or
earthquakes) that may be either uninsurable or not economically insurable.
Should an uninsured loss occur, the Company could lose both its invested capital
in and anticipated profits from the applicable Golf Course.
GROUND LEASES
Two of the Golf Courses, Oyster Bay and Mystic Creek, are operated pursuant
to long-term ground leases. In the event of a default by the Company under the
applicable ground lease, the ground lessor may terminate the ground lease
subject to certain terms and conditions. If the ground lease is terminated or
is not renewed, the Company would lose its investment in the Oyster Bay Golf
Course or Mystic Creek Golf Course, as applicable.
CONFLICTS OF INTEREST
SALE OF GOLF COURSES
Mr. Young, a director of the Company, and his affiliates, have an
unrealized gain in their interests in certain of the Golf Courses transferred to
the Company. The sale of such courses by the Company may cause adverse tax
consequences to such director and his affiliates. Therefore, the interests of
the Company and such director and his affiliates could differ in connection with
the disposition of such Golf Courses.
RISK OF ENFORCEMENT OF TERMS OF CONTRIBUTION, LEASE AND OTHER AGREEMENTS
Because Mr. Young, a director of the Company, is the principal owner of
Legends Golf, which contributed seven of the Golf Courses to the Company and the
Legends Lessees, which lease those Golf Courses from the Company, there may be a
conflict of interest with respect to the
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enforcement of the contribution agreement executed by Legends Golf, as well as
with respect to enforcement and termination of the Participating Leases
respecting the Golf Courses leased to the Legends Lessees.
OTHER POSSIBLE CONFLICTS
Other transactions involving the Company and affiliates of the Lessees may
also give rise to possible conflicts of interest, such as future acquisitions of
golf courses and selection of Operators for such golf courses.
COMPETITION FOR MANAGEMENT TIME OF THE OPERATORS
In addition to management of the Golf Courses, Golf Course Operators devote
significant time to other business interests, including in many instances resort
and residential development on property adjacent to the Golf Courses and the
operation of golf courses not being contributed to the Company. As a result, the
Golf Course Operators are subject to competing demands on their time, and may
not devote sufficient time to the operations of the Golf Courses, which may
result in less revenue being generated from the Golf Courses than if they were
devoted full time to the Golf Courses.
CHANGES IN INVESTMENT AND FINANCING POLICIES
The Board of Directors determines the Company's investment and financing
policies and policies with respect to certain other activities, including its
growth, outstanding indebtedness, capitalization, distributions and operating
policies. Although the Board of Directors has no present intention to amend or
revise these policies, the Board of Directors may do so at any time without a
vote of the Company's stockholders.
DEPENDENCE ON ACQUISITIONS TO INCREASE CASH AVAILABLE FOR DISTRIBUTION
The Company's success in implementing its growth plan depends significantly
on the Company's ability to acquire additional golf courses at attractive
prices. Internal growth through increases in revenues from the Golf Courses is
not expected to provide as much growth in cash available for distribution to
stockholders as will the acquisition of additional golf courses. See "-- Risks
of Leverage; No Limitation on Indebtedness" and "-- Risks Related to the
Company's Growth Strategy." If the Company is unable to acquire additional golf
courses at attractive prices, the Company's ability to grow and maintain or
increase cash available for distribution per share may be affected adversely.
DISTRIBUTION TO STOCKHOLDERS
The Company's continued ability to make distributions to its stockholders
will be based principally on Lease Payments under the Participating Leases and
interest payments under the Participating Mortgage. In the event of a default
by a Lessee under a Participating Lease or by the Borrower under the
Participating Mortgage, there could be a decrease or cessation of payments under
the Participating Leases or the Participating Mortgage. In addition, the amount
available to the Company to make distributions to its stockholders may decrease
on a per share basis if golf courses acquired in the future yield lower than
expected revenues. In addition, if the Company incurs additional indebtedness
in the future, it will require additional funds to service such indebtedness and
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cash available for distribution may decrease. Distributions by the Company will
also be dependent on a number of other factors, including the amount of cash
available for distribution, the Company's financial condition, any decision to
reinvest funds rather than to distribute such funds, capital expenditures, the
annual distribution requirements under the REIT provisions of the Tax Code and
such other factors as the Company deems relevant.
In order to qualify as a REIT, the Company generally is required to
distribute to its stockholders at least 95% of its net taxable income each year.
In addition, the Company is subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and undistributed income from prior years.
The Company intends to make distributions to its stockholders to comply
with the 95% distribution requirements of the Tax Code and to avoid the
nondeductible excise tax. The Company's income and cash flow will consist
primarily of rent payments under the Participating Leases and interest payments
under the Participating Mortgage. Differences in timing between the receipt of
income and the payment of expenses in arriving at taxable income and the effect
of required debt amortization payments could require the Company to borrow funds
on a short-term basis to meet the distribution requirements that are necessary
to achieve the tax benefits associated with qualifying as a REIT.
For federal income tax purposes, the Company is required to report interest
income from the Participating Mortgage, including Participating Interest, or a
yield-to-maturity Loan on a straight-line basis over the life of the
Participating Mortgage. Based on the Company's estimate of future revenue, the
Company expects to recognize for tax purposes interest income equal to
approximately 11.5% per year with respect to the Participating Mortgage, which
interest income will initially exceed cash payments to the Company under the
Participating Mortgage. In addition, upon the occurrence of any event which
directly or indirectly results in the transfer of 5% of the equity interest in
the Borrower to a third party during the term of the Participating Mortgage (a
"Transfer Triggering Event"), the Borrower is required to pay to the Company an
amount equal to $19 million, discounted from the maturity date of the
Participating Mortgage to the date of the Transfer Triggering Event at 11.5% per
annum, and income will be recognized by the Company in such amount. This amount
is then required to be lent to the Borrower by the Company and the amount so
lent accrues interest at 11.5% per annum. As a result of these provisions, the
Company will be deemed at various times to have received income without having
any corresponding cash payment. Consequently, to maintain the Company's REIT
status or to avoid a corporate level tax, the Company may be required to borrow
money to make cash distributions, which may have a material adverse effect on
the operations of the Company.
ERISA RISKS
Depending upon the particular circumstances of the plan, an investment in
the Securities may not be an appropriate investment for an ERISA plan, a
qualified plan or an IRA. In deciding whether to purchase Securities, a
fiduciary of an ERISA plan, in consultation with its advisors, should carefully
consider its fiduciary responsibilities under ERISA, the prohibited transaction
rules of ERISA and the Tax Code, and the effect of the "plan asset" regulations
issued by the U.S. Department of Labor.
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SOFTWARE DEFICIENCIES COULD ADVERSELY AFFECT THE COMPANY
The Company and the Lessees will rely upon a significant number of computer
software programs and operating systems in conducting their operations. To the
extent that these software applications contain source code that is unable to
appropriately interpret the upcoming calendar year "2000," some level of
modification or even possibly replacement of such source code or applications
will be necessary. Pursuant to the Leases, the Lessees will bear the costs
associated with determining whether its systems are "Year 2000" compliant and
the costs of any necessary modifying or replacing its source code or
application. Given the information known at this time, the Company believes its
systems are Year 2000 compliant. However, the Company will be dependent upon
the Lessees to determine that their systems and applications and those of other
parties utilized by them are Year 2000 compliant.
OWNERSHIP LIMIT
In order for the Company to qualify and to maintain its qualification as a
REIT, not more than 50% in value of its outstanding shares of capital stock may
be owned, directly or constructively, by five or fewer individuals (as defined
in the Tax Code) during the latter half of any taxable year (other than 1997).
In addition, rent from related party tenants is not qualifying income for
purposes of the gross income tests under the Tax Code. Two sets of constructive
ownership rules (one to determine whether a REIT is closely held and one to
determine whether rent is from a related party tenant) apply in determining
whether these requirements are met. For the purpose of preserving the Company's
REIT qualification, the Charter prohibits direct or constructive ownership of
more than 9.8% of the lesser of the total number or value of the outstanding
shares of the Common Stock or more than 9.8% of the outstanding shares of
Preferred Stock (if any) of the Company (the "Ownership Limit"). The
constructive ownership rules are complex and may cause the outstanding stock
owned, directly or constructively, by a group of related individuals and/or
entities to be deemed to be constructively owned by one individual or entity.
As a result, the acquisition of less than 9.8% of the outstanding stock (or the
acquisition of an interest in an entity which owns Common Stock or Preferred
Stock) by an individual or entity could cause that individual or entity (or
another individual or entity) to own constructively in excess of 9.8% of the
outstanding stock, and thus be subject to the Ownership Limit. Direct or
constructive ownership of shares of Common Stock or Preferred Stock in excess of
the Ownership Limit would cause the violative transfer or ownership to be void,
or cause such shares to be designated as "Shares-in-Trust" (as herein defined).
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's Charter and Bylaws, as well as Maryland
corporate law, may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that might be in the stockholders' best interest.
For example, such provisions may (i) defer tender offers for Common Stock, which
offers may be beneficial to stockholders, or (ii) defer purchases of large
blocks of Common Stock, thereby limiting the opportunity for stockholders to
receive a premium for their Common Stock over then-prevailing market prices.
These provisions include the following:
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PREFERRED STOCK
The Charter authorizes the Board of Directors to issue Preferred Stock in
one or more classes and to establish the preferences and rights (including the
right to vote and the right to convert into Common Stock) of any class of
Preferred Stock issued. See "Description of Capital Stock -- Preferred Stock."
STAGGERED BOARD
The Board of Directors is divided into three classes of directors. The
initial terms of the first, second and third classes expire in 1998, 1999 and
2000, respectively. Directors of each class serve for a three-year term and
until their successors are elected and qualified. The affirmative vote of
two-thirds of all outstanding Common Stock is required to remove a director.
MARYLAND BUSINESS COMBINATION STATUTE
Under the Maryland General Corporation Law ("MCGL"), certain "business
combinations" (including the issuance of equity securities) between a Maryland
corporation and any person who owns, directly or indirectly, 10% or more of the
voting power of the corporation's shares of capital stock (an "Interested
Stockholder") must be approved by 80% of voting shares. In addition, an
Interested Stockholder may not engage in a business combination with the
Maryland corporation for five years following the date he or she became an
Interested Stockholder.
MARYLAND CONTROL SHARE ACQUISITION
Maryland law provides that "Control Shares" of a corporation acquired in a
"Control Share Acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes eligible under the statute to be cast on
the matter (unless the corporation has opted out of the Control Share
Acquisition statute). "Control Shares" are voting shares of beneficial interest
that, if aggregated with all other such shares of beneficial interest previously
acquired by the acquiror, would entitle the acquiror directly or indirectly to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority or (iii) a majority of all voting powers.
Control Shares do not include shares of beneficial interest the acquiring person
is then entitled to vote as a result of previously having obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
If voting rights are not approved at a meeting of stockholders then,
subject to certain conditions and limitations, the issuer may redeem any or all
of the Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares of beneficial interest entitled to vote, all other stockholders may
exercise appraisal rights.
The Bylaws contain a provision exempting from the Control Share Acquisition
statute any and all acquisitions by any person of the Company's Common Stock.
There can be no assurance that such provision will not be amended or eliminated
at any time in the future.
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USE OF PROCEEDS
The Company is required under the terms of the Operating Partnership
Agreement to invest the net proceeds of any sale of Common Stock, Preferred
Stock, Debt Securities or Warrants in the Operating Partnership. Unless
otherwise described in the applicable Prospectus Supplement, the Operating
Partnership intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include the development or acquisition of
additional Golf Courses, the repayment of outstanding debt or the improvement of
certain Golf Courses already in the Company's portfolio. The Company incurs
debt from time to time in the ordinary course of business in connection with the
development, acquisition and improvement of new or existing Golf Courses, which
debt may be refinanced with the proceeds of the sale of Securities for which
this Prospectus and a related Prospectus Supplement are delivered. The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders.
SELLING SHAREHOLDERS
The Selling Shareholders will obtain any shares of Common Stock they may
offer for sale pursuant to this Prospectus by redeeming OP Units received in
connection with the contribution of certain properties to the Company. Under
the Partnership Agreement, these unitholders have the right to redeem their OP
Units, generally beginning one year after they obtain the OP Units. If one or
more unitholders requests such redemption, the Company or GTA GP may opt to
purchase the OP Units with shares of Common Stock, or with cash.
The following table lists the Selling Shareholders and the number of shares
of Common Stock which may be sold, including OP Units currently owned which may
be redeemed into Common Stock upon redemption of OP Units.
<TABLE>
<CAPTION>
Selling Shareholder Shares(1)
<S> <C>
Golf Legends Ltd. 1,532,352
Seaside Resorts Ltd. 806,456
Heritage Golf Club, Ltd. 801,561
Legends of Virginia, LC 598,187
Northgate 184,854
Olde Atlanta Golf Club Limited Partnership 68,246
Bright's Creek Development Company, LLC 105,950
W. Bradley Blair, II 12,500
David J. Dick 12,500
</TABLE>
- ------------------------
(1) Includes OP Units currently owned which may be converted into Common Stock
upon redemption of OP Units.
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<TABLE>
<S> <C>
James R. Hoppenrath 3,750
Golf Host Resorts, Inc.(2) 424,039
John J. Rainieri, Sr. and Betty Rainieri 114,237
Raintree Country Club, Inc. 7,292
Eagle Watch Golf Club Limited Partnership 70,158
Properties of the Company, Inc. 19,231
Granite Golf Group, Inc. 24,424
Stonehenge Golf Development, Inc. 169,811
Mystic Creek Golf Club, Limited Partnership 52,724
Okeechobee Championship Golf, Inc. 227,347
Raymon R. Finch, Jr.(3) 50,000
Raymon R. Finch III(3) 50,000
Eagle Ridge Lease Company LLC 35,794
Golf Classic Resorts L.L.C 26,200
</TABLE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations that
may be relevant to a prospective holder of Securities in the Company is based on
current law. This discussion does not purport to deal with all aspects of
taxation that may be relevant to particular stockholders in light of their
personal investment or tax circumstances, or to certain types of stockholders
(including insurance companies, tax-exempt organizations (except as described
below), financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States (except as
described below)) subject to special treatment under the federal income tax
laws.
The statements in this discussion and the opinion of O'Melveny & Myers LLP
are based on current provisions of the Tax Code, existing, temporary, and
currently proposed Treasury Regulations promulgated under the Tax Code, the
legislative history of the Tax Code, existing administrative rulings and
practices of the Service, and judicial decisions. No assurance can be given
that future legislative, judicial, or administrative actions or decisions, which
may be retroactive in effect, will not
- ------------------------
(2) Includes 150,000 shares which may be acquired pursuant to the exercise of
stock options held by Golf Host Resorts, Inc., all of which, to the extent
acquired, may be offered pursuant to this Prospectus.
(3) Represents shares which may be acquired pursuant to the exercise of stock
options held by such individuals, all of which, to the extent acquired, may be
offered pursuant to this Prospectus.
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affect the accuracy of any statements in this Prospectus with respect to the
transactions entered into or contemplated prior to the effective date of such
changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Tax Code, commencing with its short taxable year
beginning on February 12, 1997 and ending on December 31, 1997. The Company
believes that it is organized and operates in such a manner as to qualify for
taxation as a REIT under the Tax Code, and the Company intends to operate in
such a manner, but no assurance can be given that it will operate in a manner so
as to qualify or remain qualified as a REIT.
These sections of the Tax Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Tax Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. O'Melveny & Myers LLP has acted as tax counsel to the
Company in connection with the Offering.
In the opinion of O'Melveny & Myers LLP, commencing with the Company's
taxable year ending December 31, 1997, the Company will be organized in
conformity with the requirements for qualification as a REIT, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Tax Code. It must be emphasized that this
opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. In addition, this
opinion is based upon the factual representations of the Company concerning its
business and properties as set forth in this Prospectus and assumes that the
actions described in this Prospectus are completed in a timely fashion.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution levels,
diversity of stock ownership, and the various other qualification tests imposed
under the Tax Code discussed below, the results of which will not be reviewed by
O'Melveny & Myers LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for any particular taxable year will satisfy
such requirements. See "-- Failure to Qualify."
In any year in which the Company qualifies as a REIT, in general it will
not be subject to federal income tax on that portion of its taxable income or
capital gain which is distributed to stockholders. The Company will, however,
be subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be
subject to taxation in certain other circumstances. If the Company should fail
to satisfy the 75% or the 95% gross income
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<PAGE>
test (as discussed below), and nonetheless maintains its qualification as a REIT
because certain other requirements are met, it will be subject to a 100% tax on
the gross income attributable to the greater of the amount by which the Company
fails either the 75% or the 95% test, multiplied by a fraction intended to
reflect the Company's profitability. The Company will also be subject to a tax
of 100% on net income from "prohibited transactions" (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business, other than foreclosure property)
and, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a default on
indebtedness or a lease) which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax on such income from foreclosure property at
the highest corporate rate. In addition, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may also be
subject to the corporate "alternative minimum tax," on its items of tax
preference, as well as tax in certain situations not presently contemplated.
REQUIREMENTS FOR QUALIFICATION. The Tax Code defines a REIT as a
corporation, trust or association (i) which is managed by one or more trustees
or directors; (ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest;
(iii) which would be taxable as a domestic corporation, but for Sections 856
through 859 of the Tax Code; (iv) which is neither a financial institution nor
an insurance company subject to certain provisions of the Tax Code; (v) the
beneficial ownership of which is held by 100 or more persons; (vi) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or constructively, by five or fewer
individuals (as defined in the Tax Code to include certain entities); and (vii)
which meets certain other tests, described below, regarding the nature of its
income and assets. The Tax Code provides that conditions (i) to (iv),
inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (v) and
(vi) will not apply until after the first taxable year for which an election is
made to be taxed as a REIT. Additionally, if for any taxable year of the
Company beginning after December 31, 1997, the Company complies with regulations
requiring the maintenance of records to ascertain ownership of its outstanding
stock and the Company does not know or have reason to know that it failed to
satisfy condition (vi), it will be treated as having satisfied that condition
for any such taxable year.
The Company believes that it has issued sufficient shares pursuant to the
IPO offering to allow it to satisfy conditions (v) and (vi). In addition, the
Company's Charter provides for restrictions regarding the transfer and ownership
of shares, which restrictions are intended to assist the Company in continuing
to satisfy the share ownership requirements described in (v) and (vi) above.
Such transfer and ownership restrictions are described in "Description of
Capital Stock -- Restrictions on Ownership."
The Company currently has two wholly-owned corporate subsidiaries and may
have additional corporate subsidiaries in the future. Tax Code Section 856(i)
provides that a corporation that is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities, and items of income, deduction, and credit of the REIT.
A "qualified REIT subsidiary" is
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<PAGE>
a corporation, all of the capital stock of which is held by the REIT. Thus, in
applying the requirements described herein, any "qualified REIT subsidiaries"
owned by the Company will be ignored, and all assets, liabilities, and items of
income, deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of income, deduction, and credit of the Company. Each of
the Company's current subsidiaries is a "qualified REIT subsidiary." The
Company's subsidiaries therefore will not be subject to federal corporate income
taxation, although they may be subject to state and local taxation.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and
gross income of the partnership retain the same character in the hands of the
REIT for purposes of Section 856 of the Tax Code, including for purposes of
satisfying the gross income tests and the asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership will be treated as assets, liabilities and items of income
of the Company for purposes of applying the requirements described herein. A
summary of the rules governing the federal income taxation of partnerships and
their partners is provided below in "Federal Income Tax Considerations -- Tax
Aspects of the Operating Partnership."
INCOME TESTS. In order to qualify and maintain qualification as a REIT,
the Company annually must satisfy three gross income requirements. First, at
least 75% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). Third, short-term gain from the sale or
other disposition of stock or securities, gain from prohibited transactions and
gain on the sale or other disposition of real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the Company's gross income (including gross
income from prohibited transactions) for each taxable year. The 30% gross
income test however, need not be satisfied for any taxable year of the Company
beginning after December 31, 1997.
Pursuant to the Participating Leases, the Lessees lease from the Company
the land, buildings, improvements and equipment comprising the Golf Courses for
a 10-year period, with, options to extend for up to six additional terms of five
years each. The Participating Leases provide that the Lessees are obligated to
pay to the Company (i) Base Rent and, if applicable, Participating Rent and (ii)
certain other additional charges.
In order for the Base Rent, the Participating Rent and the additional
charges to constitute "rents from real property," the Participating Leases must
be respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Participating Leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (i) the intent of the parties, (ii) the form of the agreement, (iii)
the degree of control over the property that is retained by the property owner
(e.g., whether the lessee has substantial control over the operation of the
property or whether the
20
<PAGE>
lessee was required simply to use its best efforts to perform its obligations
under the agreement), and (iv) the extent to which the property owner retains
the risk of loss with respect to the property (e.g., whether the lessee bears
the risk of increases in operating expenses or the risk of damage to the
property).
In addition, Tax Code Section 7701(e) provides that a contract that
purports to be a service contract (or a partnership agreement) is treated
instead as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or not: (i) the
service recipient is in physical possession of the property, (ii) the service
recipient controls the property, (iii) the service recipient has a significant
economic or possessory interest in the property (e.g., the property's use is
likely to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs,
or the recipient bears the risk of damage to or loss of the property), (iv) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient, and
(vi) the total contract price does not substantially exceed the rental value of
the property for the contract period. Since the determination whether a service
contract should be treated as a lease is inherently factual, the presence or
absence of any single factor may not be dispositive in every case.
O'Melveny & Myers LLP is of the opinion that each Participating Lease will
be treated as a true lease for federal income tax purposes. Such opinion is
based, in part, on the following facts: (i) the Operating Partnership and the
Lessees intend for their relationship to be that of a lessor and lessee and such
relationship is documented by lease agreements, (ii) the Lessees have the right
to exclusive possession and use and quiet enjoyment of the Golf Courses during
the term of the Participating Leases, (iii) the Lessees bear the cost of, and
are responsible for, day-to-day maintenance and repair of the Golf Courses,
other than the cost of certain capital expenditures, and dictate how the Golf
Courses are operated, maintained, and improved, (iv) the Lessees bear all of the
costs and expenses of operating the Golf Courses (including the cost of any
inventory used in their operation) during the term of the Participating Leases
other than the cost of certain furniture, fixtures and equipment, and certain
capital expenditures), (v) the Lessees benefit from any savings in the costs of
operating the Golf Courses during the term of the Participating Leases, (vi) in
the event of damage or destruction to a Golf Course, the Lessees are at economic
risk because they will be obligated either (A) to restore the property to its
prior condition, in which event they will bear all costs of such restoration in
excess of any insurance proceeds or (B) in certain circumstances, terminate the
Participating Lease, (vii) the Lessees have indemnified the Operating
Partnership against all liabilities imposed on the Operating Partnership during
the term of the Participating Leases by reason of (A) injury to persons or
damage to property occurring at the Golf Courses or (B) the Lessees' use,
management, maintenance or repair of the Golf Courses, (viii) the Lessees are
obligated to pay substantial Base Rent for the period of use of the Golf
Courses, and (ix) the Lessees stand to incur substantial losses (or reap
substantial gains) depending on how successfully they operate the Golf Courses.
Such opinion is also based upon the representation of the Company to the effect
that upon termination of the Participating Leases (including the optional
fixed-rate renewal periods), each such Golf Course is expected to have a
remaining useful life equal to at least 20% of its expected useful life when
contributed to the Operating Partnership, and a fair market value equal to at
least 20% of its fair market value when contributed to the Operating
Partnership.
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<PAGE>
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Participating Leases that discuss whether
such leases constitute true leases for federal income tax purposes. Therefore,
the opinion of O'Melveny & Myers LLP with respect to the relationship between
the Operating Partnership and the Lessees is based upon all of the facts and
circumstances and upon rulings and judicial decisions involving situations that
are considered to be analogous. Opinions of counsel are not binding upon the
Service or any court, and there can be no complete assurance that the Service
will not assert successfully a contrary position. If the Participating Leases
are recharacterized as service contracts or partnership agreements, rather than
true leases, part or all of the payments that the Operating Partnership receives
from the Lessees may not be considered rent or may not otherwise satisfy the
various requirements for qualification as "rents from real property." In that
case, the Company likely would not be able to satisfy either the 75% or 95%
gross income tests and, as a result, would lose its REIT status.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Tax Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant"). The
Charter provides that no stockholder may own, directly or constructively, in
excess of 9.8% of the Common Stock. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue, provided, however, the Company
may directly perform certain services that are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. For taxable years of the
Company beginning after December 31, 1997, the Company may operate or manage the
property or furnish or render services to the tenants of such property without
disqualifying any rents received from such property as "rents from real
property," provided that any amounts received or accrued (directly or
indirectly) by the Company for any such activities or services do not exceed 1%
of all amounts received or accrued (directly or indirectly) by the Company with
respect to such property. However, any amounts received or accrued (directly or
indirectly) by the Company for any such activities or services will not qualify
as "rents from real property," even to the extent such amounts do not exceed the
1% threshold. The Company does not and will not (i) charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage of receipts or sales, as
described above), (ii) rent any property to a Related Party Tenant, (iii) with
the exception of one Golf Course derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease), or (iv) perform services considered to be rendered to the
occupant of the property, other than through an independent contractor from whom
the Company derives no revenue (subject to the 1% de minimis rule discussed
above for taxable years of the
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<PAGE>
Company beginning after December 31, 1997). With respect to one Golf Course, a
portion of the revenues derived under the Participating Lease applicable to such
Golf Course (the portion attributable to personal property) will not be
considered as "rents from real property." The amount of the anticipated
disqualified income under such Participating Lease, however, will not prevent
the Company from qualifying as a REIT or subject it to any federal income
taxation.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
The participating interest feature of the Participating Mortgage will cause
the Participating Mortgage to have original issue discount ("OID"), which is
treated as interest income. See "Annual Distribution Requirements" for a
discussion of the effect of OID on the ability of the Company to meet the REIT
distribution requirements.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Tax Code. These
relief provisions will be generally available if the Company's failure to meet
such tests was due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "General," even if these relief provisions apply, a tax would
be imposed with respect to the excess net income.
ASSET TESTS. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets (including (i) its allocable share of real
estate assets held by partnerships in which the Company owns an interest and
(ii) stock or debt instruments held for not more than one year purchased with
the proceeds of a stock offering or long-term (at least five years) debt
offering of the Company), cash, cash items and government securities. Second,
not more than 25% of the Company's total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments not included
in the 75% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets and the
Company may not own more than 10% of any one issuer's outstanding voting
securities (except for its ownership interest in the stock of a qualified REIT
subsidiary).
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset requirements either did not exist immediately after the acquisition of
any particular asset or was not wholly or partly caused by such an acquisition
(i.e., the discrepancy arose from changes in the market values of its assets).
If the condition described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the quarter in which it arose.
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ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gain corporate tax rates.
For any taxable year of the Company beginning after December 31, 1997, the
Company may elect to retain and pay taxes on all or a portion of its net
long-term capital gains for such year, in which case, the Company's stockholders
would include in their income as long-term capital gains their proportionate
share of such undistributed capital gains. The stockholders would be treated as
having paid their proportionate share of the capital gains tax paid by the
Company, which amounts would be credited or refunded to the stockholders.
Furthermore, if the Company should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company is subject to a 4% excise tax on
the excess of such required distribution over the amounts actually distributed.
For the Company's taxable years ending after December 31, 1997, the Company may
elect to retain and pay taxes on all or a portion of its net long-term capital
gains for such year, in which case the Company's stockholders would include in
income their proportionate share of such undistributed long-term capital gain
and claim a credit for their share of the taxes paid by the Company. The
Company intends to make timely distributions sufficient to satisfy this annual
distribution requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
The participating interest feature of the Participating Mortgage will cause
the Participating Mortgage to have OID, which will require the Company to
accrue, as interest income, the full amount of such OID even though the Company
may not be in receipt of a like amount of related cash payments during such
year. The inclusion of OID in income without the related cash may make it more
likely that the Company will have to borrow to meet the 95% distribution
requirement. For the Company's taxable years beginning after December 31, 1997,
OID is not included in determining whether the Company has met the 95%
distribution requirements, although the Company will still be subject to tax on
such income to the extent not distributed.
In addition, upon the happening of a "Transfer Triggering Event", the
Company will have to accrue additional interest income without any related cash
payment in the year the "Transfer Triggering Event" occurs, and will have
additional OID without any related cash payment from that date until the
maturity of the Participating Mortgage. If the "Transfer Triggering Event"
occurs after the Company's taxable year ending December 31, 1997, such
additional accrued interest will have no
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effect on the ability of the Company to meet the 95% distribution requirement,
although the Company may have to borrow to pay its tax on such "phantom" income.
The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the Operating Partnership is the owner for federal income tax
purposes of all of the Golf Courses other than the Golf Courses that secure the
Participating Mortgage. As a result, the Company expects that depreciation
deductions with respect to all such Golf Courses will reduce its "REIT taxable
income." This conclusion is consistent with the opinion of O'Melveny & Myers
LLP as described above, which in turn is based upon representations from the
Company as to the expected useful life and future fair market value of each such
Golf Course. If the Service were to successfully challenge this position, the
Company might be deemed retroactively to have failed to meet the distribution
requirement and would have to rely on the payment of a "deficiency dividend" in
order to retain its REIT status.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
PARTNERSHIP ANTI-ABUSE RULE
The United States Treasury Department has issued a regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Tax Code (the
"Partnership Provisions") that authorizes the Service, in certain "abusive"
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal purpose
of substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the Partnership
Provisions. The Anti-Abuse Rule states that the Partnership Provisions are
intended to permit taxpayers to conduct joint business (including investment)
activities through a flexible economic arrangement that accurately reflects the
partners' economic agreement and clearly reflects the partners' income without
incurring any entity-level tax. The purposes for structuring a transaction
involving a partnership are determined based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal tax liability
through the use of a partnership does not, by itself, establish inconsistency
with the intent of the Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, the limited partners have the right, beginning
one year after the formation of the partnership, to require the redemption of
their limited partnership interests in exchange for cash or REIT stock (at the
Company's option) equal to the fair market value of their respective interests
in the partnership at the time of the redemption. The example concludes that
the use of the partnership
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is not inconsistent with the intent of the Partnership Provisions and, thus,
cannot be recast by the Service. Based on the foregoing, O'Melveny & Myers LLP
is of the opinion that the Anti-Abuse Rule will not have any adverse impact on
the Company's ability to qualify as a REIT. However, the Anti-Abuse Rule is
extraordinarily broad in scope and is applied based on an analysis of all of the
facts and circumstances. As a result, there can be no assurance that the
Service will not attempt to apply the Anti-Abuse Rule to the Company. If the
conditions of the Anti-Abuse Rule are met, the Service is authorized to take
appropriate enforcement action, including disregarding the Operating Partnership
for federal tax purposes or treating one or more of its partners as nonpartners.
Any such action potentially could jeopardize the Company's status as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations of the Tax Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions (or, for taxable years of
the Company beginning after December 31, 1997, net long-term capital gains
retained by the Company) that are designated as capital gain dividends will be
taxed as long-term capital gain (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held its stock. However, corporate stockholders may
be required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a stockholder's shares they will be included in income as long-term
capital gain (or short-term capital gain if the shares have been held for one
year or less) assuming the shares are a capital asset in the hands of the
stockholder. In addition, any dividend declared by the Company in October,
November or December of any year payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
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In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the Service. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions made to any
stockholders who fail to certify their non-foreign status to the Company. The
Service has issued final regulations that will alter the technical requirements
relating to backup withholding compliance as applied to foreign stockholders for
distributions made after December 31, 1999. See "-- Taxation of Foreign
Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
In Revenue Ruling 66-106, 1966-1 C.B. 151, the Service ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust did not
constitute "unrelated business taxable income" ("UBTI"). Revenue rulings are
interpretive in nature and subject to revocation or modification by the Service.
However, based upon Revenue Ruling 66-106 and the analysis therein,
distributions by the Company to a stockholder that is a tax-exempt entity should
not constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its shares with "acquisition indebtedness" within the meaning of
the Tax Code and the shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity.
In certain circumstances, a pension trust that owns more than 10% of the
Company's stock will be required to treat a percentage of the dividends received
from the Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the
gross income derived by the Company from an unrelated trade or business
(determined as if the Company were a pension trust) divided by the gross income
of the Company for the year in which the dividends are paid. The UBTI
Percentage rule will apply to a pension trust holding more than 10% of the
Company's stock only if (i) the UBTI Percentage is at least 5%, (ii) the Company
qualifies as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of the pension trust to be treated as holding shares of the
Company in proportion to their actuarial interests in the pension trust and
(iii) either (A) one pension trust owns more than 25% of the value of the
Company's stock or (B) a group of pension trusts individually holding more than
10% of the value of the Company's stock collectively owns more than 50% of the
value of the Company's stock.
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TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions by the Company that are not attributable to gain from sales
or exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions,
ordinarily, will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or eliminates
that tax. However, if income from the investment in the Common Stock is treated
as effectively connected with the conduct by the Non-U.S. Stockholder of a
United States trade or business, the Non-U.S. Stockholder generally will be
subject to a tax at graduated rates, in the same manner as U.S. stockholders are
taxed with respect to such dividends (and may also be subject to the 30% branch
profits tax in the case of a Non-U.S. Stockholder that is a foreign
corporation). The Company expects to withhold United States income tax at the
rate of 30% on the gross amount of any such dividends made to a Non-U.S.
Stockholders unless (i) a lower treaty rate applies or (ii) the Non-U.S.
Stockholder files an Service Form 4224 with the Company certifying that the
investment to which the distribution relates is effectively connected to a
United States trade or business of such Non-U.S. Stockholder. Lower treaty
rates applicable to dividend income may not necessarily apply to dividends from
a REIT, however. The Service has issued final regulations that will modify the
manner in which the Company complies with the withholding requirements for
distributions made after December 31, 1999. Distributions in excess of current
and accumulated earnings and profits of the Company will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder otherwise is subject to tax on any gain from the sale or disposition
of his shares in the Company (as described below). If it cannot be determined
at the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distribution will be
subject to withholding at the same rate applicable to dividends. However,
amounts thus withheld are refundable if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits. That
statute is effective for distributions made after August 20, 1996.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution, to the extent that the Company does not do
so, any portion of a distribution not subject to withholding at a rate of 30%
will be subject to withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions (or
for taxable years of the Company beginning after December 31, 1997, net
long-term capital gains retained and designated
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as capital gain dividends by the Company) that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
be taxed to a Non-U.S. Stockholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Stockholder as if such gain
were effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus be taxed at the same capital gain rates applicable to
U.S. stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty relief or
exemption. The Company is required by applicable Treasury Regulations to
withhold 35% of any distribution that could be designated by the Company as a
capital gains dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. However, because the shares of the Company are
publicly-traded, no assurance can be given that the Company will continue to be
a "domestically-controlled REIT." In addition, a Non-U.S. Stockholder that owns,
actually or constructively, 5% or less of the Company's stock throughout a
specified "look back" period will not recognize gain on the sale of his stock
taxable under FIRPTA if the shares are traded on an established securities
market. Furthermore, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) investment in the shares is effectively connected with the
Non-U.S. Stockholder's United States trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as U.S. stockholders
with respect to such gain (except that a stockholder that is a foreign
corporation may also be subject to the 30% branch profits tax), or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. If the gain on the sale
of shares were to be subject to taxation under FIRPTA, the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals and, in the case of
foreign corporations, subject to the possible application of the 30% branch
profits tax).
STATE AND LOCAL TAXES
The Company, any of its subsidiaries, the Operating Partnership or the
Company's stockholders may be subject to state and local tax in various states
and localities, including those states and localities in which it or they
transact business, own property, or reside. The state tax treatment of the
Company and the stockholders in such jurisdictions may differ from the federal
income tax treatment described above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws upon an investment in the Common Stock.
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TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
CLASSIFICATION AS A PARTNERSHIP. The Company will be entitled to include
in its income its distributive share of the Operating Partnership's income and
to deduct its distributive share of the Operating Partnership's losses only if
the Operating Partnership is classified for federal income tax purposes as a
partnership rather than as a corporation or an association taxable as a
corporation. An organization formed as a partnership will be treated as a
partnership, rather than as a corporation, for federal income tax purposes if
(i) it is not expressly classified as a corporation under Section
301.7701-2(b)(1) through (8) of the Treasury Regulations; (ii) it does not elect
to be classified as an association taxable as a corporation; and (iii) it is not
treated as a corporation by virtue of being classified as a "publicly traded
partnership."
The Operating Partnership will not request a ruling from the Service that
it will be classified as a partnership for federal income tax purposes.
Instead, at the Closing of this Offering, O'Melveny & Myers LLP will deliver its
opinion that, based on the provisions of the Partnership Agreement, certain
factual assumptions and certain representations described in the opinion, the
Operating Partnership will be treated for federal income tax purposes as a
partnership and not as an association taxable as a corporation. Currently the
Operating Partnership is not expressly classified as, and will not elect to be
classified as, a corporation for federal income tax purposes. Unlike a tax
ruling, an opinion of counsel is not binding upon the Service, and no assurance
can be given that the Service will not challenge the status of the Operating
Partnership as a partnership for federal income tax purposes. If such challenge
were sustained by a court, the Operating Partnership would be treated as a
corporation for federal income tax purposes, as described below. In addition,
the opinion of O'Melveny & Myers LLP is based on existing law, which is to a
great extent the result of administrative and judicial interpretation. No
assurance can be given that administrative or judicial changes would not modify
the conclusions expressed in the opinion.
Under Section 7704 of the Tax Code, a partnership is treated as a
corporation for federal income tax purposes if it is a "publicly traded
partnership" (except in situations in which 90% or more of the partnership's
gross income is of a specified type). A partnership is deemed to be publicly
traded if its interests are either (i) traded on an established securities
market, or (ii) readily tradable on a secondary market (or the substantial
equivalent thereof). While the OP Units will not be traded on an established
securities market, they could possibly be deemed to be traded on a secondary
market or its equivalent due to the Redemption Rights enabling the partners to
dispose of their OP Units.
The Treasury Department recently issued regulations (the "PTP Regulations")
governing the classification of partnerships under Section 7704. These
regulations provide that the classification of partnerships is generally based
on a facts and circumstances analysis. However, the regulations also provide
limited "safe harbors" which preclude publicly traded partnership status.
Pursuant to one of those safe harbors, interests in a partnership will not be
treated as readily tradable on a secondary market or the substantial equivalent
thereof if (i) all interests in the partnership were issued in a transaction (or
transactions) that was not required to be registered under the Securities Act,
and (ii) the partnership does not have more than 100 partners at any time during
the partnership's taxable
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year. In determining the number of partners in a partnership for this purpose,
a person owning an interest in a flow-through entity (i.e., a partnership,
grantor trust, or S corporation) that owns an interest in the partnership is
treated as a partner in such partnership only if (x) substantially all of the
value of the person's interest in the flow-through entity is attributable to the
flow-through entity's interest (direct or indirect) in the partnership and (y) a
principal purpose of the use of the flow-through entity is to permit the
partnership to satisfy the 100-partner limitation.
The Operating Partnership is expected to have less than 100 partners
(including persons owning interests through flow-through entities). The
Operating Partnership has not issued any OP Units required to be registered
under the Securities Act. Thus, the Operating Partnership presently qualifies
for the safe harbors provided in the PTP Regulations. If the Operating
Partnership were to have more than 100 partners (including, in certain
circumstances, persons owning interests through flow-through entities), it
nevertheless would be treated as a partnership for federal income tax purposes
(rather than an association taxable as a corporation) if at least 90% of its
gross income in each taxable year (commencing with the year in which it is
treated as a publicly traded partnership) consists of "qualifying income" with
the meaning of Section 7704(c)(2) of the Tax Code (including interest,
dividends, "real property rents" and gains from the disposition of real property
(the "90% Passive-Type Income Exception"). Because of the substantial ownership
of the Operating Partnership by the Lessees (or their affiliates), the Operating
Partnership currently would not be eligible for the 90% Passive-Type Income
Exception. Thus, if the Operating Partnership were to have more than 100
partners (including, in certain circumstances, persons owning interests through
flow-through entities), the Company would be required to place appropriate
restrictions on the ability of the Limited Partners to exercise their Redemption
Rights as and if deemed necessary to ensure that the Operating Partnership does
not constitute a publicly traded partnership. However, there is no assurance
that the Operating Partnership will at all times in the future be able to avoid
treatment as a publicly traded partnership. The opinion of O'Melveny & Myers
LLP as to the classification of the Partnership is based on an assumption that
the Operating Partnership will continue to fall within a safe harbor from
publicly traded partnership status.
If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to satisfy the income and asset requirements for REIT status. See
"Federal Income Tax Considerations -- Requirements for Qualification -- Income
Tests" and "-- Requirements for Qualification -- Asset Tests." In addition, any
change in the Operating Partnership's status for tax purposes might be treated
as a taxable event, in which case the Company might incur a tax liability
without any related cash distribution. See "Federal Income Tax Considerations
- -- Requirements for Qualification -- Distribution Requirements." Further, items
of income and deduction of the Operating Partnership would not pass through to
its partners, and its partners would be treated as stockholders for tax
purposes. Consequently, the Operating Partnership would be required to pay
income tax at corporate tax rates on its net income, and distributions to its
partners would constitute dividends that would not be deductible in computing
the Operating Partnership's taxable income.
The following discussion assumes that the Operating Partnership will be
treated as a partnership for federal income tax purposes.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Tax Code and the Treasury
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Regulations promulgated thereunder. Generally, Section 704(b) and the Treasury
Regulations promulgated thereunder require that partnership allocations respect
the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Tax Code and the Treasury Regulations
promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE GOLF COURSES. Pursuant to Section
704(c) of the Tax Code, income, gain, loss and deduction attributable to
appreciated or depreciated property (such as the Golf Courses) that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss is generally equal to the difference between
the fair market value of contributed property at the time of contribution and
the adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed by way of
contributions of appreciated property (including the Golf Courses).
Consequently, the Partnership Agreement will require such allocations to be made
in a manner consistent with Section 704(c) of the Tax Code.
In general, the Prior Owners will be allocated depreciation deductions for
tax purposes which are lower than such deductions would be if determined on a
pro rata basis. In addition, in the event of the disposition of any of the
contributed assets (including the Golf Courses) which have a Book-Tax
Difference, all income attributable to such Book-Tax Difference will generally
be allocated to the Prior Owners and the Company will generally be allocated
only its share of capital gains attributable to appreciation, if any, occurring
after the closing of the Offering. This will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the
hands the Operating Partnership will cause the Company to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of such contributed assets in excess of the economic or book
income allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution
requirements. See "-- Taxation of the Company -- Annual Distribution
Requirements." The foregoing principles also apply in determining the earnings
and profits of the Company for purposes of determining the portion of
distributions taxable as dividend income. The application of these rules over
time may result in a higher portion of distributions being taxed as dividends
than would have occurred had the Company purchased the contributed assets at
their agreed values.
The Treasury Regulations under Section 704(c) of the Tax Code allow
partnerships to use any reasonable method of accounting for Book-Tax Differences
so that the contributing partner receives the tax benefits and burdens of any
built-in gain or loss associated with the contributed property. The
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Operating Partnership has generally determined to use the "traditional method"
(which is specifically approved in the Treasury Regulations) for accounting for
Book-Tax Differences with respect to the properties initially contributed to it.
The Operating Partnership has not determined which of the alternative
methods of accounting for Book-Tax Differences will be elected with respect to
any properties contributed to it in the future.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceeds the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain. Under current law, capital gains and
ordinary income of corporations are generally taxed at the same marginal rates.
SALE OF THE GOLF COURSES. The Company's share of any gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "-- Requirements for Qualification -- Income Tests." Such
prohibited transaction income may also have an adverse effect upon the Company's
ability to satisfy the income tests for qualification as a REIT. See "--
Requirements for Qualification -- Income Tests." Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a partnership's trade or business is a question of fact that depends
on all the facts and circumstances with respect to the particular transaction.
The Operating Partnership intends to hold the Golf Courses for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating the Golf Courses (and other golf courses) and
to make such occasional sales of the Golf Courses, including peripheral land, as
are consistent with the Operating Partnership's investment objectives.
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PLAN OF DISTRIBUTION
SALE OF SECURITIES BY THE COMPANY
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, directly to one or more
individual, institutional or other purchasers, through agents or through any
combination of these methods of sale. Direct sales to investors may also be
accomplished through subscription rights distributed on a pro rata basis to the
Company's stockholders, which may or may not be transferable by such
stockholders. In connection with any distribution of subscription rights to
stockholders, if all of the underlying Securities are not subscribed for, the
Company may sell the unsubscribed Securities directly to third parties or may
engage the services of one or more underwriters, dealers or agents, including
standby underwriters, to sell the unsubscribed Securities to third parties.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale or at prices related to such prevailing
market prices, or at negotiated prices (any of which may represent a discount
from the prevailing market prices).
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts or commissions
they receive from the Company, and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company will be described, in the applicable
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the AMEX. Any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on the AMEX,
subject to official notice of issuance. The Company may elect to list any
series of Debt Securities or Preferred Stock on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of, or the trading market for, the
Securities.
Under agreements into which the Company may enter, underwriters will be,
and dealers and agents who participate in the distribution of Securities may be,
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, the Company in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase
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Securities from the Company at the public offering price set forth in such
Prospectus Supplement pursuant to delayed delivery contracts ("Contracts")
providing for payment and delivery on the date or dates stated in such
Prospectus Supplement. Each Contract will be for an amount no less than, and
the aggregate principal amounts of Securities sold pursuant to Contracts shall
be not less nor more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may
be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if Securities are being sold to
underwriters, the Company shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
the Contracts. If in conjunction with the sale of Securities to institutions
under Contracts, Securities are also being sold to the public, the consummation
of the sale under the Contracts shall occur simultaneously with the consummation
of the sale to the public. The underwriters and such other agents will not have
any responsibility in respect of the validity or performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
SALE OF COMMON STOCK BY SELLING SHAREHOLDERS
The Common Stock which may be offered for sale by the Selling Shareholders
including Common Stock subsequently acquired by the Selling Shareholders
pursuant to the exercise of stock options or redemption of OP Units, will be
offered directly; the Company will not receive any proceeds from such sale. The
sale of Common Stock may be effected by the Selling Shareholders from time to
time in transactions in the over-the-counter market, on the AMEX, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to prevailing market prices, or at negotiated prices. The Selling
Shareholders may effect such transactions by selling Common Stock to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensations as to a particular
broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, any Common Stock offered for sale by the Selling Shareholders hereby
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states Common Stock may not be
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sold unless it has been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
The Selling Shareholders and any broker-dealers, agents or underwriters
that participate with the Selling Shareholders in the distribution of the Common
Stock may be deemed to be "underwriters" within the meaning of Section 2(1) of
the Securities Act, and any commissions received by them and any profit on the
resale of the Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The underlying Common Stock which may be purchased by certain of the
Selling Shareholders pursuant to the exercise of stock options will be sold
directly by the Company to such selling stockholder pursuant to the terms and
conditions of the applicable stock option agreement.
Each Selling Shareholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of shares of the Company's Common Stock by the Selling Shareholders.
The Company has agreed to register the Common Stock which may be obtained
by the redeeming OP Unit holders under the Securities Act and has agreed to
indemnify and hold harmless the OP Unit holders against certain liabilities
under the Securities Act that could arise in connection with the sale of Common
Stock by the Selling Shareholders.
DESCRIPTION OF CAPITAL STOCK
The description of the Company's capital stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Charter and Bylaws, each as amended and restated, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part. See
"Available Information."
GENERAL
Under the Charter, the total number of shares of all classes of stock that
the Company has authority to issue is 100,000,000 consisting of 90,000,000
shares of Common Stock, par value $0.01 per share and 10,000,000 shares of
Preferred Stock, par value $0.01 per share. As of May 25, 1998, there were
7,631,694 shares of Common Stock and no shares of Preferred Stock outstanding.
COMMON STOCK
Subject to any preferential rights of any outstanding class of Preferred
Stock, the holders of Common Stock are entitled to such distributions as may be
declared from time to time by the Board of Directors from funds available
therefor, and upon liquidation are entitled to receive pro rata all assets of
the Company available for distributions to such holders. All shares of Common
Stock issued pursuant to this Prospectus will be fully paid and nonassessable
and the holders thereof will not have preemptive rights.
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The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any class of Preferred Stock establishing the
powers, designations, preferences and relative, participating, option or other
special rights of such series, the holders of such shares of Common Stock
exclusively possess all voting power. The Charter does not provide for
cumulative voting in the election of directors.
The Charter provides for a staggered Board of Directors consisting of three
classes as nearly equal in size as practicable. Each class holds office until
the third annual meeting for selection of directors following the election of
such class, except that the initial terms of the three classes expire in 1998,
1999 and 2000, respectively. The provisions relating to the staggered board may
be amended only upon the vote of the holders of at least 66.67% of the capital
stock entitled to vote for the election of directors.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes to be cast on the matter) is set forth in the corporation's Articles of
Incorporation. The Company's Articles of Incorporation do not provide for a
lesser percentage in such situations.
PREFERRED STOCK
GENERAL. Shares of Preferred Stock may be issued from time to time, in one
or more series, as authorized by the Board of Directors. Prior to issuance of
shares of each series, the Board of Directors is required by the MGCL and the
Company's Charter to fix for each series, subject to the Company's Charter, the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption, as are permitted by Maryland law. The Preferred Stock
will, when issued, be fully paid and nonassessable by the Company and will have
no preemptive rights. The Board of Directors could authorize the issuance of
shares of Preferred Stock with terms and conditions that could have the effect
of discouraging a takeover or other transaction that holders of Common Stock
might believe to be in their best interests or in which holders of some, or a
majority, of the shares of Common Stock might receive a premium for their shares
over the then market price of such shares of Common Stock.
TERMS. The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Charter and Bylaws and any applicable
amendment to the Articles of Incorporation designating terms of a series of
Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
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(1) The title and stated value of such Preferred Stock;
(2) The number of shares, the liquidation preference per share and the
offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall accrue, if
applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion
price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK. Unless otherwise specified in the Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all equity securities
ranking junior to such Preferred Stock; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock; and (iii)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS. Holders of the Preferred Stock of each series will be entitled
to receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available for payment,
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cash dividends at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the share transfer books of the Company on
such record dates as shall be fixed by the Board of Directors.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of the Preferred Stock
for which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company or
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Preferred Stock of such series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon Preferred Stock of any series and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon Preferred Stock of such series
and any other series of Preferred Stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accrual in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other shares of
capital stock ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital shares of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity
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with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION. If so provided in the applicable Prospectus Supplement, the
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accrual in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (a) if a series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(b) if a series of Preferred Stock does not have a cumulative dividend, full
dividends on all shares of the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company shall not purchase or
otherwise acquire directly or
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indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital shares of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series to preserve the REIT status of the
Company or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (a) the redemption date; (b) the number
of shares and series of the Preferred Stock to be redeemed; (c) the redemption
price; (d) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (e) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (f) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder.
If notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or any
other class or series of capital stock of the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Stock
shall be entitled to receive out of assets of the Company legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the Company.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with the
Preferred Stock in the distribution of assets, then the holders of the Preferred
Stock and all other such classes or series of capital stock shall share ratably
in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
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If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law or as indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (b) amend, alter or repeal the provisions
of the Company's Articles of Incorporation or the Designating Amendment for such
series of Preferred Stock, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, with respect to the occurrence of any Event set
forth in (b) above, so long as the Preferred Stock remains outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event the Company may not be the surviving entity, the occurrence of any
such Event shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (i) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or
(ii) any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS. The terms and conditions, if any, upon which any series
of Preferred Stock is convertible into shares of Common Stock will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of shares of Common Stock into which the shares of Preferred
Stock are convertible, the conversion price (or manner of calculation thereof),
the conversion period, provisions as to whether conversion will be at the option
of the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion
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price and provisions affecting conversion in the event of the redemption of such
series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Tax Code, it must meet
certain requirements concerning the ownership of its outstanding shares of
capital stock. Specifically, not more than 50% in value of the Company's
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Tax Code to include certain
entities) during the last half of a taxable year (other than its 1997 taxable
year), and the Company must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year (other than its 1997 taxable year). See "Federal
Income Tax Considerations." In addition, the Company must meet certain
requirements regarding the nature of its gross income in order to qualify as a
REIT. One such requirement is that at least 75% of the Company's gross income
for each year must consist of rents from real property and income from certain
other real property investments. The rents received by the Operating
Partnership from a Lessee would not qualify as rents from real property, which
would likely result in loss of REIT status for the Company, if the Company were
at any time to own, directly or constructively, 10% or more of the ownership
interests in a Lessee within the meaning of Section 856(d)(2)(B) of the Tax
Code.
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Charter, subject to certain exceptions described below,
provides that no person may own, or be deemed to own by virtue of the
constructive ownership provisions of the Tax Code, more than 9.8% of the lesser
in value of the total number or value of the outstanding shares of Common Stock
or Preferred Stock (the "Ownership Limit"). The constructive ownership rules of
the Tax Code are complex and may cause shares owned actually or constructively
by two or more related individuals and/or entities to be constructively owned by
one individual or entity. As a result, the acquisition of less than 9.8% of the
outstanding shares of Common Stock or 9.8% of the shares of Preferred Stock (or
the acquisition of an interest in an entity which owns the shares) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 9.8% of the outstanding
shares of Common Stock or 9.8% of the outstanding shares of Preferred Stock, and
thus subject such shares to the Ownership Limit provisions of the Charter. The
Charter also prohibits any transfer of Common or Preferred Stock that would (i)
result in the Common and Preferred Stock being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (ii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Tax
Code, or (iii) cause the Company to own, directly or constructively, 10% or more
of the ownership interests in a tenant of the Company's real property, within
the meaning of Section 856(d)(2)(B) of the Tax Code. Except as otherwise
provided below, any such acquisition or transfer of the Company's capital stock
(including any constructive acquisition or transfer of ownership) shall be null
and void, and the intended transferee or owner will acquire no rights to, or
economic interests in, the shares.
Subject to certain exceptions described below, any purported transfer of
Common or Preferred Stock that would (i) result in any person owning, directly
or indirectly, Common or Preferred Stock in excess of the Ownership Limit, (ii)
result in the Common and Preferred Stock being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Tax
Code, or (iv) cause the Company to own, directly or constructively, 10.0% or
more of the ownership interests in a tenant
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of the Company's or the Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Tax Code, will be designated as "Shares-in-Trust"
and transferred automatically to a trust (the "Share Trust") effective on the
day before the purported transfer of such Common or Preferred Stock. The record
holder of the Common or Preferred Stock that is designated as Shares in Trust
(the "Prohibited Owner") will be required to submit such number of Common or
Preferred Stock to the Share Trust for designation in the name of the "Share
Trustee". The Share Trustee will be designated by the Company. The beneficiary
of the Share Trust (the "Beneficiary") will be one or more charitable
organizations that are named by the Company.
Shares-in-Trust will remain issued and outstanding Common or Preferred
Stock and will be entitled to the same rights and privileges as all other shares
of the same class or series. The Share Trustee will receive all dividends and
distributions on the Shares-in-Trust and will hold such dividends or
distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust. The Share Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Share Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trustee the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date of which was on or after the date that such shares became
Shares-in-Trust. The Prohibited Owner generally will receive from the Share
Trustee the lesser of (i) the price per share such Prohibited Owner paid for the
Common or Preferred Stock that were designated as Shares-in-Trust (or, in the
case of a gift or devise, the Market Price (as defined below) per share on the
date of such transfer) and (ii) the price per share received by the Share
Trustee from the sale or other disposition of such Shares-in-Trust. Any amounts
received by the Share Trustee in excess of the amounts to be paid to the
Prohibited Owner will be distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of 90 days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust and (ii) the date the
Company determines in good faith that a transfer resulting in such
Shares-in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
or Preferred Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares of Common or Preferred Stock are listed or admitted to
trading or, if the shares of Common or Preferred Stock are not listed or
admitted to trading on any national
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securities exchange, the last quoted price, or if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the shares of Common or Preferred Stock
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Common or Preferred Stock as selected by the Board of Directors. "Trading Day"
shall mean a day on which the principal national securities exchange on which
the shares of Common or Preferred Stock are listed or admitted to trading is
open for the transaction of business or, if the shares of Common or Preferred
Stock are not listed or admitted to trading on any national securities exchange,
shall mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Any person who acquires or attempts to acquire Common or Preferred Stock in
violation of the foregoing restrictions, or any person who owned shares of
Common or Preferred Stock that were transferred to a Share Trust, will be
required (i) to give immediately written notice to the Company of such event,
(ii) to submit to the Company such number of shares of Common or Preferred Stock
to be transferred to the Share Trust and (iii) to provide to the Company such
other information as the Company may request in order to determine the effect,
if any, of such transfer on the Company's status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Tax Code) of the
outstanding shares of Common and Preferred Stock must within 30 days after
January 1 of each year, provide to the Company a written statement or affidavit
stating the name and address of such direct or indirect owner, the number of
shares of Common and Preferred Stock owned directly or indirectly, and a
description of how such shares are held. In addition, each direct or indirect
stockholder shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such ownership
on the Company's status as a REIT and to ensure compliance with the Ownership
Limit.
The Ownership Limit generally will not apply to the acquisitions of shares
of Common or Preferred Stock by an underwriter that participates in a public
offering of such shares. In addition, the Board of Directors, upon receipt of a
ruling from the Service or an opinion of counsel and upon such other conditions
as the Board of Directors may direct, may exempt a person from the Ownership
Limit under certain circumstances. The foregoing restrictions will continue to
apply until the Board of Directors, with the approval of the holders of at least
two-thirds of the outstanding shares of all votes entitled to vote on such
matter at a regular or special meeting of the stockholders of the Company,
determines to terminate its status as a REIT.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Tax Code are changed so as to remove any ownership
concentration limitation. Any change of the Ownership Limit would require an
amendment to the Charter. Such amendment requires the affirmative vote of
holders holding at least two-thirds of the outstanding shares entitled to vote
on the matter.
All certificates representing shares of Common or Preferred Stock will bear
a legend referring to the restrictions described above.
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LIMITATIONS ON CHANGES IN CONTROL
The provisions of the Charter and the Bylaws providing for ownership
limitations, a staggered Board of Directors and the authorization of the Board
of Directors to issue Preferred Stock without stockholder approval could have
the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management, and as a result could prevent the
stockholders of the Company from being paid a premium for their shares of Common
Stock.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Debt Securities will be issued
under one or more indentures, each dated as of a date prior to the issuance of
the Debt Securities to which it relates. Senior Securities and Subordinated
Securities may be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same Trustee. The Senior
Indenture and the Subordinated Indenture, as amended or supplemented from time
to time, are sometimes hereinafter referred to collectively as the "Indentures."
The Indentures will be subject to and governed by the Trust Indenture Act of
1939, as amended (the "TIA"). The statements made under this heading relating
to the Debt Securities and the Indentures are summaries of the anticipated
provisions thereof, do not purport to be complete and are qualified in their
entirety by reference to the Indentures and such Debt Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
GENERAL. The indebtedness represented by the Senior Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the Company.
The indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "--Subordination." The particular terms of the Debt
Securities offered by a Prospectus Supplement will be described in the
applicable Prospectus Supplement, along with any applicable modifications of or
additions to the general terms of the Debt Securities as described herein and in
the applicable Indenture and any applicable federal income tax considerations.
Accordingly, for a description of the terms of any series of Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and
the description of the Debt Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company or as set forth in
the applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same
time
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and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuance of additional
Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities are
Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount thereof)
at which such Debt Securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or
(if applicable) the portion of the principal amount of such Debt
Securities that is convertible into Common Stock or Preferred Stock,
or the method by which any such portion shall be determined;
(4) If convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock receivable on
conversion;
(5) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon
which interest shall be calculated if other than that of a 360-day
year of twelve 30-day months;
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(8) The place or places where the principal of (and premium or Make-Whole
Amount (as defined in the Indenture), if any) and interest, if any, on
such Debt Securities will be payable, where such Debt Securities may
be surrendered for conversion or registration of transfer or exchange
and where notices or demands to or upon the Company in respect of such
Debt Securities and the applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such Debt
Securities may, pursuant to any optional or mandatory redemption
provisions, be redeemed, as a whole or in part, at the option of the
Company;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which and the other terms
and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest, if any, on such Debt
Securities may be determined with reference to an index, formula or
other method (which index, formula or method may, but need not be,
based on a currency, currencies, currency unit or units, or composite
currency or currencies) and the manner in which such amounts shall be
determined;
(13) Whether the principal of (and premium or Make-Whole Amount, if any) or
interest or Additional Amounts, if any, on the Debt Securities of the
series are to be payable, at the election of the Company or a holder
thereof, in a currency or currencies, currency unit or units or
composite currency or currencies other than that in which such Debt
Securities are denominated or stated to be payable, the period or
periods within which, and the terms and conditions upon which, such
election may be made, and the time and manner of, and identity of the
exchange rate agent with responsibility for, determining the exchange
rate between the currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are
denominated or stated to be payable and the currency or currencies,
currency unit or units or composite currency or currencies in which
such Debt Securities are to be so payable;
(14) Provisions, if any, granting special rights to the holders of Debt
Securities of the series upon the occurrence of such events as may be
specified;
(15) Any deletions from, modifications of or additions to the Events of
Default (as defined in the Indenture) or covenants of the Company with
respect to Debt Securities of the series, whether or not such Events
of Default or covenants are consistent with the Events of Default or
covenants set forth herein;
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(16) Whether Debt Securities of the series are to be issuable as Registered
Securities, Bearer Securities (with or without coupons) or both, any
restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of the series
may be exchanged for Registered Securities of the series and vice
versa (if permitted by applicable laws and regulations), whether any
Debt Securities of the series are to be issuable initially in
temporary global form and whether any Debt Securities of the series
are to be issuable in permanent global form with or without coupons
and, if so, whether beneficial owners of interests in any such
permanent global Security may exchange such interests for Debt
Securities of such series and of like tenor of any authorized form and
denomination and the circumstances under which any such exchanges may
occur, if other than in the manner provided in the Indenture, and, if
Registered Securities of the series are to be issuable as a Global
Security, the identity of the depository for such series;
(17) The date as of which any Bearer Securities of the series and any
temporary Global Security representing outstanding Debt Securities of
the series shall be dated if other than the date of original issuance
of the first Security of the series to be issued;
(18) The Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, the
manner in which, or the Person to whom, any interest on any Bearer
Security of the series shall be payable, if otherwise than upon
presentation and surrender of the coupons appertaining thereto as they
severally mature, and the extent to which, or the manner in which, any
interest payable on a temporary Global Security on an Interest Payment
Date will be paid if other than in the manner provided in the
Indenture;
(19) The applicability, if any, of the defeasance and covenant defeasance
provisions of the Indenture to the Debt Securities of the series and
any provisions in modification of, in addition to or in lieu of any of
the provisions of Article Fourteen;
(20) If the Debt Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary
Security of such series) only upon receipt of certain certificates or
other documents or satisfaction of other conditions, then the form
and/or terms of such certificates, documents or conditions;
(21) If the Debt Securities of the series are to be issued upon the
exercise of warrants, the time, manner and place for such Debt
Securities to be authenticated and delivered;
(22) Whether and under what circumstances the Company will pay Additional
Amounts as contemplated by the Indenture on the Debt Securities of the
series to any holder who is not a United States person (including any
modification to the definition of such term) in respect of any
tax,assessment or governmental charge and, if so, whether the Company
will have the option to redeem such Debt Securities rather than pay
such Additional Amounts (and the terms of any such option);
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(23) The obligation, if any, of the Company to permit the conversion of the
Debt Securities of such series into the Company's Common Stock or
Preferred Stock, as the case may be, and the terms and conditions upon
which such conversion shall be effected (including, without
limitation, the initial conversion price or rate, the conversion
period, any adjustment of the applicable conversion price and any
requirements relative to the reservation of such shares for purposes
of conversion); and
(24) Any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture).
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
CHANGE OF CONTROL, HIGHLY LEVERAGED TRANSACTIONS AND SIMILAR TRANSACTIONS.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Company to
incur indebtedness or that would afford holders of any series of Debt Securities
protection in the event of a highly leveraged or similar transaction, or in the
event of a change of control, involving the Company that may adversely affect
holders of Debt Securities. To the extent that any covenant or provision
governing any series of Debt Securities that would afford protection to holders
of such series of Debt Securities in the event of a highly leveraged or similar
transaction or a change of control may be (a) waived by the Board of Directors
or the relevant Trustee or (b) limited in its applicability in the event of a
leveraged buy-out or similar transaction initiated or supported by the Company,
management of the Company or any affiliate, the relevant Prospectus Supplement
will describe such provisions.
Any Prospectus Supplement relating to a series of Debt Securities that is
subject to optional redemption, prepayment or conversion of such series of Debt
Securities upon the occurrence of a change of control or other similar events
will describe, to the extent applicable, the following:
(1) the effect that such provisions may have in deterring mergers, tender
offers or other takeover attempts, as well as any possible adverse
effect on the market price of the Company's securities or its ability
to obtain additional financing in the future;
(2) the Company's obligation to comply with the requirements of Rule
14(e)-1 under the Exchange Act and any other applicable securities
laws in connection with such provisions and any related offers by the
Company, and to the extent that a series of convertible Debt
Securities are the subject of such Prospectus Supplement, the
Company's obligation to comply with Rule 13e-4;
(3) whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness resulting in effective
subordination of the Company's obligation to make payments on such
series of Debt Securities;
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(4) any legal or financial limitations on the Company's ability to
repurchase the series of Debt Securities offered by such Prospectus
Supplement upon the triggering of an "event risk" provision requiring
such a repurchase or offer to repurchase;
(5) the impact, if any, under the Indenture or other governing instruments
of any failure to repurchase or offer to repurchase, including whether
such failure following a change of control or similar event will (or
would, after the lapse of time or giving of notice, or both) result in
an event of default with respect to such series of Debt Securities;
(6) that there can be no assurance that sufficient funds will be available
to the Company to make any required repurchase at the time such "event
risk" provision is triggered;
(7) the material effect of any subordination of payment on such series of
Debt Securities to other obligations of the Company or its
subsidiaries that may be accelerated as a result of a change in
control, fundamental change or "poison put" provision on such change
in control, fundamental change or "poison put" provision and on such
series of Debt Securities;
(8) the material effect, if any, of any anti-takeover provision relating
to the Company's equity securities on the Company's outstanding debt
securities, including the series of Debt Securities offered by such
Prospectus Supplement;
(9) to the extent that the term "change of control" includes the concept
of "all or substantially all," how such concept is quantified or what
is the established meaning of such concept under applicable law and
the Indenture and, in the event that there is no definition or
established meaning for such concept, the effect of such uncertainty
on the ability of holders of such series of Debt Securities to
determine when a "change of control" has occurred; and
(10) other material effects and limitations of "change of control," as
applicable to such series of Debt Securities, including whether
"change of control" provisions will be triggered if a change in
control of the Company's Board of Directors occurs as a result of a
proxy contest involving solicitation of revocable proxies.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
on any series of Debt Securities will be payable at the corporate trust office
of the applicable Trustee, the address of which will be stated in the applicable
Prospectus Supplement; provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds to such person at an account maintained within the United
States.
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Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, in which case notice thereof shall be given to the holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner, all as more completely described in the
applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for conversion or
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent designated by the
Company for such purpose. Every Debt Security surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of Debt Securities.
Neither the Company nor any Trustee shall be required to (a) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before selection of any Debt
Securities selected for redemption and ending at the close of business on the
day of mailing of the notice of redemption; (b) register the transfer of or
exchange any Debt Security, or portion thereof, so selected for redemption, in
whole or in part, except the unredeemed portion of any Debt Security being
redeemed in part; or (c) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of
the holders of any outstanding Debt Securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets is organized under the laws of any domestic jurisdiction
and assumes the Company's obligations to pay principal of (and premium or
Make-Whole Amount, if any) and interest on all of the Debt Securities and the
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due and punctual performance and observance of all of the covenants and
conditions contained in each Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no Event of Default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "--Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by articles of incorporation, by-laws and statute) and
material franchises; provided, however, that the Company shall not be required
to preserve any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business.
MAINTENANCE OF PROPERTIES. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
INSURANCE. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
at least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement, having
a specified rating from a recognized insurance rating service.
PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (b) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, to (a) transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities, promptly upon written request
and without cost to such holders, copies of the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company
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were subject to such sections, (b) file with the applicable Trustee copies of
the annual reports, quarterly reports and other documents that the Company would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if the Company were subject to such Sections and (c) supply,
promptly upon written request and payment of the reasonable cost of duplication
and delivery, copies of such documents to any prospective holder.
ADDITIONAL COVENANTS. Any additional covenants of the Company with respect
to any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (a) default in the
payment of any interest on or any Additional Amount payable in respect of any
Debt Security of such series when such interest or Additional Amount becomes due
and payable that continues for a period of 30 days; (b) default in the payment
of the principal of (or premium or Make-Whole Amount, if any, on) any Debt
Security of such series when due and payable; (c) default in making any sinking
fund payment as required for any Debt Security of such series; (d) default in
the performance, or breach, of any other covenant or warranty of the Company in
the Indenture with respect to the Debt Securities of such series and continuance
of such default or breach for a period of 60 days after written notice as
provided in the Indenture; (e) default under any bond, debenture, note,
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the
Company (or by any Subsidiary, the repayment of which the Company has guaranteed
or for which the Company is directly responsible or liable as obligor or
guarantor), having an aggregate principal amount outstanding of at least
$10,000,000, whether such indebtedness now exists or shall hereafter be created,
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled, within a period of 10 days
after written notice to the Company as provided in the Indenture, provided,
however, that such a default on indebtedness which constitutes tax-exempt
financing having an aggregate principal amount outstanding not exceeding
$25,000,000 that results solely from a failure of an entity providing credit
support for such indebtedness to honor a demand for payment on a letter of
credit shall not constitute an Event of Default; (f) the entry by a court of
competent jurisdiction of one or more judgments, orders or decrees against the
Company or any of its Subsidiaries in an aggregate amount (excluding amounts
covered by insurance) in excess of $10,000,000 and such judgments, orders or
decrees remain undischarged, unstayed and unsatisfied in an aggregate amount
(excluding amounts covered by insurance) in excess of $10,000,000 for a period
of 30 consecutive days; (g) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or any Significant Subsidiary; and (h) any other event of default
provided with respect to a particular series of Debt Securities. The term
"Significant Subsidiary" has the meaning ascribed to such term in Regulation S-X
promulgated under the Securities Act.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue
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Discount Securities or indexed securities, such portion of the principal amount
as may be specified in the terms thereof) of, and premium or Make-Whole Amount,
if any, on, all the Debt Securities of that series to be due and payable
immediately by written notice thereof to the Company (and to the applicable
Trustee if given by the holders). However, at any time after such a declaration
of acceleration with respect to Debt Securities of such series has been made,
but before a judgment or decree for payment of the money due has been obtained
by the applicable Trustee, the holders of not less than a majority in principal
amount of outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences if (a) the Company shall have deposited with
the applicable Trustee all required payments of the principal of (and premium or
Make-Whole Amount, if any) and interest on the Debt Securities of such series,
plus certain fees, expenses, disbursements and advances of the applicable
Trustee and (b) all Events of Default, other than the non-payment of accelerated
principal (or specified portion thereof and the premium or Make-Whole Amount, if
any), with respect to Debt Securities of such series have been cured or waived
as provided in such Indenture. The Indentures will also provide that the
holders of not less than a majority in principal amount of the outstanding Debt
Securities of any series may waive any past default with respect to such series
and its consequences, except a default (i) in the payment of the principal of
(or premium or Make-Whole Amount, if any) or interest on any Debt Security of
such series or (ii) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security affected thereby.
The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt Securities
of any default with respect to such series (except a default in the payment of
the principal of (or premium or Make-Whole Amount, if any) or interest on any
Debt Security of such series or in the payment of any sinking fund installment
in respect of any Debt Security of such series) if specified responsible
officers of such Trustee consider such withholding to be in the interest of such
holders.
The Indentures will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the case of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of
Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Securities at the respective due dates or redemption dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is
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in conflict with any law or the applicable Indenture, which may involve such
Trustee in personal liability or which may be unduly prejudicial to the holders
of Debt Securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (a) change the stated maturity of the principal of, or any
installment of interest (or premium or Make-Whole Amount, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium or Make-Whole Amount payable on redemption of, any
such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon declaration of acceleration
of the maturity thereof or would be provable in bankruptcy, or adversely affect
any right of repayment of the holder of any such Debt Security; (c) change the
place of payment, or the coin or currency, for payment of principal of, premium
or Make-Whole Amount, if any, or interest on any such Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (e) reduce the above-stated percentage of
outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (a) to evidence the
succession of another person to the Company as obligor under such Indenture; (b)
to add to the covenants of the Company for the benefit of the holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Company in such Indenture; (c) to add events of default for the benefit of
the holders of all or any series of Debt Securities; (d) to add or change any
provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, provided that such action
shall not adversely affect the interests of the holders of the Debt Securities
of any series in any material respect; (e) to change or eliminate any provisions
of an Indenture, provided that any such change or elimination shall become
effective
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only when there are no Debt Securities outstanding of any series created prior
thereto which are entitled to the benefit of such provision; (f) to secure the
Debt Securities; (g) to establish the form or terms of Debt Securities of any
series, including the provisions and procedures, if applicable, for the
conversion of such Debt Securities into Common Stock or Preferred Stock; (h) to
provide for the acceptance of appointment by a successor Trustee or facilitate
the administration of the trusts under an Indenture by more than one Trustee;
(i) to cure any ambiguity, defect or inconsistency in an Indenture, provided
that such action shall not adversely affect the interests of holders of Debt
Securities of any series issued under such Indenture; or (j) to supplement any
of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided that such action shall not adversely affect the interests of the
holders of the outstanding Debt Securities of any series.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (b) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (a) above), (c) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant such
Indenture, and (d) Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of Debt Securities of a series. A meeting will be permitted to be
called at any time by the applicable Trustee, and also, upon request, by the
Company or the holders of at least 10% in principal amount of the outstanding
Debt Securities of such series, in any such case upon notice given as provided
in such Indenture. Except for any consent that must be given by the holder of
each Debt Security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of holders of
Debt Securities of any series duly held in accordance with an Indenture will be
binding on all holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the holders of not less than a specified percentage in principal amount
of the outstanding Debt Securities of a series, the persons holding or
representing such specified
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percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (a) there shall be no minimum
quorum requirement for such meeting, and (b) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be
permitted to be made on Subordinated Securities at any time if a default on
Senior Debt exists that permits the holders of such Senior Debt to accelerate
its maturity and the default is the subject of judicial proceedings or the
Company receives notice of the default. After all Senior Debt is paid in full
and until the Subordinated Securities are paid in full, holders will be
subrogated to the rights of holders of Senior Debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Debt. The Subordinated Indenture will not restrict the amount of Senior
Indebtedness or other indebtedness of the Company and its subsidiaries. As a
result of these subordination provisions, in the event of a distribution of
assets upon insolvency, holders of Subordinated Indebtedness may recover less,
ratably, than general creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or represented by purchase- money
obligations, (b) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (c) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (d) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (e) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (f) any binding
commitment
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of the Company to fund any real estate investment or to fund any investment in
any entity making such real estate investment, in each case other than (1) any
such indebtedness, obligation or liability referred to in clauses (a) through
(f) above as to which, in the instrument creating or evidencing the same
pursuant to which the same is outstanding, it is provided that such
indebtedness, obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks pari passu with the Subordinated Securities,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated, and (3) the
Subordinated Securities. There will not be any restrictions in any Indenture
relating to Subordinated Securities upon the creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities in respect of principal (and premium or Make-Whole Amount,
if any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the stated maturity or redemption date, as the
case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities, to hold moneys for payment in trust and, with
respect to Subordinated Debt Securities which are convertible or exchangeable,
the right to convert or exchange) ("defeasance") or (b) to be released from its
obligations with respect to such Debt Securities under the applicable Indenture
(being the restrictions described under "--Certain Covenants") or, if provided
in the applicable Prospectus Supplement, its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute an Event of Default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities, which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and
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premium or Make-Whole Amount, if any) and interest on such Debt Securities, and
any mandatory sinking fund or analogous payments thereon, on the scheduled due
dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium or Make-Whole Amount, if any) and interest.
"Government Obligations" means securities that are (a) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (b) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium or Make-Whole Amount, if any) and interest on such Debt Security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or
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within the European Communities or (iii) any currency unit or composite currency
other than the ECU for the purposes for which it was established. Unless
otherwise provided in the applicable Prospectus Supplement, all payments of
principal of (and premium or Make-Whole Amount, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any of Event of Default other than the Event of Default
described in clause (d) under "--Events of Default, Notice and Waiver" with
respect to specified sections of an Indenture (which sections would no longer be
applicable to such Debt Securities) or described in clause (g) under "-- Events
of Default, Notice and Waiver" with respect to any other covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such of Event of Default. However, the Company
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into shares of Common Stock or
Preferred Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with the Depository
Trust Company, as Depository. Global Securities may be issued in fully
registered form and may be issued in either temporary or permanent form. Unless
and until it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a whole
by the Depository for such Global Security to a nominee of such Depository or by
a nominee of such Depository to such Depository or another nominee of such
Depository or by such Depository or any nominee of such Depositor to a successor
Depository or any nominee of such successor.
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The specific terms of the depository arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depository arrangements.
The certificates representing the Notes will be issued in the form of one
or more fully registered Global Securities without coupons. It is expected that
the Notes initially will be represented by a single permanent global certificate
in definitive fully registered form (the "Global Note") and will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
the name of Cede & Co., as nominee of DTC. Except under the circumstances
described in the accompanying Prospectus under the caption "Description of Debt
Securities--Book-Entry System," the Notes will not be issuable in definitive
form. Unless and until it is exchanged in whole or in part for the individual
Notes represented thereby, interests in the Global Note may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee of DTC to a successor depository
or any nominee of such successor.
DTC has advised the Company of the following information regarding DTC: DTC
is a limited purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants" or "DTC's
Participants") and to facilitate the clearance and settlement of transactions in
such securities between Participants through electronic book-entry changes in
the accounts of its Participants. DTC's Participants include securities brokers
and dealers, banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants" or "DTC's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through DTC's Participants or DTC's Indirect Participants.
The Company expects that, pursuant to procedures established by DTC,
ownership of the Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of DTC's Participants), DTC's Participants
and DTC's Indirect Participants. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the Notes.
Holders are advised that the laws of some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Notes evidenced by Global Securities will
be limited to such extent.
So long as the holder of the Global Note is the registered owner of any
Notes, the holder of the Global Note will be considered the sole holder under
the Indenture of any Notes evidenced by the Global Note. Beneficial owners of
Notes evidenced by the Global Note will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any direction, instructions or approvals to the Trustee thereunder.
Accordingly, each person owning a beneficial interest in the Global Note must
rely on the procedures of DTC and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interests, to
exercise any rights of a holder under the Indenture. The Company understands
that, under existing industry practice, if it requests any action of holders or
if an owner of a beneficial interest in the
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Global Note desires to give or take any action which a holder is entitled to
give or take under the Indenture, DTC would authorize the Participants holding
the relevant beneficial interest to give or take such action, and such
Participants would authorize beneficial owners through such Participants to give
or take such actions or would otherwise act upon the instructions of beneficial
owners holding through them.
Payments in respect of the principal of, premium, if any, and interest on,
any Notes registered in the name of the holder of the Global Note on the
applicable record date will be payable by the Trustee to or at the direction of
the holder of the Global Note in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes (including principal, premium, if any, and interest). The Company
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of DTC. Payments by DTC's
Participants and DTC's Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practice and will be the
responsibility of DTC's Participants for DTC's Indirect Participants.
Neither the Company nor the Trustee will be liable for any delay by the
holder of the Global Note or DTC in identifying the beneficial owners of Notes
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes. The rules applicable to DTC and its Participants are on file with the
Securities and Exchange Commission. See "Description of Debt
Securities--Book-Entry System" in the accompanying Prospectus for further
information concerning Notes issued in the form of Global Securities.
If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, determine not to have any of such Debt Securities represented by one
or more Global Securities and in such event will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiple thereof.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
on any series of Debt Securities will be payable at the corporate trust office
of the Trustee, the address of which will be stated in the applicable Prospectus
Supplement; provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such Debt Securities or by wire transfer
of funds to such person at an account maintained within the United States.
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All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium, Make-Whole Amount or interest on any
Debt Security which remain unclaimed at the end of two years after such
principal, premium, Make-Whole Amount or interest has become due and payable
will be repaid to the Company, and the holder of such Debt Security thereafter
may look only to the Company for payment thereof.
DESCRIPTION OF WARRANTS
The Company has no Warrants or other stock purchase rights outstanding.
The Company may issue Warrants for the purchase of Preferred Stock or Common
Stock. Warrants may be issued independently, together with any other Securities
offered by any Prospectus Supplement or through a dividend or other distribution
to the Company's stockholders and may be attached to or separate from such
Securities. Warrants may be issued under a warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent specified
in the applicable Prospectus Supplement (the "Warrant Agent"). The Warrant
Agent will act solely as an agent of the Company in connection with the Warrants
of a particular series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Warrants. The
following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (a) the title of such Warrants; (b) the
aggregate number of such Warrants; (c) the price or prices at which such
Warrants will be issued; (d) the designation, number and terms of the shares of
Preferred Stock or Common Stock purchasable upon exercise of such Warrants; (e)
the designation and terms of the other Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Security; (f) the date, if any, on and after which such Warrants and the related
Preferred Stock or Common Stock, if any, will be separately transferable; (g)
the price at which each share of Preferred Stock or Common Stock purchasable
upon exercise of such Warrants may be purchased; (h) the date on which the right
to exercise such Warrants shall commence and the date on which such right shall
expire; (i) the minimum or maximum amount of such Warrants which may be
exercised at any one time; (j) information with respect to book-entry
procedures, if any; (k) a discussion of certain federal income tax
considerations; and (l) any other terms of such Warrants, including terms,
procedures and limitations relating to the transferability, exchange and
exercise of such Warrants.
EXPERTS
The financial statements incorporated by reference in this Prospectus have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report incorporated herein by
reference, and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
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<PAGE>
LEGAL MATTERS
The validity of the Securities registered hereby will be passed upon for
the Company by O'Melveny & Myers LLP, San Francisco, California. In addition,
the description of federal income tax consequences contained in this Prospectus
entitled "Federal Income Tax Considerations" is based upon the opinion of
O'Melveny & Myers LLP.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by the
Company in connection with the registration of the Securities. All amounts are
estimates except the SEC registration fee.
<TABLE>
<CAPTION>
Amount to Be Paid
-----------------
<S> <C>
SEC Registration fee........................ $ 88,500
NASD filing fee............................. $ 30,500
American Stock Exchange listing fees........ $ 17,500
Printing and engraving...................... $ 50,000
Legal fees and expenses of the Company...... $ 75,000
Accounting fees and expenses................ $ 50,000
Transfer Agent and Registrar fees........... $ 2,500
Miscellaneous............................... $ 50,000
--------
Total..................................... $364,000
--------
--------
</TABLE>
ITEM 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Maryland General Corporation Law (the "MGCL") empowers
the Company to indemnify, subject to the standards set forth therein, any person
who is a party in any action in connection with any action, suit or proceeding
brought or threatened by reason of the fact that the person was a director,
officer, employee or agent of such company, or is or was serving as such with
respect to another entity at the request of such company. The MGCL also
provides that the Company may purchase insurance on behalf of any such director,
officer, employee or agent.
The Company's Charter provides for indemnification of the officers and
directors of the Company substantially identical in scope to that permitted
under Section 2-418 of the MGCL. The Bylaws of the Company also provide that
the expenses of officers and directors incurred in defending any action, suit or
proceeding, whether civil, criminal, administrative or investigative, must be
paid by the Company as they are incurred and in advance of the final disposition
of the action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay all amounts so advanced if it is
ultimately determined by a court of competent jurisdiction that the officer or
director is not entitled to be indemnified by the Company.
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<PAGE>
The Company has agreed to indemnify its directors and officers to the
fullest extent permitted by applicable provisions of the MGCL, provided that any
settlement of a third party action against a director or officer is approved by
the Company, and subject to limitations for actions initiated by the director or
officer, penalties paid by insurance, and violations of Section 16(b) of the
Securities Exchange Act of 1934, as amended, and similar laws.
The Company's Charter limits the liability of the Company's directors and
officers for money damages to the Company and its shareholders to the fullest
extent permitted from time to time by Maryland law. Maryland law presently
permits the liability of directors and officers to a corporation or its
shareholders for money damages to be limited, except (i) to the extent that it
is proved that the director or officer actually received an improper benefit or
profit or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its shareholders to obtain other
relief, such as an injunction or rescission.
Insofar as indemnification for liabilities arising out of the Securities
Act of 1933 may be permitted to directors officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the act an will
be governed by the final adjudication of such issue.
ITEM 16 EXHIBITS.
The following exhibits are part of this Registration Statement on Form S-3
and are numbered in accordance with Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
4.1* Form of Senior Indenture.
4.2* Form of Subordinated Indenture.
5.1 Opinion of O'Melveny & Myers LLP as to legality of the shares
being registered.
8.1 Opinion of O'Melveny & Myers LLP as to certain federal income tax
matters.
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<PAGE>
23.1 Consent of BDO Seidman LLP.
23.2 Consent of O'Melveny & Myers LLP (included within the opinions
filed as Exhibits 5.1 and 8.1).
24.1 Powers of Attorney.
25.1* Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939.
</TABLE>
- ------------
* To be filed by amendment or incorporated by reference herein by a Current
Report on Form 8-K in connection with the offering of the applicable Securities.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
insofar as the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the
67
<PAGE>
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(5) To file an application for the purpose of determining the eligibility
of the Trustee to act under subsection (a) of Section 310 of the Trust Indenture
Act ("Act") in accordance with the rules and regulations prescribed by the
Commission under section 305(b)(2) of the Act.
(6) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance under Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4), or 497
(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registrations statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The Registrant undertakes that insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the provisions described
under Item 15 of this registration statement, or otherwise (other than
insurance), the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
68
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Charleston, State of South Carolina, on June 5, 1998.
GOLF TRUST OF AMERICA, INC.
By: /s/ W. Bradley Blair, II
---------------------------------------
W. Bradley Blair, II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ W. Bradley Blair, II
- ------------------------ President, Chief June 5, 1998
W. Bradley Blair, II Executive Officer
and Chairman of the
Board of Directors
/s/ David J. Dick
- ------------------------ Executive Vice June 5, 1998
David J. Dick President and
Director
/s/ Scott D. Peters
- ------------------------ Senior Vice June 5, 1998
Scott D. Peters President and Chief
Financial Officer
/s/ Larry D. Young
- ------------------------ Director June 5, 1998
Larry D. Young
/s/ Roy C. Chapman
- ------------------------ Director June 5, 1998
Roy C. Chapman
/s/ Raymond V. Jones
- ------------------------ Director June 5, 1998
Raymond V. Jones
/s/ Fred W. Reams
- ------------------------ Director June 5, 1998
Fred W. Reams
/s/ Edward L. Wax
- ------------------------ Director June 5, 1998
Edward L. Wax
69
<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>
1.1* Form of Underwriting Agreement
4.1* Form of Senior Indenture.
4.2* Form of Subordinated Indenture.
5.1 Opinion of O'Melveny & Myers LLP as to legality of the shares
being registered.
8.1 Opinion of O'Melveny & Myers LLP as to certain federal income tax
matters.
23.1 Consent of BDO Seidman LLP.
23.2 Consent of O'Melveny & Myers LLP (included within the opinions
filed as Exhibits 5.1 and 8.1).
24.1 Powers of Attorney.
25.1* Form T-1, Statement of Eligibility under the Trust Indenture
Act of 1939.
</TABLE>
- ------------
* To be filed by amendment or incorporated by reference herein by a Current
Report on Form 8-K in connection with the offering of the applicable Securities.
70
<PAGE>
OPINION OF O'MELVENY & MYERS LLP EXHIBIT 5.1
[O'MELVENY & MYERS LLP LETTERHEAD]
June
5th
1 9 9 8
Golf Trust of America, Inc.
14 North Adger's Wharf
Charleston, SC 29401
Re: Legality of Securities to be Registered Under
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Golf Trust of
America, Inc., a Maryland corporation (the "Company"), in connection with the
Company's registration statement on Form S-3 (the "Registration Statement") to
be filed on June 8, 1998 with the Securities and Exchange Commission pursuant to
Rule 415 under the Securities Act of 1933 (the "Securities Act"), relating to an
indeterminate amount of Debt Securities, Preferred Stock, Common Stock and
Warrants (as such terms are defined in the Registration Statement) authorized
for issuance under the Company's Articles of Amendment and Restatement (the
"Charter"), with an aggregate public offering price of up to $300,000,000
(collectively, the "Securities"). The Registration Statement provides that the
Securities may be offered separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more prospectus
supplements (each a "Prospectus Supplement") to the Prospectus contained in the
Registration Statement.
In connection with rendering this opinion, we have examined the Charter of
the Company, as amended to the date hereof and on file with the Maryland State
Department of Assessments and Taxation; the Bylaws of the Company, as amended;
such records of corporate proceedings of the Company as we deem appropriate for
the purposes of this opinion; and the Registration Statement and the exhibits
thereto.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America and the Maryland General
Corporation Law.
1
<PAGE>
Based upon the foregoing, we are of the opinion that, when specifically
authorized for issuance by the Company's Board of Directors or an authorized
committee thereof (the "Authorizing Resolution") and when issued as described in
the Registration Statement and a Prospectus Supplement that is consistent with
the Authorizing Resolution, and upon receipt by the Company of the consideration
provided for in the Authorizing Resolution (which consideration is not less than
the $.01 par value per share in the case of Common Shares or Preferred Shares),
the Securities will be legally issued, fully paid and nonassessable, and in the
case of Debt Securities and Warrants, binding obligations of the Company.
The foregoing assumes that all requisite steps will be taken to comply with
the requirements of the Securities Act and applicable requirements of state laws
regulating the offer and sale of securities.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ O'Melveny & Myers LLP
2
<PAGE>
EXHIBIT 8.1
OPINION OF O'MELVENY & MYERS LLP AS TO TAX MATTERS
[O'MELVENY & MYERS LLP LETTERHEAD]
June 5, 1998
Golf Trust of America, Inc.
14 North Adger's Wharf
Charleston, South Carolina 29401
Ladies and Gentlemen:
We have acted as counsel to Golf Trust of America, Inc., a Maryland
corporation (the "Company"), in connection with the preparation of a Form S-3
registration statement (the "Registration Statement") to be filed with the
Securities and Exchange Commission ("SEC") on June 8, 1998, dated the date
hereof, with respect to the offering and sale (the "Offering") of shares of
common and preferred stock of the Company, par value $.01 per share, warrants
to purchase such stock, and unsecured debt securities, with an aggregate
public offering price of up to $300,000,000 (collectively, the "Securities").
You have requested our opinion regarding certain U.S. Federal income tax
matters in connection with the Offering.
In giving the opinions set forth herein, we have examined the
following: (i) the Company's Articles of Incorporation and Articles of
Amendment and Restatement and By-laws; (ii) the Articles of Incorporation and
By-Laws of the Company's wholly-owned subsidiaries; (iii) the First Amended
and Restated Agreement of Limited Partnership dated February 12, 1997, (the
"Operating Partnership Agreement") of Golf Trust of America, L.P. (the
"Operating Partnership"), in which one of the Company's subsidiaries is a
general partner and the other, a limited partner; (iv) the leases between the
Operating Partnership and the lessees of various golf courses owned by the
Operating Partnership; (v) the participating mortgage loan relating to one of
the golf courses, and (vi) such other documents as we have deemed necessary
or appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed,
with your consent, that:
<PAGE>
Golf Trust of America, Inc.
June 5, 1998
Page 2
1. each of the documents referred to above has been duly
authorized, executed, and delivered; is authentic, if an original, or is
accurate, if a copy; and has not been amended except as is set forth above;
2. during its short taxable year ending December 31, 1997 and
subsequent taxable years, the Company will operate in such a manner that will
make the representations contained in a certificate, dated the date hereof
and executed by a duly appointed officer of the Company (the "Officer's
Certificate"), true for such years;
3. the Company will not make any amendments to its organizational
documents or the Operating Partnership Agreement after the date of this
opinion that would affect its qualification as a real estate investment trust
(a "REIT") for any taxable year;
4. each partner (each, a "Partner") of the Operating Partnership
that is a corporation or other entity has a valid legal existence;
5. each Partner has full power, authority, and legal right to
enter into and to perform the terms of the Operating Partnership Agreement
and the transactions contemplated thereby; and
6. no action will be taken by the Company, the Operating
Partnership or the Partners after the date hereof that would have the effect
of altering the facts upon which the opinions set forth below are based.
In connection with the opinions rendered below, we also have relied
upon the correctness of the representations contained in the Officer's
Certificate and we have no reason to believe such reliance is not reasonable.
For purposes of our opinions, we made no independent investigation of the
facts contained in the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, or the Registration
Statement. Consequently, we have relied on the Company's representations that
the information presented in such documents, or otherwise furnished to us,
accurately and completely describes all material facts relevant to our
opinions. No facts have come to our attention, however, that would cause us
to question the accuracy and completeness of such facts or documents in a
material way.
Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, and the discussion in
the Registration Statement under the caption "Federal Income Tax
Considerations" (which is incorporated herein by reference), we are of the
opinion that:
<PAGE>
Golf Trust of America, Inc.
June 5, 1998
Page 3
(a) The Company has qualified as a REIT for its taxable year ending
December 31, 1997, and the Company's organization and method of operation
will enable it to continue to qualify in the future to be taxed as a REIT
pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended (the "Code");
(b) the descriptions of the law and the legal conclusions contained
in the Registration Statement under the caption "Federal Income Tax
Considerations" are correct in all material respects, and the discussion
thereunder fairly summarizes the federal income tax considerations that are
likely to be material to a holder of the Common Stock; and
(c) the Operating Partnership will be treated for federal income tax
purposes as a partnership and not as a corporation or association taxable
as a corporation or as a publicly traded partnership.
We will not review on a continuing basis the Company's compliance with
the documents or assumptions set forth above, or the representations set forth
in the Officer's Certificate. Accordingly, no assurance can be given that the
actual results of the Company's operations for its 1997 and subsequent taxable
years will satisfy the requirements for qualification and taxation as a REIT.
The foregoing opinions are based on current provisions of the Code and
the Treasury regulations thereunder (the "Regulations"), published
administrative interpretations thereof, and published court decisions. The
Internal Revenue Service has not issued Regulations or administrative
interpretations with respect to various provisions of the Code relating to REIT
qualification. No assurance can be given that the law will not change in a way
that will prevent the Company from qualifying as a REIT.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to O'Melveny & Myers
under the caption "Federal Income Tax Considerations" in the Registration
Statement. In giving this consent, we do not admit that we are in the category
of persons whose consent is required by Section 7 of the 1933 Act or the rules
and regulations promulgated thereunder by the SEC.
The foregoing opinions are limited to the U.S. federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
other country, or any state or
<PAGE>
Golf Trust of America, Inc.
June 5, 1998
Page 4
locality. We undertake no obligation to update the opinions expressed herein
after the date of this letter. This opinion letter is solely for the
information and use of the addressees and their respective counsel, and it
may not be distributed, relied upon for any purpose by any other person,
quoted in whole or in part or otherwise reproduced in any document, or filed
with any governmental agency without our express written consent.
Respectfully submitted,
/s/ O'Melveny & Myers LLP
<PAGE>
CONSENT OF INDEPENDENT EXHIBIT 23.1
CERTIFIED PUBLIC ACCOUNTANTS
Golf Trust of America, Inc.
Charleston, South Carolina
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 9,
1998, relating to the consolidated financial statements of Golf Trust of
America, Inc. appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Charlotte, North Carolina
June 5, 1998
3
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Each of the undersigned officers and directors of Golf Trust of America,
Inc. (the "Company"), hereby constitutes and appoint W. Bradley Blair, II and
David J. Dick, and each of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the initial filing
of the Company's registration statement on form S-3 any and all amendments to
thereto, including post-effective amendments, to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby, ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
_________________________ President, Chief June 5, 1998
W. Bradley Blair, II Executive Officer
and Chairman of the
Board of Directors
_________________________ Executive Vice June 5, 1998
David J. Dick President and
Director
_________________________ Senior Vice June 5, 1998
Scott D. Peters President and Chief
Financial Officer
_________________________ Director June 5, 1998
Larry D. Young
_________________________ Director June 5, 1998
Roy C. Chapman
_________________________ Director June 5, 1998
Raymond V. Jones
_________________________ Director June 5, 1998
Fred W. Reams
_________________________ Director June 5, 1998
Edward L. Wax
4
