<PAGE>
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(5)
(TO PROSPECTUS DATED JUNE 5, 1998) Registration No. 333-56251
800,000 SHARES
GOLF TRUST OF AMERICA, INC.
[LOGO]
9.25% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
We are Golf Trust of America, Inc., a self-administered real estate
investment trust that invests in upscale golf courses in a number of markets
across the United States. We are offering to the public 800,000 shares of our
Series A Preferred Stock. The terms of our Series A Preferred Stock can be
summarized as follows:
- - A holder of Series A Preferred Stock may convert his or her Series A
Preferred Shares at any time (in whole or in part) into the number of
shares of our Common Stock determined by dividing $25.00 (plus any
dividends accrued but unpaid in respect of prior dividend periods) by
the conversion price of the Series A Preferred Stock, which initially
is $26.25 and is subject to standard anti-dilution adjustments. (At the
time of issuance, this formula produces a conversion rate of
approximately 0.95238 Common Shares for each Series A Preferred Share).
- - Dividends will accrue quarterly on each Series A Preferred Share in an
amount equal to the greater of (a) $0.578125 per quarter (or $2.3125
per annum which is 9.25% of the $25.00 price to public) or (b) the cash
dividend payable on the number of Common Shares into which one Series A
Preferred Share may be converted.
- - Dividends will accrue on the Series A Preferred Stock from the date of
original issuance and will be payable quarterly in arrears, to the
extent declared by our Board of Directors.
- - The initial dividend payable on July 15, 1999 will include a partial
dividend prorated for the period commencing on date we first issue
Series A Preferred Stock and ending on June 30, 1999.
- - Unless and until we have declared and paid full cumulative dividends on
the Series A Preferred Stock (including all accrued but unpaid
dividends) we are not allowed to make any dividend or other
distribution of cash or property to the holders of our Common Stock.
- - We are not allowed to redeem (I.E., buy-back) the Series A Preferred
Stock before April 2, 2004, except in certain limited circumstances to
preserve our status as a real estate investment trust.
- - On or after April 2, 2004, at our option, we may redeem the Series A
Preferred Stock in whole but not in part from its holders by paying
each holder $25.00 per share, plus any accrued but unpaid dividends
through the date of redemption, plus a premium initially equal to 4% of
such redemption payment and thereafter declining by 1% each year (such
that no redemption premium will be payable on or after April 2, 2008).
- - Holders of the Series A Preferred Stock have only limited voting
rights.
The Series A Preferred Stock will not initially be listed on any stock
exchange or national market. Our Common Stock is traded on the American Stock
Exchange under the symbol "GTA."
INVESTING IN THE SERIES A PREFERRED STOCK INVOLVES A NUMBER OF RISKS.
SEE "ADDITIONAL RISK FACTORS," BEGINNING ON PAGE S-9 OF THIS PROSPECTUS
SUPPLEMENT, AND "RISK FACTORS," BEGINNING ON PAGE 2 OF THE ACCOMPANYING
PROSPECTUS.
We are offering the Series A Preferred Shares directly to investors
(not through any underwriter). BancBoston Robertson Stephens, as Placement
Agent, introduced certain prospective purchasers to us. The Placement Agent
makes no representation as to the truthfulness or accuracy of any information
set forth herein. The Placement Agent will be paid a finder's fee by the Company
for its services as described in the following chart:
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PER SHARE TOTAL
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Price to Public........................................... $ 25.00 $ 20,000,000
Placement Agent's Fee .................................... $ 0.625 $ 500,000
Company Proceeds*......................................... $ 24.375 $ 19,500,000
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* Before deducting expenses payable by us, estimated at $300,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BANCBOSTON ROBERTSON STEPHENS
PLACEMENT AGENT
PROSPECTUS SUPPLEMENT DATED APRIL 2, 1999
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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Prospectus Supplement Summary .............................................................................. S-3
Additional Risk Factors .................................................................................... S-9
Portfolio Acquisition Risks ........................................................................... S-9
Market Conditions and the Cost of Financing New Acquisitions
May Limit Our Growth Rate ........................................................................ S-9
Risks Associated With Entering New Market Areas ....................................................... S-9
Absence of a Public Market for the Series A Preferred Stock ........................................... S-10
Common Share Price Fluctuations......................................................................... S-10
Risk that our Assets May Be Deemed to be Plan Assets under ERISA ...................................... S-10
Risk that Series A Preferred Stock may be an Inappropriate Investment for ERISA Plans................... S-11
Note Regarding Forward-Looking Statements .................................................................. S-11
The Company ................................................................................................ S-12
Business Strategies and Objectives ......................................................................... S-14
Recent Developments ........................................................................................ S-17
Use of Proceeds ............................................................................................ S-19
Capitalization ............................................................................................. S-20
The Golf Courses ........................................................................................... S-21
Description of the Series A Preferred Stock ................................................................ S-22
Certain Federal Income Tax Considerations .................................................................. S-23
ERISA Considerations ....................................................................................... S-24
Registration Rights ........................................................................................ S-26
Supplemental Plan of Distribution .......................................................................... S-27
Appendix A: Form of Articles Supplementary.................................................................. A-1
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PROSPECTUS
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Available Information........................................................................................ i
Incorporation of Certain Information by Reference............................................................ i
The Company.................................................................................................. 1
Risk Factors................................................................................................. 2
Use of Proceeds.............................................................................................. 15
Selling Shareholders......................................................................................... 15
Federal Income Tax Considerations............................................................................ 16
Plan of Distribution......................................................................................... 31
Description of Capital Stock................................................................................. 33
Description of Debt Securities............................................................................... 42
Description of Warrants...................................................................................... 58
Experts .................................................................................................... 59
Legal Matters................................................................................................ 59
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PROSPECTUS SUPPLEMENT SUMMARY
THIS SUMMARY HIGHLIGHTS THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. TO MORE FULLY UNDERSTAND THE COMPANY AND THIS
OFFERING, AND BEFORE DECIDING WHETHER TO INVEST IN THE SERIES A PREFERRED
STOCK, YOU SHOULD READ THE ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY, AS WELL AS OUR ANNUAL AND QUARTERLY REPORTS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, WHICH ARE AVAILABLE FROM THE COMPANY
UPON REQUEST.
THE COMPANY
We are Golf Trust of America, Inc., a self administered real estate
investment trust or REIT which invests in upscale golf courses in a number of
markets across the United States. We currently hold a participating interest
in 45 golf courses, 41 of which are owned by us and four of which serve as
collateral for a participating mortgage which we originated. Our golf courses
are located in Florida (14), South Carolina (7), Illinois (4), Ohio (3),
Georgia (2), Virginia (2), California (2), Michigan (2), Nebraska (1.5),
Texas (1.5), Alabama, Kansas, Kentucky, North Carolina, Missouri, and New
Mexico. (Throughout this Prospectus, golf course quantities are stated in
terms of 18-hole equivalents, such that one 27-hole facility would be counted
as 1.5 golf courses.)
Our primary goals are to increase cash available for distribution per
share and to enhance stockholder value by becoming a leading owner of, and
participating in increased revenues from, nationally or regionally recognized
golf courses. Our main strategies for such growth are to:
- - acquire interests in additional golf courses or portfolios of golf
courses that meet our investment criteria; and
- - participate in the internal growth and increased revenues of our golf
courses.
Because of the tax rules applicable to REITs, we cannot operate our
golf courses. Thus, when we acquire a golf course, we lease it back to an
affiliate of the seller or to another qualified operator. In most cases we
prefer to lease the golf course back to an affiliate of the seller since we
believe that the seller's familiarity with local conditions and the
continuity of management facilitates the course's growth and profitability
(which we participate in under certain conditions). However, we also have
developed strong relationships with multi-course operators who lease a number
of our golf courses.
We hold our golf courses (and conduct other operations) through an
operating partnership which we control, Golf Trust of America, L.P. This
structure enables us to offer to purchase a golf course in a transaction that
may be tax deferred for the seller. That is, we can offer to purchase a golf
course for cash, assumption of indebtedness and/or for units of limited
partnership interest in the Operating Partnership. The receipt of such
Operating Partnership units ("OP Units") by the seller is generally not a
taxable event for the seller. The seller can later redeem his OP Units for
cash, based on the current market price of our Common Stock (though we may
elect to deliver Common Stock instead of cash). The seller generally will not
recognize any taxable gain (or loss) on the sale of his golf course until he
decides to redeem his OP Units.
We believe that we have a distinct competitive advantage in the
acquisition of upscale golf courses because: (i) we utilize the multiple
independent lessee structure described above; (ii) our management has
substantial knowledge of, experience in and relationships within, the golf
industry; (iii)
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we have strategic alliances with prominent golf course operators; and (iv) our
corporate structure enables us to acquire golf courses in transactions that are
tax deferred for the seller.
Our golf course leases are all participating leases which provide for
lease payments of base rent (a fixed amount of rent) and participating rent
(an amount of additional rent directly related to the amount of revenue at
the golf course).
We also originated a participating mortgage secured by four golf
courses not owned by us. The participating mortgage is structured much like
our typical participating lease. That is, the participating mortgage provides
for interest payments of base interest (a fixed amount of interest) and
participating interest (an amount of interest which is directly related to
the amount of revenue at the encumbered golf course). The participating
mortgage gives us the right to buy the encumbered golf courses upon the
expiration of the term of the mortgage. We may use the participating mortgage
structure again to invest in attractive golf courses in circumstances where
state tax laws would make our standard sale-leaseback transaction
prohibitively expensive.
We elected to be taxed as a REIT for federal income tax purposes for
the year ended December 31, 1997 and have not revoked that election. If we
continue to comply with certain REIT requirements under the Internal Revenue
Code, then we will generally not be required to pay federal income tax at the
corporate level.
We were incorporated under the laws of the State of Maryland in
November 1996. Our principal executive offices are located at 14 North
Adger's Wharf, Charleston, South Carolina 29401, and our telephone number is
(843) 723-GOLF (4653). We maintain an internet site at www.golftrust.com.
Neither the information contained in our website nor the information
contained in the websites linked to our website are a part of this Prospectus
Supplement or the accompanying Prospectus.
RECENT DEVELOPMENTS
OPERATING RESULTS.
DISTRIBUTIONS. We declared distributions to stockholders of $1.72 for
the year ended December 31, 1998, reducing our payout ratio from 89% of FFO
for 1997 to 75% of FFO for 1998.
FUNDS FROM OPERATIONS. Our Funds from Operations, or FFO, for the year
ended December 31, 1998 were $29.8 million, or $2.28 per share, a 23%
increase from $16.4 million, or $1.85 per share in the prior year. We believe
that FFO is an accurate assessment of our operating performance because FFO
measures our ability to incur and service debt and to make capital
expenditures.
RENT AND INTEREST. For the year ended December 31, 1998, rent and
interest revenues increased 117% to $44.4 million from $20.5 million for the
prior year.
All FFO per share amounts reported include Common Stock and Common
Stock equivalents (diluted) as well as OP Units convertible into Common
Stock. We calculate FFO in accordance with the resolution adopted by the
Board of Governors of NAREIT, the National Association of Real Estate
Investment Trusts, Inc. The NAREIT resolution provides that FFO represents
net income (or loss), computed in accordance with generally accepted
accounting principles ("GAAP"), excluding gains (or losses) from debt
restructurings and sales of property, PLUS depreciation of real property, and
after adjustments for unconsolidated partnerships and joint ventures. FFO
should not be considered as an alternative to net income or any other
measurements under GAAP as an indicator of operating performance, or an
alternative to net cash flows from operating activities as a measure of
liquidity. FFO does
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not reflect working capital changes, cash expenditures for capital improvements
or principal payments of indebtedness. Information for the year ended December
31, 1997 is based on the actual results of operations from the commencement of
the Company's operations on February 12, 1997 through December 31, 1997, and PRO
FORMA results of operations for January 1, 1997 through February 11, 1997.
THE OFFERING
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Securities Offered...................... 800,000 shares of our 9.25% Series A Cumulative Convertible
Preferred Stock.
Price Per Share......................... $25.00
Dividends............................... Dividends on the Series A Preferred Shares are cumulative from the
date of original issue and are payable quarterly in arrears on the
15th day of January, April, July and October, commencing on July
15, 1999, to the extent declared by the Board of Directors. Such
dividends will be in an amount per share equal to the greater of:
- $0.578125 per quarter (or $2.3125 per annum), equal to an
annual rate of 9.25% of the $25.00 price per share; or
- the cash dividend (exclusive of non-regular dividends) paid
or payable on the number of Common Shares into which a
Series A Preferred Share is then convertible (determined
on each of the quarterly dividend payment dates
referred to above).
The initial dividend will be prorated based on the number of
days between issuance of the shares and June 30, 1999, the
final day of the fiscal quarter.
Conversion.............................. The Series A Preferred Stock is convertible at the option of the
holder at any time into a number of shares of Common Stock
determined by dividing $25.00 (plus any dividends accrued but
unpaid in respect of prior dividend periods) by the conversion
price of the Series A Preferred Stock, which initially is $26.25
and is subject to standard anti-dilution adjustments. At the time
of issuance, this formula produces a conversion rate of
approximately 0.95238 Common Shares for each Series A Preferred
Share.
Liquidation Preference.................. Upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, a holder of Series A Preferred
Stock will be entitled to receive the greater of:
- a liquidation preference of $25.00 plus all accrued but
unpaid dividends; or
- the amount that he or she would have received as the
holder of the underlying Common Shares if the Series A
Preferred Shares had been converted into Common Shares
immediately prior to the liquidation dissolution or
winding up.
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Redemption at the Option of the
Company................................. Except in certain circumstances relating to the preservation of our
status as a REIT (see "Description of Capital Stock--Restrictions on
Ownership" in the accompanying Prospectus), the Series A Preferred
Shares are not redeemable by the Company prior to April 2, 2004.
On and after such date, the Series A Preferred Shares will be
redeemable, in whole but not in part, at the option of the Company
on 30 days' notice for a cash payment equal to the $25.00, plus
accrued and unpaid dividends (whether or not declared) to the
redemption date without interest, plus a premium initially equal to
4% of such sum and thereafter declining by 1% each year so no
redemption premium is payable on or after April 2, 2008.
Redemption at the Option of the
Holder.................................. Upon either (a) a change of control (as defined in the Articles
Supplementary) or (b) a sale, transfer or capital lease of all or
substantially all of the assets of the Company, each record holder
of Series A Preferred Shares will have the right, but not the
obligation, to elect to cause the Company to redeem all of such
holder's Series A Preferred Shares for $25.00, plus accrued and
unpaid dividends (whether or not declared) to the redemption date
without interest.
Ranking................................. With respect to the payment of dividends and amounts upon
liquidation, the Series A Preferred Shares will rank senior to the
Common Shares, which are the only equity shares of the Company
currently outstanding. The Company has the right to issue
preferred shares that rank junior to, or in parity to, the Series A
Preferred Shares as to the payment of dividends or amounts upon
liquidation, dissolution and winding up without the consent of any
holder of Series A Preferred Stock. With the approval of 100% of
the Series A Preferred Shares, the Company may issue shares that
rank senior to the Series A Preferred Shares as to the payment of
dividends or amounts upon liquidation, dissolution and winding up.
Maturity................................ The Series A Preferred Shares have no stated maturity and will not
be entitled to the benefits of any sinking fund or subject to any
obligation on the Company to redeem or retire the Series A
Preferred Shares.
Trading................................. We do not intend to list the Series A Preferred Shares on any
securities exchange or market (except as may be required under the
Registration Rights Agreement) . Accordingly, it is unlikely that
any trading market for the Series A Preferred Shares will develop.
The Common Shares, into which the Series A Preferred Shares are
convertible, are listed on the American Stock Exchange under the
symbol "GTA."
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Voting Rights........................... As a holder of Series A Preferred Shares, you will generally have
no voting rights except as required by law. However, if we fail to
pay dividends on any shares of Series A Preferred Stock for six or
more quarterly periods, the number of directors of Golf Trust will
increase by two. As a holder of Series A Preferred Stock, you will
be entitled to vote, separately as a class with the holders of all
other series of preferred stock upon which like voting rights have
been conferred and are exercisable, for the election of such two
additional directors until we have fully paid all dividends on the
Series A Preferred Shares. In addition, before we can issue any
shares that rank senior to the Series A Preferred Stock, we need
the approval of holders of 100% of the Series A Preferred Stock.
Similarly, we need the approval of two-thirds of the holders of the
Series A Preferred Stock before we may engage in any capital
transaction or financing if, PRO FORMA after giving effect thereto,
the Company's ratio of cash flow to fixed charges for each of the
four most recent fiscal quarters would be less than 1.75 to 1.
Finally, we are not allowed to alter the terms of certain of our
organizational documents in a way that would be adverse to the
Series A Preferred Shares without the approval of two-thirds of the
Series A Preferred Shares. However, under this rule, neither of
the following changes is considered adverse: (a) the creation of
further parity stock or junior stock; or (b) any change in
connection with a merger so long as we are the surviving company or
all outstanding Series A Preferred Shares are exchanged for shares
in the surviving corporation with substantially identical rights.
Transfer and Ownership Limitations....... Subject to certain exceptions, no person, directly or indirectly,
may own more than 9.8% of (i) the number of outstanding Common
Shares or (ii) the number of outstanding Series A Preferred Shares.
Use of Proceeds......................... We will contribute all of the net proceeds from this Offering to
our Operating Partnership in exchange for 800,000 units of 9.25%
Series A Cumulative Convertible Preferred Limited Partnership
Interest in the Partnership (the "Series A Preferred Units") having
distribution, liquidation, redemption and other features identical
to the terms of the Series A Preferred Shares. The Operating
Partnership intends to use all of the net proceeds of the Offering
to repay outstanding indebtedness under its credit facility and for
working capital. See "Use of Proceeds."
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RISK FACTORS............................ YOU SHOULD READ THE "ADDITIONAL RISK FACTORS" SECTION, BEGINNING ON
PAGE S-9, AND THE "RISK FACTORS" SECTION, BEGINNING ON PAGE 2 OF
THE ACCOMPANYING PROSPECTUS, AS WELL AS THE OTHER CAUTIONARY
STATEMENTS THROUGHOUT THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, TO ENSURE THAT YOU UNDERSTAND THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SERIES A PREFERRED STOCK.
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RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth our consolidated ratios of earnings to
combined fixed charges and preferred stock dividends for the periods shown:
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FEBRUARY
12, 1997
YEAR ENDED TO
DECEMBER DECEMBER
31, 1998 31, 1997
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Ratio ................................................ 2.73x 6.45x
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Our consolidated ratios of earnings to combined fixed charges and
preferred stock dividends were computed by dividing our earnings in the
applicable year by our combined fixed charges and preferred stock dividends
for the corresponding year. For the purposes of these calculations, our
earnings consist of pre-tax income from continuing operations plus fixed
charges less capitalized interest. In addition, for the purposes of these
calculations, our fixed charges consist of interest expense, capitalized
interest and amortized of debt issuance costs.
Prior to the date of this Offering, we have not issued any preferred
shares.
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ADDITIONAL RISK FACTORS
INVESTING IN THE SERIES A PREFERRED STOCK INVOLVES A NUMBER OF RISKS.
IN ADDITION TO THE RISKS DESCRIBED UNDER "RISK FACTORS," BEGINNING ON PAGE 2 OF
THE ACCOMPANYING PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING INFORMATION IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED, OR
INCORPORATED BY REFERENCE, IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE SHARES OF SERIES A PREFERRED
STOCK.
MARKET CONDITIONS AND THE COST OF FINANCING NEW ACQUISITIONS MAY LIMIT OUR
GROWTH RATE
The cost of equity and debt financing for new acquisitions has recently
been increasing. The increased cost of financing, combined with increases in the
sales prices of existing golf courses results in a lower profit margin on new
acquisitions. While these market conditions continue, we expect that we may
acquire fewer golf courses. If the current market conditions persist for an
extended period of time, our current earnings growth rates may decline. As a
result, we could experience a material adverse effect on our ability to pay
distributions to our stockholders and on the market prices of our equity
securities.
RISKS ASSOCIATED WITH ENTERING NEW MARKET AREAS
Although our historical industry expertise is in the southern and
eastern portions of the United States, we have expanded our ownership of golf
courses into new market areas in recent months (I.E., the western United
States). If appropriate opportunities arise, we may make other selective
investments in markets outside of our current markets. Our entry into new
markets will require us to apply our experience to these new market areas, but
we cannot assure you that our historical expertise will be applicable to new
market areas. If we expand into new market areas in the future, we may be
exposed to risks associated with:
- - a lack of market knowledge and understanding of the local economy,
which may cause us to model prospective acquisitions incorrectly;
- - an inability to identify appropriate golf course acquisition
opportunities;
- - an inability to obtain qualified operators for acquired golf courses;
and
- - an unfamiliarity with local governmental regulations.
PORTFOLIO ACQUISITION RISKS
Our business and acquisition strategy may include the acquisition of
multiple golf courses in a single transaction in order to reduce acquisition
expenses per asset, and to enable us to enlarge our critical mass of assets
which provide operating leverage. However, portfolio acquisitions are more
complex than single-asset acquisitions, and the risk that a portfolio
acquisition will not close may be greater than in a single-asset acquisition. In
addition, our costs for a portfolio acquisition that does not close are
generally greater than for a single-asset acquisition that does not close. If we
fail to close one or more portfolio acquisitions, then our ability to increase
our net income will be limited and a charge to earnings for costs related to the
failed acquisition(s) may occur. In addition, a portfolio acquisition may
require us to own one or more assets which are located in geographically
dispersed markets that are geographically removed from our principal markets.
Another risk associated with portfolio acquisitions is that a seller
may require that a group of assets be purchased as a package, even though one or
more of the assets in the portfolio does not meet our
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investment criteria. In such cases, we may attempt to make a joint bid with
another buyer, or we may purchase the portfolio of assets with the intent to
subsequently dispose of those assets which do not meet our investment criteria.
In the case of joint bids, however, it is possible that the other buyer may
default in its obligations, which increases the risk that the acquisition may
not close, with the adverse consequences described above. In cases where we
intend to dispose of assets that we do not wish to own, there can be no
assurance as to how quickly we will be able to sell or exchange such asset or
assets or the terms on which such asset or assets can be sold or exchanged.
ABSENCE OF A PUBLIC MARKET FOR THE SERIES A PREFERRED STOCK
The Series A Preferred Stock will be a new issue of securities for
which there is no active trading market. We do not intend to apply to have the
Series A Preferred Stock listed on the American Stock Exchange or any other
exchange or national market (except as may be required under the Registration
Rights Agreement). Thus, no trading market for the Series A Preferred Stock is
likely to develop and investors in the Series A Preferred Shares may be unable
to find a buyer for such shares (without first converting them into Common
Stock).
COMMON STOCK PRICE FLUCTUATIONS
The price of the Series A Preferred Stock may be influenced by the
market price for the Common Stock into which it is convertible. A number of
factors may adversely influence the price of our Common Stock in the public
trading markets, many of which are beyond our control. In particular, an
increase in market interest rates will result in higher yields on other
financial instruments and may lead purchasers of Common Stock to demand a higher
annual distribution rate on the price paid for the Common Stock, which could
adversely affect the market price of the Common Stock. The market price of the
Common Stock may also depend upon the liquidity of such securities, the market
for similar securities, general economic conditions and our financial condition,
among other considerations.
RISK THAT OUR ASSETS MAY BE DEEMED TO BE PLAN ASSETS UNDER ERISA
Under the Plan Asset Regulation, promulgated by the Department of Labor
under the Employee Retirement Income Security Act of 1974, when "employee
benefit plans" (as defined in Section 3(3) of ERISA) or "plans" (as defined in
Section 4975 of the tax code) invest in our equity securities, all of our
underlying assets are deemed to be assets of such benefit plans, and we become
subject to strict fiduciary duties in our management of such assets, unless an
exception applies. We expect that benefit plans may purchase shares of Series A
Preferred Stock and, thus, that our assets may be deemed to be plan assets
unless an exception applies. One exception is for plan investment in a
"publicly-offered security." While this exception applies to investments in our
Common Stock, we do not expect the Series A Preferred Stock to qualify as a
"publicly-offered security" since the Series A Preferred Stock will initially be
held by fewer than 100 persons. Another exception is for plan investment in an
"operating company," such as a "venture capital operating company." As defined
under ERISA, an entity is a "venture capital operating company" if, among other
requirements, on certain dates at least 50% of its assets are invested in an
operating company over which it has management rights.
Our Board of Directors intends to take reasonable steps as may be
necessary to qualify for one or more of the exceptions available under the Plan
Asset Regulation so that our assets are not treated as assets of any investing
plan. Specifically, we believe that the Company qualifies, and we intend to
cause it to continue to qualify, as a real estate operating company and/or as a
venture capital operating
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company. Due to the nature of our specific investments and our operating
structure, though, no assurances can be made that the Company will qualify as
either a venture capital operating company or real estate operating company.
Moreover, in order to qualify under one of these rules, we may be precluded from
making certain investments that might otherwise be suitable or may not be able
to dispose of certain assets at the time we would otherwise desire to do so.
If our assets were determined to be plan assets, in whole or in part,
then certain transactions that we might enter into in the ordinary course of
business might constitute non-exempt prohibited transactions under ERISA and/or
Section 4975 of the Code and might have to be foregone or rescinded. For
example, if we were to engage in a transaction with a party-in-interest with
respect to any plan investing in the Series A Preferred Stock, such as the
purchase, sale or leasing of real property with a plan sponsor (or an
affiliate), the transaction would be prohibited under ERISA and the Code, and we
and such plan sponsor could be subject to sanctions.
RISK THAT SERIES A PREFERRED STOCK MAY BE AN INAPPROPRIATE INVESTMENT FOR ERISA
PLANS
In considering an investment in the Series A Preferred Stock, a
fiduciary of a profit-sharing, pension stock bonus plan, or individual
retirement account, including a plan for self-employed individuals and their
employees or any other employee benefit plan subject to prohibited transaction
provisions of the tax code or the fiduciary responsibility provisions of ERISA
(an "ERISA Plan") should consider (a) whether the ownership of shares of Series
A Preferred Stock is in accordance with the documents and instruments governing
such ERISA Plan; (b) whether the ownership of shares of Series A Preferred Stock
is consistent with the fiduciary's responsibilities and satisfies the
requirements of Part 4 of Subtitle B of Title I of ERISA (where applicable) and,
in particular, the diversification, prudence and liquidity requirements of
Section 404 of ERISA; (c) ERISA's prohibitions on improper delegation of control
over, or responsibility for, "plan assets" and ERISA's imposition of
co-fiduciary liability on a fiduciary who participates in, permits (by action or
inaction) the occurrence of, or fails to remedy a known breach of duty by
another fiduciary; and (d) the need to value the assets of the ERISA Plan
annually.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus (including,
in each case, the information incorporated in them by reference) contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements are those that predict or describe future
events or trends and that do not relate solely to historical matters. You can
generally identify forward-looking statements as statements containing the words
"believe," "expect," "anticipate," "intend," "estimate," "assume" or other
similar expressions.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS BECAUSE THE
MATTERS THEY DESCRIBE ARE SUBJECT TO KNOWN (AND UNKNOWN) RISKS, UNCERTAINTIES
AND OTHER UNPREDICTABLE FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL. Many
relevant risks are described under the caption "Additional Risk Factors" in this
Prospectus Supplement and under the caption "Risk Factors" in the accompanying
Prospectus, and you should consider the important factors listed there as you
read this Prospectus Supplement and the accompanying Prospectus.
Our actual results, performance or achievements may differ materially
from the anticipated results, performance or achievements that are expressed or
implied by our forward-looking statements. We assume no responsibility to update
our forward-looking statements.
S-11
<PAGE>
THE COMPANY
We are Golf Trust of America, Inc. ("GTA"), 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. GTA was incorporated in Maryland on November 8, 1996. We hold our golf
course interests through Golf Trust of America, L.P., a Delaware limited
partnership that is controlled by GTA, and, in one instance, through a
wholly-owned subsidiary of Golf Trust of America, L.P. (collectively, the
"Operating Partnership"). (In this Prospectus, the term "Company" generally
includes GTA, the Operating Partnership, and GTA's two wholly-owned
subsidiaries.) Currently, the Company holds participating interests in 45 golf
courses (the "Golf Courses"), 41 of which are owned by us and four of which
serve as collateral for a 30-year participating mortgage loan made by the
Company. The Golf Courses are located in Florida (14), South Carolina (7),
Illinois (4), Ohio (3), Georgia (2), Virginia (2), California (2), Michigan (2),
Nebraska (1.5), Texas (1.5), Alabama, Kansas, Kentucky, North Carolina,
Missouri, and New Mexico. (Throughout this Prospectus Supplement and the
accompanying Prospectus, golf course quantities are stated in terms of 18-hole
equivalents, such that one 27-hole golf course facility would be counted as 1.5
golf courses.)
In February 1997, we raised net proceeds of approximately $73.0 million
in our initial public offering of Common Stock (the "IPO") and acquired ten golf
courses. In November 1997, we raised net proceeds of approximately $82.7 million
in a follow-on public offering of Common Stock. Since the IPO, we have acquired
interests in 35 additional Golf Courses.
Because of the tax rules applicable to REITs, we cannot operate our
Golf Courses. Thus, when we acquire a Golf Course, we lease it back to an
affiliate of the seller or to another qualified operator. In most cases we
prefer to lease the Golf Course back to the seller's affiliate since we believe
that the seller's familiarity with local conditions and continuity of management
facilitates the Golf Course's growth and profitability (which we participate in
under certain conditions as described below). However, we also have developed
strong relationships with multi-course operators who lease a number of our Golf
Courses.
All of our Golf Course leases are participating leases ("Participating
Leases") that require the lessees ("Lessees") to make payments ("Lease
Payments") of a fixed amount of base rent ("Base Rent") and a variable amount of
additional rent based on growth in revenue at the Golf Courses ("Participating
Rent").
In June 1997, we originated a $78.975 million Participating Mortgage
secured by a first lien on the Westin Innisbrook Resort near Tampa, Florida (the
"Participating Mortgage"), which includes four Golf Courses. The Participating
Mortgage was made to the owner of the Westin Innisbrook Resort, Golf Hosts
Resorts, Inc., which is an affiliate of Starwood Capital Group, LLC
("Starwood"). The Westin Innisbrook Resort is a destination golf resort named by
ESQUIRE as one of the top 10 resorts in North America. The four Golf Courses at
the resort are operated by Troon Management Company, LLC ("Troon Golf"), an
affiliate of Starwood. The hotel and conference facilities at the resort are
operated by Westin Hotels & Resorts Company ("Westin") pursuant to a long-term
management agreement. The Participating Mortgage is structured much like our
typical Participating Lease. That is, the Participating Mortgage provides for
interest payments of base interest (a fixed amount of interest) and
Participating Interest (a variable amount of additional interest based on growth
in revenue at the Westin Innisbrook Resort). The Participating Mortgage gives us
the right to buy the four encumbered Golf Courses upon the expiration of the
term of the Participating Mortgage. Neither the Company nor its executive
officers own any interest in, or participate in the management of, the Lessees,
Golf Host Resorts, Inc., Troon Golf or Westin.
S-12
<PAGE>
We elected to be taxed as a REIT for federal income tax purposes for
the year ending December 31, 1997 and have not revoked that election. If we
continue to comply with certain REIT requirements under the Internal Revenue
Code of 1986, as amended (the "Code"), we will not be required to pay income tax
at the corporate level.
Our executive offices are located at 14 North Adger's Wharf,
Charleston, South Carolina 29401 and its telephone number is (843) 723-GOLF
(4653). We maintain an internet site at www.golftrust.com. Neither the
information contained in our website nor the information contained in the
websites linked to our website are a part of this Prospectus Supplement or the
accompanying Prospectus.
THE OPERATING PARTNERSHIP AND OUR SUBSIDIARIES
GTA has two wholly-owned subsidiaries, GTA GP, Inc. ("GTA GP") and GTA
LP, Inc. ("GTA LP"), each of which is a Maryland corporation (collectively, the
"Subsidiaries"). The Subsidiaries exist solely to hold GTA's general and limited
partnership interests in the Operating Partnership. The Board of Directors of
each Subsidiary is comprised of the executive officers of GTA. The Operating
Partnership was formed in Delaware in November 1996.
The Operating Partnership owns the Golf Courses that are subject to the
Participating Leases and holds the Participating Mortgage. (In addition, the
Operating Partnership owns approximately 95% of the economic interest in a
taxable subsidiary formed to hold title to a 14-acre development site adjacent
to Sandpiper Golf Course (which is currently subject to a sales agreement), with
the balance of the taxable subsidiary owned by Mr. Blair, President of GTA, and
Mr. Young, a director of the GTA. We hold this site through a taxable subsidiary
because the tax code's REIT rules prohibit such a development site from being
owned directly by the Operating Partnership.) Upon completion of this Offering,
GTA will hold 59.28% of the common interests and 100% of the preferred interests
in the Operating Partnership, through its Subsidiaries. GTA GP is the sole
general partner of the Operating Partnership and GTA LP is a limited partner of
the Operating Partnership. The other limited partners include the Westin
Innisbrook Resort owner and those Golf Course sellers who received units of
limited partnership interest in the Operating Partnership ("OP Units") in
exchange for the contribution of their Golf Courses to the Company. The limited
partners do not have day-to-day control over the Operating Partnership. However,
the limited partners are entitled to vote on certain matters, including the sale
of all or substantially all of the Company's assets or the merger or
consolidation of the Operating Partnership, which decisions require the approval
of the holders of at least 66.7% of the common interests in the Operating
Partnership (including GTA LP). Mr. Young, a director of the GTA, controls
limited partners holding, in the aggregate, 28.74% of the common interests in
the Operating Partnership. Each of the limited partners (other than GTA LP) has
the right to redeem its OP Units for cash or, at the election of the Company,
for shares of Common Stock on a one-for-one basis under certain terms and
conditions. Generally, such redemption right (a) may not be exercised during the
first year following issuance of the OP Units, (b) is limited to up to 50% of
the OP Units during the second year following their issuance and (c) may be
exercised as to 100% of the OP Units commencing two years after their issuance.
S-13
<PAGE>
The relationship among GTA, its Subsidiaries, the Operating Partnership
(including its wholly-owned affiliate) and the limited partners (including many
prior owners who contributed their golf courses to the Company and the Westin
Innisbrook Resort owner/operator) is described in the following chart
(percentage interests are given as of the completion of this Offering):
Golf Trust of
America, Inc.
100% Ownership 100% Ownership
GTA GP, Inc. GTA LP, Inc.
General Partner Limited Partner
0.2% Common Interest 59.08% Common Interest
100% Preferred Interest
Prior Owners, Golf Trust of America, L.P.
Certain Operators Limited Partners (the "Operating Partnership")
and Management 40.72% Common Interest 45 Golf Courses
BUSINESS STRATEGIES AND OBJECTIVES
Our primary objectives are to increase cash available for distribution
per share and to enhance stockholder value. Our main strategies for such growth
are to:
- - acquire interests in additional golf courses or portfolios of golf
courses that meet our investment criteria; and,
- - participate in the internal growth or increased revenues at our current
Golf Courses and such additional golf courses.
ACQUISITIONS
We believe that the current market conditions are favorable for the
acquisition of participating interests in golf courses at attractive returns. We
intend to continue to acquire interests in additional golf courses, potentially
including portfolios of golf courses, that meet one or more of the investment
criteria discussed below. Currently, ownership of golf courses in the United
States is largely fragmented among thousands of small owner/operators. We
believe the current lack of consolidation in the golf course industry results
from the fact that many golf courses are developed by independent entrepreneurs
who lack access to the capital needed to expand their holdings. In addition,
many golf course owners have no desire to expand their holdings and instead take
great pride in managing the one or two golf courses they personally developed.
S-14
<PAGE>
We believe that our multiple financing sources and our ability to
attract sellers give us a distinct advantage in the acquisition of upscale golf
course interests.
MULTIPLE FINANCING SOURCES FOR ACQUISITIONS. We have access to a
variety of debt financing sources (including an unsecured $200 million credit
facility (the "Credit Facility") and equity financing sources (including the
issuance of OP Units). Our ability to issue OP Units provides us with a currency
that can be used to purchase golf courses in transactions that may be tax
deferred for the seller. When the Company acquires a golf course in exchange for
OP Units, the golf course seller generally may defer tax recognition of its gain
(or loss) on the exchange until the seller redeems its OP Units. Each OP Unit is
redeemable for cash in an amount generally equal to the current market price of
our Common Stock on the date of redemption. (But we can elect simply to deliver
shares of Common Stock instead of cash. Thus, in essence, OP Units are
convertible into Common Stock on a one-for-one basis.)
There can be no assurances that we will have access to sufficient debt
and equity financing at attractive prices to allow us to acquire additional golf
course interests.
ABILITY TO ATTRACT SELLERS. We believe that we can attract sellers of
golf courses by offering them the following benefits:
- - the seller enjoys the tax-deferment associated with OP Unit
transactions;
- - the seller achieves diversification of its golf course investment (in
that the seller contributes its single golf course to the Company in
exchange for OP Units which represent an interest in the Company's
whole portfolio of Golf Courses).
- - the seller retains the ability to control operations at its golf course
by leasing it back from the Company (this may be important to a
small-to mid-sized entrepreneur whose life's work is invested in his or
her golf course);
- - the seller receives the right to obtain additional OP Units through
exercise of the Lessee Performance Option (discussed below), which can
be exercised if the lessee's revenues exceed certain targets; and
- - the seller, as lessee, enjoys marketing and purchasing economies of
scale gained from participation in the Lessee Advisory Association
(discussed below).
In certain instances, state and federal tax laws make sale-leaseback
transactions prohibitively expensive. In those instances, we may enter into
another participating mortgage; that is, we would provide financing to the owner
of a golf course and, in exchange, the owner would give us a first-lien
participating mortgage on the golf course. Any such participating mortgage would
provide for interest payments of fixed base interest and variable participating
interest based on the amount of revenue at the encumbered golf course. In
addition, we would expect any such participating mortgage to enable us to buy
the encumbered golf course upon the expiration of the term of the mortgage.
INVESTMENT CRITERIA. We intend to continue to concentrate our
investment activities in upscale golf courses at attractive prices that satisfy
one or more of the following criteria:
- - upscale daily fee golf courses that target avid golfers willing to pay
the premium associated with upscale golf courses;
- - private or semi-private golf courses with proven operating histories
and a potential for significant cash flow growth;
- - resort golf courses with superior facilities and service that attract
affluent destination golfers;
- - golf courses which are located near one or more of our current Golf
Courses;
S-15
<PAGE>
- - golf courses owned by operators who have a strong regional presence and
afford us an opportunity to expand in a particular region;
- - newly developed, well-designed golf courses with a high potential for
growth; and
- - well-maintained golf courses in high barrier-to-entry markets.
There can be no assurances that we will be able to find additional golf
courses that satisfy our investment criteria.
INTERNAL GROWTH
Based on the experience of our management, we believe there are
opportunities for revenue growth through effective marketing and efficient
operations at many of the golf courses we acquire. The Participating Leases and
the Participating Mortgage have been structured to provide the operators with
incentives to manage and maintain the Golf Courses in a manner which increases
revenues. We participate in any increased revenues above a defined baseline
through the Participating Rent and Participating Interest features of the
Participating Leases and the Participating Mortgage, respectively.
PARTICIPATING LEASES. For each calendar year, the Participating Leases
generally require the lessee to pay us the greater of (a) an amount equal to the
Base Rent (as adjusted by the Base Rent Escalator (defined below)) for the
applicable Golf Course and (b) an amount equal to Base Rent (without adjustment
by the Base Rent Escalator) for the applicable Golf Course PLUS the
Participating Rent for the applicable Golf Course. The Participating Rent is
equal to 33.33% of the difference between the Gross Golf Revenue (defined below)
for the current calendar year and the Gross Golf Revenue for the calendar year
preceding our acquisition of an interest in the applicable Golf Course, as
adjusted in determining the original Base Rent. The Base Rent Escalator is an
annual increase of Base Rent by the lesser of (i) 3% and (ii) a multiple of the
Consumer Price Index for the prior calendar year. The Base Rent Escalator
applies during each of the first five calendar years of the applicable
Participating Lease and, if the Lessee Performance Option is exercised, for an
additional five years thereafter. However, annual increases in the Lease
Payments under the Participating Leases are generally limited to between 5% and
7% during the first five years of each Participating Lease. Gross Golf Revenue
is generally defined as all revenues from the Golf Course, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees and
transfer fees, but excluding food and beverage and merchandise revenue.
PARTICIPATING MORTGAGE. The $78.975 million Participating Mortgage is
similar in structure to the Participating Leases and the Company expects to
realize similar returns on the Participating Leases and the Participating
Mortgage. Under the Participating Mortgage, the Company made an initial advance
of $69.975 million in June 1998 to the borrower, Golf Hosts Resorts, Inc., the
owner of the Westin Innisbrook Resort, which serves as collateral for the
Participating Mortgage. The initial advance was followed by additional advances
in early 1999 of approximately $9.0 million in the aggregate to be used for a
nine-hole expansion and other improvements currently underway at the Westin
Innisbrook Resort facilities. The loan term is 30 years, with an initial Base
Interest rate of 9.63% per annum and an interest rate of 9.75% per annum on the
amount of the loan in excess of $69.975 million. The loan provides for minimum
increases in the aggregate annual payment of Base Interest of 5% per year for
the first five years and a participating interest feature throughout the term
based upon the growth in Gross Golf Revenues, as well as in other revenues, at
the Westin Innisbrook Resort over a 1996 base year. The annual increases in the
mortgage payments are limited to 7% during the first five years. Westin Hotels &
Resorts Company, which operates the hotel and conference facilities at the
Innisbrook Resort, has agreed to pay up to $2.5 million per year to the borrower
for up to five years from the closing of the loan to supplement results of
operations with respect to the operations at the Westin Innisbrook Resort.
S-16
<PAGE>
PERFORMANCE OPTION FOR THE PARTICIPATING LEASE. The Participating
Leases contain provisions designed to encourage the lessees to grow aggressively
the revenue of the Golf Courses (the "Performance Option"). Subject to certain
qualifications and restrictions, the Performance Option allows the lessee to
receive additional OP Units or shares of our Common Stock in exchange for
increasing the Base Rent. The Performance Option may be exercised only if the
net operating income for the applicable Golf Course (including a reserve for
capital expenditures) exceeds 113.5% of the Lease Payment for that Golf Course
(after taking account of adjustments for the increased Base Rent). If the
Performance Option is exercised, then the Base Rent is increased by an amount
which is accretive to our FFO. Following the lessee's exercise of the
Performance Option, the adjusted Base Rent will be further increased annually by
the Base Rent Escalator for a period of five years. The number of OP Units or
shares of our Common Stock that a lessee will receive in connection with its
exercise of the Performance Option depends on future events at the applicable
Golf Course and, therefore, cannot be determined in advance.
To date, none of the lessees have exercised the Performance Option.
PERFORMANCE OPTION FOR THE PARTICIPATING MORTGAGE. The structure of the
Performance Option for the Participating Mortgage is similar to the Performance
Option for the Participating Leases. Subject to certain qualifications and
restrictions, under the Performance Option for the Participating Mortgage,
during years three and five of the Participating Mortgage, the Westin Innisbrook
Resort owner may elect one time to require the Company to make an additional
advance (the "Performance Advance") under the Participating Mortgage to fund the
purchase of additional OP Units by the Westin Innisbrook Resort owner. The
Performance Option for the Participating Mortgage may be exercised only if the
then-current-year net operating income of the Westin Innisbrook Resort,
inclusive of a capital replacement reserve, exceeds 113.5% of such operator's
Participating Mortgage obligation after taking into account the increased amount
of Base Interest. If the Performance Advance is made, interest on the
Performance Advance will be calculated to be accretive to the Company's Funds
From Operations on a per share basis. Following exercise of the Performance
Option for the Participating Mortgage, the adjusted Base Interest will be
increased by 3% per year for five years. The Westin Innisbrook Resort Owner's
ability to exercise the Performance Option will depend on future operating
results and therefore cannot be determined in advance.
RECENT DEVELOPMENTS
OPERATING RESULTS
DISTRIBUTIONS. We declared distributions to stockholders of $1.72 for
the year ended December 31, 1998, reducing our payout ratio from 89% of FFO for
1997 to 75% of FFO for 1998.
FUNDS FROM OPERATIONS. Our Funds from Operations ("FFO") for the year
ended December 31, 1998 were $29.8 million, or $2.28 per share, a 23% increase
from $16.4 million, or $1.85 per share in the prior year. We believe that FFO is
an accurate assessment of our operating performance because FFO measures our
ability to incur and service debt and to make capital expenditures.
All FFO per share amounts reported include Common Stock and Common
Stock equivalents (diluted) as well as operating partnership (OP) units
convertible into Common Stock. We calculate FFO in accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"). The NAREIT resolution provides that
FFO represents net income (or loss), computed in accordance with generally
accepted accounting principles ("GAAP"), excluding gains (or losses) from debt
restructurings and sales of property, PLUS depreciation of real property, and
after adjustments for unconsolidated partnerships and joint ventures. FFO should
not be considered as an alternative to net income or any other measurements
under GAAP as an indicator of
S-17
<PAGE>
operating performance, or an alternative to net cash flows from operating
activities as a measure of liquidity. FFO does not reflect working capital
changes, cash expenditures for capital improvements or principal payments of
indebtedness.
For the year ended December 31, 1998, rent and interest revenues
increased 117% to $44.4 million from $20.5 million for the same period last
year.
Information for the year ended December 31, 1997 is based on the actual
results of operations from the commencement of the Company's operations on
February 12, 1997 to December 31, 1997, and PRO FORMA results of operations for
January 1, 1997 to February 11, 1997.
COMPLETED ACQUISITIONS
For the year ended December 31, 1998 the Company purchased 22 Golf
Courses for an aggregate initial investment of approximately $185.7 million in
cash and assumption of indebtedness, deferred payments of $2.3 million, the
assumption of properties subject to liens of $18.0 million and the issuance of
$14.7 million in OP Units (approximately 524,000 OP Units).
The following table provides certain information about the Company's
Golf Course acquisitions in 1998:
<TABLE>
<CAPTION>
INITIAL
ACQUISITION INVESTMENT (1)
DATE COURSE NAME LOCATION (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1/1/98 Bonaventure Fort Lauderdale, FL $24,500
1/16/98 Mystic Creek Golf Club & Banquet Center Dearborn, MI 10,000
2/1/98 Emerald Dunes Golf Course West Palm Beach, FL 22,400
3/6/98 Sandpiper Golf Course (2) Santa Barbara, CA 36,500
3/9/98 Persimmon Ridge Country Club Louisville, KY 7,500
5/22/98 Eagle Ridge Inn & Resort Galena, IL 47,000
5/29/98 Tierra Del Sol Albuquerque, NM 3,600
6/15/98 Silverthorn Country Club Brooksville, FL 4,700
7/10/98 Polo Trace Golf and Country Club Delray Beach, FL 12,300
7/17/98 Ohio Prestwick Country Club Akron, OH 6,400
8/31/98 Osage National Golf Course Lake of the Ozarks, MO 11,200
9/15/98 Sweetwater Country Club Orlando, FL 5,000
9/15/98 Wekiva Golf Club Orlando, FL 6,500
9/18/98 Cypress Creek Country Club Boynton Beach, FL 4,200
10/13/98 Cooks Creek Golf Course Ashville, OH 6,100
12/15/98 Brentwood Golf & Country Club White Lake, MI 7,000
12/22/98 Palm Desert Country Club Palm Desert, CA 5,800
- ----------------------------------------------------------------------------------------------------------------
TOTAL GOLF COURSE INVESTMENTS IN 1998 ............................................ $220,700
--------
--------
</TABLE>
(1) Includes cash, assumption of indebtedness, deferred payments, subject
liens and the issuance of OP Units (valued at the closing price of our
Common Stock on the date of grant).
(2) Includes adjacent 14 acre development site currently subject to a sales
agreement.
S-18
<PAGE>
LETTERS OF INTENT
The Company has recently submitted non-binding offers to acquire
additional golf courses and is in various stages of discussions to acquire other
golf courses. The Company is in various stages of negotiation and due diligence
review for each of these golf courses. Completion of these transactions is
subject to negotiation and execution of definitive purchase and sale agreements,
satisfactory completion of the Company's due diligence review and certain other
customary closing conditions. No assurances can be given that the Company will
continue to pursue or complete the acquisition of any of these golf courses.
USE OF PROCEEDS
We estimate that after all anticipated issuance costs we will receive
net proceeds from this Offering of approximately $19.2 million. We will
contribute all of the net proceeds from the Offering to the Operating
Partnership in exchange for 800,000 units of 9.25% Series A Cumulative
Convertible Preferred Limited Partnership Interest in the Partnership having
distribution, liquidation, redemption and other features identical to the terms
of the Series A Preferred Shares. The Operating Partnership intends to use all
of the net proceeds to repay outstanding indebtedness under the Credit Facility
and for working capital. BankBoston, N.A., one of the lenders under the Credit
Facility and an affiliate of the Placement Agent, will receive its proportionate
share of such repayment. Because more than 10% of the net proceeds of this
Offering may be paid to an affiliate of the Placement Agent, this Offering is
being made in compliance with Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc.. See "Supplemental Plan of
Distribution."
S-19
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December
31, 1998 and as adjusted to give effect to this Offering and the use of the net
proceeds of this Offering, as described in the section entitled "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------
ACTUAL AS ADJUSTED
-------------- ---------------
(in thousands)
<S> <C> <C>
DEBT:
Borrowings under the Credit Facility............. $210,634 $191,434
-------------- ---------------
MINORITY INTEREST IN OPERATING PARTNERSHIP........... 76,510 76,510
-------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; 0 (Actual) and 800,000 (As Adjusted)
shares issued and outstanding at December 31, 1998 0 19,200
Common Stock, $0.01 par value, 90,000,000 shares
authorized; 7,637,488 (Actual and As Adjusted)
shares issued and outstanding at December 31, 1998 76 76
Additional paid-in capital....................... 120,253 120,253
Unamortized restricted stock compensation........ (1,533) (1,533)
Note receivable from stock sale.................. (3,298) (3,298)
Loans to officers................................ (1,893) (1,893)
Dividends in excess of accumulated earnings)..... (3,958) (3,958)
-------------- ---------------
Total stockholders' equity..................... 109,647 128,847
-------------- ---------------
Total capitalization........................... $396,791 $396,791
-------------- ---------------
-------------- ---------------
</TABLE>
S-20
<PAGE>
THE GOLF COURSES
The following table sets forth certain information about the Golf
Courses:
<TABLE>
<CAPTION>
TYPE OF YEAR YEAR
NAME LOCATION YARDAGE(1) COURSE OPENED ACQUIRED
- ------------------------------- --------------------- ---------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Heritage Golf Club Pawleys Island, SC 7,040 Resort 1986 1997
Legends Golf Resort Myrtle Beach, SC
Heathland 6,785 Resort 1990 1997
Moorland 6,799 Resort 1990 1997
Parkland 7,170 Resort 1992 1997
Oyster Bay Golf Links Sunset Beach, NC 6,685 Resort 1983 1997
Woodlands Golf Course Gulf Shores, AL 6,584 Resort 1994 1997
The Westin Innisbrook Resort Tampa, FL
Copperhead 7,087 Resort 1972 1997
Island Course 6,999 Resort 1970 1997
Eagle's Watch 6,245 Resort 1971 1997
Hawk's Run 6,245 Resort 1971 1997
Eagle Ridge Inn and Resort Galena, IL
The General Course 6,820 Resort 1997 1998
North Course 6,836 Resort 1977 1998
South Course 6,762 Resort 1984 1998
East Course 2,648 Resort 1991 1998
Northgate Country Club Houston, TX 6,540 Private 1984 1997
Club of the Country Louisburg, KS 6,357 Private 1979 1997
Stonehenge Golf Columbia, SC
Wildewood Country Club 6,751 Private 1974 1997
Country Club of Woodcreek
Farms 7,002 Private 1997 1997
Persimmon Ridge Golf Club Louisville, KY 7,129 Private 1989 1998
Silverthorn Country Club Brooksville, FL 6,827 Private 1994 1998
Prestwick Country Club Uniontown, OH 7,066 Private 1972 1998
Sweetwater Country Club Orlando, FL 6,300 Private 1980 1998
Royal New Kent Providence Forge, VA 7,291 Daily Fee 1996 1997
Legends of Stonehouse Williamsburg, VA 6,963 Daily Fee 1996 1997
Olde Atlanta Golf Club Atlanta, GA 6,789 Daily Fee 1993 1997
Tiburon Golf Club Omaha, NE 7,005 Daily Fee 1989 1997
Raintree Country Club Akron, OH 6,886 Daily Fee 1992 1997
Eagle Watch Golf Club Atlanta, GA 6,896 Daily Fee 1989 1997
Lost Oaks of Innisbrook Tampa, FL 6,450 Daily Fee 1977 1997
Black Bear Golf Club Orlando, FL 7,002 Daily Fee 1995 1997
Bonaventure Ft. Lauderdale, FL
Green Monster 7,011 Daily Fee 1970 1998
Resort Course 6,189 Daily Fee 1978 1998
Mystic Creek Golf Club Dearborn, Michigan 6,802 Daily Fee 1996 1998
Emerald Dunes Golf Course West Palm Beach, FL 7,006 Daily Fee 1990 1998
Sandpiper Golf Course Santa Barbara, CA 7,068 Daily Fee 1972 1998
Tierra Del Sol Golf Club Balen, NM 6,351 Daily Fee 1982 1998
Links at Polo Trace DelRay Beach, FL
Golf Course 7,100 Daily Fee 1989 1998
Osage National Golf Lake of the Ozarks, MO
Club 7,150 Daily Fee 1992 1998
</TABLE>
- --------
1 Yardage is calculated from the championship tees.
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Wekiva Golf Course Orlando. FL 6,640 Daily Fee 1975 1998
Cypress Creek Course Boynton Beach, FL 6,808 Daily Fee 1964 1998
Cooks Creek Golf Club Ashville, OH 7,000 Daily Fee 1983 1998
Brentwood Golf & Country Club White Lake, MI 6,262 Daily Fee 1995 1998
Palm Desert Country Club Palm Desert, CA 6,678 Daily Fee 1957 1998
</TABLE>
DESCRIPTION OF THE SERIES A PREFERRED STOCK
IN ADDITION TO THE INFORMATION BELOW, YOU SHOULD READ THE GENERAL
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK, SET FORTH UNDER THE CAPTION
"DESCRIPTION OF CAPITAL STOCK" IN THE ACCOMPANYING PROSPECTUS. THE SUMMARY OF
CERTAIN TERMS AND PROVISIONS OF THE SERIES A PREFERRED STOCK AND THE COMMON
STOCK ISSUABLE UPON CONVERSION THEREOF CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT
TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE TERMS AND PROVISIONS OF
THE COMPANY'S ARTICLES SUPPLEMENTARY (THE FORM OF WHICH APPEARS AS Appendix A TO
THIS PROSPECTUS SUPPLEMENT) AND THE COMPANY'S ARTICLES OF INCORPORATION, AS
AMENDED, AND BYLAWS, COPIES OF WHICH ARE AVAILABLE FROM THE COMPANY UPON
REQUEST.
GENERAL
The Company's Amended and Restated Articles of Incorporation, as
amended, currently authorize the issuance of up to 100,000,000 shares,
consisting of 90,000,000 shares of Common Stock ("Common Shares") and 10,000,000
preferred shares, $0.01 par value per share ("Preferred Shares"). The Preferred
Shares may be issued from time to time in one or more series, without
shareholder approval, with such designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption thereof as
shall be established by the Board of Directors. Thus, without shareholder
approval, the Company could authorize the issuance of Preferred Shares with
voting, conversion and other rights that could dilute the voting power and other
rights of the holders of Common Shares.
Prior to the closing of the Offering, the Board of Directors will
classify and designate 800,000 of the Company's authorized Preferred Shares as
Series A Preferred Shares and will authorize the issuance thereof. When issued,
the Series A Preferred Shares will be validly issued, fully paid and
nonassessable. The holders of the Series A Preferred Shares will have no
preemptive rights with respect to any shares of beneficial interest of the
Company or any other securities of the Company convertible into or carrying
rights or options to purchase any such shares. The Series A Preferred Shares
will not be subject to any sinking fund or other obligation of the Company to
redeem or retire the Series A Preferred Shares. Unless converted or redeemed by
the Company, the Series A Preferred Shares will have a perpetual term, with no
maturity.
The Company does not intend to apply to list the Series A Preferred
Shares on any securities exchange or national market (except as may be required
under the Registration Rights Agreement). Consequently, it is unlikely that a
trading market for the Series A Preferred Shares will ever develop. As described
below, the Series A Preferred Shares are convertible into shares of the
Company's Common Stock. The Company's Common Stock is listed on the American
Stock Exchange under the symbol "GTA." The American Stock Exchange has approved
the listing of the Common Shares underlying the Series A Preferred Shares
subject only to official notice of issuance.
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<PAGE>
TERMS AND CONDITIONS
The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, terms and conditions
of redemption and other terms and conditions of the Series A Preferred Stock are
set forth in the Articles Supplementary, the form of which is included as
APPENDIX A to this Prospectus Supplement.
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT, CONVERSION AGENT AND
REDEMPTION AGENT
The Company will initially act as its own transfer agent, registrar,
dividend disbursing agent, conversion agent and redemption agent for the Series
A Preferred Shares. The transfer agent, registrar and dividend disbursing agent
for the Common Shares is ChaseMellon Shareholder Services, L.L.C., San
Francisco, California.
UNDERLYING COMMON STOCK
The Common Shares issued upon conversion of the Series A Preferred
Shares will be issued pursuant to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus are a part. The Company
will take any other action necessary to ensure that any Common Shares issued
upon conversion of Series A Preferred Shares are freely transferable and not
subject to any resale restrictions under the Securities Act or any applicable
state securities or Blue Sky laws (other than any Common Shares which are held
by an "affiliate" (as defined in Rule 144 under the Securities Act)). Certain
holders of such underlying Common Stock may have the right to cause the Company
to register their shares for resale, see "Registration Rights." The shares of
our Common Stock issuable upon conversion of shares of the Series A Preferred
Stock are generally described on page 33 of the accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
REDEMPTION OF SERIES A PREFERRED SHARES
A cash redemption of shares of the Preferred Stock paid to taxable
domestic shareholders will be treated under Section 302 of the Code as a
distribution taxable as a dividend (to the extent of the Company's current and
accumulated earnings and profits) at ordinary income rates unless the redemption
satisfies one of the tests set forth in Section 302(b) of the Code and is
therefore treated as a sale or exchange of the redeemed shares. The cash
redemption will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's stock interest in the Company, or (iii) is not
essentially equivalent to a "dividend" with respect to the holder, all within
the meaning of Section 302(b) of the Code. In determining whether any of these
tests have been met, shares of capital stock (including Common Stock and other
equity interests in the Company) considered to be owned by the holder by reason
of certain constructive ownership rules set forth in the Code, as well as shares
of capital stock actually owned by the holder, must generally be taken into
account. Because the determination as to whether any of the alternative tests of
Section 302(b) of the Code will be satisfied with respect to any particular
holder of the Preferred Stock depends upon the facts and circumstances at the
time that the determination must be made, prospective holders of the Series A
Preferred Stock are advised to consult their own tax advisors to determine such
tax treatment at the time of the redemption.
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If a cash redemption of shares of the Preferred Stock is not treated as
a distribution taxable as a dividend to a particular holder, it will be treated
as to that holder as a taxable sale or exchange. As a result, such holder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the extent
of the Company's current and accumulated earnings and profits), and (ii) the
holder's adjusted basis in the shares of the Series A Preferred Stock for tax
purposes. Such gain or loss will be capital gain or loss if the shares of Series
A Preferred Stock have been held as a capital asset, and will be long-term gain
or loss if such shares have been held for more than one year.
If a cash redemption of shares of the Preferred Stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
Series A Preferred Stock for tax purposes will be transferred to the holder's
remaining shares of capital stock in the Company, if any.
CONVERSION OF SERIES PREFERRED STOCK INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes upon conversion of the Series A Preferred Stock solely into shares of
Common Stock. The basis that a holder will have for tax purposes in the shares
of Common Stock received upon conversion will be equal to the adjusted basis for
the holder in the shares of Series A Preferred Stock so converted, and, provided
that the shares of Series A Preferred Stock were held as a capital asset, the
holding period for the shares of Common Stock received would include the holding
period for the shares of Series A Preferred Stock converted. A holder will,
however, generally recognize gain or loss on the receipt of cash in lieu of
fractional shares of Common Stock in an amount equal to the difference between
the amount of cash received and the holder's adjusted basis for tax purposes in
the Preferred Stock for which cash was received. Furthermore, under certain
circumstances, a holder of shares of Series A Preferred Stock will recognize
dividend income to the extent of proceeds received with respect to dividends in
arrears on the shares at the time of conversion into Common Stock.
ADJUSTMENTS TO CONVERSION PRICE
Adjustments in the Conversion Price (or failure to make such
adjustments) pursuant to the antidilution provisions of the Series A Preferred
Stock or otherwise may result in constructive distributions to the holders of
Series A Preferred Stock that could, under certain circumstances, be taxable to
them as dividends pursuant to Section 305 of the Code. If such a constructive
distribution were to occur, a holder of Series A Preferred Stock could be
required to recognize ordinary income for tax purposes without receiving a
corresponding distribution of cash.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in section
3(3) of ERISA) and the plans described in section 4975(e)(1) of the Code
(collectively, "Plans") such as pension plans, profit-sharing plans, employee
benefit plans, retirement plans, individual retirement accounts and Keogh plans,
(b) any entities whose underlying assets include Plan assets by reason of a
Plan's investment in such entities ("Plan Asset Entities") and (c) persons who
have certain specified relationships to such Plans and Plan Asset Entities
("Parties-in-Interest" under ERISA and "Disqualified Persons" under the Code).
Moreover, based on the reasoning of the United
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States Supreme Court in JOHN HANCOCK LIFE INS. CO. V. HARRIS TRUST AND SAV. BANK
(which is reported at 114 S.Ct. 517 (1993)) an insurance company's general
account may be deemed to include assets of the Plans investing in the general
account (E.G., through the purchase of an annuity contract), and the insurance
company might be treated as a Party-in-Interest or Disqualified Person with
respect to a Plan by virtue of such investment. ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA and prohibits
certain transactions between a Plan and Parties-in-Interest or Disqualified
Persons with respect to such Plans.
ACQUIRING AND HOLDING THE SERIES A PREFERRED STOCK
Any Plan fiduciary that proposes to cause a Plan to purchase the Series
A Preferred Stock should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and determine on its own
whether any exceptions or exemptions are applicable and whether all conditions
of any such exceptions or exemptions have been satisfied. Moreover, each Plan
fiduciary should determine whether, under the general fiduciary standards of
investment prudence and diversification, an investment in the Series A Preferred
Stock is appropriate for the Plan, taking into account the overall investment
policy of the Plan and the composition of the Plan's investment portfolio.
The Placement Agent or certain affiliates thereof may be
"Parties-in-Interest" or "Disqualified Persons" with respect to a number of
Plans. Accordingly, investment in the Series A Preferred Stock by such a Plan
could be deemed to constitute a transaction prohibited under Title I of ERISA or
Section 4975 of the Code (E.G., the direct or indirect transfer to or use by a
Party-in-Interest or Disqualified Person of assets of a Plan). Such transactions
may, however, be subject to one or more statutory or administrative exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts
certain transactions involving insurance company pooled separate accounts; PTCE
91-38, which exempts certain transactions involving bank collective investment
funds; PTCE 84-14, which exempts certain transactions effected on behalf of a
Plan by a "qualified professional asset manager"; PTCE 95-60, which exempts
certain transactions involving insurance company general accounts; PTCE 96-23,
which exempts certain transactions effected on behalf of a Plan by an "in-house
asset manager"; or another available exemption. Such exemptions may not,
however, apply to all of the transactions that could be deemed prohibited
transactions in connection with a Plan's investment.
THE TREATMENT OF OUR UNDERLYING ASSETS UNDER ERISA
The Department of Labor ("DOL") has issued a regulation (which has been
compiled at 29 C.F.R. Section 2510.3-101) describing what constitute assets of a
plan with respect to a Plan's investment in another entity (the "Plan Asset
Regulation"). This regulation provides that, as a general rule, the underlying
assets and properties of corporations, partnerships, trusts and certain other
entities in which a Plan purchases an "equity interest" will be deemed for
certain provisions of ERISA and Section 4975 of the Code to be assets of the
investing Plan unless certain exceptions apply. The Plan Asset Regulation
defines an "equity interest" as any interest in an entity other than an
instrument that is treated as indebtedness under applicable local law and which
has no substantial equity features. The Series A Preferred Shares offered hereby
should be treated as "equity interests" for purposes of the Plan Asset
Regulation.
One exception under the Plan Asset Regulation provides that when a Plan
invests in an "operating company" the operating company's underlying assets will
not be deemed to be Plan assets. "Operating company" is defined by the Plan
Asset Regulation to mean a company that is primarily engaged in the production
or sale of a product or service other than the investment of capital, but it
also is defined to include a company that qualifies as a "venture capital
operating company" or a "real estate operating company." To be a "venture
capital operating company," an entity must have, on the date of its first
long-
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<PAGE>
term investment and on certain annual testing dates thereafter, at least 50% of
its assets (other than short term investments pending long-term commitment or
distribution to investors), valued at cost, invested in "venture capital
investments." A venture capital investment is an investment in an operating
company (other than a venture capital operating company) with respect to which
the entity has or obtains management rights. To be a "real estate operating
company" an entity must have, on the date of its first long-term investment and
on certain annual testing dates thereafter, at least 50% of its assets (other
than short-term investments pending long-term commitment or distribution to
investors), valued at cost, invested in real estate that is managed or developed
and with respect to which such entity has the right to substantially participate
in such management or development activities. To be a "venture capital operating
company" or "real estate operating company," the entity must also, in the
ordinary course of business, actually exercise the applicable rights or engage
in the management or development activities.
Another exception under the Plan Asset Regulation provides that an
investing Plan's assets will not include any of the underlying assets of an
entity if the class of "equity" interests in question is a class of
"publicly-offered securities." Publicly-offered securities are securities that
are (i) widely held (I.E., held by 100 or more investors who are independent of
the issuer and of each other), (ii) freely transferable, and (iii) part of a
class of securities registered under Section 12(b) or 12(g) of the Exchange Act.
Our Board of Directors intends to take reasonable steps as may be
necessary to qualify for one or more of the exceptions available under the Plan
Asset Regulation so that our assets are not treated as assets of any investing
Plan. Specifically, we believe that Golf Trust of America, Inc. qualifies, and
we intend to cause it to continue to qualify, as a real estate operating company
and/or as a venture capital operating company. Due to the nature of its specific
investments and its operating structure, no assurances can be made, however,
that Golf Trust of America, Inc. will qualify as either a venture capital
operating company or real estate operating company. Moreover, in order to
qualify under one of these rules, we may be precluded from making certain
investments that might otherwise be suitable or may not be able to dispose of
certain assets at the time we would otherwise desire to do so.
If our assets were determined to be Plan assets, in whole or in part,
there could be a number of adverse consequences under ERISA and the Code. For
example, if we were to engage in a transaction with a Party-in-Interest with
respect to any plan investing in Series A Preferred Stock, such as the purchase,
sale or leasing of real property with a Plan sponsor (or an affiliate), the
transaction would be prohibited under ERISA and the Code, and we and such Plan
sponsor could be subject to sanctions.
The sale of the Series A Preferred Stock is in no respect a
representation by the Placement Agent, us or any other person that such an
investment meets all relevant legal requirements with respect to investments by
Plans generally or that such an investment is appropriate for any particular
Plans or that an execution from the Plan Asset Regulation is or will be
applicable.
REGISTRATION RIGHTS
The Company has agreed to grant certain registration rights to one or
more major purchasers of the Series A Preferred Stock and to subsequent holders
of such purchasers' shares (collectively, "Holders"). Because of the extent of
their holdings, such Holders may be deemed to be affiliates of the Company under
Securities Act Rule 144 and thus subject to the resale restrictions imposed by
Rule 144 on affiliates. In addition, a large sale by such Holders may be deemed
a distribution in need of registration under the Securities Act. To address such
concerns, at the closing of this Offering the Company will enter into a
Registration Rights Agreement with such purchasers pursuant to which the Company
will agree to file a "shelf" registration statement with the Securities and
Exchange Commission
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<PAGE>
covering resales from time to time by the Holders of their Series A Preferred
Shares and any underlying Common Shares into which their Series A Preferred
Shares may have been converted. The Company will agree to keep such registration
effective until it is no longer necessary for the unrestricted resale of the
Holders' shares. In addition, if at any time the shelf registration is not
effective, the Holders will have the right to cause the Company to prepare and
file a registration statement covering proposed resales. Finally, such Holders
will have the right to include their registrable securities in any new
registration proposed by the Company, subject to the prior similar rights of the
Operating Partnership's limited partners. This summary of the registration
rights is qualified in its entirety by the provisions of the Registration Rights
Agreement, a copy of which is available from the Company upon request.
SUPPLEMENTAL PLAN OF DISTRIBUTION
We are offering 800,000 shares of our Series A Preferred Stock directly
to one or more investors (the "Offering"). We have engaged BancBoston Robertson
Stephens (the "Placement Agent") to act as placement agent in connection with
this Offering. We will pay the Placement Agent a finder's fee of $500,000 for
its services in connection with the Offering. Such fee represents 2.5% of the
gross proceeds of the Series A Preferred Stock sold in this Offering. The
Placement Agent did not participate in the drafting of this Prospectus
Supplement or the accompanying Prospectus and is not responsible for any of
their content.
The shares of Series A Preferred Stock offered by this Prospectus
Supplement and the accompanying Prospectus are new securities with no
established trading market. We will not apply to list the Series A Preferred
Stock on the American Stock Exchange or on any other securities exchange or
national market (except as may be required under the Registration Rights
Agreement). Consequently, no public market for the Series A Preferred Stock
exists and we do not expect any such market to develop.
In the ordinary course of their business, the Placement Agent and its
affiliates have engaged, and may in the future engage, in commercial banking and
investment banking transactions with us and our affiliates. BankBoston, N.A., an
affiliate of BancBoston Robertson Stephens, the Placement Agent, is one of the
lenders under our Credit Facility. The net proceeds from this Offering will
primarily be used to reduce borrowings under the Credit Facility and, as a
result, BankBoston, N.A. will receive its proportionate share of such repayment.
See "Use of Proceeds." Because more than 10% of the net proceeds of this
Offering may be paid to an affiliate of the Placement Agent, this Offering is
being made in compliance with Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
SUPPLEMENTAL LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed
upon for the Company by O'Melveny & Myers LLP, San Francisco, California, and
Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
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<PAGE>
APPENDIX A
GOLF TRUST OF AMERICA, INC.
ARTICLES SUPPLEMENTARY CLASSIFYING AND DESIGNATING
800,000 SHARES OF PREFERRED STOCK AS
9.25% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
AND FIXING DISTRIBUTION AND
OTHER PREFERENCES AND RIGHTS OF SUCH SERIES
Golf Trust of America, Inc., a Maryland corporation, having a principal
office in the state of Maryland in the City of Baltimore (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
(the "Department") that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Section 5 of Article V of the Articles of Amendment and
Restatement of the Corporation filed with the Department on January 31, 1997, as
amended by the Articles of Amendment of the Corporation, filed with the
Department on June 9, 1998 (the "Charter"), and in accordance with Section 2-208
of the Maryland General Corporation Law (the "MGCL") the Board of Directors of
the Corporation, by resolution duly adopted on March 25, 1999, has classified
800,000 shares of the authorized but unissued Preferred Stock par value $.01 per
share ("Preferred Stock") as a separate class of Preferred Stock, authorized the
issuance of a maximum of 800,000 shares of such class of Preferred Stock, set
certain of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, terms and conditions
of redemption and other terms and conditions of such class of Preferred Stock,
and pursuant to the powers contained in the Bylaws of the Corporation and the
MGCL, appointed a committee (the "Committee") of the Board of Directors and
delegated to the Committee, to the fullest extent permitted by the MGCL and the
Charter and Bylaws of the Corporation, all powers of the Board of Directors with
respect to designating and setting all preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of, such
class of Preferred Stock, determining the number of shares of such class of
Preferred Stock (not in excess of the aforesaid maximum number) to be issued and
the consideration and other terms and conditions upon which such shares of such
class of Preferred Stock are to be issued.
SECOND: Pursuant to the authority conferred upon the Committee as
aforesaid, the Committee has unanimously adopted resolutions designating the
aforesaid class of Preferred Stock as the "9.25% Series A Cumulative Convertible
Preferred Stock," setting the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, terms and
conditions of redemption and other terms and conditions of such class of
Preferred Stock (to the extent not set by the Board of Directors in the
resolutions referred to in Article FIRST of these Article Supplementary) and
authorizing the issuance of up to 800,000 shares of such class of Preferred
Stock.
THIRD: The designation, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption of such
class of Preferred Stock as designated and set by such Committee with the
authority granted by the Board of Directors are as follows:
SECTION 1. NUMBER OF SHARES AND DESIGNATION. This series of Preferred
Stock shall be designated as 9.25% Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Shares"), and the number of shares of Preferred
Stock which shall constitute such series shall be 800,000 shares
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<PAGE>
which number may be decreased (but not below the number thereof then
outstanding) from time to time by the Board of Directors.
SECTION 2. DEFINITIONS. For purposes of the Series A Preferred Shares,
the following terms shall have the meanings indicated:
"Act" shall mean the Securities Act of 1933, as amended.
"Agreement" shall have the meaning set forth in paragraph (d)(iii) of
Section 9 hereof.
"AMEX" shall have the meaning set forth in the definition of "Market
Price."
"Articles Supplementary" shall mean these Articles Supplementary of the
Corporation, dated April 2, 1999, as filed with the Department on April 2, 1999.
"Asset Disposition" shall mean a sale, transfer or capital lease (as
determined in accordance with GAAP) of all or substantially all of the assets of
the Corporation or the Operating Partnership to a Person that is not an
affiliate of the Corporation or the Operating Partnership.
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to perform
any of its responsibilities with respect to the Series A Preferred Shares.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York, New
York are not required to be open.
"Bylaws" shall mean the bylaws of the Corporation.
"Capital Expenditure Allowance" means, with respect to each real
property asset for any period, the greater of (a) actual Maintenance Capital
Expenditures made by the Operating Partnership with respect to such real
property asset during such period and (b) an amount equal to three percent (3%)
of Gross Golf Revenues with respect to such real property asset during such
period.
"Capital Expenditures" means, with respect to any Person, the aggregate
cost of all capital assets acquired by such Person during such period,
determined in accordance with GAAP.
"Capital Gains Amount" shall have the meaning set forth in paragraph
(f) of Section 3 hereof.
"Capital Transaction" shall mean (i) any asset or property sale,
transfer or disposition, (ii) the issuance of any preferred stock by the
Corporation or any of its Consolidated Subsidiaries or (iii) the issuance of any
preferred partnership units by the Operating Partnership or any of its
Consolidated Subsidiaries (other than preferred partnership units issued to the
Corporation or any wholly-owned subsidiary thereof).
"Cash Flow" means, with respect to the Corporation, on a consolidated
basis, the difference between (A) the sum of (i) Funds From Operations (adjusted
for non-recurring items and non-cash revenue, including, without limitation, the
effect of straight-lining of rents pursuant to GAAP) and (ii) Interest Expense
and (B) the Capital Expenditure Allowance.
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"Change in Control" shall be deemed to have occurred if any of the
following occur: (i) any merger or consolidation of the Corporation in which one
or more entities acquire more than 50% of the Corporation's outstanding voting
equity securities or as a result of which stockholders of the Corporation
immediately before such merger or consolidation hold, immediately after such
merger or consolidation, less than 50% of the surviving entity's outstanding
common stock; (ii) the Corporation or a wholly-owned subsidiary of the
Corporation ceases to be the sole general partner of the Operating Partnership
or grants or sells to any person, or consents to any amendment to the Operating
Partnership Agreement which has the effect of transferring the power to control
or direct the actions of the Operating Partnership to any person as if such
person (A) were a general partner of the Operating Partnership or (B) were a
limited partner of the Operating Partnership with consent or approval rights
materially greater than the consent or approval rights held by the limited
partners of the Operating Partnership on the date hereof; or (iii) the Operating
Partnership is a party to any entity conversion or any merger or consolidation
in which the Operating Partnership is not the surviving entity in such merger or
consolidation or in which the effect is of the nature set forth in the next
preceding clause (ii).
"Charter" shall have the meaning set forth in the first recital hereof.
"Committee" shall have the meaning set forth in the first recital
hereof.
"Common Shares" shall mean the shares of common stock, par value $0.01
per share, of the Corporation.
"Consolidated" shall mean "consolidated" in accordance with GAAP.
"Consolidated Subsidiary" shall mean at any date any Subsidiary of the
Corporation or the Operating Partnership that is Consolidated on the financial
statements of the Corporation or the Operating Partnership in accordance with
GAAP.
"Constituent Person" shall have the meaning set forth in paragraph (e)
of Section 9 hereof.
"Contingent Obligation" as to any Person means, without duplication,
(i) any contingent obligation of such Person required to be shown on such
Person's balance sheet in accordance with GAAP, and (ii) any obligation required
to be disclosed in the footnotes to such Person's financial statements in
accordance with GAAP, guaranteeing partially or in whole any non-recourse
Indebtedness, lease, dividend or other obligation, exclusive of contractual
indemnities (including, without limitation, any indemnity or price-adjustment
provision relating to the purchase or sale of securities or other assets) and
guarantees of non-monetary obligations (other than guarantees of completion)
which have not yet been called on or quantified, of such Person or of any other
Person. The amount of any Contingent Obligation described in clause (ii) shall
be deemed to be (a) with respect to a guaranty of interest or interest and
principal, or operating income guaranty, the sum of all payments required to be
made thereunder (which in the case of an operating income guaranty shall be
deemed to be equal to the debt service for the note secured thereby), calculated
at the applicable interest rate, through (i) in the case of an interest or
interest and principal guaranty, the stated date of maturity of the obligation
(and commencing on the date interest could first be payable thereunder), or (ii)
in the case of an operating income guaranty, the date through which such
guaranty with remain in effect, and (b) with respect to all guarantees not
covered by the preceding clause (a), an amount equal to the state or
determinable amount of the primary obligation in respect of which such guaranty
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as recorded on the balance sheet and on the footnotes to the most
recent financial statements of the Corporation. Notwithstanding anything
contained herein to the contrary, guarantees of completion shall not be deemed
to be Contingent Obligations unless and until a claim for payment or performance
has
A-3
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been made thereunder by the person entitled to performance or payment
thereunder, at which time any such guaranty of completion shall be deemed to be
a Contingent Obligation in an amount equal to any such claim. Subject to the
preceding sentence, (i) in the case of a joint and several guaranty given by
such Person and another Person (but only to the extent such guaranty is directly
or indirectly recourse to such Person), the amount of the guaranty, to the
extent it is directly or indirectly recourse to such Person, shall be deemed to
be 100% thereof unless and only to the extent that such other Person has
delivered cash or a cash equivalents to secure all or any part of such other
Person's guaranteed obligations, and (ii) in the case of a guaranty (whether or
not joint and several) of an obligation otherwise constituting Indebtedness of
another Person, the amount of such guaranty shall be deemed to be only that
amount in excess of the amount of the obligation constituting Indebtedness of
such other Person that is also included as Indebtedness of the Corporation, the
Operating Partnership or a Consolidated Subsidiary hereunder.
"Conversion Price" shall mean the conversion price per Common Share for
which each Series A Preferred Share is convertible, as such Conversion Price may
be adjusted pursuant to Section 9 hereof. The initial conversion price shall be
$26.25 (equivalent to a conversion rate of .95238 Common Shares for each Series
A Preferred Share).
"Current Market Price" shall mean, with respect to the Common Shares,
on any date specified herein, the average of the Market Price during the period
of the most recent twenty consecutive trading days ending on such date.
"Debt" means, with respect to the Corporation at any date and without
duplication, the sum of the following calculated in accordance with GAAP: (a)
all liabilities, obligations and indebtedness including but not limited to
obligations evidenced by bonds, debentures, notes or other similar instruments
of any such Person, (b) all obligations to pay the deferred purchase price of
property or services of any such Person, except trade payables arising in the
ordinary course of business not more than one hundred and twenty (120) days past
due, (c) all obligations of any such Person as lessee under capital leases, (d)
all Contingent Obligations of any such Person, (e) all obligations, contingent
or otherwise, of any such Person relative to the face amount of letters of
credit, whether or not drawn, and banker's acceptances issued for the account of
any such Person and (f) all obligations incurred by any such Person pursuant to
Hedging Agreements.
"Defaulted Preferred Stock" shall have the meaning set forth in
paragraph (b) of Section 12 hereof.
"Dividend Payment Date" shall mean, with respect to each Dividend
Period, the 15th calendar day of January, April, July and October, in each year,
commencing on July 15, 1999; provided, however, that if any Dividend Payment
Date falls on any day other than a Business Day, the dividend payment due on
such Dividend Payment Date shall be paid on the first Business Day immediately
following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on the Issue Date
and end on and include June 30, 1999).
"Equity Stock" shall have the meaning set forth in Section 12 hereof.
"Fixed Charges" means, with respect to any fiscal period, the sum of
(a) Total Interest Expense and (b) the aggregate of all scheduled principal
payments of Total Outstanding Indebtedness made or required to be made during
such fiscal period by the Corporation, the Operating Partnership, the
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Consolidated Subsidiaries and the Minority Holdings which are allocable to the
Corporation and/or the Operating Partnership (it being agreed that in the case
of Indebtedness of Minority Holdings that is fully recourse to the Corporation
or the Operating Partnership, 100% of Total Interest Expense and scheduled
principal payments shall be included in "Fixed Charges") (exclusive of optional
prepayments and repayments of the outstanding balance of a loan at maturity
other than from loan acceleration), and (c) the aggregate of all dividends or
distributions payable on the Corporation's and/or any of its Consolidated
Subsidiaries' preferred stock or the Operating Partnership's preferred
partnership units not owned by the Corporation or any of its affiliates.
"Funds From Operations" means, with respect to the Corporation on a
consolidated basis, Net Income less, to the extent included in the determination
of Net Income, (a) the income (or loss) of any Person in which the Corporation
has a minority ownership interest, (b) the income (or loss) arising from the
restructuring of any Debt or the disposition of any asset (other than in the
ordinary course of business) plus, without duplication, real estate depreciation
and amortization (but excluding therefrom any amortization of financing costs),
in each case for the Corporation on a consolidated basis for the relevant period
in accordance with GAAP.
"GAAP" shall mean generally acceptable accounting practices,
consistently applied.
"Gross Golf Revenues" means, with respect to any lessee of a real
property asset for any period, all revenues accrued (whether by the lessee under
a participating lease or any subtenants, assignees, concessionaires or licensees
of the Operating Partnership) from or by reason of the operation of the golf
operations at the real property asset to which the Operating Partnership is
entitled calculated in accordance with GAAP (but excluding reasonable reserves
for refunds, allowances and bad debts applicable to such operations), including,
without limitation, (i) revenues from membership initiation fees, to the extent
provided in the applicable participating lease, (ii) periodic membership dues,
(iii) greens fees, (iv) fees to reserve a tee time, (v) guest fees, (vi) golf
cart rentals, (vii) parking lot fees, (viii) locker rentals, (ix) fees for golf
club storage, (x) fees for the use of swim, tennis or other facilities, (xi)
charges for range balls, range fees or other fees for golf practice facilities,
(xii) fees or other charges paid for golf or tennis lessons (except where
retained by or paid to a United States Tennis Association or Professional Golf
Association professional in accordance with historical practice at such real
property asset), (xiii) fees or other charges for fitness centers, (xiv)
forfeited deposits with respect to any membership application, (xv) transfer
fees imposed on any member in connection with the transfer of any membership
interest, (xvi) fees or other charges paid to such lessee by sponsors of golf
tournaments at such real property asset, to the extent provided in the
applicable participating lease, (xvii) advertising or placement fees paid by
vendors in exchange for exclusive use or name rights at such real property
asset, and (xviii) fees received in connection with any golf package sponsored
by any hotel group, condominium group, golf association, travel agency, tourist
or travel association or similar payments; provided, however, that Gross Golf
Revenues shall not include:
(a) Any revenue received from or by reason of such real property asset
relating to (i) the operation of snack bars, restaurants, bars, catering
functions, and banquet operations, (ii) sale of merchandise and inventory on
such real property asset, and (iii) photography services.
(b) The amount of any city, county, state or federal sales, admissions,
usage, or excise tax on the item included in Gross Golf Revenue, which is both
added to or incorporated in the selling price and paid to the taxing authority
by such Lessee;
(c) Revenues or proceeds from sales or trade-ins of machinery,
vehicles, trade fixtures or personal property owned by such lessee used in
connection with the operation of such real property asset; and
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(d) Any other revenues or proceeds to which the Operating Partnership
is not entitled.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure and any confirming letter
executed pursuant to such hedging agreement, all as amended, restated or
otherwise modified.
"Indebtedness" of any Person means, without duplication, (A) as shown
on such Person's balance sheet (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property and (ii) all indebtedness
of such Person evidenced by a note, bond, debenture or similar instrument
(whether or not disbursed in full in the case of a construction loan), (B) the
face amount of all letters of credit issued for the account of such Person and,
without duplication, all unreimbursed amounts drawn thereunder, (C) all
Contingent Obligations of such Person, and (D) all payment obligations of such
Person under any interest rate protection agreement (including, without
limitation, any interest rate swaps, caps, floors, collars and similar
agreements) and currency swaps and similar agreements which were not entered
into specifically in connection with Indebtedness set forth in clause (A), (B)
or (C) hereof. For purposes of these Articles Supplementary, Indebtedness (other
than Contingent Obligations) of the Corporation or the Operating Partnership
shall be deemed to include only Indebtedness of the Corporation, the Operating
Partnership and the Consolidated Subsidiaries plus, without duplication, the
Corporation's pro rata share (such share being based upon the Corporation's
percentage ownership interest as shown on the Corporation's annual financial
statements) of the indebtedness of any Person in which the Corporation, directly
or indirectly, owns an interest, provided that such Indebtedness is nonrecourse,
both directly and indirectly, to the Corporation, the Operating Partnership or
any such Consolidated Subsidiary.
"Interest Expense" means interest (whether accrued, paid or
capitalized) actually payable by a Person on its Indebtedness for borrowed
money.
"Issue Date" shall mean the first date on which any Series A Preferred
Shares are issued and sold.
"Junior Shares" shall have the meaning set forth in paragraph (c) of
Section 11 hereof.
"Liquidation" shall mean a liquidation, dissolution or winding up of
the Corporation or the Operating Partnership, whether voluntary or involuntary.
"Liquidation Event" shall mean (A) a Liquidation, (B) a Change of
Control, or (C) an Asset Disposition.
"Liquidation Event Notice" shall have the meaning set forth in
paragraph (b) of Section 6 hereof.
"Liquidation Preference" shall have the meaning set forth in paragraph
(a) of Section 4 hereof.
"Maintenance Capital Expenditures" means a Capital Expenditure made by
the Operating Partnership for the purpose of repairing, replacing or
refurbishing a then-existing capital asset of the Operating Partnership.
"Mandatory Redemption Notice" shall have the meaning set forth in
Section 5 hereof.
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"Management Letter" shall mean that certain letter, dated the date
hereof, from the Corporation to AEW Targeted Securities Fund, L.P., regarding
certain management rights of AEW Targeted Securities, L.P. in the Corporation.
"Market Price" shall mean, with respect to the Common Shares on any
date, the last reported sales price, regular way on such day, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way on such day, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the American Stock Exchange ("AMEX") or, if the Common
Shares are not listed or admitted for trading on AMEX, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Common Shares
are listed or admitted for trading or, if the Common Shares are not listed or
admitted for trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASD Automated Quotation System or,
if such system is no longer in use, the principal other automated quotation
system that may then be in use, or if the Common Shares are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker regularly making a market in the Common Shares
selected for such purpose by the Board of Directors or, if there is no such
professional market maker, such amount as an independent investment banking firm
selected by the Board of Directors determines to be the value of a Common Share.
"Minority Holdings" means partnerships, joint ventures, limited
liability companies, trusts, associations and corporations held or owned by the
Operating Partnership and/or the Corporation which are not consolidated with
Operating Partnership or the Corporation on their respective financial
statements.
"Net Income" means, with respect to the Corporation for any period, the
consolidated net income (or loss) of the Corporation for such period determined
in accordance with GAAP.
"Non-Electing Share" shall have the meaning set forth in paragraph (e)
of Section 9 hereof.
"Notice of Election" shall have the meaning set forth in paragraph (c)
of Section 6.
"Operating Partnership" shall mean Golf Trust of America, L.P., a
Delaware limited partnership.
"Operating Partnership Agreement" shall mean the First Amended and
Restated Agreement of Limited Partnership of the Operating Partnership, dated
February 12, 1997.
"Parity Shares" or "Parity Stock" shall have the meaning set forth in
paragraph (b) of Section 11 hereof.
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Preferred Stock" shall meaning set forth in the recital First hereof.
"Preferred Units" shall mean the Series A Preferred Units of limited
partnership interest in the Operating Partnership in number and with rights and
preferences identical to the Series A Preferred Shares.
"Put Date" shall have the set forth in paragraph (c) of Section 6
hereof.
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"Redemption Date" shall have the meaning set forth in paragraph (a) of
Section 7 hereof.
"Redemption Notice" shall have the meaning set forth in paragraph (a)
of Section 7 hereof.
"Redemption Premium" shall have the meaning set forth in paragraph (a)
of Section 7 hereof.
"Requesting Holder" shall have the set forth in paragraph (a) of
Section 6 hereof.
"Rights" shall have the meaning set forth in paragraph (d)(iii) of
Section 9 hereof.
"Securities" shall have the meaning set forth in paragraph (d)(iii) of
Section 9 hereof.
"Senior Shares" shall have the meaning set forth in paragraph (a) of
Section 11 hereof.
"Series A Preferred Shares" shall have the meaning set forth in Section
1 hereof.
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of a dividend or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of shares of capital
stock of the Corporation; provided, however, that if any funds for any class or
series of Junior Shares or any class or series of Parity Shares are placed in a
separate account of the Corporation or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the Series A
Preferred Shares shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement,
dated the date hereof, by and among the Corporation, the Operating Partnership,
GTA GP, Inc., GTA LP, Inc. and AEW Targeted Securities Fund, L.P.
"Subsidiary" shall mean any corporation, limited partnership, limited
liability company, or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Corporation or the Operating Partnership.
"Total Distributions" shall have the meaning set forth in paragraph (f)
of Section 3 hereof.
"Total Interest Expense" means, for any period, the sum of (i) the
Interest Expense of the Corporation, the Operating Partnership and the
Consolidated Subsidiaries with respect to the Total Outstanding Indebtedness
paid, accrued and/or capitalized (but exclusive of capitalized construction loan
interest funded from an established interest reserve) for such period, and (ii)
the pro rata share of Interest Expense of the Minority Holdings allocable to the
Corporation or the Operating Partnership during such period and paid, accrued
and/or capitalized during such period as set forth above.
"Total Outstanding Indebtedness" means, for any period, the sum of (i)
the amount of Indebtedness of the Corporation, the Operating Partnership and the
Consolidated Subsidiaries set forth on their then most recent quarterly
financial statements, plus any additional Indebtedness incurred by the
Corporation, the Operating Partnership and the Consolidated Subsidiaries since
the time of such financial statements, including without limitation
reimbursement obligations for letters of credit, and interest rate and currency
hedges, and (ii) the pro rata share of the outstanding amount of Indebtedness of
Minority
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Holdings properly allocable to the Corporation, the Operating Partnership or the
Consolidated Subsidiaries as of the date of determination, and (iii) Contingent
Obligations of the Corporation, the Operating Partnership and the Consolidated
Subsidiaries and the Corporation's, the Operating Partnership's or such
Consolidated Subsidiaries' pro rata share of the Contingent Obligations of any
Minority Holdings.
"Trading Day" shall mean any day on which the securities in question
are traded on the AMEX, or if such securities are not listed or admitted for
trading on the AMEX, on the principal national securities exchange on which such
securities are listed or admitted, or if not listed or admitted for trading on
any national securities exchange, on the Nasdaq National Market, or if such
securities are not quoted on such Nasdaq National Market, in the applicable
securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in paragraph (e) of
Section 9 hereof.
SECTION 3. DIVIDENDS.
(a) The holders of the Series A Preferred Shares shall be entitled to
receive, when, as and if authorized and declared by the Board of Directors out
of funds legally available for that purpose, dividends payable in cash at the
rate per annum equal to the greater of (i) $2.3125 per Series A Preferred Share
or (ii) an amount per Series A Preferred Share equal to the aggregate annual
amount of cash dividends paid or payable, if any, with respect to that number of
Common Shares, or portion thereof, into which each Series A Preferred Share is
then convertible, in accordance with the terms of these Articles Supplementary
(such greater amount, the "Annual Dividend Rate"). The amount referred in clause
(ii) of this subparagraph (a) with respect to each Dividend Period shall be
determined as of the applicable Dividend Payment Date by multiplying the number
of Common Shares, or portion thereof calculated to the fourth decimal point,
into which a Series A Preferred Share would be convertible at the opening of
business on such Dividend Payment Date (based on the Conversion Price then in
effect) by the quarterly cash dividend payable or paid for such Dividend Period
in respect of a Common Share outstanding as of the record date for the payment
of dividends on the Common Shares with respect to such Dividend Period and
multiplying such product by four. Such dividends shall be cumulative from the
Issue Date, whether or not in any Dividend Period or Periods there shall be
funds of the Corporation legally available for the payment of such dividends and
shall be payable quarterly, when, as and if authorized and declared by the Board
of Directors, in arrears on Dividend Payment Dates, commencing on the first
Dividend Payment Date after the Issue Date. Each such dividend shall be payable
in arrears to the holders of record of the Series A Preferred Shares, as they
appear on the stock records of the Corporation at the close of business on each
record date which shall not be more than 30 days preceding the applicable
Dividend Payment Date (the "Dividend Payment Record Date"), as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past Dividend
Periods may be authorized and declared and paid at any time, without reference
to any regular Dividend Payment Date, to holders of record on such date, which
shall not be more than 45 days preceding the payment date thereof, as may be
fixed by the Board of Directors. The amount of accrued and unpaid dividends on
any Series A Preferred Share at any date shall be the amount of any dividends
accumulated to and including such date, whether or not earned or declared, which
have not been paid in cash or set aside for payment. Accumulated and unpaid
dividends will not bear interest.
(b) The amount of dividends payable for each full Dividend Period for
the Series A Preferred Shares shall be computed by dividing the Annual Dividend
Rate by four. The amount of dividends payable for the initial Dividend Period,
or any other period shorter or longer than a full Dividend Period, on the Series
A Preferred Shares shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of Series A Preferred Shares shall not be entitled to any
dividends,
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whether payable in cash, property or stock, in excess of cumulative dividends,
as herein provided, on the Series A Preferred Shares, plus any other amounts
provided in these Articles Supplementary.
(c) So long as any Series A Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
authorized and declared or paid or set apart for payment on any series or class
or classes of Parity Shares for any period unless full cumulative dividends have
been or contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for such payment
on the Series A Preferred Shares for all Dividend Periods terminating on or
prior to the dividend payment date for such class or series of Parity Shares.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends authorized and declared upon Series A
Preferred Shares and all dividends authorized and declared upon any other series
or class or classes of Parity Shares shall be authorized and declared ratably in
proportion to the respective amounts of dividends accumulated and unpaid on the
Series A Preferred Shares and such Parity Shares.
(d) So long as any Series A Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Junior
Shares) shall be authorized and declared or paid or set apart for payment or
other distribution authorized and declared or made upon Junior Shares, nor shall
any Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for purposes of
and in compliance with requirements of an employee incentive or benefit plan of
the Corporation or any subsidiary), for any consideration (or any moneys to be
paid to or made available for a sinking fund for the redemption of any shares of
such stock) by the Corporation, directly or indirectly (except by conversion
into or exchange for Junior Shares), unless in each case (i) the full cumulative
dividends on all outstanding Series A Preferred Shares and any other Parity
Shares of the Corporation shall have been paid or set apart for payment for all
past Dividend Periods with respect to the Series A Preferred Shares and all past
dividend periods with respect to such Parity Shares and (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series A Preferred Shares and any
Parity Shares.
(e) Any distribution payment made on the Series A Preferred Stock shall
first be credited against the earliest accrued but unpaid distribution due with
respect to such shares which remains payable.
(f) If, for any taxable year, the Corporation elects to designate as
"capital gain distributions" (as defined in Section 857 of the Code) any portion
(the "Capital Gains Amount") of the distributions paid or made available for the
year to the holders of all classes of shares (the "Total Distributions"), then
the portion of the Capital Gains Amount that will be allocable to the holders of
Series A Preferred Stock will be the Capital Gains Amount multiplied by a
fraction, the numerator of which will be the total distributions (within the
meaning of the Code) paid or made available to the holders of the Series A
Preferred Stock for the year and the denominator of which shall be the Total
Distributions.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation Event, before any payment or
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of Junior Shares, the holders of Series
A Preferred Shares shall be entitled to receive a liquidation preference which
is an amount equal to the greater of (i) Twenty-Five Dollars ($25.00) per Series
A Preferred Share plus dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final
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distribution to such holder (the "Liquidation Preference") or (ii) an amount per
Series A Preferred Share equal to the amount which would have been payable on
the Common Shares, or portion thereof, into which one Series A Preferred Share
is then convertible had each Series A Preferred Share been converted into Common
Shares immediately prior to such Liquidation Event. The foregoing amounts shall
be subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the Series A
Preferred Shares. Until the holders of the Series A Preferred Shares have been
paid in full the amounts owed pursuant to this Section 4(a), no payment will be
made to any holder of Junior Shares upon a Liquidation Event. If, upon any such
Liquidation Event, the assets of the Corporation, or proceeds thereof,
distributable among the holders of Series A Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any other shares of any class or series of Parity Stock, then such
assets, or the proceeds thereof, shall be distributed among the holders of such
Series A Preferred Shares and such other Parity Stock ratably in accordance with
the amounts that would be payable on such Series A Preferred Shares and such
other Parity Stock if all amounts payable thereon were paid in full.
(b) Subject to the rights of the holders of any Parity Shares, upon any
Liquidation Event of the Corporation, after payment shall have been made in full
to the holders of Series A Preferred Shares and any Parity Shares, as provided
in this Section 4, any other series or class or classes of Junior Shares shall,
subject to the respective terms thereof, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of the Series A
Preferred Shares and any Parity Shares shall not be entitled to share therein.
SECTION 5. MANDATORY REDEMPTION. Upon the occurrence of a
Liquidation, the Corporation will automatically redeem for cash all, and not
less than all, of the outstanding shares of Series A Preferred Shares at a price
per Series A Preferred Share equal to the Liquidation Preference. In order to
effect the mandatory redemption, the Corporation will deliver written notice to
all holders of Series A Preferred Shares (the "Mandatory Redemption Notice"),
such notice not be delivered later than 60 days prior to the Liquidation,
setting forth the date of the intended redemption and the Liquidation Preference
amount.
SECTION 6. REDEMPTION AT THE OPTION OF HOLDERS OF SERIES A
PREFERRED SHARES
(a) Upon a Change of Control or an Asset Disposition,
each record holder of shares of Series A Preferred Shares will have the right,
but not the obligation, at such holder's option, to elect to cause the
Corporation to redeem for cash, all, but not less than all, of the outstanding
shares of Series A Preferred Shares owned by such holder (a "Requesting Holder")
at a price per Series A Preferred Share equal to the Liquidation Preference.
(b) The Corporation shall give the holders of shares of
Series A Preferred Shares written notice (the "Liquidation Event Notice") of the
occurrence of any of the events described in Section 6(a) no later than 60 days
after such occurrence containing a detailed description of the event or events
which occurred and the rights of the holders in respect thereof.
(c) The Requesting Holders shall give written notice of
their election (the "Notice of Election") pursuant to this Section 6 by
first-class, certified mail, return receipt requested, postage prepaid, to the
Corporation no later than 30 days after the date of the Liquidation Event Notice
at its principal place of business or to any transfer agent of the Corporation.
Upon receipt of a Notice of Election, the Corporation shall fix a date for
redemption which shall not be more than sixty (60) days
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after receipt of Notice of Election from the Requesting Holders (the date fixed
for any such redemption, the "Put Date"). Notice will be mailed by the
Corporation, first class, certified mail, return receipt requested, postage
prepaid, not less than thirty (30) days prior to the redemption date, addressed
to each Requesting Holder at their respective addresses as they appear on the
stock transfer records of the Corporation. No failure to give such notice or any
defect therein or in the mailing thereof will affect the validity of the
proceedings for the redemption of any shares of Series A Preferred Shares. Each
such notice shall state, as appropriate: (i) the Put Date; (ii) the Liquidation
Preference amount; (iii) the number of shares of Series A Preferred Shares to be
redeemed (which number shall equal all of the then outstanding shares of Series
A Preferred Shares held of record by such Requesting Holder); and (iv) the place
or places at which certificates for such shares are to be surrendered for cash.
(d) From and after the Put Date, (i) except as otherwise
provided herein, dividends on the Series A Preferred Shares so called for
redemption shall cease to accrue, (ii) said shares shall no longer be deemed to
be outstanding, and (iii) all rights of the holders thereof as holders of Series
A Preferred Shares of the Corporation shall cease (except the rights to receive
the cash payable upon such redemption, without interest thereon, upon surrender
and endorsement of their certificates if so required and to receive any
dividends payable thereon). The Corporation's obligation to provide cash in
accordance with the preceding sentence shall be deemed fulfilled if, on or
before the Redemption Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an office in the
Borough of Manhattan, City of New York and that has, or is an affiliate of a
bank or trust company that has, a capital and surplus of at least $500,000,000,
any cash necessary for such redemption, in trust, with irrevocable instructions
that such cash be applied to the redemption of the Series A Preferred Shares so
called for redemption. No interest shall accrue for the benefit of the holder of
Series A Preferred Shares to be redeemed on any cash so set aside by the
Corporation.
SECTION 7. REDEMPTION AT THE OPTION OF THE CORPORATION.
(a) Except as provided in Article V of the Charter, the
Series A Preferred Shares shall not be redeemable at the option of Corporation
prior to April 2, 2004. On and after April 2, 2004, the Corporation, at its
option, may redeem the Series A Preferred Shares, in whole but not in part, as
set forth herein, subject to the provisions described below. Except as set forth
in Section 5 hereto, the Series A Preferred Shares have no mandatory redemption
date.
At any time on or after April 2, 2004, upon the written
election of the Corporation given to each record holder of Series A Preferred
Shares (the "Redemption Notice"), the Corporation may redeem for cash on the
date specified in the Redemption Notice (which date shall not be less than 20
days nor more than 45 days after the date of the Redemption Notice) (the
"Redemption Date"), all, but not less than all, of the outstanding Series A
Preferred Shares at a price per Series A Preferred Share equal to the
Liquidation Preference plus a premium (the "Redemption Premium") which shall
equal the following percentages of the Liquidation Preference during the
following periods:
<TABLE>
<S> <C>
From April 2, 2004 through and
including April 1, 2005 .............................................4%
From April 2, 2005 through and
including April 1, 2006 .............................................3%
From April 2, 2006 through and
including April 1, 2007 .............................................2%
</TABLE>
A-12
<PAGE>
<TABLE>
<S> <C>
From April 2, 2007 through and
including April 1, 2008 .............................................1%
April 2, 2008 and thereafter............................................0%
</TABLE>
During the period beginning on the date of the Redemption
Notice and ending at the close of business on the Redemption Date, the holders
of the Series A Preferred Shares shall retain all conversion rights pursuant to
Section 9 hereof.
(b) From and after the Redemption Date, (i) except as
otherwise provided herein, dividends on the Series A Preferred Shares so called
for redemption shall cease to accrue, (ii) said shares shall no longer be deemed
to be outstanding, and (iii) all rights of the holders thereof as holders of
Series A Preferred Shares of the Corporation shall cease (except the rights to
receive the cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to receive
any dividends payable thereon). The Corporation's obligation to provide cash in
accordance with the preceding sentence shall be deemed fulfilled if, on or
before the Redemption Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an office in the
Borough of Manhattan, City of New York and that has, or is an affiliate of a
bank or trust company that has, a capital and surplus of at least $500,000,000,
any cash necessary for such redemption, in trust, with irrevocable instructions
that such cash be applied to the redemption of the Series A Preferred Shares so
called for redemption. No interest shall accrue for the benefit of the holder of
Series A Preferred Shares to be redeemed on any cash so set aside by the
Corporation.
(c) The Notice of Redemption shall be provided (i) by
first class mail, postage prepaid, to such holder's address as the same appears
on the stock records of the Corporation, or (ii) by publication in The Wall
Street Journal or The New York Times, or if neither such newspaper is then being
published, any other daily newspaper of national circulation, in either case not
less than 20 nor more than 45 days prior to the Redemption Date. If the
Corporation elects to provide such notice by publication, it shall also promptly
mail notice of such redemption to the holders of the Series A Preferred Shares
to be redeemed. Neither the failure to mail any notice required by this
paragraph, nor any defect therein or in the mailing thereof to any particular
holder, shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given on the date mailed whether or not the holder receives the
notice.
(d) The deposit of funds with a bank or trust corporation for
the purpose of redeeming Series A Preferred Stock (pursuant to Section 6,
Section 7, or otherwise) shall be irrevocable except that:
(i) the Corporation shall be entitled to receive from such
bank or trust corporation the interest or other earnings, if any,
earned on any money so deposited in trust, and the holders of any
shares redeemed shall have no claim to such interest or other earnings;
and
(ii) any balance of monies so deposited by the Corporation and
unclaimed by the holders of the Series A Preferred Stock entitled
thereto at the expiration of two years from the applicable redemption
dates shall be repaid, together with any interest or other earnings
thereon, to the Corporation, and after any such repayment, the holders
of the shares entitled to the funds so repaid to the Corporation shall
look only to the Corporation for payment without interest or other
earnings.
A-13
<PAGE>
SECTION 8. REACQUIRED SHARES TO BE RETIRED. All Series A Preferred
Shares which shall have been issued and reacquired in any manner by the
Corporation (including any shares surrendered upon conversion as described in
Section 9) shall be restored to the status of authorized but unissued shares of
Preferred Stock, without designation as to series. The Board of Directors may
also retire any unissued Series A Preferred Shares, and at such time such shares
shall be restored to the status of authorized but unissued Preferred Shares,
without designation as to series.
SECTION 9. CONVERSION. Holders of Series A Preferred Shares shall have
the right to convert all or a portion of such shares into Common Shares, as
follows:
(a) Subject to and upon compliance with the provisions of this Section
9, a holder of Series A Preferred Shares shall have the right, at such holder's
option, at any time and from time to time, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing the
aggregate Liquidation Preference (excluding, for this purpose only, any
dividends accrued in respect of the then-current Dividend Period) of such Series
A Preferred Shares by the Conversion Price (as in effect at the time and on the
date provided for in the last paragraph of paragraph (b) of this Section 9) by
surrendering such Series A Preferred Shares to be converted, such surrender to
be made in the manner provided in paragraph (b) of this Section 9; provided,
however, that the right to convert Series A Preferred Shares called for
redemption pursuant to Section 7 hereof or put for redemption pursuant to
Section 6 hereof shall terminate at the close of business on the Redemption Date
or the Put Date, as applicable, fixed for such redemption, unless the
Corporation shall default in making payment of any cash payable upon such
redemption under Section 6 or 7 hereof, as applicable.
(b) In order to exercise the conversion right, the holder of each
Series A Preferred Share to be converted shall surrender the certificate
representing such Series A Preferred Share, duly endorsed or assigned to the
Corporation or in blank, to the Corporation, accompanied by written notice to
the Corporation that the holder thereof elects to convert such Series A
Preferred Shares. Unless the Common Shares issuable on conversion are to be
issued in the same name as the name in which such Series A Preferred Shares are
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder or such holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid).
Holders of Series A Preferred Shares at the close of business on any
Dividend Payment Record Date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
conversion thereof following such Dividend Payment Record Date and prior to such
Dividend Payment Date. A holder of Series A Preferred Shares on a Dividend
Payment Record Date who (or whose transferee) tenders any such shares for
conversion into Common Shares on such Dividend Payment Date will receive the
dividend payable by the Corporation on such Series A Preferred Shares on such
date.
As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or send on such holder's written order, a
certificate or certificates for the number of full Common Shares issuable upon
the conversion of such Series A Preferred Shares in accordance with the
provisions of this Section 9, and any fractional interest in respect of a Common
Share arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 9.
A-14
<PAGE>
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for Series A
Preferred Shares shall have been surrendered and such notice received by the
Corporation as aforesaid, and the Person or Persons in whose name or names any
certificate or certificates for Common Shares shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby at such time on such date, and such conversion
shall be at the Conversion Price in effect at such time and on such date unless
the stock transfer books of the Corporation shall be closed on that date, in
which event such Person or Persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such Series A Preferred Shares
shall have been surrendered and such notice received by the Corporation. If the
dividend payment record date for the Series A Preferred Stock and Common Stock
do not coincide, and the preceding sentence does not operate to ensure that a
holder of Series A Preferred Shares whose shares are converted into Common Stock
does not receive dividends on both the Series A Preferred Shares and the Common
Stock into which such shares are converted for the same Dividend Period, then
notwithstanding anything herein to the contrary, it is the intent of these
Articles Supplementary that, and the transfer agent is authorized to ensure
that, no conversion after the earlier of such record dates will be accepted
until after the latter of such record dates.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series A Preferred Shares. Instead
of any fractional interest in a Common Share that would otherwise be deliverable
upon the conversion of a Series A Preferred Share, the Corporation shall pay to
the holder of such Series A Preferred Share an amount in cash based upon the
Current Market Price of Common Shares on the Trading Day immediately preceding
the date of conversion. If more than one Series A Preferred Share shall be
surrendered for conversion at one time by the same holder, the number of full
Common Shares issuable upon conversion thereof shall be computed on the basis of
the aggregate number of Series A Preferred Shares so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after the Issue Date (A)
pay a dividend or make a distribution on its shares of capital stock in Common
Shares, (B) subdivide its outstanding Common Shares into a greater number of
shares, (C) combine its outstanding Common Shares into a smaller number of
shares or (D) issue any shares of capital stock by reclassification of its
Common Shares, the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of shareholders entitled to
receive such dividend or distribution or at the opening of business on the day
following the day on which such subdivision, combination or reclassification
becomes effective, as the case may be, shall be adjusted so that the holder of
any Series A Preferred Share thereafter surrendered for conversion shall be
entitled to receive the number of Common Shares that such holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had such Series A Preferred Share been converted immediately
prior to the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (i) shall become effective
immediately upon the opening of business on the day next following the record
date (subject to paragraph (h) below) in the case of a dividend or distribution
and shall become effective immediately upon the opening of business on the day
next following the effective date in the case of a subdivision, combination or
reclassification.
(ii) Notwithstanding anything else contained herein,
if the Corporation shall issue, after the Issue Date, rights, options or
warrants to all holders of Common Shares entitling them (for a period expiring
within 45 days after the record date mentioned below in this subparagraph (ii))
to
A-15
<PAGE>
subscribe for or purchase Common Shares at a price per share less than the
Market Price per Common Share on the record date for the determination of
stockholders entitled to receive such rights, options or warrants, then the
Conversion Price in effect at the opening of business on the day next following
such record date shall be adjusted to equal the price determined by multiplying
(A) the Conversion Price in effect immediately prior to the opening of business
on the day following the date fixed for such determination by (B) a fraction,
the numerator of which shall be the sum of (I) the number of Common Shares
outstanding on the close of business on the date fixed for such determination
and (II) the number of Common Shares that the aggregate proceeds to the
Corporation from the exercise of such rights, options or warrants for Common
Shares would purchase at such Market Price, and the denominator of which shall
be the sum of (I) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (II) the number of
additional Common Shares offered for subscription or purchase pursuant to such
rights, options or warrants. Such adjustment shall become effective immediately
upon the opening of business on the day next following such record date (subject
to paragraph (h) below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase Common Shares
at less than such Market Price, there shall be taken into account any
consideration received by the Corporation upon issuance and upon exercise of
such rights, options or warrants, the value of such consideration, if other than
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive.
(iii) If the Corporation shall distribute to all
holders of its Common Shares any shares of capital stock of the Corporation
(other than Common Shares) or evidence of its indebtedness or assets (excluding
cash dividends or distributions paid out of assets based upon a fair valuation
of the assets, in excess of the sum of the liabilities of the Corporation and
the amount of stated capital attributable to Common Shares, determined on the
basis of the most recent annual consolidated cost basis and current value basis
and quarterly consolidated balance sheets of the Corporation and its
consolidated subsidiaries available at the time of the declaration of the
dividend or distribution) or rights or warrants to subscribe for or purchase any
of its securities (excluding those rights and warrants issued to all holders of
Common Shares entitling them for a period expiring within 45 days after the
record date referred to in subparagraph (ii) above to subscribe for or purchase
Common Shares, which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in this
subparagraph (iii) called the "Securities"), then in each case the Conversion
Price shall be adjusted so that it shall equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
receive such distribution by (B) a fraction, the numerator of which shall be the
Market Price per Common Share on the record date mentioned below less the then
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the shares of capital stock or assets or
evidences of indebtedness so distributed or of such rights or warrants
applicable to one Common Share, and the denominator of which shall be the
Current Market Price per Common Share on the record date mentioned below. Such
adjustment shall become effective immediately upon the opening of business on
the day next following (subject to paragraph (h) below) the record date for the
determination of stockholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security, which is
distributed not only to the holders of the Common Shares on the date fixed for
the determination of shareholders entitled to such distribution of such
Security, but also is required to be distributed with each Common Share
delivered to a Person converting a Series A Preferred Share after such
determination date, shall not require an adjustment of the Conversion Price
pursuant to this subparagraph (iii); provided that on the date, if any, on which
a person converting a Series A Preferred Share would no longer be entitled to
receive such Security with a Common Share (other than as a result of the
termination of all such Securities), a distribution of such Securities shall be
deemed to have occurred, and the Conversion Price shall be adjusted as provided
in this subparagraph (iii) (and such day shall be deemed to be "the date fixed
for the determination of the shareholders entitled to receive such distribution"
and "the record date" within the meaning of the two preceding sentences).
A-16
<PAGE>
The occurrence of a distribution or the occurrence of any other event
as a result of which holders of Series A Preferred Shares shall not be entitled
to receive rights, including exchange rights (the "Rights"), pursuant to any
shareholders protective rights agreement (the "Agreement") that may be adopted
by the Corporation as if such holders had converted such shares into Common
Shares immediately prior to the occurrence of such distribution or event shall
not be deemed a distribution of Securities for the purposes of any Conversion
Price adjustment pursuant to this subparagraph (iii) or otherwise give rise to
any Conversion Price adjustment pursuant to this Section 9; provided, however,
that in lieu of any adjustment to the Conversion Price as a result of any such a
distribution or occurrence, the Corporation shall make provision so that Rights,
to the extent issuable at the time of conversion of any Series A Preferred
Shares into Common Shares, shall issue and attach to such Common Shares then
issued upon conversion in the amount and manner and to the extent and as
provided in the Agreement in respect of issuances at the time of Common Shares
other than upon conversion.
(iv) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments that by
reason of this subparagraph (iv) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until made; and
provided, further, that any adjustment shall be required and made in accordance
with the provisions of this Section 9 (other than this subparagraph (iv)) not
later than such time as may be required in order to preserve the tax-free nature
of a distribution to the holders of Common Shares. Notwithstanding any other
provisions of this Section 9, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common Shares
pursuant to any plan providing for the reinvestment of dividends or interest
payable on securities of the Corporation and the investment of additional
optional amounts in Common Shares under such plan. All calculations under this
Section 9 shall be made to the nearest cent (with $.005 being rounded upward) or
to the nearest one-tenth of a share (with .05 of a share being rounded upward),
as the case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent permitted by
law, to make such reductions in the Conversion Price, in addition to those
required by this paragraph (d), as it in its discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights, options or
warrants to purchase stock or securities, or a distribution of other assets
(other than cash dividends) hereafter made by the Corporation to its
shareholders shall not be taxable.
(e) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all Common Shares outstanding, sale of all
or substantially all of the Corporation's assets or recapitalization of the
Common Shares but excluding any transaction as to which subparagraph (d)(i) of
this Section 9 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which Common Shares shall be
converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each Series A Preferred Share that
is not redeemed or converted into the right to receive stock, securities or
other property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock, securities and other
property (including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of Common Shares
into which one Series A Preferred Share was convertible immediately prior to
such Transaction, assuming such holder of Common Shares (i) is not a Person with
which the Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as the
case may be (a "Constituent Person"), or an affiliate of a Constituent Person
and (ii) failed to exercise his or her rights of the election, if any, as to the
kind or amount of stock, securities and other property (including cash)
receivable
A-17
<PAGE>
upon such Transaction (provided that if the kind or amount of stock, securities
and other property (including cash) receivable upon such Transaction is not the
same for each Common Share of the Corporation held immediately prior to such
Transaction by other than a Constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("Non-Electing Share"), then for the purpose of this paragraph (e) the kind and
amount of stock, securities and other property (including cash) receivable upon
such Transaction by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-Electing Shares). The
Corporation shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this paragraph (e), and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series A
Preferred Shares that will contain provisions enabling the holders of the Series
A Preferred Shares that remain outstanding after such Transaction to convert
their Series A Preferred Shares into the consideration received by holders of
Common Shares at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Shares (other than in cash out of assets,
based on a fair valuation of assets, in excess of the sum of the liabilities of
the Corporation and the amount of stated capital attributable to Common Shares,
determined on the basis of the most recent annual consolidated cost basis and
current value basis and quarterly consolidated balance sheets of the Corporation
and its consolidated subsidiaries available at the time of the declaration of
the dividend or distribution); or
(ii) the Corporation shall authorize the granting to
the holders of the Common Shares of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants (other than
Rights to which the second paragraph of subparagraph (d)(iii) of this Section 9
applies); or
(iii) there shall be any reclassification of the
Common Shares (other than an event to which subparagraph (d) (i) of this Section
9 applies) or any consolidation or merger to which the Corporation is a party
and for which approval of any shareholders of the Corporation is required, or a
statutory share exchange involving the conversion or exchange of Common Shares
into securities or other property, or a self tender offer by the Corporation for
all or substantially all of its outstanding Common Shares, or the sale or
transfer of all or substantially all of the assets of the Corporation as an
entirety and for which approval of any shareholders of the Corporation is
required; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be prepared and delivered to the holders of
the Series A Preferred Shares at their addresses as shown on the stock records
of the Corporation, as promptly as possible, but at least 15 days prior to the
applicable date hereinafter specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Shares of record to be entitled to such dividend, distribution
or rights or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange,
A-18
<PAGE>
sale, transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Shares
of record shall be entitled to exchange their Common Shares for securities or
other property, if any, deliverable upon such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up. Failure to give or receive such notice or any defect therein shall
not affect the legality or validity of the proceedings described in this Section
9.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly prepare and deliver to the holders of the Series A
Preferred Shares a notice of such adjustment of the Conversion Price setting
forth the adjusted Conversion Price and the effective date of such adjustment
and an officer's certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment, which certificate shall be conclusive evidence of the correctness of
such adjustment absent bad faith or manifest error. The Corporation shall mail
such notice and such certificate to the holders of each Series A Preferred Share
at such holder's last address as shown on the stock records of the Corporation.
(h) In any case in which paragraph (d) of this Section 9 provides that
an adjustment shall become effective on the day next following the record date
for an event, the Corporation may defer until the occurrence of such event (A)
issuing to the holder of any Series A Preferred Share converted after such
record date and before the occurrence of such event the additional Common Shares
issuable upon such conversion by reason of the adjustment required by such event
over and above the Common Shares issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of cash in
lieu of any fraction pursuant to paragraph (c) of this Section 9.
(i) There shall be no adjustment of the Conversion Price in case of the
issuance of any shares of capital stock of the Corporation in a reorganization,
acquisition or other similar transaction except as specifically set forth in
this Section 9. If any action or transaction would require adjustment of the
Conversion Price pursuant to more than one paragraph of this Section 9, only one
adjustment shall be made, and such adjustment shall be the amount of adjustment
that has the highest absolute value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 9, that in the opinion of
the Board of Directors would materially adversely affect the conversion rights
of the holders of the Series A Preferred Shares, the Conversion Price for the
Series A Preferred Shares may be adjusted, to the extent permitted by law, in
such manner, if any, and at such time, as the Board of Directors, in its sole
discretion, may determine to be equitable in the circumstances.
(k) The Corporation will at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Common Shares, for the purpose of effecting conversion of the Series A Preferred
Shares, the full number of Common Shares deliverable upon the conversion of all
outstanding Series A Preferred Shares not theretofore converted. For purposes of
this paragraph (k), the number of Common Shares that shall be deliverable upon
the conversion of all outstanding shares of Series A Preferred Shares shall be
computed as if at the time of computation all such outstanding shares were held
by a single holder and without regard to the ownership restrictions referred to
in Section 14.
The Corporation covenants that any Common Shares issued upon conversion
of the Series A Preferred Shares shall be validly issued, fully paid and
non-assessable. Before taking any action that would cause an adjustment reducing
the Conversion Price below the then-par value of the Common Shares deliverable
upon conversion of the Series A Preferred Shares, the Corporation shall take any
corporate action that, in the opinion of its counsel, may be necessary in order
that the Corporation may validly and legally issue fully paid and non-assessable
Common Shares at such adjusted Conversion Price.
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<PAGE>
The Corporation shall list the Common Shares required to be delivered
upon conversion of the Series A Preferred Shares, prior to such delivery, upon
each national securities exchange, if any, upon which the outstanding Common
Shares are listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Series A Preferred Shares, the
Corporation shall comply with all federal and state laws and regulations
thereunder requiring the registration of such securities with, or any approval
or consent to the delivery thereof, by any governmental authority.
(l) The Corporation shall pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of Common
Shares or other securities or property on conversion of the Series A Preferred
Shares pursuant hereto; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of any Common Shares or other securities or property in
a name other than that of the holder of the Series A Preferred Shares to be
converted, and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
SECTION 10. PERMISSIBLE DISTRIBUTIONS. In determining whether
a distribution (other than upon liquidation, dissolution or winding up), whether
by dividend, or upon redemption or other acquisition of shares or otherwise, is
permitted under Maryland law, amounts that would be needed, if the Corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of shares of any class or series
of capital stock whose preferential rights upon dissolution are superior or
prior to those receiving the distribution shall not be added to the
Corporation's total liabilities.
SECTION 11. RANKING. Any class or series of shares of capital
stock of the Corporation shall be deemed to rank:
(a) prior to the Series A Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series A Preferred Shares ("Senior Shares");
(b) on a parity with the Series A Preferred Shares, as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Series A Preferred Shares, if the holders of such class of stock or
series and the Series A Preferred Shares shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority one over the
other ("Parity Shares"); and
(c) junior to the Series A Preferred Shares, as to the payment
of dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such stock or series shall be Common Shares or if the holders
of Series A Preferred Shares shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such stock or
series, and such stock or series shall not in either case rank prior to the
Series A Preferred Shares ("Junior Shares").
A-20
<PAGE>
SECTION 12. VOTING.
(a) Other than as required by law or paragraph (b), (f) and
(g) of this Section 12, the Series A Preferred Shares shall not have any voting
rights or powers, and the consent of the holders thereof shall not be required
for the taking of any corporate action.
(b) If and whenever six quarterly dividends (whether or not
consecutive) payable on the Series A Preferred Shares shall be in arrears (which
shall, with respect to any such quarterly dividend, mean that any such dividend
has not been paid in full), whether or not earned or declared, the holders of
all shares of Series A Preferred Shares and any shares of Parity Shares upon
which like voting rights have been conferred and are exercisable (the Series A
Preferred Stock and any such Parity Shares, collectively for purposes of this
Section 12, the "Defaulted Preferred Stock") shall be entitled to elect two
directors of the Corporation at the Corporation's next annual meeting of
stockholders, and at each subsequent annual meeting of stockholders; provided,
however, the holders of shares of Defaulted Preferred Stock shall be entitled to
exercise their voting rights at a special meeting of the holders of shares of
Defaulted Preferred Stock as set forth in paragraphs (c) and (d) of this Section
12. At election for such directors, each holder of Series A Preferred Shares
shall be entitled to one vote for each share held (the holders of shares of any
other series of Defaulted Preferred Stock ranking on such a parity being
entitled to such number of votes, if any, for each share of stock held as may be
granted to them). Upon the vesting of such right in the holders of Defaulted
Preferred Stock, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two, and the vacancies so created
shall be filled by vote of the holders of outstanding Defaulted Preferred Stock
as hereinafter set forth. The right of holders of Defaulted Preferred Stock,
voting separately as a class without regard to series, to elect members of the
Board of Directors as aforesaid shall continue until such time as all dividends
accumulated and unpaid on the Series A Preferred Shares shall have been paid or
declared and funds set apart for payment in full, at which time such right shall
terminate, except as herein expressly provided, subject to revesting in the
event of each and every subsequent default of the character above mentioned.
(c) Whenever such voting right shall have vested, such right
may be exercised initially either at a special meeting of the holders of shares
of Defaulted Preferred Stock called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at such meeting or by the written consent of such holders pursuant to
Section 2-505 of the MGCL.
(d) At any time when such voting right shall have vested in
the holders of shares of Defaulted Preferred Stock entitled to vote thereon, and
if such right shall not already have been initially exercised, an officer of the
Corporation shall, upon the written request of the holders of record of 10% or
more of shares of such Defaulted Preferred Stock then outstanding, addressed to
the Secretary of the Corporation, call a special meeting of holders of shares of
such Defaulted Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice required for special meetings of stockholders
at the principal executive office of the Corporation or at such other place as
may be designated by the Secretary of the Corporation. If such meeting shall not
be called by the proper officers of the Corporation within 30 days after the
personal service of such written request upon the Secretary of the Corporation,
or within 30 days after mailing the same within the United States, by registered
mail, addressed to the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued by the postal
authorities), then holders of record of 10% or more of the shares of Defaulted
Preferred Stock then outstanding may designate in writing any person to call
such meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for special meetings of
stockholders and shall be held at the same place as is elsewhere provided
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in this paragraph. Any holder of shares of Defaulted Preferred Stock then
outstanding that would be entitled to vote at such meeting shall have access to
the stock books of the Corporation's transfer agent for the purpose of causing a
meeting of stockholders to be called pursuant to the provisions of this
paragraph.
(e) Subject to the provisions hereof, the directors elected
pursuant to this section shall serve until the next annual meeting of
stockholders and until their respective successors shall be elected and
qualified. Subject to applicable law, any director elected by the holders of
Defaulted Preferred Stock may be removed by, and shall not be removed otherwise
than by, the vote of the holders of a majority of the outstanding shares of the
Defaulted Preferred Stock entitled to vote in such election of directors, voting
as a separate class, without regard to series, at a meeting called for such
purpose or by written consent pursuant to Section 2-505 of the MGCL and the
Charter and Bylaws of the Corporation. If the position of any director elected
by the holders of Defaulted Preferred Stock, voting as a class, without regard
to series, becomes vacant by reason of death, resignation, retirement,
disqualification or removal or otherwise, the remaining director elected by the
holders of Defaulted Preferred Stock, voting as a class, without regard to
series, may choose a successor who shall serve for the unexpired term in respect
of which such vacancy occurred. Upon any termination of the right of the holders
of Defaulted Preferred Stock to vote for directors as herein provided, the term
of office of all directors then in office elected by the holders of Defaulted
Preferred Stock, voting as a class, without regard to series, shall terminate
immediately. Whenever the terms of the directors elected by the holders of
Defaulted Preferred Stock, voting as a class, without respect to series, shall
so terminate and the special voting powers vested in the holders of Defaulted
Preferred Stock shall have expired, the number of directors shall be such number
as provided for in the Corporation's Bylaws irrespective of any increase made
pursuant to the provisions of this Section 12.
(f) So long as any Series A Preferred Shares are outstanding,
in addition to any other vote or consent of shareholders required by the
Charter, the affirmative vote of at least 66-2/3% of the votes entitled to be
cast by the holders of Series A Preferred Shares, at the time outstanding,
voting as a single class, given in person or by proxy, either in writing without
a meeting or by vote at any meeting called for the purpose, shall be necessary
for effecting or validating: (i) any amendment, alteration of or repeal of the
Operating Partnership Agreement materially adversely affecting, directly or
indirectly, the terms and conditions of, or the rights or preferences of the
Preferred Units; or (ii) any amendment, alteration of or repeal of any of the
provisions of the Charter (including, the terms of the Series A Preferred
Shares), in such a manner as would affect adversely the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications and terms and conditions of redemption of
the Series A Preferred Shares (including, without limitation, taking any such
action the result of which could be to alter the manner or rate of exchange of
Preferred Units for securities of the Corporation as in effect on the date
hereof); provided, however, that (A) the amendment or supplement of the
provisions of the Charter so as to authorize or create, or to increase the
authorized amount of, any Junior Shares or any Parity Shares shall not be deemed
to adversely affect Series A Preferred Shares, and (B) any filing with the
Department in connection with a merger or consolidation of the Corporation or
the sale of all or substantially all of the assets of the Corporation shall not
be deemed to adversely affect the Series A Preferred Shares so long as (1) the
Corporation is the surviving entity and the Series A Preferred Stock remains
outstanding with the terms thereof materially unchanged or (2) the Series A
Preferred Stock is exchanged for a security of the resulting, surviving or
transferee entity having substantially the same terms and rights as the Series A
Preferred Stock, including with respect to dividends, voting rights and rights
upon liquidation, dissolution or winding-up, provided , further, that the
provisions of this subsection (B) shall not impact any rights of the holders of
Series A Preferred Shares under Section 6 of these Articles Supplementary, or
(iii) any Capital Transaction or the incurrence of any Indebtedness if, after
making pro forma adjustments in accordance with GAAP for such Capital
A-22
<PAGE>
Transaction or Indebtedness, the ratio of (A) Cash Flow to (B) Fixed Charges,
for the immediately preceding four most recent fiscal quarters, is less than
1.75 to 1.
(g) So long as any Series A Preferred Shares are outstanding,
in addition to any other vote or consent of shareholders required by the
Charter, the affirmative vote of 100% of the votes entitled to be cast by the
holders of Series A Preferred Shares, at the time outstanding, voting as a
single class, given in person or by proxy, either in writing without a meeting
or by vote at any meeting called for the purpose, shall be necessary for
effecting or validating the authorization or creation of, or the issuance of,
any Senior Shares.
(h) The foregoing voting provisions shall 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 Series A Preferred Shares shall
have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption in accordance
with Section 6 or Section 7, as applicable, hereof.
(i) Except as otherwise required by law or provided in the
Charter, the holders of Common Stock shall not be entitled to vote on any matter
submitted to a vote of the holders of Series A Preferred Stock pursuant to this
Section 12.
(j) Except as otherwise required by law or provided herein or
elsewhere in the Charter, the Stock Purchase Agreement and the management
Letter, the holders of Series A Preferred Stock shall not be entitled to receive
any notice of any proceedings of the Corporation.
For purposes of the foregoing provisions of this Section 12, each
Series A Preferred Share shall have one (1) vote per share.
SECTION 13. RECORD HOLDERS. The Corporation may deem and treat the
record holder of any Series A Preferred Shares as the true and lawful owner
thereof for all purposes, and the Corporation shall not be affected by any
notice to the contrary.
SECTION 14. RESTRICTIONS ON OWNERSHIP AND TRANSFER. The Series A
Preferred Shares constitute Preferred Shares, and Preferred Shares constitutes
Equity Shares of the Corporation. Therefore, the Series A Preferred Shares,
being Equity Shares, as well as Common Shares issuable upon conversion of Series
A Preferred Shares pursuant to Section 9 of these Articles Supplementary, are
governed by and issued subject to all the limitations, terms and conditions of
the Articles applicable to Equity Shares generally, including but not limited to
the terms and conditions (including exceptions and exemptions) of Article V of
the Charter. The foregoing sentence shall not be construed to limit the
applicability to the Series A Preferred Shares of any other term or provision of
the Charter.
A-23
<PAGE>
SECTION 15. CERTIFICATE LEGENDS. The Board of Directors may authorize
the issue of some or all of the Series A Preferred Shares without certificates.
If issued in certificated form, each Series A Preferred Share shall bear
substantially the following legends in addition to any legends required to
comply with federal and state securities laws:
CLASSES OF STOCK
THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE
CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED
STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF PREFERRED
STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING
A WRITTEN REQUEST THEREFORE, A COPY OF THE CORPORATION S CHARTER AND A
WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES,
CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS
TO THE DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND
CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS
AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS IN SERIES, (i) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES
OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD
OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY OF
THE CORPORATION AT ITS PRINCIPAL OFFICE.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON OWNERSHIP AND TRANSFER FOR THE PURPOSE, AMONG OTHERS,
OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE
INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE CODE). EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF
THE CORPORATION, NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN
(1) COMMON SHARES OF THE CORPORATION IN EXCESS OF 9.8% OF THE LESSER OF
THE TOTAL NUMBER OR VALUE OF THE OUTSTANDING COMMON SHARES OF THE
CORPORATION, (2) PREFERRED SHARES OF THE CORPORATION IN EXCESS OF 9.8%
OF THE LESSER OF THE TOTAL NUMBER OF VALUE OF THE OUTSTANDING PREFERRED
SHARES OF THE CORPORATION, (3) EQUITY SHARES THAT WOULD RESULT IN THE
TRUST BEING CLOSELY HELD UNDER SECTION 856(h) OF THE CODE, (4) EQUITY
SHARES THAT WOULD RESULT IN THE EQUITY SHARES BEING BENEFICIALLY OWNED
BY FEWER THAN 100 PERSONS (DETERMINED WITHOUT REFERENCE TO ANY RULES OF
ATTRIBUTION) OR (5) EQUITY SHARES THAT WOULD CAUSE THE CORPORATION OR
GOLF TRUST OF AMERICA, L.P., A DELAWARE LIMITED PARTNERSHIP, TO
CONSTRUCTIVELY OWN 10% OR MORE OF THE OWNERSHIP INTERESTS IN A TENANT
OF THE REAL PROPERTY OF THE CORPORATION OR GOLF TRUST OF AMERICA, L.P.,
WITHIN THE MEANING OF SECTION 856(d)(2)(B) OF THE CODE, WITH FURTHER
RESTRICTIONS AND EXCEPTIONS SET FORTH IN THE CORPORATION S CHARTER. ANY
PERSON WHO ATTEMPTS OR PROPOSES TO
A-24
<PAGE>
BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF EQUITY SHARES IN
EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION
IN WRITING. IF AN ATTEMPT IS MADE TO VIOLATE OR THERE IS A VIOLATION OF
THESE RESTRICTIONS (i) ANY PURPORTED TRANSFER WILL BE VOID AB INITIO
AND WILL NOT BE RECOGNIZED BY THE CORPORATION, (ii) THE EQUITY SHARES
IN VIOLATION OF THESE RESTRICTIONS, WHETHER AS A RESULT OF A TRANSFER
OR NON-TRANSFER EVENT, WILL BE TRANSFERRED AUTOMATICALLY AND BY
OPERATION OF LAW TO A SHARE TRUST AND SHALL BE DESIGNATED
SHARES-IN-TRUST. ALL TERMS USED IN THIS LEGEND AND DEFINED IN THE
CORPORATION S CHARTER HAVE THE MEANINGS DEFINED IN THE CORPORATION'S
CHARTER, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH,
INCLUDING THE RESTRICTIONS ON OWNERSHIP AND TRANSFER, WILL BE SENT
WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS.
SECTION 16. EFFECTIVE DATE. These Articles Supplementary shall be
effective at the time the Department accepts these Articles Supplementary for
record.
FOURTH: The Series A Preferred Shares have been classified and
designated by the Board of Directors under the authority contained in the
Charter.
FIFTH: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
SIXTH: Each of the undersigned officers of the Corporation acknowledges
these Articles Supplementary to be the act of the Corporation and, as to all
matters or facts required to be verified under oath, each of the undersigned
officers acknowledges that to the best of his knowledge, information and belief,
these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, Golf Trust of America, Inc. has caused these
Articles Supplementary to be signed in its name and on its behalf by its Chief
Executive Officer and President and attested to by its Secretary of this 2nd day
of April, 1999.
GOLF TRUST OF AMERICA, INC.
By:
---------------------------------
Name: W. Bradley Blair, II
Title: Chief Executive Officer and President
Attest:
- -------------------------------
Name: David D. Joseph
Title: Secretary
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<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR CONTAINED
IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO
PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER
OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Prospectus Supplement Summary ...................... S-3
Additional Risk Factors ............................ S-9
Note Regarding Forward-Looking Statements............ S-11
The Company ........................................ S-12
Business Strategies and Objectives ................. S-14
Recent Developments ................................ S-17
Use of Proceeds .................................... S-19
Capitalization ..................................... S-20
The Golf Courses ................................... S-21
Description of the Series A Preferred Stock ........ S-22
Certain Federal Income Tax Considerations............ S-23
ERISA Considerations................................. S-24
Supplemental Plan of Distribution .................. S-27
Supplemental Legal Matters ......................... S-27
Appendix A: Form of Articles Supplementary.......... A-1
PROSPECTUS
Available Information................................ i
Incorporation of Certain Information by Reference.... i
The Company.......................................... 1
Risk Factors......................................... 2
Use of Proceeds...................................... 15
Selling Shareholders................................. 15
Federal Income Tax Considerations.................... 16
Plan of Distribution................................. 31
Description of Capital Stock......................... 33
Description of Debt Securities....................... 42
Description of Warrants.............................. 58
Experts.............................................. 59
Legal Matters........................................ 59
</TABLE>
800,000 SHARES
[logo]
9.25% SERIES A CUMULATIVE
CONVERTIBLE PREFERRED STOCK
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PROSPECTUS SUPPLEMENT
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BANCBOSTON ROBERTSON STEPHENS
PLACEMENT AGENT
APRIL 2, 1999
