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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 2000
REGISTRATION NO. 333-46657
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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GOLF TRUST OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of incorporation or organization)
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33-0724736
(I.R.S. Employer Identification Number)
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14 North Adger's Wharf
Charleston, South Carolina 29401
(843) 723-4653
(Address of Principal Executive Offices) (Zip Code)
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GOLF TRUST OF AMERICA, INC. 1997 STOCK INCENTIVE PLAN
GOLF TRUST OF AMERICA, INC. 1997 NON-EMPLOYEE DIRECTORS' PLAN
GOLF TRUST OF AMERICA, INC. 1997 STOCK-BASED INCENTIVE PLAN
(Full Title of Plans)
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W. Bradley Blair, II
Chief Executive Officer
Golf Trust of America, Inc.
14 North Adger's Wharf
Charleston, South Carolina 29401
(843) 723-4653
COPY TO:
Peter T. Healy, Esq.
O'Melveny & Myers LLP
275 Battery Street, Suite 2600
San Francisco, California 94111
(415) 984-8833
(Name and Address of Agent For Service)
(Telephone Number, Including Area Code, of Agent for Service)
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EXPLANATORY NOTE
On February 20, 1998 the Registrant filed a Registration Statement on
Form S-8 coving issuances of common stock under the plans listed above (the
"Plans"). This post-effective amendment is filed for the sole purpose of filing
a reoffer prospectus covering reoffers and resales of such common shares by
affiliates of the Registrant, pursuant to General Instruction C.1(a) to
Form S-8.
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The Exhibit Index for this Registration Statement is at page II-4.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
CONTROL SECURITIES REOFFER PROSPECTUS
The material which follows constitutes a prospectus prepared in
accordance with the applicable requirements of Part I of Form S-3 and General
Instruction C to Form S-8, to be used in connection with reoffers and resales
of control securities acquired under the Registrant's Plans.
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PROSPECTUS
1,100,000 SHARES
[LOGO]
COMMON STOCK
We are Golf Trust of America, Inc., a real estate investment trust
focused on owning and acquiring upscale golf courses in a number of markets
across the United States.
The selling stockholders named in this prospectus (or in a
supplement to this prospectus), and any of their pledgees, donees,
transferees or other successors in interest, may offer to sell up to an
aggregate of 1,100,000 our common shares. On the date of this prospectus, the
selling stockholders own some but not all of such shares, and they may
acquire more or all of such shares pursuant to our 1997 Stock Incentive Plan,
our 1997 Non-Employee Directors' Plan and/or our 1997 Stock-Based Incentive
Plan. For example, the selling stockholders may acquire these shares upon
exercise of stock options or upon the issuance and vesting of restricted
stock grants. We will not receive any of the proceeds from the sale of any of
these shares by such selling stockholders, but we agreed to bear the expenses
of registering such shares. Our registration of these shares does not
necessarily imply that all or any portion of such shares will be offered for
sale by the selling stockholders.
Our common stock is traded on the American Stock Exchange under the
symbol "GTA." On June 15, 2000, the last reported sale price for the common
stock on the American Stock Exchange was $15.938 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A NUMBER OF RISKS. IN
CONSIDERING WHETHER TO INVEST, YOU SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER "RISK FACTORS," BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
The selling stockholders may sell their shares by means of this
prospectus or they may decide to sell them by other means, including pursuant
to Rule 144; however they are not obligated to sell their shares at all. The
selling stockholders may sell their shares from time to time in one or more
types of transactions (which may include block transactions) on the American
Stock Exchange, in the over-the-counter market, in negotiated transactions,
through put or call option transactions relating to the shares, through short
sales of shares, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such market prices, at
negotiated prices, or at fixed prices. The selling stockholders may sell
their shares directly to purchasers or through agents, underwriters or
broker-dealers. If required by law, the names of any such agents and
underwriters involved in the sale and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth
in a supplement accompanying this prospectus. The selling stockholders will
pay any applicable underwriting discounts, selling commissions and transfer
taxes. We will pay all other expenses incident to the registration of the
shares. The selling stockholders and any broker-dealers, agents or
underwriters that participate in the distribution of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, and
any commission received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JUNE 19, 2000
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TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<S> <C>
Note Regarding Forward-Looking Statements........................... 2
Risk Factors........................................................ 3
The Company......................................................... 18
Our Business Strategies and Objectives.............................. 21
Use of Proceeds..................................................... 24
Description of Our Capital Stock.................................... 24
Federal Income Tax Considerations................................... 32
ERISA Considerations................................................ 47
Selling Stockholders................................................ 50
Plan of Distribution................................................ 51
Experts............................................................. 52
Legal Matters....................................................... 52
Incorporation of Certain Information by Reference................... 53
Where You Can Find More Information................................. 54
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including the information incorporated in it by
reference) contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. 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 "will," "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 "Risk Factors" in this
prospectus (as well as throughout our disclosure documents), and you should
consider the important factors listed there as you read this 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.
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RISK FACTORS
AN INVESTMENT IN OUR SHARES INVOLVES VARIOUS RISKS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONJUNCTION
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR
SHARES.
TRADITIONAL REAL ESTATE RISKS
OUR EXPOSURE TO TYPICAL REAL ESTATE INVESTMENT RISKS COULD REDUCE OUR INCOME.
Our holdings are subject to the risks typically associated with
investments in real estate. Such risks include the possibility that our golf
courses will generate rent and capital appreciation, if any, at rates lower
than we anticipated or will yield returns lower than those available through
other investments. Income from our golf courses may be adversely affected by
many factors, including an increase in the local supply of golf courses, a
decrease in the number of golfers, adverse weather conditions, changes in
government regulation and general or local economic deterioration.
ILLIQUIDITY OF OUR REAL ESTATE MAY IMPAIR OUR ABILITY TO OPTIMIZE OUR
PORTFOLIO OF GOLF COURSES.
Real estate investments are relatively illiquid. Thus, our ability
to vary our portfolio in response to changes in economic and other conditions
is limited. In addition, a number of our golf courses are subject to
additional transfer restrictions. The ground lessors of our Oyster Bay and
the Mystic Creek golf courses have a right of first refusal to acquire these
golf courses upon any proposed sale. Each lessee of any of our golf courses
generally has a right of first offer to acquire the golf course(s) leased by
it in the event of a proposed sale. The right of first offer is void in the
event of a default by the lessee under the lease. The three courses located
at the Legends Resort--Heathland, Moorland and Parkland--are subject to
conservatory easements that prohibit developments other than golf courses on
the property, limit the ability to materially modify the existing layouts at
such golf courses and require that such golf courses be open for public play.
In the event that a sale of a golf course will result in a taxable gain to
the prior owner of the golf course, we have agreed in most instances to use
reasonable efforts to structure such a sale as a tax-deferred exchange. All
of these factors may make it more difficult for us to transfer a golf course
even when such transfer may be in our best interests.
WE MAY BE LIABLE FOR UNKNOWN ENVIRONMENTAL CONTAMINATION REGARDLESS OF WHO
CAUSED IT.
Operations at our golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers,
motor oil and gasoline. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of such hazardous substances
released on or in its property. These laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible
for, the release of the hazardous substances. The presence of such
substances, or the failure to remediate such substances properly, may
adversely affect the owner's ability to sell the real estate or to use such
real estate as collateral. Although all of our golf courses have at least
been subjected to a Phase I environmental audit (which does not involve
invasive procedures, such as soil sampling or ground water analysis) by an
independent environmental consultant, we cannot assure you that these reports
audit all potential environmental liabilities, that no prior or adjacent
owner created any material environmental condition not known to us or the
independent consultant or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will
not result in imposition
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of environmental liability on us. While the leases and the participating
mortgage provide that the operators will indemnify us for certain potential
environmental liabilities at the golf courses, the current operators may have
only nominal capitalization.
A significant portion of the Sandpiper golf course was previously an
operating oil field and there is significant residual oil contamination on
the property. In connection with the acquisition of the property, we obtained
an indemnification from Atlantic Richfield Company (ARCO) in a form and in an
amount which we believe is adequate to protect us from liability for such
contamination. Certain circumstances may require ARCO to enter the property
and perform remediation actions.
UNINSURED LOSSES COULD RESULT IN THE LOSS OF ONE OR MORE OF OUR GOLF COURSE
INVESTMENTS.
The leases and the participating mortgage require that each operator
maintain insurance with respect to each of the golf courses it operates,
including comprehensive liability, fire, flood (but only to the extent
comparable golf courses in the area carry such insurance and such insurance
is available at commercially reasonable rates) and extended coverage
insurance. There are, however, certain types of losses (such as from
hurricanes, floods or earthquakes) that may be either uninsurable or not
economically insurable. Should an uninsured loss occur, we could suffer loses
of our invested capital and lose our anticipated revenue stream from the
applicable golf course.
PORTFOLIO ACQUISITIONS ARE MORE DIFFICULT TO CLOSE THAN SINGLE-ASSET
ACQUISITIONS.
Our business and acquisition strategy may include the acquisition of
multiple golf courses in a single transaction 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.
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 investment criteria
or is located in a market that is geographically distant from our principal
markets. 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 will not close, with the adverse consequences described above. In
cases where we intend to dispose of assets that we do not wish to own, we
cannot assure you that we will be able to sell or exchange such asset or
assets in a timely manner or on beneficial terms.
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IF OUR EXPERIENCE IS NOT APPLICABLE TO THE NEW MARKETS WE ARE ENTERING, WE
MAY SELECT POOR INVESTMENTS OR INCUR ADDED EXPENSES AND DELAYS.
Our historical industry expertise is in markets within the southern,
eastern and mid-western regions of the United States. In 1998 we expanded our
ownership of golf courses into new market areas, including markets in the
western United States. If appropriate opportunities arise, we may make other
selective investments outside of our current markets. Entry into new markets
requires us to apply our experience to such new market areas, but we cannot
assure you that our historical expertise will be applicable to new market
areas. If we continue to 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, which may cause us to acquire courses that fail to meet
our investment criteria;
- an inability to obtain qualified operators for acquired golf courses,
which may cause actual lease payments to fall short of our model's
estimates; and
- an unfamiliarity with local governmental regulations, which may result
in unexpected expenses from owning and operating such golf courses.
GROUND LEASE DEFAULTS MAY CAUSE US TO LOSE OUR LEASEHOLD INTEREST IN TWO GOLF
COURSES.
We hold two of our golf courses, Oyster Bay and Mystic Creek,
pursuant to long-term ground leases. If we, as lessee, default under the
applicable ground lease, the ground lessor may terminate the ground lease
subject to certain terms and conditions. If the ground lease is terminated or
is not renewed, we would lose our investment in the Oyster Bay golf course or
Mystic Creek golf course, as applicable.
GROWTH STRATEGY RISKS
POSSIBLE UNAVAILABILITY OF CAPITAL MAY IMPAIR OUR GROWTH RATE.
The success of our growth strategy depends, in large part, upon our
continued access to capital with which to acquire additional golf courses. We
cannot assure you that our use of excess cash flow, borrowings or subsequent
issuances of common stock, OP Units or other securities will be sufficient to
raise the necessary capital. Since mid-1998, the capital markets have not
been receptive to equity offerings by real estate investment trusts and,
consequently, we have financed our acquisitions primarily through draws upon
our credit facility and the issuance of OP Units. However, on the date of
this prospectus, we have depleted our borrowing capacity under the Credit
Facility and only have approximately $9.9 million in borrowing capacity
available under our unsecured credit line. If we are unable to secure public
or private equity financing or to increase our borrowing capacity, our
expansion rate may decline, which may cause our current earnings growth rates
to decline. As a result, our ability to pay distributions to our stockholders
may be impaired and the market prices of our equity securities may fall.
COMPETITION FOR ACQUISITIONS MAY IMPAIR OUR GROWTH RATE.
We compete for golf course acquisition opportunities with entities
organized for purposes substantially similar to our objectives as well as
other purchasers of golf courses. From time to time we
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may compete for golf course acquisition opportunities with entities having
substantially greater financial resources and a broader geographic knowledge
base than we have. These entities may also be able to accept more risk than
we prudently can manage. Thus, competition may reduce the number of suitable
golf course acquisition opportunities available to us.
INABILITY TO MANAGE GROWTH EFFECTIVELY MAY REDUCE CASH AVAILABLE FOR
DISTRIBUTION.
Our success will depend upon the ability of each operator
effectively to manage all of its golf courses, as well as our ability to
select an appropriate lessee for each additional golf course we acquire.
However, we cannot assure you that the current or future operators will
operate efficiently. If, because of pressure to sustain our growth rate or
for other reasons, we lease an operator more golf courses than it can manage
or if we select an unqualified operator and as a result such operator
defaults in its lease payments to us, then our cash available for
distribution to stockholders will be reduced.
WE DEPEND ON ACQUISITIONS TO INCREASE CASH AVAILABLE FOR DISTRIBUTION.
Our success in implementing our growth plan depends significantly on
our ability to acquire additional golf courses at attractive prices. We do
not expect internal growth from increases in revenues at our golf courses to
provide as much growth in cash available for distribution to stockholders as
the acquisition of additional golf courses. If we are unable to acquire
additional golf courses at attractive prices, our ability to grow and to
maintain or increase cash available for distribution per share may be
adversely affected.
RISKS RELATED TO OUR BUSINESS
OUR FINANCING OF GOLF COURSE CONSTRUCTION AND OPERATIONS IS SUBJECT TO
INCREASED RISK OF LOSS COMPARED TO INVESTMENTS IN COMPLETED GOLF COURSES
We have agreed to fund significant additional construction at
certain of our golf courses, including construction funding for Sandpiper
golf course, and we anticipate that we may make other construction advances
or loans, generally either (a) as financing that repays constructions costs,
whether in the form of a loan repayment or increase in the base rent payment,
or (b) where the loan is secured by property with a pre-construction value
that is within our investment guidelines. We have also made and anticipate
that we may make in the future seasonal, repositioning, and/or capital
improvement related working capital loans to tenants, including to the
operator of the Sandpiper golf course, the operator of the Bonaventure golf
courses, and the operators of the golf courses previously leased by
affiliates of Granite Golf but assumed in 1999 by Legends Golf. Capital
improvement loans and working capital loans often involve a higher degree of
risk than other lending because, among other reasons:
- repayment is dependent upon successful completion of the project;
- the project, as constructed or rehabilitated, requires certain
assumptions concerning the increase in green fees and number of rounds
played, which, if not realized, significantly increases the possibility
of a lessee default;
- estimating construction costs and timing is difficult;
- construction costs may exceed budgeted amounts; and
- timing delays may occur.
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A borrower default on a construction loan may decrease our cash
available for distribution to stockholders. The construction loans or
advances and operating lines are generally non-recourse beyond our interest
in the golf course and any security deposit pledged by the applicable tenant.
Consequently, in the event of a lessee default or failure to repay a
construction loan or operating line, we may be unable to recover the amount
of our advances and recognize a loss equal to the amount of the indebtedness.
OUR LIMITED OPERATING HISTORY MAY NOT REVEAL FLAWS IN OUR BUSINESS PLAN.
We began operations in February 1997 and have a limited operating
history. We cannot assure you that we will be able to generate sufficient
revenue from operations to make anticipated distributions to stockholders. We
are also still subject to the risks generally associated with the formation
of any new business. Our management has limited experience operating a public
company or a REIT and limited experience working together.
OPERATORS MAY DEVOTE INSUFFICIENT TIME AND ENERGY TO MANAGING OUR COURSES
BECAUSE OF THEIR OTHER BUSINESS INTERESTS
In addition to management of our golf courses, many of our golf
course operators devote significant time to other business interests,
including in many instances resort and residential development on property
adjacent to the golf courses and the operation of golf courses. As a result,
the golf course operators are subject to competing demands on their time, and
may not devote sufficient time to operations of our golf courses, which may
result in less revenue being generated from our golf courses than if they had
devoted full time to our golf courses.
THE SOUTHEASTERN U.S. CONCENTRATION OF OUR INVESTMENTS LEAVES US VULNERABLE TO
REGIONALLY ADVERSE EVENTS OR CONDITIONS.
Our expansion into new markets has not eliminated the geographic
concentration of our investments. Seven of our golf courses are located in
North Carolina and South Carolina and fourteen of our golf courses are
located in Florida. The concentration of our investments in these areas
leaves us vulnerable to regionally adverse events or conditions such as
competition, hurricanes and other weather conditions, overbuilding and
economic recession. If North Carolina, South Carolina or Florida is subject
to such events or conditions, our cash available for distribution will be
more adversely affected than it would have been if our investments were more
geographically diverse.
CONFLICTS OF INTEREST
ONE OF OUR DIRECTORS MAY OPPOSE THE SALE OF CERTAIN GOLF COURSES TO
AVOID PERSONAL TAX LIABILITY.
Mr. Young, one of our directors, and his affiliates have an
unrealized gain in their interests in some of the golf courses they
transferred to us. If we were to sell such courses, the sale may cause
adverse tax consequences to that director. Therefore, our interests and the
interests of such director could differ in connection with the disposition of
such golf courses.
ONE OF OUR DIRECTORS MAY OPPOSE ENFORCEMENT OF CONTRACTS THAT ARE
ADVERSE TO HIS AFFILIATES.
Because Mr. Young, one of our directors, is the principal owner of
Legends Golf, which contributed seven golf courses to us, and of the Legends
lessees, which lease those seven golf courses from us, there may be a
conflict of interest with respect to the enforcement of the contribution
agreements
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executed by Legends Golf, as well as with respect to enforcement and
termination of the leases to the Legends lessees.
OTHER CONFLICTS MAY ARISE IN THE FUTURE.
Other transactions between us and affiliates of the lessees may also
give rise to conflicts of interest, such as future acquisitions of golf
courses and selection of operators for such golf courses.
IF OUR KEY EXECUTIVES RESIGN, OUR GROWTH RATE MAY DECLINE.
Our ability to identify golf course acquisition opportunities and
manage our portfolio depends to a large extent upon the experience and
abilities of our founders, W. Bradley Blair, II, who serves as our Chief
Executive Officer and President, and Scott D. Peters, who serves as our
Senior Vice President and Chief Financial Officer. The loss of the services
of either of these individuals could have a material adverse effect on our
growth rate, as well as on our operations and business prospects generally.
WE MAY CHANGE OUR INVESTMENT AND FINANCING POLICIES AT ANY TIME WITHOUT
NOTICE.
Our board of directors determines our investment and financing
policies and our policies with respect to certain other activities, including
our growth, outstanding indebtedness, capitalization, distributions and
operations. Although our board of directors has no present intention to amend
or revise these policies, our board of directors may do so at any time
without a vote of our stockholders and without notice.
RISKS RELATING TO OUR LEASES AND THE PARTICIPATING MORTGAGE
OUR USE OF ADJUSTMENTS AND PROJECTIONS IN ESTABLISHING LEASE PAYMENTS AND
PARTICIPATING MORTGAGE PAYMENTS MAY RESULT IN UNSUSTAINABLY HIGH PAYMENTS
BEING OWED TO US BY OUR OPERATORS.
We generally value golf courses and establish lease payments (and
the payments under the participating mortgage), based on selected adjustments
to the golf courses' historical operating results or estimates of future
performance of the golf courses. These adjustments include projected
increases in revenues from golf course operations and elimination of certain
operating expenses. If such adjustments are not appropriate, or if estimates
of future performance are not met, the operator to whom we lease a golf
course may not be able to make its scheduled payments to us. Failure of an
operator to make such payments would have a material adverse effect on our
operations.
BECAUSE OUR REVENUES ARE HIGHLY DEPENDENT ON GOLF COURSE LEASE PAYMENTS (AND
MORTGAGE INTEREST PAYMENTS), PAYMENT DEFAULTS BY OUR GOLF COURSE OPERATORS
WOULD REDUCE OUR CASH AVAILABLE FOR DISTRIBUTION.
Our ability to make distributions to stockholders depends primarily
upon the ability of our golf course operators to make lease or interest
payments to us which, in turn, depends primarily on their ability to generate
sufficient revenues in excess of operating expenses at the golf courses.
Operators' failure or delay to made scheduled payments to us may be caused by
reduced revenue at the golf courses they operate or may occur because their
rent was originally set at an unsustainably high level or otherwise. To date,
we have declared events of default under the leases of six operators for
non-payment or under-payment of rent. These operators leased a total of 11.5
golf courses from us. (We count our golf courses in terms of eighteen-hole
equivalents, such that a 27-hole facility counts as 1.5 courses.) The leases
of
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two of these operators (representing 6.5 golf courses) were assigned to
Legends Golf, which leases ___ other golf courses from us. The operator of
one of the default courses was evicted through foreclosure on February 7,
2000, and we have been operating that course since February 7, 2000. We
consider that the initial risk caused by the defaults of these three
operators has been greatly reduced. We are currently involved in default
legal proceedings with the remaining three operators (representing 4 golf
courses). These events of default are described in more detail in our most
recent annual and quarterly reports. These events of default and any future
failure or delay by an operator in making scheduled payments to us may
adversely affect our ability to make anticipated distributions to
stockholders.
IF WE ARE FORCED TO TERMINATE A LEASE OR FORECLOSE ON THE PARTICIPATING
MORTGAGE, FINDING A REPLACEMENT OPERATOR MAY BE DIFFICULT.
Our golf course operators are generally limited-purpose entities
that have nominal capitalization. Although failure on the part of an operator
to comply with the material terms of its lease would give us the right to
terminate its lease, recover any collateral pledged as a security deposit,
repossess the applicable golf course and enforce the lease payment
obligations under the lease, we would then be required to find another lessee
to lease such golf course or risk compromising our ability to maintain REIT
status. It may be difficult for us to find suitable replacement operators
following a default, particularly in instances where the prior operator was
not able to operate profitably. In such instances we would likely be required
to reduce the base rent at the golf course and consequently our cash
available for distribution would be reduced.
OUR GOLF COURSES MAY BE LESS ATTRACTIVE TO PROSPECTIVE BUYERS BECAUSE THE
LEASES MUST REMAIN IN PLACE FOLLOWING A SALE.
The leases under which we lease our golf courses to operators have
terms of up to 40 years (including extensions) and do not terminate when a
golf course is sold. It may therefore be difficult for us to sell a golf
course. If sold, the value to a prospective buyer, and therefore the price we
receive for a golf course, may be less than if the applicable lease
terminated upon the sale.
WE DO NOT CONTROL DAY-TO-DAY OPERATIONS OR MANAGEMENT OF THE GOLF COURSES AND
THUS CANNOT CORRECT INEFFICIENT OPERATIONS.
In order to qualify as a REIT for federal income tax purposes, we
may not operate our golf courses or participate in the decisions affecting
daily operations there. Each of the operators manages its respective golf
course. The leases generally have initial terms of 10 years and generally may
be extended at the option of each lessee for up to six five-year renewal
terms. We will not have the authority to require any operator to operate the
golf courses in a particular manner, or to govern any particular aspect of
their operation (e.g., setting green fees), except as set forth in the
applicable lease (or the participating mortgage). Thus, even if we believe an
operator is operating a golf course inefficiently or in a manner that does
not result in a maximization of participating rent (or participating
interest) and, therefore, does not increase our cash available for
distribution to stockholders, we may not require the operator to change its
method of operation. We are limited to seeking redress only if an operator
violates the terms of the applicable lease (or the participating mortgage, as
applicable), in which case our primary remedy is to terminate the leases (or
the participating mortgage, as applicable) and seek to recover damages from
such operator. If a lease is terminated, we will be required to find another
lessee or risk losing our ability to maintain REIT status.
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A DEFAULT ON THE PARTICIPATING MORTGAGE COULD SUBJECT US TO FORECLOSURE
EXPENSE AND DELAY AND WE MAY BE UNABLE TO RECOVER OUR FULL INVESTMENT.
A default by the borrower under the $78.975 million participating
mortgage we originated in June 1997 (see page 3) could materially and
adversely affect our results from operations. A default under the
participating mortgage may require us to become involved in expensive and
time-consuming proceedings, including bankruptcy, reorganization or
foreclosure proceedings, in an attempt to recover some or all of our
investment. The source of any recovery will be the Westin Innisbrook Resort,
located near Tampa, Florida, which is the property underlying the
participating mortgage. Because of our status as a REIT, we may not operate
the Westin Innisbrook Resort in the event of foreclosure. Accordingly, in the
event of a foreclosure, we will be materially dependent upon our ability to
lease the Westin Innisbrook Resort on favorable economic terms and the value
of the real property underlying the participating mortgage, each of which may
be affected by numerous factors outside our control.
LACK OF AMORTIZATION OF PARTICIPATING MORTGAGE INCREASES THE RISK OF BORROWER
DEFAULT AT MATURITY.
The participating mortgage does not provide for the amortization of
principal during its term. As a result, the entire principal balance of the
participating mortgage will be due in one balloon payment at its maturity.
Failure to amortize the principal balance of the participating mortgage may
increase the risk of a default during the term, and at maturity, of the
participating mortgage. A default under the participating mortgage would have
a material adverse effect on our ability to fund anticipated distributions to
stockholders.
GOLF INDUSTRY RISKS
OPERATING RISKS MAY REDUCE THE GOLF COURSE OPERATORS' ABILITY TO MAKE SCHEDULED
PAYMENTS TO US.
The lessees of our golf courses are subject to the operating risks
common to the golf industry. These risks include, among other things:
- increases in operating costs due to inflation and other
factors may not be offset by increased dues and fees;
- dependence on tourism, particularly for resort courses, may
cause seasonal revenue fluctuations; and
- declines in general and local economic conditions may reduce
golf participation.
- increased supply resulting in increased competition and
concern with regard to the balance of supply and demad as
further explained in the next risk factor below.
These factors could adversely affect the golf course operators' ability to
generate revenues and to make scheduled payments to us under the leases and the
participating mortgage which, in turn, may adversely affect our ability to make
expected distributions to our stockholders.
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INCREASED COMPETITION FOR GOLFERS' BUSINESS MAY REDUCE THE GOLF COURSE
OPERATORS' ABILITY TO MAKE SCHEDULED PAYMENTS TO US.
Our golf courses face competition for golfers from other golf
courses, both locally and nationally. A substantial number of new golf
courses have opened in recent years and a number of new courses currently are
under development, or planned for development, including golf courses located
near our golf courses. These new golf courses could increase the competition
faced by one or more of our golf courses and reduce the rounds played and
revenues associated with one or more of our golf courses. Any such decrease
in revenues may adversely affect the net operating income of our golf course
operators and, therefore, their ability to make scheduled payments to us.
THE CONCENTRATION OF OUR INVESTMENTS IN THE GOLF INDUSTRY LEAVES OUR
PROFITABILITY VULNERABLE TO A DOWNTURN IN THE GOLF INDUSTRY.
Our current strategy is to acquire golf courses and related
facilities. As a result, we are subject to risks inherent in investments in a
single industry. The effects on cash available for distribution to our
stockholders resulting from a downturn in the golf industry will be more
pronounced than if we had more fully diversified our investments.
SEASONAL GOLF REVENUE VARIATIONS WILL REQUIRE OUR GOLF COURSE OPERATORS TO
MANAGE CASH FLOWS PROPERLY OVER TIME SO AS TO MEET THEIR NON-SEASONAL
SCHEDULED PAYMENTS TO US.
The golf industry is seasonal. Seasonal variations in revenue at the
golf courses may require the golf course operators to supplement revenue at
the applicable golf course to make scheduled payments to us. Failure of a
golf course operator to manage properly its cash flow may result in such
operator having insufficient cash on hand to make its scheduled payments to
us during low seasons and, therefore, may adversely affect our cash available
for distribution to stockholders.
ADVERSE WEATHER CONDITIONS MAY DAMAGE OUR GOLF COURSES OR REDUCE THE
OPERATORS' ABILITY TO MAKE SCHEDULED PAYMENTS TO US.
Several climatological factors beyond the control of the golf course
operators may influence the revenues at the golf courses, including adverse
weather such as hurricanes, heat waves, frosts and floods. In the event of
adverse weather or destruction of the turf grass at a golf course, the number
of rounds played at such golf course could decrease, which could have a
negative impact on any participating rent or participating interest received
from the affected golf course and the ability of the applicable golf course
operator to make its scheduled payments to us. The golf courses in the
Southeastern United States are susceptible to damage from hurricanes, which
damage (including loss of revenue) is not generally insurable at commercially
reasonable rates. Consequently, a hurricane may adversely affect both the
value of our investment in a particular golf course as well as the ability of
the operator of such golf course to make its scheduled payments to us.
Additionally, hurricanes may damage local accommodations such as hotels and
condominiums, thereby limiting availability of players, particularly at our
"resort courses," which are daily fee golf courses that attract a significant
percentage of players from outside the area and generate a significant amount
of revenue from golf vacation packages.
DECLINING GOLF PARTICIPATION MAY DECREASE OUR OPERATORS' ABILITY TO MAKE
SCHEDULED PAYMENTS TO US.
The success of efforts to attract and retain members at private country
clubs and the number of rounds played at public golf courses historically has
been dependent upon discretionary spending by
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consumers, which may be adversely affected by regional and economic
conditions. A decrease in the number of golfers or their rates of
participation or in consumer spending on golf could have an adverse effect on
our operators' revenues, including green fees, golf cart rentals, range fees,
membership dues, membership initiation fees, and transfer fees, which may
decrease their ability to make their scheduled payments to us.
FACTORS BEYOND OUR CONTROL SUCH AS DROUGHT, WATER RATIONING, PLANT DISEASE OR
INSECTS COULD CAUSE TURF GRASS DETERIORATION, THEREBY REDUCING OPERATORS'
REVENUES AND THEIR ABILITY TO MAKE SCHEDULED PAYMENTS TO US.
General turf grass conditions must be satisfactory to attract play
on the golf courses. Severe weather or other factors, including disease and
insect infestation, could adversely affect the turf grass conditions at the
golf courses. Turf grass conditions at the golf courses also depend to a
large extent on the quality and quantity of water available. The quality and
quantity of water available at our golf courses are affected by various
factors, many of which are beyond our control. We cannot assure you that
drought or environmental concerns or rationing or other governmental
regulation will not adversely affect the supply of water to one or more of
our golf courses in the future. Turf grass deterioration could reduce
operators' revenues and their ability to make scheduled payments to us.
RISKS RELATED TO OUR REIT STATUS
IF WE FAIL TO QUALIFY AS A REIT, OR IF THE OPERATING PARTNERSHIP FAILS TO
QUALIFY AS A PARTNERSHIP FOR TAX PURPOSES, OUR TAX LIABILITY WILL GREATLY
INCREASE AND OUR CASH AVAILABLE FOR DISTRIBUTION WILL GREATLY DECREASE.
We believe we operate, and we intend to continue to operate, so as
to qualify as a REIT under the Internal Revenue Code of 1986, at least until
our board of directors determines that revoking our REIT status would be in
our best interest. Until then, we cannot assure your that we qualify or will
remain qualified as a REIT. Qualification as a REIT involves the application
of highly technical and complex tax code provisions for which there are only
limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the tax code is greater in the case of a REIT that holds
its assets in partnership form like we do. The determination of various
factual matters and circumstances not entirely within our control may affect
our qualification as a REIT. In addition, we cannot assure you that
legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to REIT
qualification or the federal income tax consequences of such qualification.
See "Federal Income Tax Considerations."
If we fail to qualify as a REIT in any taxable year, we would not be
allowed a deduction for distributions to stockholders in computing taxable
income and would be subject to federal income tax on our taxable income at
regular corporate rates. Unless entitled to relief under certain statutory
provisions, we would also be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost. As
a result, our cash available for distribution to stockholders would be
reduced for each of the years involved. Although we currently operate and
intend to continue to operate in a manner designed to qualify as a REIT,
future economic, market, legal, tax or other considerations may cause us to
fail to qualify as a REIT or may cause our board of directors to revoke our
REIT election.
Our operating partnership has been structured to be classified as a
partnership for federal income tax purposes. If the Internal Revenue Service
were to challenge successfully the status of the operating
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partnership as a partnership for federal income tax purposes, the operating
partnership would be treated as an association taxable as a regular
corporation. In such event, the character of our assets and items of gross
income would change, possibly preventing us from qualifying as a REIT. In
addition, the imposition of a corporate income tax on the operating
partnership would reduce the amount of cash available for distribution to our
stockholders.
IN ORDER TO PRESERVE OUR REIT STATUS, WE MAY HAVE TO BORROW TO FUND
DISTRIBUTIONS TO STOCKHOLDERS WHICH WE WOULD NOT OTHERWISE MAKE.
In order to qualify as a REIT, we generally are required to
distribute to stockholders at least 95% of our net taxable income each year.
In addition, we are subject to a 4% nondeductible excise tax on the amount,
if any, by which certain distributions paid with respect to any calendar year
are less than the sum of 85% of our ordinary income, 95% of our capital gain
net income and all of our undistributed income from prior years.
We intend to make distributions to our stockholders to comply with
the 95% distribution requirements of the federal tax code and to avoid the
nondeductible excise tax. Our income and cash flow will consist primarily of
rent payments under the leases and interest payments under the participating
mortgage. Differences in timing between the receipt of income and the payment
of expenses in arriving at taxable income and the effect of required debt
amortization payments could require us to borrow funds on a short-term basis
to meet the distribution requirements that are necessary to achieve the tax
benefits associated with qualifying as a REIT.
For federal income tax purposes, we are required to report interest
income from the participating mortgage, including participating interest, or
a yield-to-maturity loan on a straight-line basis over the life of the
participating mortgage. Based on our estimate of future revenue, we expect to
recognize for tax purposes interest income equal to approximately 11.5% per
year with respect to the participating mortgage, which interest income will
initially exceed the cash payments we receive under the participating
mortgage. In addition, upon the occurrence of any event which directly or
indirectly results in the transfer of 5% of the equity interest in the
borrower to a third party during the term of the participating mortgage, the
borrower is required to pay us an amount equal to $19 million, discounted
from the maturity date of the participating mortgage to the date of such
event at 11.5% per annum, and we will recognize income in such amount. We are
then required to lend this amount to the borrower, and the amount so lent
accrues interest at 11.5% per annum. As a result of these provisions, we will
be deemed at various times to have received income without having any
corresponding cash payment. Consequently, to maintain our REIT status or to
avoid a corporate level tax, we may be required to borrow money to make cash
distributions, which may reduce our borrowing capacity that would otherwise
be available to fund our operations and acquisitions. As a result, our growth
rate may decline.
RISKS RELATED TO THE SECURITIES MARKETS AND THIS OFFERING
INTEREST RATE RISKS
INTEREST RATE MISMATCH MAY REDUCE OUR CASH AVAILABLE FOR DISTRIBUTION.
We have a substantial amount of floating rate debt that was incurred
in connection with golf course acquisitions made in 1998. The participating
mortgage bears interest at a fixed rate and the participating leases have
fixed rent payments (subject to certain adjustments, including participating
rent and mortgage payments). Accordingly, increases in interest payable by us
under the credit facility will
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increase our operating expenses with no corresponding increases in revenue.
Consequently, significant rise in interest rates could adversely affect our
ability to make distributions to stockholders.
WE MAY LOSE MONEY ON INTEREST RATE SWAPS IF THE COUNTERPARTY DEFAULTS OR
IF THE AGREEMENT IS NOT ENFORCEABLE.
We may, in the future, convert a portion of our outstanding debt
through the purchase of an interest rate swap agreement. In the event that
such provider of the interest rate swap becomes financially unsound or
insolvent, we could be forced to unwind our agreements with such provider
and, as a result, may take a loss on such interest rate agreements. Although
we intend to purchase interest rate swaps only from financially sound
institutions and to monitor the financial strength of such institutions on a
periodic basis, we cannot assure you that we will avoid such third-party
risks. In addition, we accept legal risk upon entering into interest rate
swap agreements. We cannot assure you that these agreements will be
enforceable. An agreement that is not enforceable may subject us to
unexpected interest rate risk and have a material adverse affect on our
results of operations.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKETS MAY ADVERSELY AFFECT
OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS,
THEREBY SLOWING OUR ACQUISITION RATE.
Sales of a substantial number of shares of common stock, or the
perception that such sales could occur, may adversely affect prevailing
market prices for our common stock. In addition to the 8,118,147 shares of
common stock currently outstanding, as of June 15, 2000 an aggregate of
800,000 Series A preferred shares and 4,905,086 OP Units were outstanding
(excluding OP Units held by our subsidiaries). Series A preferred shares are
convertible into common stock at a ratio of 0.95238 common share for each
Series A preferred share. OP Units are units of limited partnership interest
in our operating partnership, which is the vehicle through which we own our
golf course interests. Subject to certain restrictions and limitations, the
OP Units may be tendered for redemption by their holders, for cash or, at our
option, for shares of newly-issued common stock on a one-for-one basis
beginning one year after their issuance. We may issue additional OP Units in
future golf course acquisitions or in connection with an operator's exercise
of the performance option (which is an incentive-based performance structure
in some leases and in the participating mortgage, under which, during years
three through five, the operator or its affiliate may elect one time to
increase the base rent or base interest, as applicable, in order to receive
additional OP Units or common stock, or, with respect to the participating
mortgage, to require us to make an additional advance under the participating
mortgage). The shares of common stock issuable upon conversion of the Series
A preferred stock and redemption of the OP Units may be sold in the public
markets. We have granted the holders of the Series A preferred stock and the
OP Units registration rights to facilitate their sale of such common shares.
Our acquisition strategy depends in large part on our access to
additional capital through sales of equity securities, including issuances of
stock for cash and issuances of OP Units in exchange for property. The market
price of our common stock and the value of our OP Units may be adversely
affected by the "overhang" of common shares potentially issuable upon
conversion of the Series A Shares and redemption of the OP Units. If so, our
acquisition rate would decline. We cannot predict the effect, if any, that
future sales of shares, or the perception that such sales could occur, will
have on the price of the common stock.
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OWNERSHIP OF OVER 9.8% OF OUR COMMON OR PREFERRED STOCK IS PROHIBITED AND
ATTEMPTED EXCESS ACQUISITIONS ARE VOID.
In order for us to maintain our qualification as a REIT, not more
than 50% in value of our outstanding shares of capital stock may be owned,
directly or constructively, by five or fewer individuals (as defined in the
federal tax code) during the latter half of any taxable year (other than
1997). In addition, rent from related party tenants is not qualifying income
for purposes of the gross income tests under the federal tax code. Two sets
of constructive ownership rules (one to determine whether a REIT is closely
held and one to determine whether rent is from a related party tenant) apply
in determining whether these requirements are met. For the purpose of
preserving our REIT qualification, our charter prohibits direct or
constructive ownership of more than 9.8% of the lesser of the total number or
value of the outstanding shares of our common stock or more than 9.8% of the
outstanding shares of our preferred stock. The constructive ownership rules
are complex and may cause the outstanding stock owned, directly or
constructively, by a group of related individuals and/or entities to be
deemed to be constructively owned by one individual or entity. As a result,
the acquisition of less than 9.8% of the outstanding stock (or the
acquisition of an interest in an entity which owns common stock or preferred
stock) by an individual or entity could cause that individual or entity (or
another individual or entity) to own constructively in excess of 9.8% of the
outstanding stock, and thus be subject to our charter's ownership limit.
Direct or constructive ownership of shares of common stock or preferred stock
in excess of the ownership limit would cause the violative transfer or
ownership to be void or cause such shares to be transferred by operation of
law to a charitable trust.
CERTAIN PROVISIONS OF MARYLAND LAW, OUR CHARTER AND BYLAWS AND OUR
SHAREHOLDER RIGHTS PLAN MAY HAVE AN ANTI-TAKEOVER EFFECT THEREBY PREVENTING
INVESTORS FROM RECEIVING A "CONTROL PREMIUM" FOR THEIR SHARES.
Certain provisions of our charter and bylaws and our shareholder
rights plan, as well as Maryland corporate law, may have anti-takeover
effects and may delay, defer or prevent a takeover attempt that might be in
the stockholders' best interest. For example, such provisions may (a) defer
or prevent tender offers for our common stock, which offers may be beneficial
to stockholders, or (b) defer or prevent purchases of large blocks of our
common stock, thereby limiting the opportunity for stockholders to receive a
premium for their common stock over then-prevailing market prices. These
provisions include the following:
- OWNERSHIP LIMIT. The ownership limit described above limits related
investors (including any voting group) from acquiring over 9.8% of our
common stock without our permission.
- PREFERRED STOCK. Our charter authorizes our board of directors to issue
preferred stock in one or more classes and to establish the preferences
and rights (including the right to vote and the right to convert into
common stock) of any class of preferred stock issued, all without any
stockholder vote. See "Description of Our Capital Stock--General."
- STAGGERED BOARD. Our board of directors is divided into three classes
of directors. The current terms of the first, second and third classes
expire in 2001, 2002, and 2000 respectively. Directors of each class
serve for a three-year term and until their successors are elected and
qualified. The affirmative vote of two-thirds of all outstanding common
stock is required to remove a director.
- SHAREHOLDER RIGHTS PLAN. We have adopted a shareholder rights plan that
may discourage any investor from acquiring over 15% of our common stock
because, upon such an acquisition without board approval, all other
common shareholders will have the right to purchase a specified amount
of our common stock at a 50% discount from market price. Our
shareholder rights plan is
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incorporated by reference as an exhibit in the registration statement
of which this prospectus is a part, see "Where You Can Find More
Information."
- MARYLAND BUSINESS COMBINATION STATUTE. Under the Maryland General
Corporation Law, certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any
person who owns, directly or indirectly, 10% or more of the voting
power of the corporation's shares of capital stock must be approved by
80% of voting shares. In addition, such a 10% holder may not engage in
a business combination with the Maryland corporation for five years
following the date he or she became such a 10% holder.
- MARYLAND CONTROL SHARE ACQUISITION STATUTE. Maryland law provides that
"Control Shares" of a corporation acquired in a "Control Share
Acquisition" have no voting rights except to the extent approved by a
vote of two-thirds of the votes eligible under the statute to be cast
on the matter (unless the corporation has opted out of the Control
Share Acquisition statute). "Control Shares" are voting shares of
beneficial interest that, if aggregated with all other such shares of
beneficial interest previously acquired by the acquiror, would entitle
the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority or (iii) a majority of all voting powers.
Control Shares do not include shares of beneficial interest the
acquiring person is then entitled to vote as a result of previously
having obtained stockholder approval. A "Control Share Acquisition"
means the acquisition of Control Shares, subject to certain exceptions.
If voting rights are not approved at a meeting of stockholders then,
subject to certain conditions and limitations, the issuer may redeem
any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value. If voting rights for
Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares of beneficial
interest entitled to vote, all other stockholders may exercise
appraisal rights.
Our Bylaws contain a provision exempting from the Control Share
Acquisition statute any and all acquisitions by any person of our
common stock. However, our board of directors may decide to amend or
eliminate such provision at any time in the future.
ERISA RISKS
MAINTAINING OUR PLAN ASSETS REGULATION EXEMPTION MAY REQUIRE US TO FOREGO
OTHERWISE ATTRACTIVE OPPORTUNITIES.
Under the Plan Assets Regulation, promulgated by the Department of
Labor under the Employee Retirement Income Security Act of 1974 ("ERISA"),
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 assume that benefit plans own shares
of our common stock and may come to own shares of our 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 we believe 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 may be held by fewer than 100 persons for the foreseeable
future. On the date of this prospectus, all of the Series A preferred shares
are held by a single entity which has represented to us that it is not a
benefit plan. If Series A preferred shares come to be held by a benefit plan,
we will need to qualify under another exception. One such exception is for
plan investment
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in an "operating company," such as a "real estate operating company" or a
"venture capital operating company."
Our board of directors intends to take such reasonable steps as may
be necessary to qualify for one or more of the exceptions available under the
Plan Assets Regulation so that our assets are not treated as assets of any
investing plan. Specifically, we believe that we qualify, and we intend to
continue to qualify, as a real estate operating company and/or as a venture
capital operating company. Due to the nature of our specific investments and
our operating structure, though, we cannot assure you that we will qualify as
an operating company. Moreover, in order to qualify under one of these
exceptions, we may be precluded from making certain investments that might
otherwise be suitable and/or we may not be able to dispose of certain assets
when 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 tax 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 tax code, and we and such plan sponsor could be subject to
sanctions.
OUR SECURITIES MAY BE AN INAPPROPRIATE INVESTMENT FOR ERISA PLANS.
In considering an investment in our common 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 should
consider (a) whether the ownership of such securities is in accordance with
the documents and instruments governing such ERISA Plan; (b) whether the
ownership of such securities 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.
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THE COMPANY
We are a real estate investment trust formed to capitalize upon
consolidation opportunities in the ownership of upscale golf courses
throughout the United States. We are self-administered, which means that our
operating decisions are made by our officers under the supervision of our
board of directors, unlike many other real estate investment trusts, or
REITs, which are managed by external management companies. Golf Trust of
America, Inc., or 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 we control, and, in one instance, through a
wholly-owned subsidiary of Golf Trust of America, L.P. We refer to this
partnership and its subsidiaries as our Operating Partnership. In this
Prospectus, the term "Company" generally includes GTA, the Operating
Partnership and all of their subsidiaries. Currently, the Company holds
participating interests in 47 golf courses (the "Golf Courses"), 43 of which
are owned by us and four of which serve as collateral for a 30-year
participating mortgage loan made by the Company. Of the 43 courses that we
own, 41 are held in fee simple and 2 are held pursuant to long-term ground
leases. The golf courses are located in Florida (14), South Carolina (6),
Illinois (3.5), Ohio (3), Georgia (2), Virginia (2), California (2.5),
Michigan (3.5), Nebraska (1.5), Texas (1.5), Missouri (1.5), Alabama, Kansas,
Kentucky, North Carolina, West Virginia, and New Mexico. Throughout this
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.
We had no significant operations prior to our initial public
offering of common stock ("IPO") in February 1997. In the IPO, we raised net
proceeds of approximately $73.0 million 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 acquired
interests in 37 additional golf courses.
We elected to be taxed as a real estate investment trust ("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 "Tax
Code"), we will generally not be required to pay income tax at the corporate
level.
Because of the tax rules applicable to REITs, we generally 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.
One exception to the REIT rule against operating our own golf
courses is that if one or more of our tenants defaults under its lease, the
tax code allows a 90-day grace period after eviction of the tenant during
which we may operate the golf course and during which our revenues from such
operations will remain qualifying income for REIT tax purposes. At the
expiration of such period, we would generally have to either sell the golf
course, lease it to an experienced golf course operator, or reach an
agreement with an independent contractor to assume management of the golf
course. Management by an independent contractor is allowed until the close of
the third taxable year following the taxable year in which the eviction
occurred. If one of these options is not implemented at the expiration of
such period, the revenues from operations at the golf course will generally
be considered non-qualifying income for purposes of the tax code's REIT
income tests. If we recognize too much non-qualifying income, we will lose
our status as a REIT, which could cause our tax liability to increase
substantially and our cash
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available for distribution to decrease substantially. See "Risk
Factors--Risks Related to our REIT Status."
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 Host 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 an affiliate of 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 Westin
Innisbrook Resort 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.,
Starwood, Troon Golf or Westin.
Our 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 is a part of this 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. On the date of
this Prospectus, GTA holds 64.4% of the common interests and 100% of the
Series A 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 Operating Partnership has from time to time
issued preferred OP Units. Series A preferred OP Units were issued to
subsidiaries of GTA in exchange for the contribution of the proceeds from
GTA's sale of Series A Preferred Stock. To date, 10,169 Series B and 48,949
Series C preferred OP Units have been issued in connection with golf course
acquisition transactions. These OP Units are generally convertible into
common OP Units on a one-for-one basis. The complete terms of the preferred
OP Units have been filed as exhibits to GTA's Annual Reports on Form 10-K.
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,
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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 GTA,
controls limited partners holding, in the aggregate, 27.0% 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 our 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 newly-issued 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.
The relationship among GTA, its Subsidiaries, the Operating
Partnership 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 May__, 2000, the date of this Prospectus):
SUMMARY DIAGRAM OF COMPANY STRUCTURE
<TABLE>
<S><C>
-----------------------------
Golf Trust of America, Inc.
("GTA")
-----------------------------
| |
100% Ownership | | 100% Ownership
V V
------------- --------------
GTA GP, Inc. GTA LP, Inc.
------------- --------------
| |
General Partner | | Limited Partner
0.2% Common Interest | | 64.2% Common Interest
| | 100% Preferred Interest
V V
------------------- ------------------------------------
Prior Owners, Golf Trust of America L.P.
Certain Operators ------------------------> (the "Operating Partnership")
and Management Limited Partners 47 golf courses
------------------- 35.6% Common Interest ------------------------------------
</TABLE>
In addition, we have from time to time created limited liability
companies, or LLCs, to hold some of our golf course interests or to operate a
golf course following the tenant's default under its lease. We currently have
three such LLCs, each of which is wholly-owned by GTA or the Operating
Partnership. The first of these, Sandpiper-Golf Trust, LLC, holds our
interest in the Sandpiper golf course. The others, GTA Tierra Del Sol, LLC
and GTA Osage, LLC, were formed to operate golf courses following the
original tenant's default. Osage LLC is not currently operating any golf
course and holds no significant assets. We may create similar LLCs or other
subsidiaries in the future.
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<PAGE>
OUR 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:
- own 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 any additional golf courses.
ACQUISITIONS
We intend to concentrate our investment activities on golf courses,
potentially including portfolios of golf courses, available at attractive
prices 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.
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 syndicated $200
million credit facility and a $25 million unsecured line of credit
(collectively, the "Credit Facility"). As of May ____, 2000, we had
approximately $9.9 million of unused borrowing capacity available under the
Credit Facility. From time to time we also expect to have access to 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. That is,
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 our common stock instead of cash. Thus, in essence, OP
Units are convertible into shares of our common stock on a one-for-one basis.)
We cannot assure you that we will have access to sufficient debt and
equity financing at attractive prices to allow us to acquire additional golf
courses.
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).
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<PAGE>
- 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. We expect that 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;
- 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.
We cannot assure you 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
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<PAGE>
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 1997 to the borrower, Golf Hosts Resorts,
Inc. The borrower owns the Westin Innisbrook Resort, which serves as
collateral for the Participating Mortgage. The initial advance was followed
by additional advances of approximately $9.0 million in the aggregate which
was used for a nine-hole expansion and other improvements. 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.
PERFORMANCE OPTION FOR THE PARTICIPATING LEASE. Certain of 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 (Funds from
Operations). 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, only one of the
lessees has 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 for the purpose of funding 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
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<PAGE>
Owner's ability to exercise the Performance Option will depend on future
operating results and therefore cannot be determined in advance.
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.
USE OF PROCEEDS
We will not receive any of the proceeds of the sale by the Selling
Stockholders (as defined herein) of the shares of common stock covered by
this Prospectus.
DESCRIPTION OF OUR CAPITAL STOCK
The description of the Company's capital stock set forth below does
not purport to be complete and is qualified in its entirety by reference to
the Company's Articles of Incorporation, as amended, restated and
supplemented through the date hereof (our "Charter") and the Company's
bylaws, as amended and restated through the dated hereof (our "Bylaws),
copies of which are incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part. See "Where You Can Find More
Information."
GENERAL
Under our Charter, the total number of shares of all classes of
stock that the Company has authority to issue is 100,000,000 consisting of
90,000,000 shares of common stock, par value $0.01 per share ("Common
Stock"), and 10,000,000 shares of preferred stock, par value $0.01 per share
("preferred stock"). On May__, 2000, the Company had issued and outstanding
8,118,147 shares of Common Stock and 800,000 shares of preferred stock.
Shares of preferred stock may be issued from time to time, in one or
more series, as authorized by our board of directors. Prior to issuance of
shares of each series, our board of directors is required by the Maryland
General Corporation Law and the Company's Charter to fix for each series,
subject to the Company's Charter, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. Our board of directors could authorize the
issuance of shares of preferred stock with terms and conditions that could
have the effect of discouraging a takeover or other transaction that holders
of Common Stock might believe to be in their best interests or in which
holders of some, or a
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<PAGE>
majority, of the shares of Common Stock might receive a premium for their
shares over the then market price of such shares of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursing agent for the
Common Shares is ChaseMellon Stockholder Services, L.L.C., San Francisco,
California. The Company is acting as its own transfer agent, registrar,
dividend disbursing agent, conversion agent and redemption agent for the
Series A preferred shares.
SERIES A PREFERRED STOCK
GENERAL.
The Company issued 800,000 shares of Series A preferred stock on
April 2, 1999. On or prior to such date, our board of directors classified
and designated such shares and authorized the issuance thereof. When issued,
the Series A preferred shares were validly issued, fully paid and
nonassessable. The holders of the Series A preferred shares have no
preemptive rights with respect to any shares 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 are not subject to
any sinking fund or other obligation of the Company to redeem or retire the
Series A preferred shares (except mandatory redemption upon certain
liquidation events). 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.
UNDERLYING COMMON STOCK
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. 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 of 1933,
as amended (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 of the Selling
Stockholders."
TERMS AND CONDITIONS OF THE SERIES A PREFERRED STOCK
The following chart summarizes the terms of the Series A preferred
stock. 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 an exhibit to the registration statement of which this
prospectus is a part, see "Where You Can Find More Information," and the
following chart is qualified in its entirety by reference to the Articles
Supplementary.
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<PAGE>
SERIES A PREFERRED STOCK: SUMMARY OF TERMS
<TABLE>
<S> <C>
Title..................................... 9.25% Series A Cumulative Convertible Preferred Stock.
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 our 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 was prorate based on the number of days
between issuance of the shares and June 30, 1999, the final day of
that fiscal quarter.
Conversion................................ The Series A preferred shares are convertible at the option of each
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. On the date of this Prospectus, 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.
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"), 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
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<PAGE>
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."
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
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<PAGE>
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 or the sale of all or substantially all of our assets 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. See
"--Restrictions on Ownership," below.
</TABLE>
COMMON STOCK
Subject to the preferential rights of the Series A preferred stock
and any future classes of preferred stock, the holders of Common Stock are
entitled to such distributions as may be declared from time to time by our
board of directors from funds available therefor, and upon liquidation are
entitled to receive pro rata all assets of the Company available for
distributions to such holders. All shares of Common Stock issued pursuant to
this Prospectus will be fully paid and nonassessable and the holders thereof
will not have preemptive rights.
The holders of Common Stock are entitled to one vote per share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
our board of directors with respect to any class of preferred stock
establishing the powers, designations, preferences and relative,
participating, option or other special rights of such series, the holders of
such shares of Common Stock exclusively possess all voting power. The Charter
does not provide for cumulative voting in the election of directors.
The Charter provides for a staggered board of directors consisting
of three classes as nearly equal in size as practicable. Each class holds
office until the third annual meeting for selection of directors following
the election of such class, except that the initial terms of the three
classes expire in 1998, 1999 and 2000, respectively. The provisions relating
to the staggered board may be amended only upon the vote of the holders of at
least 66.67% of the capital stock entitled to vote for the election of
directors.
Pursuant to the Maryland General Corporation Law, a corporation
generally cannot dissolve, amend its articles of incorporation, merge, sell
all or substantially all of its assets, engage in a share exchange or engage
in similar transactions outside the ordinary course of business unless
approved by the affirmative vote of stockholders holding at least two-thirds
of the shares entitled to vote on the matter unless a lesser percentage (but
not less than a majority of all of the votes to be cast on the matter) is set
forth in the corporation's Articles of Incorporation. The Company's Articles
of Incorporation do not provide for a lesser percentage in such situations.
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<PAGE>
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Tax Code, it must
meet certain requirements concerning the ownership of its outstanding shares
of capital stock. Specifically, not more than 50% in value of the Company's
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Tax Code to include certain
entities) during the last half of a taxable year (other than its 1997 taxable
year), and the Company must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year (other than its 1997 taxable
year). See "Federal Income Tax Considerations." In addition, the Company must
meet certain requirements regarding the nature of its gross income in order
to qualify as a REIT. One such requirement is that at least 75% of the
Company's gross income for each year must consist of rents from real property
and income from certain other real property investments. The rents received
by the Operating Partnership from a Lessee would not qualify as rents from
real property, which would likely result in loss of REIT status for the
Company, if the Company were at any time to own, directly or constructively,
10% or more of the ownership interests in a Lessee within the meaning of
Section 856(d)(2)(B) of the Tax Code.
Because our board of directors believes it is essential for the
Company to qualify as a REIT, the Charter, subject to certain exceptions
described below, provides that no person may own, or be deemed to own by
virtue of the constructive ownership provisions of the Tax Code, more than
9.8% of the lesser in value of the total number or value of the outstanding
shares of Common Stock or preferred stock (the "Ownership Limit"). The
constructive ownership rules of the Tax Code are complex and may cause shares
owned actually or constructively by two or more related individuals and/or
entities to be constructively owned by one individual or entity. As a result,
the acquisition of less than 9.8% of the outstanding shares of Common Stock
or 9.8% of the shares of preferred stock (or the acquisition of an interest
in an entity which owns the shares) by an individual or entity could cause
that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the outstanding shares of Common Stock or
9.8% of the outstanding shares of preferred stock, and thus subject such
shares to the Ownership Limit provisions of the Charter. The Charter also
prohibits any transfer of Common or preferred stock that would (i) result in
the Common and preferred stock being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (ii) result in
the Company being "closely held" within the meaning of Section 856(h) of the
Tax Code, or (iii) cause the Company to own, directly or constructively, 10%
or more of the ownership interests in a tenant of the Company's real
property, within the meaning of Section 856(d)(2)(B) of the Tax Code. Except
as otherwise provided below, any such acquisition or transfer of the
Company's capital stock (including any constructive acquisition or transfer
of ownership) shall be null and void, and the intended transferee or owner
will acquire no rights to, or economic interests in, the shares.
Subject to certain exceptions described below, any purported
transfer of Common or preferred stock that would (i) result in any person
owning, directly or indirectly, Common or preferred stock in excess of the
Ownership Limit, (ii) result in the Common and preferred stock being owned by
fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Tax Code, or (iv) cause the Company to own,
directly or constructively, 10.0% or more of the ownership interests in a
tenant of the Company's or the Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Tax Code, will be designated as
"Shares-in-Trust" and transferred automatically to a trust (the "Share
Trust") effective on the day before the purported transfer of such Common or
preferred stock. The record holder of the Common or preferred stock that is
designated as Shares in Trust (the "Prohibited Owner") will be required to
submit such number of Common or preferred stock to the Share Trust for
designation in the name of the "Share Trustee". The Share Trustee will be
designated by the Company. The beneficiary of
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the Share Trust (the "Beneficiary") will be one or more charitable
organizations that are named by the Company.
Shares-in-Trust will remain issued and outstanding Common or
preferred stock and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Share Trustee will receive all
dividends and distributions on the Shares-in-Trust and will hold such
dividends or distributions in trust for the benefit of the Beneficiary. The
Share Trustee will vote all Shares-in-Trust. The Share Trustee will designate
a permitted transferee of the Shares-in-Trust, provided that the permitted
transferee (i) purchases such Shares-in-Trust for valuable consideration and
(ii) acquires such Shares-in-Trust without such acquisition resulting in a
transfer to another Share Trust.
The Prohibited Owner with respect to Shares-in-Trust will be
required to repay to the Share Trustee the amount of any dividends or
distributions received by the Prohibited Owner (i) that are attributable to
any Shares-in-Trust and (ii) the record date of which was on or after the
date that such shares became Shares-in-Trust. The Prohibited Owner generally
will receive from the Share Trustee the lesser of (i) the price per share
such Prohibited Owner paid for the Common or preferred stock that were
designated as Shares-in-Trust (or, in the case of a gift or devise, the
Market Price (as defined below) per share on the date of such transfer) and
(ii) the price per share received by the Share Trustee from the sale or other
disposition of such Shares-in-Trust. Any amounts received by the Share
Trustee in excess of the amounts to be paid to the Prohibited Owner will be
distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to
the Company, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Shares-in-Trust (or,
in the case of a gift or devise, the Market Price per share on the date of
such transfer) or (ii) the Market Price per share on the date that the
Company, or its designee, accepts such offer. The Company will have the right
to accept such offer for a period of 90 days after the later of (i) the date
of the purported transfer which resulted in such Shares-in-Trust and (ii) the
date the Company determines in good faith that a transfer resulting in such
Shares-in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing
Price (as defined below) for the five consecutive Trading Days (as defined
below) ending on such date. The "Closing Price" on any date shall mean the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common or preferred stock is not listed or admitted
to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the shares of Common
or preferred stock are listed or admitted to trading or, if the shares of
Common or preferred stock are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the shares of
Common or preferred stock are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common or preferred stock as selected by
our board of directors. "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common or preferred stock
are listed or admitted to trading is open for the transaction of business or,
if the shares of Common or preferred stock are not listed or admitted to
trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
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Any person who acquires or attempts to acquire Common or preferred
stock in violation of the foregoing restrictions, or any person who owned
shares of Common or preferred stock that were transferred to a Share Trust,
will be required (i) to give immediately written notice to the Company of
such event, (ii) to submit to the Company such number of shares of Common or
preferred stock to be transferred to the Share Trust and (iii) to provide to
the Company such other information as the Company may request in order to
determine the effect, if any, of such transfer on the Company's status as a
REIT.
All persons who own, directly or indirectly, more than 5% (or such
lower percentages as required pursuant to regulations under the Tax Code) of
the outstanding shares of Common and preferred stock must within 30 days
after January 1 of each year, provide to the Company a written statement or
affidavit stating the name and address of such direct or indirect owner, the
number of shares of Common and preferred stock owned directly or indirectly,
and a description of how such shares are held. In addition, each direct or
indirect stockholder shall provide to the Company such additional information
as the Company may request in order to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limit.
The Ownership Limit generally will not apply to the acquisitions of
shares of Common or preferred stock by an underwriter that participates in a
public offering of such shares. In addition, our board of directors, upon
receipt of a ruling from the Service or an opinion of counsel and upon such
other conditions as our board of directors may direct, may exempt a person
from the Ownership Limit under certain circumstances. The foregoing
restrictions will continue to apply until our board of directors, with the
approval of the holders of at least two-thirds of the outstanding shares of
all votes entitled to vote on such matter at a regular or special meeting of
the stockholders of the Company, determines to terminate its status as a REIT.
The Ownership Limit will not be automatically removed even if the
REIT provisions of the Tax Code are changed so as to remove any ownership
concentration limitation. Any change of the Ownership Limit would require an
amendment to the Charter. Such amendment requires the affirmative vote of
holders holding at least two-thirds of the outstanding shares entitled to
vote on the matter.
All certificates representing shares of Common or preferred stock
will bear a legend referring to the restrictions described above.
LIMITATIONS ON CHANGES IN CONTROL
GENERAL. The provisions of the Charter and the Bylaws providing for
ownership limitations, a staggered board of directors and the authorization
of our board of directors to issue preferred stock without stockholder
approval could have the effect of delaying, deferring or preventing a change
in control of the Company or the removal of existing management, and as a
result could prevent the stockholders of the Company from being paid a
premium for their shares of Common Stock.
SHAREHOLDER RIGHTS AGREEMENT. The Company has adopted a Shareholder
Rights Agreement (the "Rights Agreement"), the purpose of which is, among
other things, to enable stockholders to receive fair and equal treatment in
the event of any proposed acquisition of the Company. The Rights Agreement
may have the effect of delaying, deferring or preventing a change in control
of the Company and, therefore, could adversely affect the stockholders'
ability to realize a premium over the then-prevailing market price for the
Common Stock in connection with such a transaction. A fuller description of
the Rights Agreement can be found in the Company's Current Report on Form 8-K
filed with the SEC on August 30, 1999, which includes the Rights Agreement as
an exhibit, see "Where You Can Find More Information."
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In connection with the adoption of the Rights Agreement, the Board
of Directors declared a dividend distribution of one Preferred Stock Purchase
Right (a "Right") for each outstanding share of the Company's Common Stock to
stockholders of record as of the close of business on September 6, 1999 (the
"Record Date"). Each Right entitles the registered holder thereof to purchase
from the Company one one-hundredth of a share of Series B Junior
Participating Preferred Stock, par value $0.01 per share, of the Company, at
a cash exercise price of $75.00, subject to adjustment.
The Rights are currently not exercisable and are attached to and
trade with all shares of Common Stock outstanding as of, and issued
subsequent to, the Record Date. The Rights will separate from the Common
Stock and will become exercisable upon the earlier of:
- 10 business days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person")
has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Common Stock
(the "Stock Acquisition Date"), other than as a result of
repurchases of stock by the Company or certain inadvertent actions
by institutional or certain other stockholders or
- 10 business days (or such later date as the Board shall determine)
following the commencement of a tender offer or exchange offer
that would result in a person or group becoming an Acquiring
Person.
The Rights will expire at 5:00 P.M. (New York City time) on September 6,
2009, unless earlier redeemed or exchanged by the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
that may be relevant to a prospective holder of Securities in the Company is
based on current law. This discussion does not purport to deal with all
aspects of taxation that may be relevant to particular stockholders in light
of their personal investment or tax circumstances, or to certain types of
stockholders (including insurance companies, tax-exempt organizations (except
as described below), financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States (except as described below)) subject to special treatment under the
federal income tax laws.
The statements in this discussion are based on current provisions of
the Tax Code, existing, temporary, and currently proposed Treasury
Regulations promulgated under the Tax Code, the legislative history of the
Tax Code, existing administrative rulings and practices of the Service, and
judicial decisions. No assurance can be given that future legislative,
judicial, or administrative actions or decisions, which may be retroactive in
effect, will not affect the accuracy of any statements in this Prospectus
with respect to the transactions entered into or contemplated prior to the
effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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TAXATION OF THE COMPANY
GENERAL.
The Company elected to be taxed as a REIT under Sections 856 through
860 of the Tax Code, commencing with its short taxable year beginning on
February 12, 1997 and ending on December 31, 1997. The Company believes that
it is organized and operates in such a manner as to qualify for taxation as a
REIT under the Tax Code, and the Company intends to operate in such a manner,
but no assurance can be given that it will operate in a manner so as to
qualify or remain qualified as a REIT.
These sections of the Tax Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Tax Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. O'Melveny & Myers LLP has acted as tax counsel to
the Company.
In the opinion of O'Melveny & Myers LLP, the Company has qualified
as a REIT for the Company's taxable years ending December 31, 1997, December
31, 1998 and December 31, 1999, and the Company's organization and method of
operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Tax Code. It must be
emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters, including a REIT qualification analysis provided by the Company. In
addition, this opinion is based upon the factual representations of the
Company concerning its business and properties as set forth in this
Prospectus. Moreover, such qualification and taxation as a REIT depends upon
the Company's having met, and its continuing ability to meet, through actual
annual operating results, the distribution level tests, diversity of stock
ownership test, and the various other qualification tests imposed under the
Tax Code discussed below, the results of which were not and will not be
reviewed by O'Melveny & Myers LLP. Accordingly, no assurance can be given
that the actual results of the Company's operation for any particular taxable
year satisfied or will satisfy such requirements. See "--Failure to Qualify."
Said opinion letter of O'Melveny & Myers LLP is filed as an exhibit to the
registration statement of which this Prospectus is a part.
In any year in which the Company qualifies as a REIT, in general it
will not be subject to federal income tax on that portion of its taxable
income or capital gain which is distributed to stockholders. The Company
will, however, be subject to tax at normal corporate rates upon any taxable
income or capital gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be
subject to taxation in certain other circumstances. If the Company should
fail to satisfy the 75% or the 95% gross income test (as discussed below),
and nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amount by which the Company fails either
the 75% or the 95% test, multiplied by a fraction intended to reflect the
Company's profitability. The Company will also be subject to a tax of 100% on
net income from "prohibited transactions" (which are, in general, certain
sales or other dispositions of property held primarily for sale to customers
in the ordinary course of business, other than foreclosure property) and, if
the Company has (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a default
on indebtedness or a lease) which is held primarily for sale to customers in
the ordinary course of business or (ii) other non-qualifying income from
foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the
Company should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and
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(iii) any undistributed taxable income from prior years, the Company would be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. The Company may also be subject to the
corporate "alternative minimum tax," on its items of tax preference, as well
as tax in certain situations not presently contemplated.
REQUIREMENTS FOR QUALIFICATION.
The Tax Code defines a REIT as a corporation, trust or association
(i) which is managed by one or more trustees or directors; (ii) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Sections 856 through 859 of the
Tax Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Tax Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, directly or constructively, by five or fewer individuals (as
defined in the Tax Code to include certain entities); and (vii) which meets
certain other tests, described below, regarding the nature of its income and
assets. The Tax Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate
part of a taxable year of less than 12 months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to
be taxed as a REIT. Additionally, if for any taxable year of the Company
beginning after December 31, 1997, the Company complies with regulations
requiring the maintenance of records to ascertain ownership of its
outstanding stock and the Company does not know or have reason to know that
it failed to satisfy condition (vi), it will be treated as having satisfied
that condition for any such taxable year.
The Company believes that it has issued sufficient shares to allow
it to satisfy conditions (v) and (vi). In addition, the Company's Charter
provides for restrictions regarding the transfer and ownership of shares,
which restrictions are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above.
Such transfer and ownership restrictions are described in "Description of
Capital Stock --Restrictions on Ownership."
The Company currently has two wholly-owned corporate subsidiaries
and may have additional corporate subsidiaries in the future. Tax Code
Section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which is held by the REIT. Thus, in
applying the requirements described herein, any "qualified REIT subsidiaries"
owned by the Company will be ignored, and all assets, liabilities, and items
of income, deduction, and credit of such subsidiaries will be treated as
assets, liabilities and items of income, deduction, and credit of the
Company. Each of the Company's current wholly-owned subsidiaries is a
"qualified REIT subsidiary." (The Company also owns, through its interest in
the Operating Partnership, a minority interest in a taxable corporation.) The
Company's wholly-owned subsidiaries therefore will not be subject to federal
corporate income taxation, although they may be subject to state and local
taxation.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Tax Code, including for
purposes of satisfying the gross income tests and the asset tests. Thus, the
Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership
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will be treated as assets, liabilities and items of income of the Company for
purposes of applying the requirements described herein. A summary of the
rules governing the federal income taxation of partnerships and their
partners is provided below in "Federal Income Tax Considerations -- Tax
Aspects of the Operating Partnership."
INCOME TESTS.
In order to qualify and maintain qualification as a REIT, the
Company annually must satisfy three gross income requirements. First, at
least 75% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least
95% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of
stock or securities (or from any combination of the foregoing). Third,
short-term gain from the sale or other disposition of stock or securities,
gain from prohibited transactions and gain on the sale or other disposition
of real property held for less than four years (apart from involuntary
conversions and sales of foreclosure property) must represent less than 30%
of the Company's gross income (including gross income from prohibited
transactions) for each taxable year. The 30% gross income test however, need
not be satisfied for any taxable year of the Company beginning after December
31, 1997.
Pursuant to the Participating Leases, the Lessees lease from the
Company the land, buildings, improvements and equipment comprising the golf
courses for a 10-year period, with, options to extend for up to six
additional terms of five years each. The Participating Leases provide that
the Lessees are obligated to pay to the Company (i) Base Rent and, if
applicable, Participating Rent and (ii) certain other additional charges.
In order for the Base Rent, the Participating Rent and the
additional charges to constitute "rents from real property," the
Participating Leases must be respected as true leases for federal income tax
purposes and not treated as service contracts, joint ventures or some other
type of arrangement. The determination of whether the Participating Leases
are true leases depends on an analysis of all the surrounding facts and
circumstances. In making such a determination, courts have considered a
variety of factors, including the following: (i) the intent of the parties,
(ii) the form of the agreement, (iii) the degree of control over the property
that is retained by the property owner (e.g., whether the lessee has
substantial control over the operation of the property or whether the lessee
was required simply to use its best efforts to perform its obligations under
the agreement), and (iv) the extent to which the property owner retains the
risk of loss with respect to the property (e.g., whether the lessee bears the
risk of increases in operating expenses or the risk of damage to the
property).
In addition, Tax Code Section 7701(e) provides that a contract that
purports to be a service contract (or a partnership agreement) is treated
instead as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or not: (i) the
service recipient is in physical possession of the property, (ii) the service
recipient controls the property, (iii) the service recipient has a
significant economic or possessory interest in the property (e.g., the
property's use is likely to be dedicated to the service recipient for a
substantial portion of the useful life of the property, the recipient shares
the risk that the property will decline in value, the recipient shares in any
appreciation in the value of the property, the recipient shares in savings in
the property's operating costs, or the recipient bears the risk of damage to
or loss of the property), (iv) the service provider does not bear any risk of
substantially diminished receipts or substantially increased expenditures if
there is nonperformance under the contract, (v) the service provider does not
use the property concurrently to provide significant services
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to entities unrelated to the service recipient, and (vi) the total contract
price does not substantially exceed the rental value of the property for the
contract period. Since the determination whether a service contract should be
treated as a lease is inherently factual, the presence or absence of any
single factor may not be dispositive in every case.
The Company believes that each Participating Lease will be treated
as a true lease for federal income tax purposes. Such belief is based, in
part, on the following facts: (i) the Operating Partnership and the Lessees
intend for their relationship to be that of a lessor and lessee and such
relationship is documented by lease agreements, (ii) the Lessees have the
right to exclusive possession and use and quiet enjoyment of the golf courses
during the term of the Participating Leases, (iii) the Lessees bear the cost
of, and are responsible for, day-to-day maintenance and repair of the golf
courses, other than the cost of certain capital expenditures, and dictate how
the golf courses are operated, maintained, and improved, (iv) the Lessees
bear all of the costs and expenses of operating the golf courses (including
the cost of any inventory used in their operation) during the term of the
Participating Leases other than the cost of certain furniture, fixtures and
equipment, and certain capital expenditures), (v) the Lessees benefit from
any savings in the costs of operating the golf courses during the term of the
Participating Leases, (vi) in the event of damage or destruction to a golf
course, the Lessees are at economic risk because they will be obligated
either (A) to restore the property to its prior condition, in which event
they will bear all costs of such restoration in excess of any insurance
proceeds or (B) in certain circumstances, terminate the Participating Lease,
(vii) the Lessees have indemnified the Operating Partnership against all
liabilities imposed on the Operating Partnership during the term of the
Participating Leases by reason of (A) injury to persons or damage to property
occurring at the golf courses or (B) the Lessees' use, management,
maintenance or repair of the golf courses, (viii) the Lessees are obligated
to pay substantial Base Rent for the period of use of the golf courses, and
(ix) the Lessees stand to incur substantial losses (or reap substantial
gains) depending on how successfully they operate the golf courses. Such
opinion is also based upon the representation of the Company to the effect
that upon termination of the Participating Leases (including the optional
fixed-rate renewal periods), each such golf course is expected to have a
remaining useful life equal to at least 20% of its expected useful life when
contributed to the Operating Partnership, and a fair market value equal to at
least 20% of its fair market value when contributed to the Operating
Partnership.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Participating Leases that discuss whether
such leases constitute true leases for federal income tax purposes. If the
Participating Leases are recharacterized as service contracts or partnership
agreements, rather than true leases, part or all of the payments that the
Operating Partnership receives from the Lessees may not be considered rent or
may not otherwise satisfy the various requirements for qualification as
"rents from real property." In that case, the Company likely would not be
able to satisfy either the 75% or 95% gross income tests and, as a result,
would lose its REIT status.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described
above only if several conditions are met. First, the amount of rent must not
be based in whole or in part on the income or profits of any person. However,
an amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Tax Code provides
that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an owner of
10% or more of the REIT, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). The Charter provides that no stockholder
may own, directly or constructively, in excess of 9.8% of the Common Stock.
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as
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"rents from real property." Finally, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue,
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. For taxable years of the Company beginning after December 31,
1997, the Company may operate or manage the property or furnish or render
services to the tenants of such property without disqualifying any rents
received from such property as "rents from real property," provided that any
amounts received or accrued (directly or indirectly) by the Company for any
such activities or services do not exceed 1% of all amounts received or
accrued (directly or indirectly) by the Company with respect to such
property. However, any amounts received or accrued (directly or indirectly)
by the Company for any such activities or services will not qualify as "rents
from real property," even to the extent such amounts do not exceed the 1%
threshold. The Company does not and will not (i) charge rent for any property
that is based in whole or in part on the income or profits of any person
(except by reason of being based on a percentage of receipts or sales, as
described above), (ii) rent any property to a Related Party Tenant, (iii)
with the exception of one golf course derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total
rent received under the lease), or (iv) perform services considered to be
rendered to the occupant of the property, other than through an independent
contractor from whom the Company derives no revenue (subject to the 1% de
minimis rule discussed above for taxable years of the Company beginning after
December 31, 1997). With respect to one golf course, a portion of the
revenues derived under the Participating Lease applicable to such golf course
(the portion attributable to personal property) will not be considered as
"rents from real property." The amount of the anticipated disqualified income
under such Participating Lease, however, will not prevent the Company from
qualifying as a REIT or subject it to any federal income taxation.
The term "interest" generally does not include any amount received
or accrued (directly or indirectly) if the determination of such amount
depends in whole or in part on the income or profits of any person. However,
an amount received or accrued generally will not be excluded from the term
"interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
The participating interest feature of the Participating Mortgage
will cause the Participating Mortgage to have original issue discount
("OID"), which is treated as interest income. See "Annual Distribution
Requirements" for a discussion of the effect of OID on the ability of the
Company to meet the REIT distribution requirements.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Tax
Code. These relief provisions will be generally available if the Company's
failure to meet such tests was due to reasonable cause and not due to willful
neglect, the Company attaches a schedule of the sources of its income to its
return, and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in
all circumstances the Company would be entitled to the benefit of these
relief provisions. As discussed above in "General," even if these relief
provisions apply, a tax would be imposed with respect to the excess net
income.
ASSET TESTS.
The Company, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) its allocable share of real estate assets
held by partnerships in which the Company owns an interest and (ii) stock or
debt instruments held for not more than one year
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purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company), cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of
the investments not included in the 75% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets and the Company may not own more than 10% of any
one issuer's outstanding voting securities (except for its ownership interest
in the stock of a qualified REIT subsidiary).
If the Company should fail to satisfy the asset tests at the end of
a calendar quarter, such a failure would not cause it to lose its REIT status
if (i) it satisfied all of the asset tests at the close of the preceding
calendar quarter and (ii) the discrepancy between the value of the Company's
assets and the asset requirements either did not exist immediately after the
acquisition of any particular asset or was not wholly or partly caused by
such an acquisition (i.e., the discrepancy arose from changes in the market
values of its assets). If the condition described in clause (ii) of the
preceding sentence were not satisfied, the Company still could avoid
disqualification by eliminating any discrepancy within 30 days after the
close of the quarter in which it arose.
ANNUAL DISTRIBUTION REQUIREMENTS.
The Company, in order to qualify as a REIT, is required to
distribute dividends (other than capital gain dividends) to its stockholders
in an amount at least equal to (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and
the Company's net capital gain) and (b) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain items of
noncash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before the Company
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. For any taxable year of the Company beginning after December 31,
1997, the Company may elect to retain and pay taxes on all or a portion of
its net long-term capital gains for such year, in which case, the Company's
stockholders would include in their income as long-term capital gains their
proportionate share of such undistributed capital gains. The stockholders
would be treated as having paid their proportionate share of the capital
gains tax paid by the Company, which amounts would be credited or refunded to
the stockholders. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain income for such year,
and (iii) any undistributed taxable income from prior periods, the Company is
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. For the Company's taxable years ending
after December 31, 1997, the Company may elect to retain and pay taxes on all
or a portion of its net long-term capital gains for such year, in which case
the Company's stockholders would include in income their proportionate share
of such undistributed long-term capital gain and claim a credit for their
share of the taxes paid by the Company. The Company intends to make timely
distributions sufficient to satisfy this annual distribution requirement.
It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of
the Company. In the event that such timing differences occur, in order to
meet the 95% distribution requirement, the Company may find it necessary to
arrange for short-term, or possibly long-term, borrowings or to pay dividends
in the form of taxable stock dividends.
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The participating interest feature of the Participating Mortgage
will cause the Participating Mortgage to have OID, which will require the
Company to accrue, as interest income, the full amount of such OID even
though the Company may not be in receipt of a like amount of related cash
payments during such year. The inclusion of OID in income without the related
cash may make it more likely that the Company will have to borrow to meet the
95% distribution requirement. For the Company's taxable years beginning after
December 31, 1997, OID is not included in determining whether the Company has
met the 95% distribution requirements, although the Company will still be
subject to tax on such income to the extent not distributed.
In addition, upon the happening of a "Transfer Triggering Event",
the Company will have to accrue additional interest income without any
related cash payment in the year the "Transfer Triggering Event" occurs, and
will have additional OID without any related cash payment from that date
until the maturity of the Participating Mortgage. If the "Transfer Triggering
Event" occurs after the Company's taxable year ending December 31, 1997, such
additional accrued interest will have no effect on the ability of the Company
to meet the 95% distribution requirement, although the Company may have to
borrow to pay its tax on such "phantom" income.
The Company calculates its "REIT taxable income" based upon the
conclusion that the Operating Partnership is the owner for federal income tax
purposes of all of the golf courses other than the golf courses that secure
the Participating Mortgage. As a result, the Company expects that
depreciation deductions with respect to all such golf courses will reduce its
"REIT taxable income." This conclusion is consistent with the opinion of
O'Melveny & Myers LLP as described above, which in turn is based upon
representations from the Company as to the expected useful life and future
fair market value of each such golf course. If the Service were to
successfully challenge this position, the Company might be deemed
retroactively to have failed to meet the distribution requirement and would
have to rely on the payment of a "deficiency dividend" in order to retain its
REIT status.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
PARTNERSHIP ANTI-ABUSE RULE
The United States Treasury Department has issued a regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Tax Code (the
"Partnership Provisions") that authorizes the Service, in certain "abusive"
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in
connection with a transaction (or series of related transactions) with a
principal purpose of substantially reducing the present value of the
partners' aggregate federal tax liability in a manner inconsistent with the
intent of the Partnership Provisions. The Anti-Abuse Rule states that the
Partnership Provisions are intended to permit taxpayers to conduct joint
business (including investment) activities through a flexible economic
arrangement that accurately reflects the partners' economic agreement and
clearly reflects the partners' income without incurring any entity-level tax.
The purposes for structuring a transaction involving a partnership are
determined based on all of the facts and circumstances, including a
comparison of the purported business purpose for a transaction and the
claimed tax benefits resulting from the transaction. A reduction in the
present value of the partners' aggregate federal tax liability through the
use of a partnership does not, by itself, establish inconsistency with the
intent of the Partnership Provisions.
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The Anti-Abuse Rule contains an example in which a corporation that
elects to be treated as a REIT contributes substantially all of the proceeds
from a public offering to a partnership in exchange for a general partner
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their
respective aggregate bases in such property. In addition, the limited
partners have the right, beginning one year after the formation of the
partnership, to require the redemption of their limited partnership interests
in exchange for cash or REIT stock (at the Company's option) equal to the
fair market value of their respective interests in the partnership at the
time of the redemption. The example concludes that the use of the partnership
is not inconsistent with the intent of the Partnership Provisions and, thus,
cannot be recast by the Service. Based on the foregoing, the Anti-Abuse Rule
should not have any adverse impact on the Company's ability to qualify as a
REIT. However, the Anti-Abuse Rule is extraordinarily broad in scope and is
applied based on an analysis of all of the facts and circumstances. As a
result, there can be no assurance that the Service will not attempt to apply
the Anti-Abuse Rule to the Company. If the conditions of the Anti-Abuse Rule
are met, the Service is authorized to take appropriate enforcement action,
including disregarding the Operating Partnership for federal tax purposes or
treating one or more of its partners as nonpartners. Any such action
potentially could jeopardize the Company's status as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in
any year in which the Company fails to qualify will not be deductible by the
Company nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to
stockholders will be taxable as ordinary income, and, subject to certain
limitations of the Tax Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company will also be disqualified from taxation as
a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for
the dividends received deduction for corporations. Distributions (or, for
taxable years of the Company beginning after December 31, 1997, net long-term
capital gains retained by the Company) that are designated as capital gain
dividends will be taxed as long-term capital gain (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the stockholder has held its stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's
shares, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares they will be included in income as long-term capital gain (or
short-term capital gain if the shares have been held for one year or less)
assuming the shares are a capital asset in the hands of the stockholder. In
addition, any dividend declared by the Company in October, November or
December of any year payable to a stockholder of record on a specified date
in any such month shall be treated as both paid by the Company and received
by the stockholder on December 31 of such year, provided that the dividend is
actually paid by the Company
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during January of the following calendar year. Stockholders may not include
in their individual income tax returns any net operating losses or capital
losses of the Company.
In general, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules), will be treated as a long-term capital loss to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and the Service
the amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder that does not provide the Company
with his correct taxpayer identification number may also be subject to
penalties imposed by the Service. Any amount paid as backup withholding will
be creditable against the stockholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain
distributions made to any stockholders who fail to certify their non-foreign
status to the Company. The Service has issued final regulations that will
alter the technical requirements relating to backup withholding compliance as
applied to foreign stockholders for distributions made after December 31,
1999. See "--Taxation of Foreign Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
In Revenue Ruling 66-106, 1966-1 C.B. 151, the Service ruled that
amounts distributed by a REIT to a tax-exempt employees' pension trust did
not constitute "unrelated business taxable income" ("UBTI"). Revenue rulings
are interpretive in nature and subject to revocation or modification by the
Service. However, based upon Revenue Ruling 66-106 and the analysis therein,
distributions by the Company to a stockholder that is a tax-exempt entity
should not constitute UBTI, provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Tax Code and the shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity.
In certain circumstances, a pension trust that owns more than 10% of
the Company's stock will be required to treat a percentage of the dividends
received from the Company as UBTI (the "UBTI Percentage"). The UBTI
Percentage is the gross income derived by the Company from an unrelated trade
or business (determined as if the Company were a pension trust) divided by
the gross income of the Company for the year in which the dividends are paid.
The UBTI Percentage rule will apply to a pension trust holding more than 10%
of the Company's stock only if (i) the UBTI Percentage is at least 5%, (ii)
the Company qualifies as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as
holding shares of the Company in proportion to their actuarial interests in
the pension trust and (iii) either (A) one pension trust owns more than 25%
of the value of the Company's stock or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's stock
collectively owns more than 50% of the value of the Company's stock.
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TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. Stockholders") are
complex and no attempt will be made herein to provide more than a summary of
such rules. Prospective Non-U.S. Stockholders should consult with their own
tax advisors to determine the impact of federal, state and local income tax
laws with regard to an investment in shares, including any reporting
requirements.
Distributions by the Company that are not attributable to gain from
sales or exchanges by the Company of United States real property interests
and not designated by the Company as capital gains dividends will be treated
as dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such
distributions, ordinarily, will be subject to a withholding tax equal to 30%
of the gross amount of the distribution unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
Common Stock is treated as effectively connected with the conduct by the
Non-U.S. Stockholder of a United States trade or business, the Non-U.S.
Stockholder generally will be subject to a tax at graduated rates, in the
same manner as U.S. stockholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a
Non-U.S. Stockholder that is a foreign corporation). The Company expects to
withhold United States income tax at the rate of 30% on the gross amount of
any such dividends made to a Non-U.S. Stockholders unless (i) a lower treaty
rate applies or (ii) the Non-U.S. Stockholder files an Service Form 4224 with
the Company certifying that the investment to which the distribution relates
is effectively connected to a United States trade or business of such
Non-U.S. Stockholder. Lower treaty rates applicable to dividend income may
not necessarily apply to dividends from a REIT, however. The Service has
issued final regulations that will modify the manner in which the Company
complies with the withholding requirements for distributions made after
December 31, 1999. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a stockholder to
the extent that they do not exceed the adjusted basis of the stockholder's
shares, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder otherwise is subject to tax on any gain from the sale or
disposition of his shares in the Company (as described below). If it cannot
be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the same rate
applicable to dividends. However, amounts thus withheld are refundable if it
is subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
In August 1996, the U.S. Congress passed the Small Business Job
Protection Act of 1996, which requires the Company to withhold 10% of any
distribution in excess of the Company's current and accumulated earnings and
profits. That statute is effective for distributions made after August 20,
1996. Consequently, although the Company intends to withhold at a rate of 30%
on the entire amount of any distribution, to the extent that the Company does
not do so, any portion of a distribution not subject to withholding at a rate
of 30% will be subject to withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions
(or for taxable years of the Company beginning after December 31, 1997, net
long-term capital gains retained and designated as capital gain dividends by
the Company) that are attributable to gain from sales or exchanges by the
Company of United States real property interests will be taxed to a Non-U.S.
Stockholder under the provisions of the Foreign Investment in Real Property
Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are
taxed to a Non-U.S. Stockholder as if such gain were effectively connected
with a United States trade or business. Non-U.S. Stockholders would thus be
taxed at the same
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capital gain rates applicable to U.S. stockholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder not entitled to treaty relief or exemption. The Company is
required by applicable Treasury Regulations to withhold 35% of any
distribution that could be designated by the Company as a capital gains
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. However, because the shares of the
Company are publicly-traded, no assurance can be given that the Company will
continue to be a "domestically-controlled REIT." In addition, a Non-U.S.
Stockholder that owns, actually or constructively, 5% or less of the
Company's stock throughout a specified "look back" period will not recognize
gain on the sale of his stock taxable under FIRPTA if the shares are traded
on an established securities market. Furthermore, gain not subject to FIRPTA
will be taxable to a Non-U.S. Stockholder if (i) investment in the shares is
effectively connected with the Non-U.S. Stockholder's United States trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain (except that a
stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax), or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during
the taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals and, in the case of foreign
corporations, subject to the possible application of the 30% branch profits
tax).
STATE AND LOCAL TAXES
The Company, any of its subsidiaries, the Operating Partnership or
the Company's stockholders may be subject to state and local tax in various
states and localities, including those states and localities in which it or
they transact business, own property, or reside. The state tax treatment of
the Company and the stockholders in such jurisdictions may differ from the
federal income tax treatment described above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of
state and local tax laws upon an investment in the Common Stock.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
CLASSIFICATION AS A PARTNERSHIP.
The Company will be entitled to include in its income its
distributive share of the Operating Partnership's income and to deduct its
distributive share of the Operating Partnership's losses only if the
Operating Partnership is classified for federal income tax purposes as a
partnership rather than as a corporation or an association taxable as a
corporation. An organization formed as a partnership will be treated as a
partnership, rather than as a corporation, for federal income tax purposes if
(i) it is not expressly classified as a corporation under Section
301.7701-2(b)(1) through (8) of the Treasury
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Regulations; (ii) it does not elect to be classified as an association
taxable as a corporation; and (iii) it is not treated as a corporation by
virtue of being classified as a "publicly traded partnership."
The Operating Partnership will not request a ruling from the Service
that it will be classified as a partnership for federal income tax purposes.
Instead, at the Closing of this Offering, O'Melveny & Myers LLP will deliver
its opinion that, based on the provisions of the Partnership Agreement,
certain factual assumptions and certain representations described in the
opinion, the Operating Partnership will be treated for federal income tax
purposes as a partnership and not as an association taxable as a corporation.
Currently the Operating Partnership is not expressly classified as, and will
not elect to be classified as, a corporation for federal income tax purposes.
Unlike a tax ruling, an opinion of counsel is not binding upon the Service,
and no assurance can be given that the Service will not challenge the status
of the Operating Partnership as a partnership for federal income tax
purposes. If such challenge were sustained by a court, the Operating
Partnership would be treated as a corporation for federal income tax
purposes, as described below. In addition, the opinion of O'Melveny & Myers
LLP is based on existing law, which is to a great extent the result of
administrative and judicial interpretation. No assurance can be given that
administrative or judicial changes would not modify the conclusions expressed
in the opinion.
Under Section 7704 of the Tax Code, a partnership is treated as a
corporation for federal income tax purposes if it is a "publicly traded
partnership" (except in situations in which 90% or more of the partnership's
gross income is of a specified type). A partnership is deemed to be publicly
traded if its interests are either (i) traded on an established securities
market, or (ii) readily tradable on a secondary market (or the substantial
equivalent thereof). While the OP Units will not be traded on an established
securities market, they could possibly be deemed to be traded on a secondary
market or its equivalent due to the Redemption Rights enabling the partners
to dispose of their OP Units.
The Treasury Department recently issued regulations (the "PTP
Regulations") governing the classification of partnerships under Section
7704. These regulations provide that the classification of partnerships is
generally based on a facts and circumstances analysis. However, the
regulations also provide limited "safe harbors" which preclude publicly
traded partnership status. Pursuant to one of those safe harbors, interests
in a partnership will not be treated as readily tradable on a secondary
market or the substantial equivalent thereof if (i) all interests in the
partnership were issued in a transaction (or transactions) that was not
required to be registered under the Securities Act, and (ii) the partnership
does not have more than 100 partners at any time during the partnership's
taxable year. In determining the number of partners in a partnership for this
purpose, a person owning an interest in a flow-through entity (i.e., a
partnership, grantor trust, or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (x)
substantially all of the value of the person's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (y) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation.
The Operating Partnership is expected to have fewer than 100
partners (including persons owning interests through flow-through entities).
The Operating Partnership has not issued any OP Units required to be
registered under the Securities Act. Thus, the Operating Partnership
presently qualifies for the safe harbors provided in the PTP Regulations. If
the Operating Partnership were to have more than 100 partners (including, in
certain circumstances, persons owning interests through flow-through
entities), it nevertheless would be treated as a partnership for federal
income tax purposes (rather than an association taxable as a corporation) if
at least 90% of its gross income in each taxable year (commencing with the
year in which it is treated as a publicly traded partnership) consists of
"qualifying income" with the meaning of Section 7704(c)(2) of the Tax Code
(including interest, dividends, "real property rents" and gains from the
disposition of real property (the "90% Passive-Type Income Exception").
Because of the substantial ownership of the Operating Partnership by the
Lessees (or their affiliates), the Operating
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Partnership currently would not be eligible for the 90% Passive-Type Income
Exception. Thus, if the Operating Partnership were to have more than 100
partners (including, in certain circumstances, persons owning interests
through flow-through entities), the Company would be required to place
appropriate restrictions on the ability of the Limited Partners to exercise
their Redemption Rights as and if deemed necessary to ensure that the
Operating Partnership does not constitute a publicly traded partnership.
However, there is no assurance that the Operating Partnership will at all
times in the future be able to avoid treatment as a publicly traded
partnership. The opinion of O'Melveny & Myers LLP as to the classification of
the Partnership is based on an assumption that the Operating Partnership will
continue to fall within a safe harbor from publicly traded partnership status.
If for any reason the Operating Partnership were taxable as a
corporation, rather than as a partnership, for federal income tax purposes,
the Company would not be able to satisfy the income and asset requirements
for REIT status. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests" and "--Requirements for Qualification--Asset
Tests." In addition, any change in the Operating Partnership's status for tax
purposes might be treated as a taxable event, in which case the Company might
incur a tax liability without any related cash distribution. See "Federal
Income Tax Considerations--Requirements for Qualification--Distribution
Requirements." Further, items of income and deduction of the Operating
Partnership would not pass through to its partners, and its partners would be
treated as stockholders for tax purposes. Consequently, the Operating
Partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing the Operating Partnership's taxable
income.
The following discussion assumes that the Operating Partnership will
be treated as a partnership for federal income tax purposes.
PARTNERSHIP ALLOCATIONS.
Although a partnership agreement will generally determine the
allocation of income and losses among partners, such allocations will be
disregarded for tax purposes if they do not comply with the provisions of
Section 704(b) of the Tax Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations
promulgated thereunder require that partnership allocations respect the
economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking
into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. The Operating
Partnership's allocations of taxable income and loss are intended to comply
with the requirements of Section 704(b) of the Tax Code and the Treasury
Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE GOLF COURSES.
Pursuant to Section 704(c) of the Tax Code, income, gain, loss and
deduction attributable to appreciated or depreciated property (such as the
golf courses) that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of
contributed property at the time of contribution and the adjusted tax basis
of such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book
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<PAGE>
capital accounts or other economic or legal arrangements among the partners.
The Operating Partnership was formed by way of contributions of appreciated
property (including the golf courses). Consequently, the Partnership
Agreement requires such allocations to be made in a manner consistent with
Section 704(c) of the Tax Code.
In general, the Prior Owners will be allocated depreciation
deductions for tax purposes which are lower than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition
of any of the contributed assets (including the golf courses) which have a
Book-Tax Difference, all income attributable to such Book-Tax Difference will
generally be allocated to the Prior Owners and the Company will generally be
allocated only its share of capital gains attributable to appreciation, if
any, occurring after the closing of the Offering. This will tend to eliminate
the Book-Tax Difference over the life of the Operating Partnership. However,
the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands the Operating Partnership will cause the
Company to be allocated lower depreciation and other deductions, and possibly
an amount of taxable income in the event of a sale of such contributed assets
in excess of the economic or book income allocated to it as a result of such
sale. This may cause the Company to recognize taxable income in excess of
cash proceeds, which might adversely affect the Company's ability to comply
with the REIT distribution requirements. See "--Taxation of the
Company--Annual Distribution Requirements." The foregoing principles also
apply in determining the earnings and profits of the Company for purposes of
determining the portion of distributions taxable as dividend income. The
application of these rules over time may result in a higher portion of
distributions being taxed as dividends than would have occurred had the
Company purchased the contributed assets at their agreed values.
The Treasury Regulations under Section 704(c) of the Tax Code allow
partnerships to use any reasonable method of accounting for Book-Tax
Differences so that the contributing partner receives the tax benefits and
burdens of any built-in gain or loss associated with the contributed
property. The Operating Partnership has generally determined to use the
"traditional method" (which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
properties contributed to it.
The Operating Partnership may elect alternative methods of
accounting for Book-Tax Differences with respect to any properties
contributed to it in the future.
BASIS IN OPERATING PARTNERSHIP INTEREST.
The Company's adjusted tax basis in its interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis
of any other property contributed to the Operating Partnership by the
Company, (ii) will be increased by (a) its allocable share of the Operating
Partnership's income and (b) its allocable share of indebtedness of the
Operating Partnership and (iii) will be reduced, but not below zero, by the
Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share
of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the
Operating Partnership's loss exceeds the adjusted tax basis of the Company's
partnership interest in the Operating Partnership, the recognition of such
excess loss will be deferred until such time and to the extent that the
Company has adjusted tax basis in its interest in the Operating Partnership.
To the extent that the Operating Partnership's distributions, or any decrease
in the Company's share of the indebtedness of the Operating Partnership (such
decreases being considered a cash distribution to the partners), exceeds the
Company's adjusted tax
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basis, such excess distributions (including such constructive distributions)
constitute taxable income to the Company. Such taxable income will normally
be characterized as a capital gain, and if the Company's interest in the
Operating Partnership has been held for longer than the long-term capital
gain holding period (currently one year), the distributions and constructive
distributions will constitute long-term capital gain. Under current law,
capital gains and ordinary income of corporations are generally taxed at the
same marginal rates.
SALE OF THE GOLF COURSES.
The Company's share of any gain realized by the Operating
Partnership on the sale of any property held by the Operating Partnership as
inventory or other property held primarily for sale to customers in the
ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "--Requirements for Qualification--Income Tests." Such
prohibited transaction income may also have an adverse effect upon the
Company's ability to satisfy the income tests for qualification as a REIT.
See "--Requirements for Qualification--Income Tests." Under existing law,
whether property is held as inventory or primarily for sale to customers in
the ordinary course of a partnership's trade or business is a question of
fact that depends on all the facts and circumstances with respect to the
particular transaction. The Operating Partnership intends to hold the golf
courses for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating the golf courses
(and other golf courses) and to make such occasional sales of the golf
courses, including peripheral land, as are consistent with the Operating
Partnership's investment objectives.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Tax 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 Tax 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 Tax
Code). Moreover, based on the reasoning of the United 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 OUR SECURITIES
Any Plan fiduciary that proposes to cause a Plan to purchase our
securities should consult with its counsel with respect to the potential
applicability of ERISA and the Tax 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 our securities is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
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Any placement agent or underwriter engaged by the selling
stockholders or certain affiliates thereof may be "Parties-in-Interest" or
"Disqualified Persons" with respect to a number of Plans. Accordingly,
investment in our securities by such a Plan could be deemed to constitute a
transaction prohibited under Title I of ERISA or Section 4975 of the Tax 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 Assets 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 Tax Code to be
assets of the investing Plan unless certain exceptions apply. The Plan Assets
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
and the Common Shares offered hereby should be treated as "equity interests"
for purposes of the Plan Assets Regulation.
One exception under the Plan Assets 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 Assets 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-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 Assets 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
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transferable, and (iii) part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act. Although we believe that our
Common Stock qualifies as a publicly-offered security, our Series A preferred
stock does not so qualify and consequently, ownership of our Series A
preferred stock by a Plan may, under certain circumstances, cause our
underlying assets to be deemed to be Plan assets, unless another exemption is
available.
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 Assets 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 we 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 Tax
Code. For example, if we were to engage in a transaction with a
Party-in-Interest with respect to any plan investing in our Common Stock or
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 Tax Code, and we and such Plan sponsor could be subject to
sanctions.
The sale of the Common Stock is in no respect a representation by 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 exemption from
the Plan Assets Regulation is or will be applicable.
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<PAGE>
SELLING STOCKHOLDERS
Pursuant to General Instruction C.3(a)(2) of Form S-8, the following
table names the officers and directors of the Company who are eligible to
sell Common Shares pursuant to this Prospectus, whether or not they have a
present intention to do so, and the amounts of securities available to be
resold by each of them. In the event that additional persons who may be
deemed to be "affiliates" of the Company acquire Common Shares, or securities
convertible into Common Shares, under the Company's 1997 Stock Incentive
Plan, 1997 Non-Employee Directors' Plan or 1997 Stock-Based Incentive Plan
(the "Plans"), the Company will name them in a supplement to this Prospectus
which will be filed with the SEC prior to any registered resales by such
persons. An "affiliate" is defined by SEC Rule 405 as a "person that,
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with" the Company.
In this Prospectus, the term "Selling Stockholder" includes the
entities named in the table below and also includes donees and pledgees
selling shares covered by this Prospectus that were received, directly or
indirectly, from one or more of the named entities after the date of this
Prospectus.
The following table sets forth the names of the Selling
Stockholders, their positions with the Company, the number of Common Shares
known by the Company to be beneficially owned by them as of June 15, 2000,
the number of their Common Shares covered by this Prospectus, and the number
of Common Shares that will be owned by each of them if they were to sell all
of their shares covered by this Prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING COMMON
COMMON SHARES COMMON SHARES SHARES TO BE
BENEFICIALLY COVERED BENEFICIALLY OWNED
OWNED AS OF BY THIS AFTER THE OFFERING
NAME AND POSITION JUNE 15, 2000 (1) PROSPECTUS (2) (3)
------------------------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
W. Bradley Blair, II 609,368 419,754 7.0%
President and Chief Executive
Officer
Scott D. Peters 230,702 149,311 2.8%
Senior Vice President and
Chief Financial Officer
Roy C. Chapman 20,500 20,000 *
Director
Raymond V. Jones 21,000 20,000 *
Director
Fred W. Reams 60,000 20,000 *
Director
Edward L. Wax 21,250 20,000 *
Director
Larry D. Young ------ ------- --------
Director
------------------------------------- --------------------
</TABLE>
-------------------
* Less than 1%.
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(1) Includes Common Shares owned on such date, common shares that may be
issued upon redemption of OP units, and Common Shares issuable upon
exercise of options that are currently vested or that are expected to vest
within 60 days of such date.
(2) The shares listed in this column are those (a) issued under the 1997 Stock
Incentive Plan, the 1997 Non-Employee Directors' Plan and/or the 1997
Stock-Based Incentive Plan (whether as restricted stock or upon option
exercises) and currently outstanding, (b) not issued but issuable upon
exercise of currently outstanding options (whether or nor vested) granted
under one or more of such Plans, in each case held by the named Selling
Stockholder.
(3) Assumes that all Common Shares issuable to the Selling Stockholders under
the Plans will be sold by the Selling Stockholders and that no other
issuances or repurchases of Common Stock by the Company will occur and
that the Selling Stockholder will not acquire any additional Common Shares
in the open market or sell any other Common Shares. The stated percentages
are based on a total number of Common Shares equal to the 8,118,147
shares actually outstanding on June 15, 2000 plus, for each individual, the
number of common shares potentially issuable within the next 60 days
through the exercise of vested options and/or redemption of Operating
Partnership units.
PLAN OF DISTRIBUTION
The Company is registering Common Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the
registration of the Common Shares offered hereby will be borne by the
Company, except that underwriting discounts, brokerage commissions and
similar selling expenses, if any, attributable to the sale of the Common
Shares will be borne by the Selling Stockholders.
Sales of Common Shares may be effected by Selling Stockholders from
time to time in one or more types of transactions (which may include block
transactions) on the American Stock Exchange, in the over-the-counter market,
in negotiated transactions, through put or call options transactions relating
to the Common Shares, through short sales of Common Shares, or a combination
of such methods of sale, at market prices prevailing at the time of sale, at
prices related to such market prices, or at negotiated prices. Such
transactions may or may not involve brokers or dealers.
The Selling Stockholders may effect such transactions by selling
Common Shares directly to purchasers, to or through broker-dealers, which may
act as agents or principals, or to underwriters which will acquire shares for
their own account and resell them in one or more transactions. Such
broker-dealers or underwriters may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholders and/or
the purchasers of Common Shares for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions) and
such discounts, concessions, or commissions may be allowed ore reallowed or
paid to dealers.
The Selling Stockholders and any broker-dealers that act in
connection with the sale of the Common Shares might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by such broker-dealers and any profit on the resale
of the Common Shares sold by them while acting as principals might be deemed
to be underwriting discounts or commissions under the Securities Act of 1933,
as amended. The Selling Stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the
Common Shares against certain liabilities, including liabilities arising
under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to the prospectus delivery requirements of the
Securities Act, which may include delivery through the facilities of the
American Stock Exchange pursuant to Rule 153 under the Securities Act. The
Company has informed the Selling Stockholders that the anti-manipulative
provisions of Regulation M promulgated under the Securities Exchange Act of
1934, as amended, may apply to their sales in the market.
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Selling Stockholders also may resell all or a portion of their
Common Shares in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the
requirements of such Rule.
In addition, upon the Company being notified by a Selling
Stockholder that a donee or pledgee intends to sell more than 500 Common
Shares, a supplement to this Prospectus will be filed, if required under the
Securities Act.
EXPERTS
The annual financial statements incorporated by reference in this
Prospectus have been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.
LEGAL MATTERS
The validity of the securities registered hereby will be passed upon
for the Company by O'Melveny & Myers LLP, San Francisco, California.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
file with it. This means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus and the information we file later
with the SEC will automatically update and supersede this information.
The following documents, which have been filed with the Commission,
are hereby incorporated by reference:
1. Annual Report on Form 10-K, as amended, of the Company for the
fiscal year ended December 31, 1999 (including portions of the
Company's definitive Proxy Statement incorporated therein by
reference);
2. Quarterly Report on Form 10-Q of the Company for the fiscal
quarter ended March 31, 2000;
3. The description of the Common Stock of the Company included in
the Company's Registration Statement on Form 8-A, filed with
the Commission on February 7, 1997, including the information
incorporated therein by reference and including any amendment
or reports filed for the purpose of updating such description;
4. The description of the Series A preferred stock of the Company
included in the Company's Registration Statement on Form 8-A,
filed with the Commission on April 28, 1999, including the
information incorporated therein by reference and including
any amendment or reports filed for the purpose of updating
such description; and
5. The description of the preferred stock purchase rights under
the Company's Shareholder Rights Plan included in the
Registration Statement on Form 8-A, filed by the Company with
the Commission on August 30, 1999, including the information
incorporated therein by reference and including any amendment
or reports filed for the purpose of updating such description.
In addition, all reports and other documents that we file with the
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering shall be
deemed to be incorporated by reference in this Prospectus from the date of
the filing of such documents (except that each time we file a new annual
report on Form 10-K, any annual, quarterly or current report filed prior to
such filing shall no longer be incorporated this Prospectus). Any statement
contained in a document incorporated by reference shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in a later document modifies or supersedes such
statement. Any statements so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded.
We will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy
of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus (other than the exhibits to such
documents). Requests for such documents should be directed to Golf Trust of
America, Inc., 14 North Adger's Wharf, Charleston, South Carolina 29401,
Attention: Investor Relations (telephone: (843) 723-4653).
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act we file annual and quarterly reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Our reports, proxy statements and most other information that
we file with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may obtain information on the
operation of the Commission's public reference room by calling
1-800-SEC-0330. Copies of our filed materials can be obtained by mail from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains an
Internet site that contains our reports, proxy statements and other
information as well as such documents from other companies that file
electronically with the Commission and the address is http://www.sec.gov. We
maintain an Internet site at http://www.golftrust.com. Neither the
information contained in our website nor the information contained in the
websites linked to our website is a part of this Prospectus.
We have filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, with respect to the Securities. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. For further information concerning Golf Trust and the Securities,
reference is made to the Registration Statement and the exhibits and
schedules filed therewith, which may be obtained as described above.
No dealer, sales representative or any other person has been
authorized to give any information or to make any representations in
connection with this Offering other than those contained in this Prospectus
or any accompanying Prospectus Supplement, and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any underwriter. This Prospectus and any
accompanying Prospectus Supplement do not constitute an offer to sell, or a
solicitation of an offer to buy, any securities other than the registered
securities to which they relate or an offer to, or solicitation of, any
person in any jurisdiction where such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus and any accompanying
Prospectus Supplement nor any sale made hereunder or thereunder shall, under
any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof or thereof or that the
information contained herein or therein is correct as of any time subsequent
to the date hereof or thereof.
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<TABLE>
<S> <C>
=========================================================== ===========================================================
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 1,100,000 SHARES
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. [LOGO]
---------------------
TABLE OF CONTENTS GOLF TRUST OF AMERICA, INC.
Note Regarding Forward-Looking Statements............ 2
Risk Factors......................................... 3
The Company.......................................... 18 COMMON STOCK
Our Business Strategies and Objectives............... 21
Use of Proceeds...................................... 24
Description of Our Capital Stock..................... 24
Federal Income Tax Considerations.................... 32
ERISA Considerations................................. 47 ----------------------------------
PROSPECTUS
Selling Stockholders................................. 50 ----------------------------------
Plan of Distribution................................. 51
Experts.............................................. 52
Legal Matters........................................ 52
Incorporation of Certain Information by Reference.... 53 JUNE 19, 2000
Where You Can Find More Information.................. 54
=========================================================== ===========================================================
</TABLE>
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Except as set forth below, no amendment is made to the Part II
information included in the original filing of this Registration Statement on
February 20, 1998.
ITEM 8. EXHIBITS.
The following exhibits are part of this Registration Statement on
Form S-8 and are numbered in accordance with Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- --------------------------------------------------------------
<S> <C>
4.1 Articles of Amendment and Restatement of the Company, as filed
with the State Department of Assessments and Taxation of
Maryland on January 31, 1997, (previously filed as Exhibit
3.1A to the Company's Registration Statement on Form S-11
(Commission File No. 333-15965) Amendment No. 2 (filed January
30, 1997) and incorporated herein by reference).
4.2 Articles of Amendment of the Company, as filed with the State
Department of Assessments and Taxation of Maryland on June 9,
1998 (previously filed as Exhibit 3.2B to the Company's
Quarterly Report on Form 10-Q (Commission File No. 000-22091),
filed August 14, 1998, and incorporated herein by reference).
4.3 Articles Supplementary of the Company relating to the Series A
preferred stock, as filed with the State Department of
Assessments and Taxation of the State of Maryland on April 2,
1999 (previously filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K, filed April 13, 1999, and incorporated
herein by reference).
4.4 Articles Supplementary of the Company relating to the Series B
Junior Participating Preferred Stock, as filed with the State
Department of Assessments and Taxation of the State of
Maryland on August 27, 1999 (previously filed as Exhibit 3.1
to the Company's Current Report on Form 8-K, filed August 30,
1999, and incorporated herein by reference).
4.5 Form of Share Certificate for the Common Stock (previously
filed as Exhibit 4.3 to the Company's Current Report on Form
8-K, filed August 30, 1999, and incorporated herein by
reference).
4.6 Form of Share Certificate for the Series A preferred stock
(previously filed as Exhibit 3.2 to the Company's Current
Report on Form 8-K, filed April 13, 1999, and incorporated
herein by reference).
4.7 Bylaws of the Company, as amended by our board of directors on
February 16, 1998 and as currently in effect (previously filed
as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
(Commission File No. 000-22091), filed May 15, 1998, and
incorporated herein by reference).
4.8 Shareholder Rights Agreement, by and between the Company and
ChaseMellon Shareholder Services, L.L.C., as rights agent,
dated August 24, 1999 (previously filed
II-1
<PAGE>
as Exhibit 4.1 to the Company's Current Report on Form 8-K,
filed August 30, 1999, and incorporated herein by reference).
4.9 Golf Trust of America, Inc. 1997 Non-Employee Directors' Plan
(previously filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-11 (Commission File No.
333-15965) Amendment No. 1 (filed January 15, 1997) and
incorporated herein by reference).
4.10 Golf Trust of America, Inc. 1997 Stock Incentive Plan
(previously filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (Commission File No.
333-15965) Amendment No. 1 (filed January 15, 1997) and
incorporated herein by reference).
4.11 Golf Trust of America, Inc. 1997 Stock-Based Incentive Plan
(the "New Stock Incentive Plan") (previously filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q
(Commission File No. 000-22091), filed August 15, 1997, and
incorporated herein by reference).
4.12 Form of Nonqualified Stock Option Agreement for use under the
New Stock Incentive Plan (previously filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q (Commission File
No. 000-22091), filed August 15, 1997, and incorporated herein
by reference).
4.13 Form of Employee Incentive Stock Option Agreement for use
under the New Stock Incentive Plan (previously filed as
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
(Commission File No. 000-22091), filed August 15, 1997, and
incorporated herein by reference).
4.14 General Provisions Applicable to Restricted Stock Awards
Granted Under the New Stock Incentive Plan (previously filed
as Exhibit 10.14 to the Company's Registration Statement on
Form S-11 (Commission File No. 333-36847), dated September 30,
1997 and filed as of October 1, 1997, and incorporated herein
by reference).
4.15 Form of Restricted Stock Award Agreement for use under the New
Stock Incentive Plan (previously filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-11 (Commission File
No. 333-36847), dated September 30, 1997 and filed as of
October 1, 1997, and incorporated herein by reference).
5.1 Opinion of O'Melveny & Myers LLP as to legality of the shares
being registered (previously filed).
23.1* Consent of BDO Seidman LLP.
23.2 Consent of O'Melveny & Myers LLP (included within the opinion
filed as Exhibit 5.1).
24.1 Powers of Attorney (included under the caption "Signatures" in
the previous filing of this Registration Statement)
-------------------
</TABLE>
* Included in this filing.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Charleston, State of South
Carolina, on June 15, 2000.
GOLF TRUST OF AMERICA, INC.
By: /s/ W. Bradley Blair, II
-------------------------------------
W. Bradley Blair, II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
/s/ W. Bradley Blair, II President, Chief Executive Officer and June 15, 2000
------------------------------------------ Chairman of the Board of Directors
W. Bradley Blair, II
/s/ Scott D. Peters Senior Vice President and Chief June 15, 2000
------------------------------------------ Financial Officer
Scott D. Peters
/s/ Tracy Clifford Controller June 15, 2000
------------------------------------------
Tracy Clifford
/s/ Roy C. Chapman Director June 15, 2000
------------------------------------------
Roy C. Chapman
/s/ Raymond V. Jones Director June 15, 2000
------------------------------------------
Raymond V. Jones
* Director June 15, 2000
------------------------------------------
Fred W. Reams
/s/ Larry D. Young Director June 15, 2000
------------------------------------------
Larry D. Young
/s/ Edward L. Wax Director June 15, 2000
------------------------------------------
Edward L. Wax
</TABLE>
* POWER OF ATTORNEY
By: /s/ W. Bradley Blair, II
------------------------------------
W. Bradley Blair, II
Attorney-in-Fact and Agent
II-3
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index
immediately precedes the exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- --------------------------------------------------------------
<S> <C>
4.1 Articles of Amendment and Restatement of the Company, as filed
with the State Department of Assessments and Taxation of
Maryland on January 31, 1997, (previously filed as Exhibit
3.1A to the Company's Registration Statement on Form S-11
(Commission File No. 333-15965) Amendment No. 2 (filed January
30, 1997) and incorporated herein by reference).
4.2 Articles of Amendment of the Company, as filed with the State
Department of Assessments and Taxation of Maryland on June 9,
1998 (previously filed as Exhibit 3.2B to the Company's
Quarterly Report on Form 10-Q (Commission File No. 000-22091),
filed August 14, 1998, and incorporated herein by reference).
4.3 Articles Supplementary of the Company relating to the Series A
preferred stock, as filed with the State Department of
Assessments and Taxation of the State of Maryland on April 2,
1999 (previously filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K, filed April 13, 1999, and incorporated
herein by reference).
4.4 Articles Supplementary of the Company relating to the Series B
Junior Participating Preferred Stock, as filed with the State
Department of Assessments and Taxation of the State of
Maryland on August 27, 1999 (previously filed as Exhibit 3.1
to the Company's Current Report on Form 8-K, filed August 30,
1999, and incorporated herein by reference).
4.5 Form of Share Certificate for the Common Stock (previously
filed as Exhibit 4.3 to the Company's Current Report on Form
8-K, filed August 30, 1999, and incorporated herein by
reference).
4.6 Form of Share Certificate for the Series A preferred stock
(previously filed as Exhibit 3.2 to the Company's Current
Report on Form 8-K, filed April 13, 1999, and incorporated
herein by reference).
4.7 Bylaws of the Company, as amended by our board of directors on
February 16, 1998 and as currently in effect (previously filed
as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
(Commission File No. 000-22091), filed May 15, 1998, and
incorporated herein by reference).
4.8 Shareholder Rights Agreement, by and between the Company and
ChaseMellon Shareholder Services, L.L.C., as rights agent,
dated August 24, 1999 (previously filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K, filed August 30, 1999,
and incorporated herein by reference).
4.9 Golf Trust of America, Inc. 1997 Non-Employee Directors' Plan
(previously filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-11 (Commission File
II-4
<PAGE>
No. 333-15965) Amendment No. 1 (filed January 15, 1997) and
incorporated herein by reference).
4.10 Golf Trust of America, Inc. 1997 Stock Incentive Plan
(previously filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (Commission File No.
333-15965) Amendment No. 1 (filed January 15, 1997) and
incorporated herein by reference).
4.11 Golf Trust of America, Inc. 1997 Stock-Based Incentive Plan
(the "New Stock Incentive Plan") (previously filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q
(Commission File No. 000-22091), filed August 15, 1997, and
incorporated herein by reference).
4.12 Form of Nonqualified Stock Option Agreement for use under the
New Stock Incentive Plan (previously filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q (Commission File
No. 000-22091), filed August 15, 1997, and incorporated herein
by reference).
4.13 Form of Employee Incentive Stock Option Agreement for use
under the New Stock Incentive Plan (previously filed as
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
(Commission File No. 000-22091), filed August 15, 1997, and
incorporated herein by reference).
4.14 General Provisions Applicable to Restricted Stock Awards
Granted Under the New Stock Incentive Plan (previously filed
as Exhibit 10.14 to the Company's Registration Statement on
Form S-11 (Commission File No. 333-36847), dated September 30,
1997 and filed as of October 1, 1997, and incorporated herein
by reference).
4.15 Form of Restricted Stock Award Agreement for use under the New
Stock Incentive Plan (previously filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-11 (Commission File
No. 333-36847), dated September 30, 1997 and filed as of
October 1, 1997, and incorporated herein by reference).
5.1 Opinion of O'Melveny & Myers LLP as to legality of the shares
being registered (previously filed).
23.1* Consent of BDO Seidman LLP.
23.2 Consent of O'Melveny & Myers LLP (included within the opinion
filed as Exhibit 5.1).
24.1 Powers of Attorney (included under the caption "Signatures" in
the previous filing of this Registration Statement)
-----------------
</TABLE>
* Included in this filing.
II-5
