-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WwWHWh2rPZREov5EC0YjVadULNTYKvlR7bV/cjpsNx/6xmadpzV7m1U6SCbPt/ov 1MWWCj4LDokhmzQ+GGmJxQ== 0000912057-00-014928.txt : 20000331 0000912057-00-014928.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014928 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLF TRUST OF AMERICA INC CENTRAL INDEX KEY: 0001024126 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 330724736 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-14494 FILM NUMBER: 586552 BUSINESS ADDRESS: STREET 1: 14 NORTH ADGER'S WHARF CITY: CHARLESTON STATE: SC ZIP: 29401 BUSINESS PHONE: 7147234653 MAIL ADDRESS: STREET 1: 14 NORTH ADGER'S WHARF CITY: CHARLESTON STATE: SC ZIP: 29401 10-K405 1 FORM 10-K As Filed with the Securities and Exchange Commission on March 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) /x/ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1999. / / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________. Commission File Number 000-22091 GOLF TRUST OF AMERICA, INC. (Exact name of registrant as specified in its charter) Maryland 33-0724736 (State or other jurisdiction of (I.R.S Employer Identification Number) incorporation or organization) 14 North Adger's Wharf, Charleston, South Carolina 29401; (843) 723-4653 (Address of principal executive offices) (Zip Code) (Telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value American Stock Exchange Preferred Stock, Purchase Rights American Stock Exchange (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ On March 22, 2000 there were 8,118,147 common shares outstanding of the registrant's only class of common stock. Based on the March 22, 2000 closing price of $17.938 per share, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $145,623,320.89. On March 22, 2000, there were 800,000 shares outstanding of the registrant's 9.25% Series A Cumulative Convertible Preferred Stock which is the registrant's only class of preferred stock. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's definitive Proxy Statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the Registrant's 1999 fiscal year, are incorporated by reference in Part III of this Form 10-K; and certain exhibits to the Company's prior reports on Forms 10-Q and 8-K, Registration Statements of Employee Stock Purchase Plan and Employee Stock Option Plans on Forms S-8 (nos. 333-46659 and 333-46657), and Registration Statements on Form S-11 (nos. 333-15965 and 333-36847) are incorporated by reference in Part IV hereof. TABLE OF CONTENTS PART I....................................................................................................................1 ITEM 1. BUSINESS....................................................................................................1 (a) GENERAL DESCRIPTION OF THE BUSINESS.....................................................................1 COMPANY OVERVIEW...........................................................................................1 SUBSIDIARIES AND THE OPERATING PARTNERSHIP.................................................................2 RECENT DEVELOPMENTS........................................................................................3 PREFERRED INTEREST...............................................................................3 ACQUISITIONS.....................................................................................3 DISPOSITIONS.....................................................................................3 EVENTS OF DEFAULT UNDER THE PARTICIPATING LEASE..................................................4 ADOPTION OF SHAREHOLDER RIGHTS PLAN..............................................................6 CREDIT FACILITY AND LINE OF CREDIT...............................................................6 INTEREST RATE SWAP AGREEMENT.....................................................................6 REORGANIZATION OF THE ACQUISITION DEPARTMENT.....................................................6 LOANS TO OFFICERS................................................................................7 STOCK REPURCHASE PROGRAM.........................................................................7 UNSOLICITED PROPOSAL.............................................................................7 APPOINTMENT OF FINANCIAL ADVISOR.................................................................8 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS...........................................................9 (c) NARRATIVE DESCRIPTION OF BUSINESS......................................................................10 BUSINESS OBJECTIVE AND STRATEGY...........................................................................10 INVESTMENT CRITERIA.............................................................................12 ACQUISITION STRATEGY............................................................................13 INTERNAL GROWTH.................................................................................16 EMPLOYEES ................................................................................................19 ENVIRONMENTAL MATTERS.....................................................................................19 TAX STATUS................................................................................................19 GOVERNMENT REGULATION.....................................................................................20 COMPETITION...............................................................................................20 THE GOLF INDUSTRY.........................................................................................20 COMPETITIVE CONDITIONS..........................................................................21 DEMOGRAPHICS....................................................................................22 SEASONALITY.....................................................................................22 (d) FOREIGN OPERATIONS........................................................................................23 ITEM 2. PROPERTIES................................................................................................24 RESORT COURSES............................................................................................25 HIGH-END DAILY FEE COURSES................................................................................26 PRIVATE CLUB COURSES......................................................................................27 THE PARTICIPATING LEASES..................................................................................28 ITEM 3. LEGAL PROCEEDINGS.........................................................................................34 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................36 PART II..................................................................................................................37 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................37 MARKET INFORMATION..............................................................................37 SHAREHOLDER INFORMATION.........................................................................37 DIVIDENDS.......................................................................................38 RECENT SALES OF UNREGISTERED SECURITIES.........................................................39 ITEM 6. SELECTED FINANCIAL DATA................................................................................40 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................42 Results of operations of the Company for the years ended December 31, 1999 and December 31,1998 and the period from February 12 (inception) to December, 1997..........................................44 Liquidity and Capital Resources of the Company.........................................................49 Funds From Operations and Cash Available for Distribution..............................................55 ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................57 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................57 ITEM 9. CHANGES IN THE COMPANY'S CERTIFIED PUBLIC ACCOUNTANT...................................................57 PART III.................................................................................................................58 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................................58 ITEM 11. EXECUTIVE COMPENSATION.................................................................................58 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................................58 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................58 PART IV..................................................................................................................59 a) FINANCIAL STATEMENTS...................................................................................59 FINANCIAL STATEMENTS............................................................................59 FINANCIAL STATEMENT SCHEDULES...................................................................59 EXHIBITS........................................................................................59 b) REPORTS ON FORM 8-K....................................................................................59 SIGNATURES.............................................................................................................. 60
6 PART I ITEM 1. BUSINESS (a) GENERAL DESCRIPTION OF THE BUSINESS COMPANY OVERVIEW Golf Trust of America, Inc. ("GTA") is a self-administered real estate investment trust ("REIT") formed to capitalize upon consolidation opportunities in the ownership of upscale golf courses throughout the United States. GTA was incorporated in Maryland on November 8, 1996. GTA holds its golf course interests through Golf Trust of America, L.P., a Delaware limited partnership and, in one instance, through a wholly-owned affiliate of Golf Trust of America, L.P. (collectively, the "Operating Partnership"), controlled by GTA. (In this Annual Report, the term "Company" generally includes GTA, the Operating Partnership, and their subsidiaries.) As of March 20, 2000, the Company holds participating interests in 47 golf courses (the "Golf Courses"), 43 of which are owned and four of which serve as collateral for a 30-year participating mortgage loan made by the Company to the owner of the Westin Innisbrook Resort ("Participating Mortgage"). 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. The Golf Courses are located in Florida (14), South Carolina (6), Illinois (3.5), Ohio (3), Michigan (3.5), California (2.5), Georgia (2), Virginia (2), Missouri (1.5), Nebraska (1.5), Texas (1.5), Alabama, Kansas, Kentucky, North Carolina, New Mexico, and West Virginia. The Golf Courses which the Company owns are leased to multiple independent third party lessees (the "Lessees") pursuant to leases ("Participating Leases") which provide for payments ("Lease Payments") of fixed base rent ("Base Rent") and participating rent ("Participating Rent") based on growth in revenue at the Golf Courses, excepting a single Golf Course that is currently being managed by GTA as explained in the section titled "Events of Default under the Participating Lease" herein. The interest payment under the Participating Mortgage is structured similarly to the Participating Leases to provide the Company with base interest payments and additional interest payments based on growth in revenue at the Westin Innisbrook Resort. Neither the Company nor its executive officers own any interest in, or participate in the management of, the Lessees or the owner of the Westin Innisbrook Resort, Golf Host Resorts, Inc. (the "Westin Innisbrook Resort Owner"). The Company's executive offices are located at 14 North Adger's Wharf, Charleston, South Carolina 29401 and its telephone number is (843) 723-GOLF (4653). 1 SUBSIDIARIES AND THE OPERATING PARTNERSHIP 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 the Company's general and limited partnership interests in the Operating Partnership. The board of directors of each Subsidiary is comprised of the executive officers of GTA. The Operating Partnership was formed in Delaware in November 1996. The Operating Partnership owns the Golf Courses that are subject to the Participating Leases and holds the Participating Mortgage. In addition, the Operating Partnership owned approximately 95% of the economic interest in a taxable subsidiary formed to hold title to a 14-acre development site adjacent to the Sandpiper Golf Course, with the balance owned for tax reasons by Mr. Blair, President and Mr. Young, a director of the Company. This site was sold in June of 1999, consequently, this legal entity was dissolved and the note receivable for the land is now held by GTA LP. As of March 22, 2000, GTA held a 64.4% interest 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 those Prior Owners who received OP Units in exchange for the contribution of their Golf Courses, including Larry D. Young. The limited partners do not have day-to-day control over the Operating Partnership. However, the limited partners are entitled to vote on certain matters, including the sale of all or substantially all of the Company's assets or the merger or consolidation of the Operating Partnership, which decisions require the approval of the holders of at least 66.7% of the interests in the Operating Partnership (including GTA LP). Each of the limited partners (other than GTA LP), generally, may exercise Redemption Rights (as herein defined) for up to 50% of its OP Units beginning one year after transfer of their Golf Course to the Operating Partnership and the remaining 50% beginning two years after completion of such transfer for shares of Common Stock on a one-for-one basis or for cash at the election of the Company. The current relationship among GTA, its subsidiaries, the Operating Partnership (including its wholly-owned affiliate), the limited partners (including many Prior Owners and the Westin Innisbrook Resort Owner) and the operators is described in the following chart (excepting the two single member LLCs established to manage foreclosure property as explained in the section titled "Events of Default under the Participating Lease" herein): [CHART] 2 RECENT DEVELOPMENTS Since March 26, 1999, the filing date of the Company's annual report on Form 10-K for the year ended December 31, 1998, the following developments have occurred: PREFERRED INTEREST On April 2, 1999, GTA completed a private placement of 800,000 shares of its 9.25% Series A Cumulative Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), at a price of $25.00 per share to a single purchaser, AEW Targeted Securities Fund, L.P., for gross proceeds of $20,000,000, less associated costs of approximately $878,000. The net proceeds were used as follows: (i) to pay down $1,025,000 under the Credit Facility; (ii) to repay promissory notes to Nations Credit of $5,169,000; (iii) to pay loan costs associated with the amendment and restatement of the Credit Facility of $1,399,000; (iv) to make new officer loans of $648,000; and (v) the balance for general working capital needs. ACQUISITIONS The following is a summary of the Company's acquisitions in 1999:
ACQUISITION ACQUISITION COST DATE COURSE NAME LOCATION (IN THOUSANDS) - -------------------------------------------------------------------------------------------------------------------- 5/11/99 Metamora Golf & Country Club Metamora, MI $5,865 7/28/99 Pete Dye Golf Club Bridgeport, WV 10,000 ----------------- $15,865 =================
For the year ended December 31, 1999, the Company purchased two Golf Courses for an aggregate acquisition cost of approximately $15.9 million. In conjunction with the purchase of the Pete Dye Golf Club, the lessee executed two promissory notes: (i) a $2.3 million capital improvement loan to construct the new clubhouse, and (ii) a $3.5 million secured land loan. These two promissory notes initially bear interest at 10.5% per annum with annual increases of 5% per annum. The purchase price, together with the original principal balance of the promissory notes, totaled $21.7 million. DISPOSITIONS In June 1999, Sandpiper GTA Development, Inc. sold the undeveloped 14-acre parcel of land located near Sandpiper Golf Course in Santa Barbara, California for $5.3 million, which approximated our basis in the property. The sales price included a $4.2 million promissory note from the buyer secured by a first deed of trust on the parcel; the promissory note accrues interest at 10% per annum and matures one year from closing, subject to two one-year extensions. These extensions can only be exercised by the borrower subject to borrower's payment of all outstanding and accrued interest on the note, an installment payment of $1,000,000 from the buyer for each 3 extension, and an increase in the interest rate on the note to 12% per annum effective as of the second installment. The installment dates are June 2, 2000 and June 2, 2001. The promissory note matures on June 2, 2002, in the event that no extensions are exercised. EVENTS OF DEFAULT UNDER THE PARTICIPATING LEASE GTA has a policy of acting promptly and aggressively on tenant defaults in accordance with the terms of the Participating Leases. In the event a tenant fails to pay their rent in accordance with the applicable Participating Lease, an "Event of Default" (further defined under ITEM 2. PROPERTIES) may be asserted by GTA as landlord. In the third quarter of 1999, GTA elected to pursue legal remedies available to it under its Participating Leases as a result of tenant defaults at Bonaventure and the four Golf Courses previously leased to Granite Golf (I.E., Tiburon Golf Club, Silverthorn Country Club, Persimmon Ridge Golf Club and Black Bear Golf Course). As a result, GTA approved the assignment of the tenant's interest in these Participating Leases to a new lessee. The financial results submitted by the new lessee indicated that same store rounds at these Golf Courses for the fourth quarter 1999 increased--75% for Bonaventure and an average of 6% for the four Granite Golf Courses. Same store revenues for the fourth quarter 1999 increased 23% for Bonaventure and an average of 23% for the four Granite Golf Courses. GTA has also declared events of default in the past several months at four other Golf Courses "Tierra Del Sol Golf Club," "Osage National Golf Club," "Mystic Creek Golf Course," and "Brentwood Golf & Country Club". GTA management believes that in cases where events of default occur under its Participating Leases, proactive management of the issues in a timely manner is required and, that such action is necessary (i) to ensure an effective and efficient legal process, (ii) to maintain the value of the golf course, and (iii) to stabilize and/or improve operating performance of the applicable Golf Course. When GTA is forced to "foreclose" on a Golf Course, the Internal Revenue Code (Section 856(e)(4)(C)) allows a 90-day grace period during which GTA can operate the Golf Course and still permit these revenues to be qualifying income for REIT tax purposes. At the expiration of such period, the Golf Course should either be sold, leased to an experienced Golf Course operator, or an agreement must be secured with an independent contractor to assume management of the applicable Golf Course. Management by an independent contractor is allowed until the close of the third taxable year following the taxable year in which the "foreclosure" occurred. GTA has elected to pursue legal remedies available to it under its Participating Lease to cure events of default that have occurred in the past several months at the four Golf Courses listed below: TIERRA DEL SOL GOLF CLUB: This Golf Course is an 18 hole, high-end daily fee Golf Course located in Albuquerque, New Mexico which GTA purchased in May 1998 for $3,600,000. On November 3, 1999, GTA filed an eviction action against the tenant at Tierra Del Sol Golf Club with the District Clerk of Court in Valencia County, New Mexico, as a result of the tenant's failure to pay rent. As a result of this lawsuit, the tenant was removed and GTA took possession of this Golf Course on February 7, 2000, pursuant to an order issued by the District Court. GTA has created a wholly owned subsidiary, GTA Tierra Del Sol, LLC, to operate this Golf Course during the 90-day grace period. It is GTA's view that the operational problems at this Golf Course were due to the tenant's executive management; therefore, the existing Golf Course-level management team and all Course-level key employees at the Golf Course have remained employed at the Golf Course. GTA has also implemented additional financial reporting policies and procedures to enhance internal controls and facilitate tracking of the financial performance of the Golf Course. GTA has initiated a business plan to explore opportunities to (i) seek to re-let the Golf Course, (ii) enter into a management agreement with a more experienced golf operator than the original tenant, or (iii) potentially sell the Golf Course. OP Units initially pledged as collateral for the 4 lease by the former tenant of the Golf Course have been redeemed and applied to past due rent obligations and other accrued charges. The collateral balance remaining after these outstanding amounts were cured is valued at approximately $170,000, which represents approximately five months of Base Rent, and will be recognized as Other Income in the first quarter of 2000. OSAGE NATIONAL GOLF CLUB: This Golf Course is a 27-hole, high-end daily fee Golf Course in Lake of the Ozarks, Missouri, which GTA purchased in August 1998 for $11,200,000 in a sale-leaseback transaction. On February 25, 2000, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. As a result, GTA, the prior owner of the Golf Course, and the tenant entered into discussions to terminate the tenant's Participating Lease and the tenant's possessory rights at the Golf Course. We expect to have the Participating Lease terminated and obtain possession of the Golf Course within approximately 30-45 days. We have created a wholly owned subsidiary, GTA Osage, LLC, which expects to assume management of the Golf Course during the 90-day grace period. In this role, GTA will facilitate the transition of management, implement additional internal controls to more effectively manage the operations of the Golf Course, and implement additional financial reporting policies and procedures to improve the monitoring of the financial performance of the Golf Course. In addition, GTA has initiated a business plan to explore opportunities to (i) seek to re-let the Golf Course, (ii) enter into a management agreement with a more experienced golf course operator than the original tenant, or (iii) potentially sell the Golf Course. We expect that all Golf Course-level key management and employees will remain employed at the Golf Course. Under GTA management's current assumptions, the value of the tenant's collateral (66,124 OP units) securing the obligations of the defaulting tenant under the Participating Lease will be adequate to cover accrued rent (approximately $408,000 through February 25, 2000) and any other accrued charges. The remaining collateral value will be recognized as Other Income and should offset any possible shortfalls in revenue in fiscal year 2000 resulting from tenant's event of default. MYSTIC CREEK GOLF COURSE: This Golf Course is a 27-hole, high-end daily fee Golf Course located in Milford, Michigan, which GTA purchased in January 1998 for $10,000,000 in a sale-leaseback transaction. On October 25, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. On February 3, 2000, GTA filed an eviction action with a District Court in Oakland County, Michigan. A hearing was set for February 29, 2000, but was stayed because the tenant filed a voluntary petition for Chapter 11 Bankruptcy in the United States Bankruptcy Court on February 25, 2000. It is our intention to continue the eviction action as soon as legally permissible to seek to shorten the time for the tenant to accept the lease (by bringing the rent current) or reject the lease (which would mean a return of the Golf Course to GTA) and to seek to compel the payment of ongoing rent during the pendancy of the bankruptcy. The tenant continues to operate the Golf Course pending the resolution of the pending action and its bankruptcy. Under GTA management's current assumptions, the value of the tenant's collateral ($879,630 in cash and 52,724 OP units) securing the obligations of the defaulting tenant under the Participating Lease is adequate to cover accrued rent (approximately $554,000 through February 29, 2000) and any other accrued charges. The remaining collateral value will be recognized as Other Income and should offset any possible shortfalls in revenue in fiscal year 2000 resulting from tenant's event of default. BRENTWOOD GOLF & COUNTRY CLUB: This Golf Course is an 18-hole, daily fee Golf Course in White Lake, Michigan, that GTA purchased in December of 1998 for $7,000,000. On November 21, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. On February 3, 2000, GTA filed an eviction action with a District Court in Oakland County, Michigan. In response, the tenant filed a counterclaim against GTA. On March 8, 2000, a hearing was held and the Court ruled that the case be moved to Oakland County Circuit Court, where the action for possession and the allegations in the counterclaim will be heard. On March 28, 2000, an order was entered requiring escrow payment of rent and prorated taxes within seven days of the Order, and thereafter, within seven days of the 25th of each month. The first payment required will be February and March rents, and payments in the subsequent months will be current months rent. 5 Subject to the foregoing limitations, the tenant continues to operate the Golf Course pending resolution of the pending actions. Under management's current assumptions, the value of the tenant's collateral (a $350,000 Certificate of Deposit and 24,482 OP Units) securing the obligations of the defaulting tenant under the Participating Lease is adequate to cover accrued rent (approximately $455,000 through February 29, 2000) and any other accrued charges. Any remaining collateral value will be recognized as Other Income and will be used to offset any possible shortfalls in revenue in fiscal year 2000 resulting from tenant's event of default. ADOPTION OF SHAREHOLDER RIGHTS PLAN On August 6, 1999, the Board of Directors of Golf Trust of America, Inc. declared a dividend distribution of one preferred stock purchase right ("Right") for each outstanding share of common stock to stockholders of record at the close of business on September 6, 1999 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share (the "Preferred Stock"), at a purchase price of $75.00, subject to adjustment. The agreement (the "Rights Agreement") is between the Company and the rights agent thereunder. On August 30, 1999, the Company filed a current report on Form 8-K more fully describing the terms of the Rights. CREDIT FACILITY AND LINE OF CREDIT The Company intends to draw upon the Credit Facility, or any successor credit facility, to fund future acquisitions of additional golf courses. There can be no assurance, however, that the Company will close any future acquisitions or that the Company will continue to have access to sufficient debt and equity financing to allow it successfully to pursue its acquisition strategy. The one-year term $25.0 million unsecured line of credit from Bank of America that GTA obtained in 1999 was originally scheduled to mature on April 1, 2000; however, a six-month extension of this facility was granted with the same pricing that was in effect under the original line with a 3/4% up-front commitment fee. The new maturity date is October 1, 2000. INTEREST RATE SWAP AGREEMENT The interest rate swap agreement that GTA entered into with Bank of America in September 1998 expired on March 27, 2000. The notional amount under this agreement of $76,800,000 converted to floating rate debt as of the March 27th expiration date. This increases GTA's total floating rate debt to $210,700,000. As of the date of this filing, GTA had not entered into a new interest rate swap agreement. REORGANIZATION OF THE ACQUISITION DEPARTMENT In November 1999, Mr. David D. Joseph resigned as Director of Acquisitions and Executive Vice President of the Company and as a member of our Board of Directors to pursue other business interests. At the present time, we do not contemplate replacing this management position due to (i) the current reduced 6 priority on acquisitions, (ii) the skills of our existing acquisition staff, and (iii) our ability to utilize outside brokers and tenant introductions to support this function. As a part of the separation agreement, Mr. Joseph executed an extension to his covenant not to compete. A one-time charge of $0.5 million is included in the General & Administrative expenses for fourth quarter 1999 related to this reorganization. The Company's Chief Financial Officer, Scott D. Peters, was elected by the Board of Directors to fill the vacant board position. Mr. Peters will stand for re-election at the next meeting of the stockholders. LOANS TO OFFICERS Loans of approximately $938,000, secured by OP Units and common stock, with interest rates of between 4.4 % to 6.2 % per annum, were made to officers of the Company for the payment of related taxes for Restricted Stock Grants issued in 1997, 1998 and 1999. Of this total, approximately $173,000 related to the Restricted Stock Grants issued on March 10, 1999 for 44,000 shares. It is expected that additional loans will be made to the officers to cover tax liabilities resulting from future vesting of the Restricted Stock Grants. Under the 1998 Senior Executive Loan Program, as amended on August 10, 1999, loans of $2.3 million have been made to officers of the Company to purchase Company stock on the open market. These loans are collateralized by the shares purchased, bear interest at between 4.51 % to 5.89 % per annum and are due at the earlier of (i) sale greater than $25 per share, (ii) within 3 years of applicable employee termination or (iii) five years after the making of the loan. These promissory notes are recourse to the borrower. Upon any change of control of GTA, all outstanding amounts to the current officers of GTA are forgiven and the Promissory Notes are cancelled. Of the total officer loans outstanding, approximately $739,000 in loans to the former Executive Vice President were reclassified to Other Assets from Stockholders' Equity upon his resignation in November 1999. STOCK REPURCHASE PROGRAM On December 15, 1999, GTA announced that its Board of Directors authorized a program to repurchase up to one million shares of its common stock. Any such repurchases will be made on the open market or in block purchase transactions. The timing of any repurchases and the number of shares repurchased pursuant to the stock repurchase program are dependent upon market conditions and corporate requirements. Under this program, on January 4, 2000, GTA purchased 10,000 shares of its stock at a price of $16.9375 per share. UNSOLICITED PROPOSAL On December 15, 1999, GTA received an unsolicited letter from Schooner Capital LLC. In sum, Schooner expressed its belief that GTA's current real estate investment trust structure is not optimal to best leverage both current and future marketing opportunities. Schooner expressed interest in working with GTA on a going private transaction that would seek to address the interests of all shareholders. Schooner Capital LLC filed a 13D, a General Statement of Beneficial Ownership, on January 28, 2000. As yet, Schooner Capital LLC has not been willing to meet with our financial advisor, Banc of America Securities LLC, to review any proposal it may have. APPOINTMENT OF FINANCIAL ADVISOR 7 After deliberate interview and diligence process by management and review by the Company's Board of Directors, on February 9, 2000 GTA engaged Banc of America Securities LLC to act as its financial advisor to undertake a review of a broad range of strategic alternatives available to the Company in light of the current and prospective market conditions facing the Company and the REIT industry. Executive management is meeting regularly with our financial advisor in furtherance of considering of alternatives to enhance shareholder value. These alternatives include the possibility of a merger, sale, recapitalization, privatization or restructuring, including de-REITing (revoking election of REIT-tax status), among others. The professional fee structure of Banc of America Securities LLC should not have a material impact on General & Administrative expenses for 2000. 8 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company's principal business strategy is to own upscale Golf Courses and lease these Golf Courses to qualified third party operators, including affiliates of sellers. See the Consolidated Financial Statements and notes thereto included in Item 8 on this Form 10-K for certain financial information required to be included in response to this Item 1. 9 (c) NARRATIVE DESCRIPTION OF BUSINESS BUSINESS OBJECTIVE AND STRATEGY The Company's primary objectives are to increase its cash available for distribution per share to stockholders and to enhance stockholder value. The Company's primary strategies for such growth are to own upscale Golf Courses that meet the Company's investment criteria and to participate in increased revenues at these Golf Courses. The Company intends to acquire additional Golf Courses that meet the Company's investment criteria at such time as market conditions are favorable for the acquisition of golf courses at attractive returns. The Company believes that its investments are consistent with its goal of becoming a leading owner of, and participating in increased revenue from, nationally and regionally recognized upscale golf courses. The Company's Golf Courses include a number of nationally recognized golf courses as noted below: - The Pete Dye Golf Club: "America's 100 Greatest Golf Courses," GOLF DIGEST, 1999; ranked 2nd in "Top 100 Courses of the Modern Era," GOLF WEEK, 1999. - Royal New Kent: "America's 100 Greatest Golf Courses," GOLF DIGEST, 1999; "Best New Upscale Course," GOLF DIGEST, 1997 - Legends of Stonehouse: "14th Best Public Course," GOLF WEEK, 1998; "Best New Upscale Course", GOLF DIGEST, 1996 - Emerald Dunes Golf Course: "Best of America," THE GOLFER, 1996 & 1997; "Top 100 Public Courses" in America, GOLF DIGEST, 1999 - Westin Innisbrook Resort: Copperhead, "Top 100 U.S. Resort Courses," GOLF DIGEST, 1999; Island Course, "Top 75 Resort Courses," GOLF DIGEST, 1992 - Eagle Ridge Inn and Resort: The General, "Top 10 Best New Upscale Public Courses," GOLF DIGEST, 1997; South Course, "Top 100 U.S. Resort Course," GOLF DIGEST, 1999 - Legends Golf Resort: Parkland, "Top 100 U.S. Resort Courses," GOLF DIGEST, 1999; Heathland, "Top 100 U.S. Resort Courses," GOLF DIGEST, 1999; Heritage Club: "Top 50 Public Courses," GOLF DIGEST, 1992; Oyster Bay: "Top 50 Public Courses," GOLF DIGEST, 1992 - Sandpiper Golf Course: "Top 25 Public Courses in the Nation," GOLF DIGEST, 1992 - Persimmon Ridge Golf Club: Ranked 2nd in "Best Courses By State" in Kentucky, GOLF DIGEST, 1999 - Cooks Creek Golf Club: Ranked 18th in "Best Course By State" in Ohio, GOLF DIGEST, 1999; Ohio Chapter for "The First Tee" program The Company believes that the quality of its Golf Courses is further reflected in the average green fees at its Golf Courses, which significantly exceed national industry averages. 10 When the Company acquires a Golf Course, the course is either leased back to its prior owner or leased to another qualified operator. Under the Company's standard Participating Lease, the Company receives fixed Base Rent and Participating Rent based on increases in Gross Golf Revenues (as herein defined) if any, at such Golf Course. Each lessee joins the Company's Lessee Advisory Association ("Advisory Association"), which provides marketing information and opportunities as well as potential economic benefits to the lessees, such as bulk purchasing power for certain golf course products and services. In certain instances, state and federal tax laws make purchase-leaseback transactions prohibitively expensive. Accordingly, in such cases, the Company may provide financing to a particular Golf Course, provided the Company receives a participating interest in revenues pursuant to a participating mortgage at the Golf Course on a basis comparable to the rentals received by the Company pursuant to its standard Participating Lease. The Company expects that the Company's participating mortgage would be secured by a first-lien on the Golf Course and would include an option to purchase the Golf Course at the end of the participating mortgage's term. In considering any financing transactions, including the Participating Mortgage, the Company seeks to obtain economic terms similar to the standard Participating Lease. To fund acquisitions, the Company may utilize a variety of debt or equity financing, including the Credit Facility and the ability to issue OP Units; however, financing vehicles are presently relatively limited in the current capital markets. 11 We have described below the Company's (i) investment criteria, (ii) acquisition strategy, and (iii) internal growth strategy. (i) INVESTMENT CRITERIA The Company intends to concentrate its investment activities on golf courses, including multi-course Golf Course portfolios, available at attractive prices that meet one or more of the following criteria: - upscale daily fee courses that target avid golfers, who the Company believes are generally willing to pay the higher green fees associated with upscale golf courses; - private or semi-private golf courses with proven operating histories that the Company believes have the potential for significant cash flow growth; - courses that offer superior facilities and service and attract a relatively high number of affluent destination golfers; - courses owned by multi-course owners and operators who have a strong regional presence and afford the Company the opportunity to expand in a particular region; - newly developed, well-designed courses with high growth potential; and - upscale, well-maintained golf courses with proven operating histories located in areas where significant barriers to entry exist. The Company will undertake an analysis with respect to golf courses to be considered for acquisition, including an evaluation of the following: - product and service differentiation; - competitive position in market; - barriers to entry in development of new golf courses such as scarcity of land and long lead-times for course development; - condition of the golf course and agronomy review; - quantity, quality and cost of irrigation; - strength of the lodging industry, including hotels and condominiums, in destination golf areas; and - the experience of the proposed lessee and the security for the lessee's obligations under the Participating Lease. 12 (ii) ACQUISITION STRATEGY The Company believes it is highly regarded and recognized as having a significant presence in the ownership of upscale assets due to: - management's substantial industry knowledge, experience and relationships within the golf course industry, - the Company's ability to issue OP Units to golf course owners on a tax-deferred basis, - the Company's utilization of the multiple independent lessee structure, and - the Company's strategic alliances with prominent golf course operators. As capital becomes more available, the Company is positioned to quickly and efficiently identify and acquire courses which complement its portfolio and which meet its strategic objectives. MANAGEMENT'S KNOWLEDGE EXPERTISE AND RELATIONSHIPS Prior to joining the Company as its President, Chairman and Chief Executive Officer, W. Bradley Blair, II served as Executive Vice President, Chief Operating Officer and General Counsel of Legends Group, Ltd., a leading golf course owner, developer and operator in the southeast and Mid-Atlantic regions of the United States. As an officer of Legends Group Ltd., Mr. Blair was responsible for all aspects of operations, including acquisitions, development and marketing. Prior to joining the Legends Group Ltd., Mr. Blair had extensive experience in the acquisition, disposition, development and financing of golf courses and golf course development in his role as Managing Partner of Blair, Conaway, Bograd and Martin, PA, Attorneys at Law. Prior to joining the Company as Chief Financial Officer, Mr. Peters served as Senior Vice President and Chief Financial Officer of the Pacific Holding Company in Los Angeles, from 1992 through 1996, where he participated in the management of a 4,000 acre real estate portfolio of residential, commercial and country club properties focusing on master-planned golf communities. From 1988 to 1992, Mr. Peters served as Senior Vice President and Chief Financial Officer of Castle & Cooke Homes, Inc; and during 1990 and 1991 lectured on Real Estate Finance and Asset Management at California State University at Bakersfield. Larry D. Young, a director of the Company, is the founder of Legends Golf. Mr. Young has been involved in the golf business for more than 25 years and has developed 10 golf courses during that time, four of which were rated the best new course in their respective category in the year developed by GOLF DIGEST. 13 ISSUANCE OF OP UNITS The Company has the ability to issue units of limited partnership interest, including common and preferred units, in the Operating Partnership ("OP Units"). OP Units may be issued to a prospective golf course seller in exchange for his golf course. Holders of OP Units generally have the right (the "Redemption Right") to cause the Company to redeem their OP Units after certain holding periods for cash or, at the Company's option, for common stock in the Company on a one-for-one basis. When the Company acquires a golf course in exchange for OP Units, the golf course seller generally will not recognize taxable income until it exercises the Redemption Right. Thus, the issuance of OP Units can provide an attractive tax-deferred transaction for sellers of golf courses. MULTIPLE INDEPENDENT LESSEE STRUCTURE The Company believes many golf course owners are single-business entrepreneurs who could benefit from diversification, but desire to remain involved in the day-to-day operation of their courses. The Company believes such golf course owners will continue to be attracted to the Company's multiple independent lessee structure, in which the Company acquires a course and then leases it back to an affiliate of the seller. Such structure satisfies the owner/seller's desire to remain involved in the day-to-day operation of his course, while also satisfying his desire to obtain liquidity. Specifically the structure offers prospective sellers: - the ability to retain control over the operations of the golf course pursuant to a lease-back transaction; - the tax deferral and increased liquidity associated with owning OP Units; - the ability to obtain additional OP Units through the Lessee Performance Option (as described below); - the marketing and purchasing economies of scale potentially gained from participation in the Lessee Advisory Association; and - the ability to diversify the seller's investment by participating as an equity owner in the Company's portfolio of Golf Courses. 14 RELATIONSHIPS WITH STRATEGIC PARTNERS The following table is a summary of the Company's current lessees/golf operators:
--------------------------------------------------------- -------------------- GTA COURSES UNDER MANAGEMENT GOLF LESSEES/OPERATORS (18-HOLE EQUIVALENTS) --------------------------------------------------------- -------------------- Legends Group 13.5 Troon Golf 8.5 Emerald Dunes Golf Group 3.0 John Rainieri and Cook/Rainieri Management 3.0 Total Golf 3.5 Crescent Company 2.0 Stonehenge Golf Development 2.0 Diamond Players Club 2.0 Northgate Forest 1.5 Palm Desert Country Club 1.5 Craft Farms 1.0 Environmental Golf 1.0 Properties of the Country 1.0 Burning Embers 1.0 Osage Golf Properties 1.5 Courses currently managed by GTA(1) 1.0 --------------------------------------------------------- -------------------- TOTAL 18-HOLE EQUIVALENTS 47 --------------------------------------------------------- -------------------- --------------------------------------------------------- RESORT/HOTEL OPERATORS --------------------------------------------------------- Westin Hotels Starwood Hotels and Resorts Eagle Ridge Inn & Resort ---------------------------------------------------------
(1) This represents Tierra Del Sol Golf Course which is classified as foreclosure property and is being managed by GTA during the 90-day grace period. 15 (iii) INTERNAL GROWTH The Company seeks to increase revenue from its current assets through internal growth. Based on the experience of its management, the Company believes its Golf Courses offer opportunities for revenue growth through effective marketing and efficient operations. 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 designed to increase revenue and, as a result, increase payments to the Company under the Participating Leases and the Participating Mortgage. The Company believes that the Golf Courses are positioned to benefit from favorable trends in the golf industry. In 1998, the last year for which results are available, the number of rounds played in the United States equaled 529 million, a 14% increase since 1994. EXPANSIONS, IMPROVEMENTS, AND WORKING CAPITAL LINES Under certain circumstances, the Company agrees to make funds available to the lessees to fund significant capital improvements, to expand the existing Golf Courses and, in limited circumstances, to provide the lessees with working capital for the applicable Golf Course. When significant capital improvements are funded, the underlying Base Rent and Base Interest (in the case of the Participating Mortgage) are increased. Working capital lines are evidenced by promissory notes or set forth in the Participating Lease itself. PARTICIPATING LEASES The Participating Leases generally provide that for any year the Company will receive with respect to each leased Golf Course, the greater of (a) Base Rent (as adjusted by the Base Rent Escalator described below) or (b) Participating Rent. Participating Rent is generally established to be an amount equal to the original (unescalated) Base Rent plus 33 1/3% of the difference between that year's Gross Golf Revenue and Gross Golf Revenue at the Golf Course in the year prior to the course's acquisition, as adjusted in determining the original Base Rent. Base Rent under each Participating Lease generally increases annually by the lesser of (i) 3% or (ii) a multiple of the change in the Consumer Price Index ("CPI") for the prior year (the "Base Rent Escalator") during each of the first five years of the Participating Lease and, if the Lessee Performance Option is exercised, for an additional five years thereafter. Annual increases in lease payments are generally limited to 5% to 7% during the first five years of the lease terms. "Gross Golf Revenue" is generally defined as all revenues from a Golf Course, including green fees, golf cart rentals, range fees, membership dues, member initiation fees and transfer fees, excluding food and beverage and merchandise revenue. In certain circumstances, the Company participates in food and beverage revenue and merchandise revenue. PARTICIPATING MORTGAGE In June of 1997, the Operating Partnership closed and funded an initial $69.975 million participating loan (the "Participating Mortgage) to Golf Host Resorts, Inc. ("Golf Host Resorts"), which is affiliated with Starwood Capital Group LLC and agreed to fund an additional $9 million for a nine-hole expansion and other improvements to the Innisbrook Resort facilities. 16 . The loan is secured by the Innisbrook Resort, a 63-hole destination golf and conference facility located near Tampa, Florida. The operator of the resort, Westin, has guaranteed up to $2.5 million of debt service for each of the first five years. The Participating Mortgage term is 30 years from execution, with an initial base interest rate of 9.63% per annum, annual increases (of at least 5% per annum but no more than 7% per annum) in the interest payment for the first five years, and a participating interest feature throughout the term based upon the growth in revenues, if any, over the base year. LESSEE PERFORMANCE OPTION The Participating Leases generally utilize an incentive-based performance structure. This Performance Option structure is designed to encourage the operators to seek aggressive growth in revenue at the Golf Courses. The structure also is designed to attract potential sellers of golf courses that the Company believes have high growth potential and that might not otherwise be available for purchase. Generally, Participating Leases with third party operators do not contain a Lessee Performance Option. Under the Performance Option for the Participating Leases, during years three through five of each Participating Lease, the operator or its affiliate, subject to certain qualifications and restrictions, may elect on a one time basis only to increase the Base Rent in order to receive additional OP Units or common stock in the Company. The Performance Option for the Participating Leases may only be exercised if the current-year net operating income of the operator of the applicable Golf Course, inclusive of a capital replacement reserve, exceeds 113.5% of such Lessee's Lease Payment after taking into account the increased amount of Base Rent. If the Performance Option is exercised, the Base Rent is increased by an amount calculated to be accretive to the Company's Funds From Operations on a per share basis. Following exercise of the Lessee Performance Option, the adjusted Base Rent will be increased by the Base Rent Escalator each year for a period of five years. An operator's ability to exercise the Performance Option and the number of OP Units or common stock issuable to such prior owner in connection therewith, will depend on future operating results at the applicable Golf Course and, therefore, cannot be determined in advance. 17 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. Under the Performance Option for the Participating Mortgage, during years three and five of the Participating Mortgage, the Westin Innisbrook Resort owner, subject to certain qualifications and restrictions, may elect on a one time basis only to require the Company to make an additional advance under the Participating Mortgage and the Westin Innisbrook Resort owner will be required to purchase additional OP Units with that advance. The Performance Option for the Participating Mortgage may be exercised only if the current-year net operating income of the Westin Innisbrook Resort, inclusive of a capital replacement reserve, but exclusive of certain management fees paid to Westin, 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. 18 EMPLOYEES The Company is self-administered and has 13 full-time employees. ENVIRONMENTAL MATTERS Operations of the Golf Courses involve the use and storage of various hazardous materials such as herbicides, pesticides, fertilizers, motor oils and gasoline. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of such substances, or the failure to remediate such substances properly when released, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. The Company has not been notified by any governmental authority of any material non-compliance, liability or other claim in connection with any of the Golf Courses. All of the Golf Courses have been subjected to a Phase I environmental audit (which does not involve invasive procedures, such as soil sampling or ground water analysis) by an independent environmental consultant. Based on the results of the Phase I environmental audits, the Company is not aware of any existing environmental liabilities that the Company believes would have a material adverse effect on the Company's business, assets, results of operations or liquidity, nor is the Company aware of any condition which would create such a liability. No assurance, however, can be given that these reports reveal all potential environmental liabilities, that no prior or adjacent owner created any material environmental condition not known to the Company or the independent consultant, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. The Participating Leases provide that the lessees will indemnify the Company for certain potential environmental liabilities at the Golf Courses. At Bonaventure Country Club, there was remediation work performed respecting maintenance and facilities operations, including the construction of a new maintenance area to remedy prior practices that resulted in low level soil contamination at the property. In addition, underground storage tanks at the property, which have subsequently been abandoned, have leaked, resulting in localized soil contamination. The Company believes that the completed remedial work and soil contamination will not have a material adverse effect on the operations of the Company. In addition, a significant portion of the Sandpiper Golf Course was previously an operating oil field and there is significant residual oil contamination on the property. In connection with the acquisition of the property, the Company obtained an indemnification from Atlantic Richfield Company ("ARCO") in a form and in an amount that the Company believes is adequate to protect the Company from liability for such contamination. Certain circumstances may require ARCO to enter the property and perform remediation actions. TAX STATUS The Company has elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative 19 minimum tax) on its taxable income at regular corporate tax rates. The Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income. When GTA forecloses on a Golf Course as a result of a tenant default under a Participating Lease, the Internal Revenue Code (Section 856(e)(4)(C)) allows a 90-day grace period during which GTA can operate the Golf Course and still permit these revenues to be qualifying income for REIT tax purposes. At the expiration of such period, the Golf Course should either be sold or an agreement must be secured with an independent contractor to assume management. Management of the Golf Course by an independent contractor is allowed until the close of the third taxable year following the taxable year in which the "foreclosure" occurred. The only Golf Course being operated pursuant to this rule as of March 22, 2000, is Tierra Del Sol Golf Club; however, the other three Golf Courses ("Osage National Golf Club," "Mystic Creek Golf Course" and "Brentwood Golf & Country Club") currently in default may in the future be operated pursuant to this rule. GOVERNMENT REGULATION The Golf Courses, like other such assets, are subject to the Americans with Disabilities Act of 1990, as amended (the "ADA"). The ADA has separate compliance requirements for "public accommodations" and "commercial facilities" but generally requires public facilities such as clubhouses and recreation areas are made accessible to people with disabilities. These requirements became effective in 1992. Compliance with the ADA requirements could require removal of access barriers and other capital improvements at the Golf Courses. Noncompliance could result in imposition of fines or an award of damages to private litigants. Under the Participating Leases, the lessees are responsible for any costs associated with ADA compliance. COMPETITION The Golf Courses are, and any additional golf courses and related facilities acquired by the Company will be, subject to competition for players and members from other golf courses located in the same geographic areas. Changes in the number and quality of golf courses in a particular area could have a material effect on the revenues of the Golf Courses. In addition, the Company will be subject to competition for the acquisition of golf courses and related facilities with other purchasers of golf courses, including other golf course acquisition companies. See "The Golf Industry--Competitive Conditions" below. THE GOLF INDUSTRY UNLESS OTHERWISE NOTED, REFERENCES HEREIN TO NATIONAL INDUSTRY STATISTICS AND AVERAGES ARE BASED ON REPORTS OF THE NATIONAL GOLF FOUNDATION ("NGF"), AN INDUSTRY TRADE ASSOCIATION NOT AFFILIATED WITH THE COMPANY. The Company believes the United States golf industry is entering a period of significant growth. This belief is based, in part, on the fact that people over the age of 50 play more golf than younger people, and the expectation that over the next several years the number of people aged 50 and older will increase significantly as the "baby boomers" age. The Company expects that the aging population will contribute to an increase in the number of rounds played and Gross Golf Revenues at the Golf Courses and any golf courses subsequently acquired by the Company. In addition, the emergence of golf stars such as Tiger Woods, David Duvall and Sergio Garcia has lead to an increase in junior, women and minority participants. 20 COMPETITIVE CONDITIONS The Company is one of two publicly traded REITs in the United States focused exclusively on owning and acquiring golf courses. The Company is the only such company with an idependent lessee structure. Golf course ownership in the United States is highly fragmented. There are approximately 15,000 golf courses (approximately 13,000 eighteen-hole equivalents) in the United States that are owned by approximately 13,000 different entities. There are relatively few owners of more than one course. The Company believes that the 15 largest golf course owners in the United States collectively own fewer than 5% of the total number of golf courses and that fewer than 10 golf course owners own more than 10 golf courses. The Company believes that this fragmented ownership provides an opportunity for consolidation of the ownership of upscale golf courses. The Company believes the current fragmentation of golf course ownership is a result of a variety of factors, including a scarcity of capital, the entrepreneurial nature of many golf course owners and operators and their associated pride of ownership. The Company believes that the economies of scale in owning and operating multiple golf courses, the growing significance of professional financial management in the operation of golf courses and the desire for liquidity by golf course owners could lead to consolidation of golf course ownership. In particular, the Company believes golf course owners will be attracted to the Company's multiple independent lessee structure, which permits the Company to acquire a course and then lease it back to an affiliate of the seller. Such structure satisfies the owner's desire to remain involved in the day-to-day operation of his course post sale, while also satisfying his desire to obtain liquidity. The Company further believes its ability to issue OP Units in exchange for a golf course will attract potential sellers, who generally can defer recognition of taxable gain on the exchange until they exercise their Redemption Right. By offering golf course owners the tax planning benefit of OP Units and the economic benefit of participating in the independent lessee structure, including resulting economies of scale in operating golf courses, the Company believes it is able to acquire desirable upscale courses that may not otherwise be available for purchase. Largely in response to the popularity of golf, the construction of golf courses in the United States has increased significantly in recent years. Since 1987, an average of approximately 280 new golf courses were opened each year. A total of 496 facilities were completed in 1999, of which 327 were new courses and the rest were expansions of existing facilities. In 1999, 73% of new golf course openings were daily fee facilities, while municipal facilities represented 11% and the remaining 16% were private clubs. For 2000, it is estimated that over 500 new courses will open, an all time high. The emergence and popularity of younger professional golfers, including Tiger Woods, Justin Leonard, Phil Mickelson and Karrie Webb, have increased awareness and interest in golf. According to industry statistics, 19.4 million homes watched the final round of the four major golf championships in 1996. In 1997, television viewership of the final four rounds of the four major golf championships increased 56 percent to 30.3 million. The Company believes this resurgent interest will result in increasing golf participation, including increasing participation by women and younger golfers. 21 The Company believes the game of golf has exhibited strong growth in popularity in the past five years as illustrated below:
1996 1998 % CHANGE ---- ---- -------- (millions) Number of Golfers . . . . . . . . . . . . 24.8 26.4 7% Rounds Played . . . . . . . . . . . . . . 477.4 528.5 11%
According to current participation rates, it is expected that the number of golfers will increase nearly 2% each year for the next 12 years. DEMOGRAPHICS The Company believes the game of golf will benefit from favorable demographic trends. The United States Census Bureau estimates that the population aged 50 and over will increase by 39% between 1996 and 2010, from 69.3 million to 96.3 million. The average number of rounds played per golfer on an annual basis increases significantly as the golfer ages. Golfers in their 50's play nearly twice as many rounds annually as golfers in their 30's, and golfers age 65 and older generally play three times as many rounds annually as golfers in their 30's. The Company believes that the number of golfers as well as the total number of rounds played will increase significantly as the average age of the population continues to increase. The Company believes that "baby boomers," the oldest of whom are now in their early 50's, will contribute to the growth in total rounds played due to growing wealth and leisure time as well as the suitability of golf as a sport for an aging population. SEASONALITY The golf industry is seasonal in nature because of weather conditions and the fewer available tee times during the rainy season and the winter months. Each of the lessees operating a daily fee Golf Course may vary green fees based on changes in demand. The Company does not expect seasonal fluctuations in lessee revenues to have a significant impact on the Company's operating results. The Company's Participating Leases require Base Rent to be paid ratably throughout the year and in certain cases requires funds to be set aside by lessees to offset expected seasonal fluctuations. 22 (d) FOREIGN OPERATIONS The Company does not engage in any foreign operations or derive any revenue directly from foreign sources. 23 ITEM 2. PROPERTIES The Company believes its investments are consistent with its goal of becoming a leading owner of, and participating in increased revenue from, nationally or regionally recognized upscale golf courses. The Golf Courses include a number of nationally recognized golf courses. The Golf Courses include 22 upscale Daily Fee courses, 14.5 Resort Courses and 10.5 Private Country Clubs. "Daily Fee" courses are open to the public and generate revenues principally through green fees, golf cart rentals, food and beverage operations, merchandise sales and driving range charges. "Resort Courses" are Daily Fee golf courses that attract a significant percentage of players from outside the immediate area in which the golf course is located and generate a significant amount of revenue from golf vacation packages. The Company considers its Daily Fee and Resort Courses to be high-end Golf Courses because of the quality and maintenance of each Golf Course. Private country clubs are generally closed to the public and derive revenues principally from membership dues, initiation fees, transfer fees, golf cart rentals, guest fees, food and beverage operations and merchandise sales. The Company believes that the overall quality of its Golf Courses is reflected in the green fees charged at each Golf Course, which significantly exceed national averages. The Company believes its focus on upscale Daily Fee golf courses and private country clubs, which attract golfers with attractive demographic and economic profiles, will result in stronger and less cyclical revenue growth in comparison to golf courses with lower green fees. Five of the Golf Courses are located in the Myrtle Beach, South Carolina vicinity, a popular year-round golf destination area. Myrtle Beach is considered one of the nation's premier golf resort locations with just over 100 golf courses and approximately 4.2 million rounds played in 1999, according to the MYRTLE BEACH GOLF HOLIDAY-TM-. In addition to golf courses, Myrtle Beach offers a mix of entertainment, shopping and dining, as well as proximity to beaches. All of the Golf Courses located in the Myrtle Beach vicinity were developed and contributed to the Company by Legends Golf, a leading golf course owner, developer and operator in the Southeast and Mid-Atlantic regions of the United States. Five of the Golf Courses are located near Tampa, Florida. Of these, four are located at the Westin Innisbrook Resort, a destination golf resort that includes one of the largest hotel and conference facilities in the state. The fifth course, Lost Oaks of Innisbrook, is located near the Westin Innisbrook Resort, and all five courses are near the Gulf of Mexico. Additionally, the courses benefit from the millions of tourists annually that visit Disney World-TM-, Busch Gardens-TM- and other regional recreational attractions. The Company owns a fee simple interest in each of the Golf Courses with the exception of Oyster Bay and Mystic Creek, which are subject to long-term ground leases, and the four Golf Courses at the Westin Innisbrook Resort, where the Company holds a first lien on the Golf Courses and all of the related facilities (other than the separately-owned condominium units comprising the hotel). The Company additionally holds an option to purchase the Westin Innisbrook Resort and such facilities at the expiration of the Participating Mortgage for the lesser of its fair market value or a pre-determined number of shares of common stock in the Company. Certain information regarding each of the Golf Courses owned by the Company or in which the Company has an interest as of December 31, 1999, is set forth on the following pages: 24 RESORT COURSES Resort Courses are Daily Fee golf courses that draw a high percentage of players from outside the immediate area in which the course is located and generate a significant amount of revenue from golf vacation packages. Some Resort Courses are semi-private, in that they offer membership packages that allow members special privileges at the golf course, but also allow public play.
NO. OF COURSE NAME CITY AND STATE HOLES YARDAGE YEAR OPENED - -------------------------------------- ------------------------ ----------- -------------- ----------------------- Legends Resort Heathland . . . . . . . . . . . Myrtle Beach, SC 18 6,785 1990 Parkland . . . . . . . . . . . Myrtle Beach, SC 18 7,170 1992 Moorland . . . . . . . . . . . Myrtle Beach, SC 18 6,799 1990 Heritage Golf Club . . . . . . . Pawleys Island, SC 18 7,040 1986 Oyster Bay . . . . . . . . . . . . . Sunset Beach, NC 18 6,685 1983 Woodlands . . . . . . . . . . . . . Gulf Shores, AL 18 6,584 1994 Westin Innisbrook Resort Copperhead Course . . . Palm Harbor, FL 18 7,087 1972 Island Course . . . . . . . . Palm Harbor, FL 18 6,999 1970 Eagle's Watch . . . . . . . Palm Harbor, FL 18 6,245 1971 Hawk's Run . . . .. . . . .. . Palm Harbor, FL 18 6,245 1971 Lost Oaks of Innisbrook . . . Palm Harbor, FL 18 6,450 1977 Eagle Ridge Inn and Resort The General . . . . . . . . . Galena, IL 18 6,820 1997 North Course . . . . . . . . . . Galena, IL 18 6,836 1977 South Course . . . . . . . . . . Galena, IL 18 6,762 1984 East Course . . . . . . . . . . Galena, IL 9 2,648 1991
25 HIGH-END DAILY FEE COURSES The Company considers its Daily Fee courses to be high-end courses, reflected in the quality and maintenance standards of the golf courses, and the green fees, which are generally higher than other golf courses in their respective markets. Some high-end daily fee courses are semi-private, in that they offer membership packages but also allow public play.
NO. OF YEAR COURSE NAME CITY AND STATE HOLES YARDAGE OPENED - ------------------------------------------------ ------------------------------ --------------- ------------- ----------------- Royal New Kent . . . . Williamsburg, VA 18 7,291 1996 Legends of Stonehouse . . Williamsburg, VA 18 6,963 1996 Olde Atlanta . . . . . . . . . . Atlanta, GA 18 6,789 1993 Tiburon . . . . . . . . . . . . . . Omaha, NE 27 7,005 1989 Raintree . . . . . . . . . . . . . Akron, OH 18 6,886 1992 Eagle Watch . . . . . . . . . . Atlanta, GA 18 6,896 1989 Black Bear Golf Club . . . Orlando, FL 18 7,002 1995 Bonaventure Green Monster Course Ft. Lauderdale, FL 18 7,011 1970 The Resort Course Ft. Lauderdale, FL 18 6,189 1978 Mystic Creek . . . . . . . . . Milford, MI 27 6,802 1996 Emerald Dunes Golf Course West Palm Beach, FL 18 7,006 1990 Sandpiper Golf Course Santa Barbara, CA 18 7,068 1972 Tierra Del Sol . . . . . . . . . Albuquerque, NM 18 6,351 1982 Links at Polo Trace . . . . . Delray Beach, FL 18 7,100 1989 Osage National . . . . . . . . Lake of the Ozarks, MO 27 7,150 1992 Wekiva Golf Club . . . . . . Orlando, FL 18 6,640 1975 Cypress Creek . . . . . . . . . Boynton Beach, FL 18 6,808 1964 Cooks Creek . . . . . . . . . . Ashville, OH 18 7,000 1983 Brentwood . . . . . . . . . . . White Lake, MI 18 6,262 1995 Palm Desert . . . . . . . . . . . Palm Desert, CA 27 6,678 1957
26 PRIVATE CLUB COURSES Private clubs are generally closed to the public and generate revenue principally through initiation fees and membership dues, golf cart rentals and guest green fees. Initiation fees and membership dues are determined according to the particular market segment in which the club operates. Revenue and cash flows of private country clubs generally are more stable and predictable than those of public courses, because the receipt of membership dues generally is independent of the level of course utilization.
NO. OF YEAR COURSE NAME CITY AND STATE HOLES YARDAGE OPENED - ------------------------------------------- ---------------------- --------------- -------------- --------------- Northgate Country Club . . . . . . . Houston, TX 27 6,540 1984 Club of the Country . . . . . . . . . . Kansas City, KS 18 6,357 1979 Stonehenge Golf Wildewood Country Club Columbia, SC 18 6,751 1974 Woodcreek Farms Columbia, SC 18 7,002 1997 Persimmon Ridge Country Club . Louisville, KY 18 7,129 1989 Silverthorn Country Club . . . . . . Brooksville, FL 18 6,827 1994 Ohio Prestwick Country Club . . . Akron, OH 18 7,066 1972 Sweetwater Country Club . . . . . Orlando, FL 18 6,300 1980 The Pete Dye Golf Club . . . . . . . Bridgeport, WV 18 7,248 1994 Metamora Golf & Country Club Metamora, MI 18 6,933 1992 (semi-private). . . . . . . . . . . . .
27 THE PARTICIPATING LEASES THE FOLLOWING SUMMARY OF THE PARTICIPATING LEASES IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTICIPATING LEASES, A FORM OF WHICH WAS PREVIOUSLY FILED. THE FOLLOWING DESCRIPTION OF THE PARTICIPATING LEASES DOES NOT PURPORT TO BE COMPLETE BUT CONTAINS A SUMMARY OF THE MATERIAL PROVISIONS THEREOF. PURSUANT TO THE COMPANY'S MULTIPLE INDEPENDENT LESSEE STRUCTURE, LEASES ARE INDIVIDUALLY NEGOTIATED AND CONSEQUENTLY VARY FROM ONE ANOTHER, AT TIMES IN MATERIAL WAYS. All of the Participating Leases contain the same basic provisions described below. The leases for any golf course properties acquired by the Company in the future will contain such terms and conditions as are agreed upon between the Lessee and the Company at the time of such acquisitions, and such terms and conditions may vary from the terms and conditions described below with respect to the Participating Leases. The Company anticipates that each new lease will be with an existing Lessee, with an affiliate of the seller or with an unaffiliated third party experienced in the operation of similar courses. LEASE TERM Each Participating Lease was entered into upon the conveyance to the Company of the underlying Golf Course. Generally, the Company's interest in each leased Golf Course includes the land, buildings and improvements, maintenance equipment, related easements and rights, and fixtures (collectively, the "Leased Property"). Each Leased Property is leased to the respective Lessee under a Participating Lease which, generally, has a primary term of 10 years (the "Fixed Term"). In addition, each Lessee generally has an option to extend the term of its Participating Lease for up to six terms of five years each (the "Extended Terms") subject to earlier termination upon the occurrence of certain contingencies described in the Participating Lease. In addition, at the expiration of the Fixed Term and the Extended Terms, the Lessee will generally have a right of first offer to continue to lease the Golf Course on the terms and conditions pursuant to which the Company intends to lease the Golf Course to a third party. USE OF THE GOLF COURSES Each Participating Lease permits the Lessee to operate the Leased Property as a golf course, along with a clubhouse and other activities customarily associated with or incidental to the operation of a golf course and other facilities located at the golf course, including, where applicable, swim and tennis operations. Operations may include sale or rental of golf-related merchandise, sale of memberships, furnishing of lessons, operation of practice facilities and sales of food and beverages. 28 BASE RENT; PARTICIPATING RENT The Participating Leases provide for the Company to receive, with respect to each Golf Course, the greater of Base Rent or an amount equal to Participating Rent plus the initial Base Rent payable under each Participating Lease. Participating Rent is generally equal to 33 1/3% of any increase in Gross Golf Revenue over Gross Golf Revenue for the base year, as adjusted in determining the initial Base Rent, which base year will be reset to the year immediately preceding the date on which the Prior Owner exercises the Lessee Performance Option, if applicable. Base Rent will generally be increased annually by the Base Rent Escalator (generally, the lesser of (i) 3% or (ii) a multiple of the change in CPI for the prior year) during the first five years of each Participating Lease term and, if the Lessee Performance Option is exercised, an additional five years thereafter from the date of exercise. Annual increases in Lease Payments are generally limited to 5% - 7% during the first five years of the initial lease terms. "Gross Golf Revenue" generally is defined as all revenues from a Golf Course including green fees, golf cart rentals, range fees, membership dues, membership initiation fees and transfer fees, excluding, however, food and beverage and merchandise revenue. In certain circumstances, the Company participates in food and beverage and merchandise revenue. Base Rent is required to be paid in twelve equal monthly installments in arrears on the first day of each calendar month. Participating Rent is payable quarterly in arrears. TRIPLE NET LEASES The Participating Leases are structured as triple net leases under which each Lessee is required to pay all real estate and personal property taxes, insurance, utilities and services, golf course maintenance and other operating expenses. SECURITY DEPOSIT As security for its affiliated Lessee's obligations under its Participating Leases, each prior owner of each Golf Course generally is obligated to pledge OP Units (or cash or other collateral acceptable to the Company) with a value initially up to 15% of the purchase price for the applicable Golf Course. The security deposit generally will not be released for two years. Beginning in the third year and any time thereafter, one-third of pledged collateral will be released if the net operating income to lease payment coverage ratio (the "Coverage Ratio") of the Lessee for the two prior fiscal years equals or exceeds 120%, 130% and 140%, respectively. If the Coverage Ratio falls below 120% at any time following the release of pledged collateral, then the Lessee shall be required to retain and not distribute profits until such time as the Lessee has retained cash equal to at least six-months of then-current Base Rent. In addition, the Participating Leases with the Legends Lessees are cross-collateralized and cross-defaulted. The security deposit will be increased following the exercise of any Lessee Performance Option to equal approximately 15% of the sum of the initial purchase price of such Golf Course and the value of any additional OP Units issued in connection with the exercise of the Lessee Performance Option. If the Company acquires any Expansion Facility, the security deposit also will be increased by an amount equal to approximately 15% of the purchase price of the Expansion Facility. In instances where the Golf Course is not leased to a prior owner, the security deposit provided to the Company varies, and is generally less than where a Golf Course is leased back to its Prior Owners 29 and the Company seeks to cross-collateralize any security deposits otherwise provided by such Lessee or its affiliates to the Company. GTA LESSEE ASSOCIATION Each Lessee is a member of the GTA Lessee Association, which participates in cross-marketing of the Golf Courses and identifies each Golf Course as owned by the Company, thereby increasing the golfing consumer's brand name awareness of the Company. Membership in the GTA Lessee Association is designed to provide the Lessees, collectively, greater purchasing power with vendors than each would have individually. The GTA Lessee Association attempts to ensure a consistent, high-quality product at each member Golf Course. MAINTENANCE AND MODIFICATIONS Each Lessee, at its sole cost and expense, is required, to maintain and operate its respective Leased Property in good order, repair and appearance and to make such interior and exterior, structural and non-structural, foreseen and unforeseen, and ordinary and extraordinary repairs as are necessary and appropriate to keep such Leased Property in good order, repair and appearance. Each Lessee also must maintain each Golf Course it leases in substantially the same condition it was in at the commencement of the Participating Lease and otherwise in a condition comparable to other comparable golf courses in its vicinity. If the Company, in consultation with the GTA Lessee Association, determines that a Lessee has failed to comply with its maintenance and operation obligations, then the Company shall provide a written list to the Lessee of remedial work and/or steps to be performed. If the Lessee disputes the Company's assertions, then the matter shall be handled by a committee composed of members of the GTA Lessee Association and representatives of the Company. The Company has generally established and will maintain, through the payment of additional rent, with respect to each Golf Course, a capital replacement reserve (a "Capital Replacement Fund") in an amount equal to between 2% and 5% of Gross Golf Revenue at such Golf Course, depending on certain factors, including the condition of the structures and the age and condition of the Golf Course. The Company and each Lessee will agree on the use of funds in these reserves and the Company has the right to approve each Lessee's annual and long-term capital expenditure budgets. Funds in the Capital Replacement Fund shall be paid to a Lessee to reimburse such Lessee for expenditures made in connection with approved capital replacements. The Lessees generally are obligated to increase their lease payment each year in an amount equal to the increase in the Capital Replacement Fund from the prior year. Amounts in the Capital Replacement Fund will be deemed to accrue interest at a money market rate. Generally, any amounts in the Capital Replacement Fund at the expiration of the applicable Participating Lease will be retained by the Company, with limited exceptions. Except for its obligation to fund the Capital Replacement Fund and except for certain improvements, the Company is not required to build or rebuild any improvements on any Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to any Leased Property, whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with any Participating Lease, or to maintain any Leased Property in any way. In the event that the Company elects to fund additional capital improvements on a Golf Course, the Company generally will condition such election on an increase in minimum rent under the Participating Lease with respect to such Golf Course to reflect such expenditures. 30 During the Fixed Term and each Extended Term, each Lessee, at its sole cost and expense, may make alterations, additions, changes and/or improvements ("Lessee Improvements") to each Leased Property, without the Company's prior written consent, provided such alterations do not diminish the value or appearance of the Golf Course. All such Lessee Improvements will be subject to all the terms and provisions of each applicable Participating Lease and will become the property of the Company upon termination of such Participating Lease. At the end of the Participating Lease, all remaining personal property at each Leased Property will become the property of the Company. INSURANCE Each Lessee is required to maintain insurance on its Leased Property under insurance policies providing for all-risk, liability, flood (if carried by comparable golf course facilities in the area and otherwise available at commercially reasonable rates) and worker's compensation coverage, which at the time is usual and commonly obtained in connection with properties similar in type of building size and use to the Leased Property located in the geographic area where the Leased Property is located. Each insurance policy names the Company as additional insured or loss payee, as applicable. In 1999, the GTA Lessee Association selected a preferred vendor for insurance products and services for the purpose of providing lessees access to better rates and coverage. ASSIGNMENT AND SUBLETTING A Lessee, without the prior written consent of the Company (which consent may generally be withheld by the Company in its sole discretion, except in limited instances), may not assign, mortgage, pledge, hypothecate, encumber or otherwise transfer any Participating Lease or any interest therein, all or any part of the Leased Property or suffer or permit any lease or the leasehold estate created thereby or any other rights arising under any Participating Lease to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law. An assignment of a Participating Lease will be deemed to include any change of control of such Lessee, as if such change of control were an assignment of the Participating Lease. However, each Lessee has the right to assign its Participating Lease to its affiliates. Each Lessee, with the Company's prior approval, which approval the Company may withhold in its discretion, may be permitted to sublease portions of any Leased Property to sublessees to operate portions (but not the entirety of the operations customarily associated with or incidental to the operation of a golf course (e.g., driving range, restaurant, etc.). COMPANY'S RIGHT OF FIRST OFFER In the event a Lessee desires to sell its interest in its Participating Lease to an unaffiliated third party, it must first offer the Company or its designee the right to purchase such interest. The Lessee must give the Company written notice of its intent to sell, which shall indicate the terms and conditions upon which such Lessee intends to sell its interest in the Participating Lease. The Company or its designee shall thereafter generally have a period of 60 days to elect to purchase the leasehold interest on the terms and conditions at which such Lessee proposes to sell its interest. If the Company or its designee elects not 31 to purchase the interest of the Lessee, then such Lessee shall be free to sell its interest to a third party, subject to the Company's approval as described above (see "-- Assignment and Subletting"). However, if the terms on which the Lessee intends to sell its interest are reduced by 5% or more, then such Lessee generally shall again offer the Company the right to acquire its interest, provided the Company shall have only 15 days to accept such offer. LESSEE'S RIGHT OF FIRST OFFER The Company may sell a Golf Course, but must first offer the Lessee of such course the right to purchase the Golf Course. The Company must give the relevant Lessee written notice of its intent to sell, which shall indicate the terms and conditions upon which the Company intends to sell such Golf Course. Such Lessee shall thereafter generally have a period of 60 days to elect to purchase the Golf Course on the terms and conditions at which the Company proposes to sell the Golf Course. If such Lessee elects not to purchase the Golf Course, then the Company shall be free to sell the Golf Course to a third party. However, if the price at which the Company intends to sell the Golf Course is reduced by 5% or more from the price offered to the Lessee, then generally the Company again shall offer such Lessee the right to acquire the Golf Course at the reduced price provided that such Lessee shall have only 15 days to accept such offer. DAMAGE TO, OR CONDEMNATION OF, A LEASED PROPERTY In the event of damage to or destruction of any Leased Property caused by an insured risk, the Lessee will be obligated to diligently restore the Leased Property to substantially the same condition as existed immediately prior to such damage or destruction and, to the extent the insurance proceeds and the Capital Replacement Fund are insufficient to do so, such Lessee will be obligated to contribute the excess funds needed to restore the Leased Property. Any excess insurance proceeds will be paid to the Company. Notwithstanding the foregoing, in the event the damage or destruction of the Leased Property renders the Leased Property unsuitable for use as a golf course for a period of 12 months or more, the Lessee may terminate the Participating Lease. INDEMNIFICATION GENERALLY Under each Participating Lease, the Lessee has agreed to indemnify, and hold harmless, the Company from and against all liabilities, obligations, claims, actual or consequential damages, penalties, causes of action, costs and expenses (including reasonable attorneys' fees and expenses) imposed upon or asserted against the Company as owner of the applicable Leased Property on account of, among other things, (i) any accident, injury to or death of a person or loss of or damage to property on or about the Leased Property, (ii) any use, non-use or misuse by such Lessee of the Leased Property, (iii) any impositions (which are the obligations of the relevant Lessee to pay pursuant to the applicable provisions of such Participating Lease) or the operations thereon, (iv) any failure on the part of the Lessee to perform or comply with any of the terms of the Participating Lease or any sublease, (v) any taxes levied against the Leased Property and (vi) any liability the Company may incur or suffer as a result of any permitted contest by the Lessee under any Participating Lease. 32 EVENTS OF DEFAULT Events of Default are defined in each Participating Lease generally to include, among others, the following: (i) if a Lessee fails to make a rent payment when such payment becomes due and payable and such failure is not cured by such Lessee within a period of 10 days after receipt of written notice thereof from the Company; (ii) if a Lessee fails to observe or perform any material term, covenant or condition of a Participating Lease and such failure is not cured by such Lessee within a period of 30 days after receipt by such Lessee of written notice thereof from the Company, unless such failure cannot be cured with due diligence within a period of 30 days, in which case such failure will not constitute an Event of Default if such Lessee proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof within 120 days; (iii) if a Lessee: (a) admits in writing its inability to pay its debts generally as they become due, (b) files a petition in bankruptcy or a petition to take advantage of any insolvency act, (c) makes an assignment for the benefit of its creditors, (d) is unable to pay its debts as they mature, (e) consents to the appointment of a receiver for itself or of the whole or any substantial part of its property or (f) files a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (iv) if the Lessee is liquidated or dissolved; (v) if the Lessee voluntarily ceases operations on the Leased Property, except as a result of damage, destruction or a partial or complete condemnation or other unavoidable delays; or (vi) if the Lessee or an affiliate thereof is in default under any other Participating Lease with the Company. If an Event of Default occurs and is continuing under a Participating Lessee then upon not less than 10 days notice (only if required by the Participating Lease) of such termination and upon the expiration of such time, the Fixed or Extended Term, as the case may be, will terminate and all rights of the Lessee under the Participating Lease shall cease. SEE "EVENTS OF DEFAULT" UNDER ITEM 1 FOR SPECIFIC COURSES TO WHICH THIS MAY APPLY. GOVERNING LAW The Participating Leases will be governed by and construed in accordance with the law of the state where the Golf Course is located. Because the Golf Courses are located in various states, the Participating Leases may be subject to restrictions imposed by applicable local law. 33 ITEM 3. LEGAL PROCEEDINGS Owners and operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal injury and property damage. Such proceedings are generally brought against the operator of a golf course, but may also be brought against the owner. The Participating Leases provide that each Lessee is responsible for claims based on personal injury and property damage at the Golf Courses which are leased and require each Lessee to maintain insurance for such purposes. Although the Company is currently not party to any legal proceedings relating to the Golf Courses that would have a material adverse effect upon the Company's business or financial position, it is possible that in the future the Company could become a party to such proceedings. LITIGATION ARISING THROUGH EVENTS OF DEFAULT TIERRA DEL SOL GOLF CLUB: On November 3, 1999, GTA filed an eviction action against the tenant at Tierra Del Sol Golf Club with the District Clerk of Court in Valencia County, New Mexico, as a result of the tenant's failure to pay rent. As a result of this lawsuit, GTA took possession of this property on February 7, 2000, pursuant to an order issued by the District Court. GTA has created a wholly owned subsidiary, GTA Tierra Del Sol LLC, to operate this Golf Course during the 90-day grace period allowed by the Internal Revenue which permits these revenues from operations to be qualifying income for REIT tax purposes for this 90-day period. See further explanation of the Internal Revenue Code addressing this situation in the TAX STATUS section of this document. OSAGE NATIONAL GOLF CLUB: On February 25, 2000, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. As a result GTA, the prior owner of the golf course, and the tenant entered into discussions to terminate the tenant's Participating Lease and the tenant's possessory rights at the Golf Course. We expect to have the Participating Lease terminated and obtain possession of the Golf Course within approximately 30-45 days. GTA has created a wholly owned subsidiary, GTA Osage LLC, which expects to assume management of the Golf Course during the 90-day grace period allowed by the Internal Revenue which permits these revenues from operations to be qualifying income for REIT tax purposes for this 90-day period. See further explanation of the Internal Revenue Code addressing this situation in the TAX STATUS section of this document. MYSTIC CREEK GOLF COURSE: On October 25, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. On February 3, 2000, GTA filed an eviction action with a District Court in Oakland County, Michigan. A hearing was set for February 29,2000, but was stayed because the tenant filed a voluntary petition for Chapter 11 Bankruptcy in the United States Bankruptcy Court on February 25, 2000. It is our intention to continue the eviction action as soon as legally permissible to seek to shorten the time for the tenant to accept the lease (by bringing rent current) or reject the lease (which would mean a return of the property to GTA) and to seek to compel the payment of ongoing rent during the pendancy of the bankruptcy. BRENTWOOD GOLF & COUNTRY CLUB: On November 21, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. On February 3, 2000, GTA filed an eviction action with a District Court in Oakland County, Michigan. In response, the tenant has filed a counterclaim against GTA. On March 8, 2000, a hearing was held and the Court ruled to remove 34 the case to Oakland County Circuit Court, where the action for possession and the allegations in the counterclaim will be heard. On March 28, 2000, an order was entered requiring escrow payment of rent and prorated taxes within seven days of the Order, and thereafter, within seven days of the 25th of each month. The first payment required will be February and March rents, and payments in the subsequent months will be the current months rent. 35 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the shareholders in the fourth quarter of 1999. 36 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's sole class of common stock is traded on the NASDAQ American Stock Exchange (the "AMEX"). The following table sets forth for periods shown the high and low sales price for the Company's Common Stock on AMEX and distributions declared for the quarter.
- ----------------------------------------------------------- HIGH LOW DISTRIBUTION - ----------------------------------------------------------- 1999 First Quarter 27 3/4 20 1/2 $0.44 Second Quarter 25 3/4 21 5/8 $0.44 Third Quarter 24 3/8 18 3/8 $0.44 Fourth Quarter 19 1/2 14 1/2 $0.44 - ----------------------------------------------------------- - ------------------------------------------------------------- HIGH LOW DISTRIBUTION - ------------------------------------------------------------- 1998 First Quarter 32 3/8 27 5/8 $0.41 Second Quarter 35 1/8 30 1/4 $0.44 Third Quarter 35 1/2 26 $0.44 Fourth Quarter 29 9/16 24 $0.44 - -------------------------------------------------------------
SHAREHOLDER INFORMATION As of March 22, 2000, the number of holders of record of Common Stock of the Company was approximately 145 and there were 8,118,147 shares outstanding. On that date a total of 4,905,086 OP Units (including 59,188 preferred OP units) were held by 21 entities, excluding the Company's two subsidiaries. On that date, 800,000 shares of the Company's Convertible Preferred Stock were held by a single holder. 37 DIVIDENDS The Company intends to continue to make regular quarterly distributions to its stockholders. The Board of Directors, in its sole discretion, will determine the actual distribution rate based on the Company's actual results of operations, economic conditions, tax considerations (including those related to REITs) and other factors. The Company's distributions, for the year ended December 31, 1999, was $1.76 per share of Common Stock. For the period ended December 31, 1999, and including payments made for fourth quarter, the distributions represent 75% of cash available for distribution. Holders of OP Units will receive distributions on a per unit basis equal to the per share distributions to owners of Common Stock, except Preferred OP Units which were issued at a specified dividend yield. Also, OP Units issued since the prior record date to partners other that GTA GP or GTA LP will receive a pro rata distribution based on duration of ownership. The Company's actual cash available for distribution will be affected by a number of factors, including Gross Golf Revenues generated at the Golf Courses. The Company anticipates that cash available for distribution will exceed earnings and profits due to non-cash expenses, primarily depreciation and amortization, to be incurred by the Company. Distributions by the Company to the extent of its current or accumulated earnings and profits for federal income tax purposes, other than capital gain dividends, will be taxable to stockholders as ordinary dividend income. Any dividends designated by the Company, as capital gain dividends generally will give rise to capital gain for stockholders. Distributions in excess of the Company's current or accumulated earnings and profits generally will be treated as a non-taxable reduction of a stockholder's basis in the Common Stock to the extent thereof, and thereafter as capital gain. Distributions treated as non-taxable reduction in basis will have the effect of deferring taxation until the sale of a stockholder's Common Stock or future distributions in excess of the stockholder's basis in the Common Stock. Based upon the total earnings and profits of the Company, the Company estimates that 2.3% of the expected annual distribution would represent a return of capital for federal income tax purposes. If actual cash available for distribution or taxable income vary from these amounts, or if the Company is not treated as the owner of one or more of the Initial Courses, the percentage of distributions which represents a return of capital may be materially different. In order to maintain its qualification as a REIT, the Company must make annual distributions to its stockholders of at least 95 percent of its taxable income (excluding net capital gains). Based on the Company's results of operations for year ended December 31, 1999, the Company was required to distribute approximately $9.08 million in order to maintain its status as a REIT. Under certain circumstances, the Company may be required to make distributions in excess of cash available in order to meet such distribution requirements. The Board of Directors, in its sole discretion, will determine the actual distribution rate based on a number of factors, including the amount of cash available for distribution, the Company's financial condition, capital expenditure requirements for the Company's properties, the annual distribution requirements under the REIT Provisions of the Code and such other factors as the Board of Directors deems relevant. RECENT SALES OF UNREGISTERED SECURITIES 38 On March 10, 1999, Restricted Stock grants totaling 44,000 common shares were issued to the Executive Officers of the Company under the 1998 Stock Based Incentive Plan. On January 30, 2000, Restricted Stock grants totaling 55,000 common shares were issued to the Executive Officers of the Company under the 1998 Stock Based Incentive Plan. On January 30, 2000, Stock Options were issued for 145,000 common shares to Executive Officers of The Company under the 1998 Stock Based Incentive Plan. These issuances were effected in reliance upon an exemption from registration under Section 4(2) of the Securities Act as a transaction not involving a public offering. On May 11, 1999, the Operating Partnership issued 10,169 Preferred OP Units to the prior owner of Metamora Golf and Country Club as partial consideration for its interest in Metamora Golf and Country Club. On July 28, 1999, the Operating Partnership issued 48,949 Preferred OP Units to the prior owner of Pete Dye Golf Club as partial consideration for its interest in the Pete Dye Golf Club. OP Units may generally be redeemed by their holder one-year after issuance for cash or, at the option of the Company, shares of Common Stock on a one-for-one basis. This issuance was effected in reliance upon an exemption from registration under Section 4(2) of the Securities Act as a transaction not involving a public offering. 39 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected consolidated financial information for the Company. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE PERIOD FOR THE YEAR ENDED FOR THE YEAR ENDED FROM FEBRUARY 12 TO DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Rent from Affiliates $15,041 $12,365 $10,802 Rent 31,630 23,097 3,607 Mortgage interest 9,106 8,922 4,318 - ---------------------------------------- -------------------- -------------------- ------------------- $55,777 $44,384 $18,727 Depreciation and amortization $17,299 $ 11,667 $ 3,173 General and administrative 6,098 5,416 2,532 Interest income (1,480) (478) (624) Interest expense 15,603 9,673 $ 1,879 Loss on disposal of assets - 370 - - ---------------------------------------- -------------------- -------------------- ------------------- Total Expenses $37,520 $ 9,565 $ 6,960 - ---------------------------------------- -------------------- -------------------- ------------------- Net income before minority interest $18,257 $17,736 $11,767 Income applicable to minority interest 7,026 7,130 5,798 Preferred Dividends 1,383 - - - ---------------------------------------- -------------------- -------------------- ------------------- Net income applicable to common stockholders $ 9,848 $10,606 $ 5,969 - ---------------------------------------- -------------------- -------------------- ------------------- Earnings per common share - basis $ 1.28 $ 1.39 $ 1.32 Weighted average number of common shares - basis 7,720 7,635 4,535 Earnings per common share -diluted $ 1.27 $ 1.34 $ 1.29 Weighted average number of common shares - diluted 7,734 7,905 4,626 Distribution declared per share and unit (1) $ 1.76 $ 1.73 $ 1.43 Distribution paid per share and unit $ 1.76 $ 2.14 $ 1.03
40
FOR THE PERIOD FROM FOR THE YEAR ENDED FOR THE YEAR ENDED FEBRUARY 12 TO DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- CASH FLOW INFORMATION Cash flows provided by operating 24,608 30,593 13,644 activities Cash flows used in investing activities 29,293 201,504 148,738 Cash flows provided by financing 1,699 157,834 150,062 activities OTHER INFORMATION Funds from operations (2) 34,107 29,773 14,899 Cash available for distribution 30,549 27,221 13,652 Weighted average common stock and 12,990 13,052 9,030 OP Units
BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ---------------------- ------------------------ -------------------- 1999 1998 1997 Net Investment in Golf Courses $ 327,702 $ 323,500 $ 101,044 Mortgage Notes Receivable $73,160 $ 72,252 $ 65,129 Total Assets $ 433,912 $ 411,981 $ 186,306 ---------------------- ------------------------ -------------------- ---------------------- ------------------------ -------------------- Mortgages and Notes Payable $ 223,085 $ 210,634 $ 4,325 Total Liabilities $233,881 $ 225,824 $ 7,354 Minority Interest $69,747 $ 76,510 $ 54,625 Stockholders' Equity $130,284 $ 109,647 $ 124,327 Total Liabilities and Stockholders' Equity $433,912 $ 411,981 $ 186,306 ---------------------- ------------------------ -------------------- ---------------------- ------------------------ -------------------- ---------------------- ------------------------ --------------------
(1) The 1997 quarterly distribution declared per share and unit includes $.41 declared in January 1998 related to the fourth quarter 1997. (2) In accordance with the resolution adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), Funds From Operations (FFO) represents net income (loss) (computed in accordance with generally accepted accounting principles (GAAP)), excluding gains of real property, and after adjustments for unconsolidated partnerships and joint ventures. Effective 1/1/2000, FFO should include both recurring and non-recurring operating results - except those results defined as "extraordinary items" under GAAP and gains and losses from sales of depreciable operating property. Funds From Operations should not be considered as an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financial activities as a measure of liquidity. Funds From Operations does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. The Company believes that Funds From Operations is helpful to investors as a measure of the performance of an equity REIT, because, along with cash flows from operating activities, financing activities and investing activities, it provides investors with an understanding of the ability of the Company to incur and service debt and make capital expenditures. Compliance with the NAREIT definition of Funds From Operations is voluntary. Accordingly, the Company's calculation of Funds From Operations 41 in accordance with NAREIT definition may be different than similarly titled measures used by other REITs. 42 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other sections of this report contain various "forward-looking statements" which represent the Company's expectations concerning future events including the following: statements regarding the Company's continuing ability to target and acquire high-quality golf courses; the expected availability of the Credit Facility, Bridge Loan and other debt and equity financing; the Lessees' and Mortgagee's future cash flows and ability to make Lease and Mortgage Payments; results of operations and overall financial performance and the expected tax treatment of the Company's operations; and the Company's beliefs about continued growth in the golf industry. Because of the foregoing factors, the actual results achieved by the Company in the future may differ materially from the expected results described in the forward-looking statements. The following discussion should read in conjunction with the accompanying Consolidated Financial Statements appearing elsewhere herein. OVERVIEW AND FORMATION Golf Trust of America, Inc. (the "Company") conducts business through Golf Trust of America, L.P. (the "Operating Partnership"), of which the Company, as of March 22, 2000, owns 64.4 percent interest through its two wholly owned subsidiaries and is the general partner. Larry D. Young, a director of the Company, along with his affiliates, owns 27.0 percent of the Operating Partnership and is a significant lessee. Operators of the golf courses, their affiliates and an officer of the Company hold the remaining interest in the Operating Partnership. Concurrent with the initial public offering of the Company's stock, the Company acquired ten initial golf courses in exchange for the issuance of 4.1 million OP units, the repayment of $47.5 million of notes payable and affiliate debt, and $6.2 million cash. The seven golf courses acquired from Legends Golf have been accounted for at a carryover basis as Legends Golf is considered the accounting acquirer under APB Opinion No. 16. The value of the OP units issued and debt assumed was approximately $73.7 million greater than the carryover basis of Legends Golf. The Company was formed to capitalize upon consolidation opportunities in the ownership of upscale golf courses in the United States. The Company's principal business strategy is to own upscale golf courses and lease these golf courses to qualified third-party operators which may include the sellers of the courses. In addition to the ability to acquire golf courses for cash and/or the assumption of indebtedness, the Company has the ability to issue units of limited partnership interest ("OP Units") in the Operating Partnership. OP Unit holders are partners who have the right ("their Redemption Right"), subject to certain terms and conditions to convert their OP Units to shares of Common Stock, or to cash at the discretion of the Company. When the Company acquires a golf course in exchange for OP Units, in most instances the seller of the course does not recognize taxable income gain until it exercises the Redemption Right. OP Units can thus provide an attractive tax-deferred sale structure for golf course sellers. The Company believes it is highly regarded and recognized as having a significant presence in the ownership of upscale assets due to (i) its utilization of a multiple independent lessee structure (ii) management's substantial industry knowledge, experience, and relationships within the golf community, (iii) the Company's strategic alliances with prominent golf course operators and (iv) its ability to issue OP Units to golf course owners on a tax-deferred basis. The Company's primary sources of revenue are lease payments under the participating leases and mortgage payments under the participating mortgage. The Company generally participates in the 43 increase in gross golf revenues over the base year. Base rent will generally increase each year between 3% and 5%. Annual increases in lease payments are generally limited to a maximum of 5% to 7% for the first five years of the lease term. Management believes the principal source of growth in gross golf revenues at the golf courses will be increased green fees, cart fees, and other related fees (due to increases in rounds and/or rates). In order to achieve higher revenues, management believes the lessees will need to continue to offer golfers a high quality golf experience as it relates to the pace of play, condition of the golf course and overall quality of the facilities and services. GOLF COURSE ACQUISITIONS For the year ended December 31, 1999, the Company purchased two Golf Courses for an aggregate acquisition cost of approximately $15.9 million. In conjunction with the purchase of the Pete Dye Golf Club, the lessee executed two promissory notes: (i) a $2.3 million capital improvement loan to construct the new clubhouse and (ii) a $3.5 million secured land loan. These two promissory notes initially bear interest at 10.5% per annum with annual increases of 5% per annum. The purchase price, together with the original balance of the promissory notes totaled $21.7 million and were funded as follows: $8.6 million in cash, $10.0 million in assumed debt, $1.4 million in deferred payments ($0.7 million on the Pete Dye Clubhouse Construction and $0.7 million reserve for a Maintenance Facility and Wastewater Treatment at Metamora), and $1.7 million represented by the issuance of Preferred OP Units (approximately 59,000 OP Units) to the sellers. DISPOSITIONS In June 1999, Sandpiper GTA Development, Inc. sold the undeveloped 14-acre parcel of land located near Sandpiper Golf Course in Santa Barbara, California for $5.3 million, which approximated our basis in the property. The sales price included a $4.2 million promissory note from the buyer secured by a first deed of trust on the parcel; the promissory note accrues interest at 10% per annum and matures one year from closing, subject to two one-year extensions. These extensions can only be exercised by the borrower subject to borrower's payment of all outstanding and accrued interest on the note, an installment payment of $1,000,000 from the buyer for each extension, and an increase in the interest rate on the note to 12% per annum effective as of the second installment. The installment dates are June 2, 2000 and June 2, 2001. The Promissory Note matures on June 2, 2002 in the event no extentions are exercised. 44 RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 For the years ended December 31, 1999, and December 31, 1998, the Company recognized $55,777,000 and $44,384,000, respectively, in revenue from the participating leases and from the mortgage note receivable. The increase in revenues of $11,393,000 or 25.7% is due to 1) minimum increases in rent (including additional rent on improvements at the courses acquired in 1997) of approximately $1,554,000, 2) rent for a full year of operations for 1998 acquisitions (including additional rent on improvements at these courses) of approximately $8,305,000, 3) rent from Golf Courses acquired in 1999 of approximately $1,179,000, 4) increased interest from the Mortgage Note Receivable of approximately $672,000, 5) increase in straight line rents of approximately $33,000, offset by 6) a decrease of approximately $350,000 in Participating Rent and/or Participating Interest. Expenses totaled $23,397,000 and $17,083,000 for the years ended December 31, 1999 and December 31, 1998, respectively. The increase of $6,312,000 or 37%, reflects 1) additional depreciation of $5,658,000 for the acquisitions and improvements made during 1999 and a full year of depreciation for those courses added in 1998, 2) increase in loan cost amortization of $370,000, 3) a one-time charge of approximately $500,000 which was primarily severance costs related to the reorganization of the Acquisition department, and offset by 4) a reduction in general and administrative costs and restricted stock compensation expense of $209,000. For the year ended December 31, 1999, interest expense was $15,603,000, compared to $9,673,000 for the year ended December 31, 1998. The increase of $5,930,000 can be primarily attributed to the increase of $60,000,000 in the average balance of outstanding debt for the four quarters of 1998 versus the average balance of outstanding debt for the four quarters of 1999. The increase in the average balance of outstanding debt is due to a full year of the outstanding debt obtained to fund 1998 acquisitions and to the $10,000,000 debt assumption in 1999 for the purchase of Pete Dye Golf Club. In addition, the interest rates have increased primarily in the last quarter of 1999 causing an increase in the interest expense on our floating rate debt which averaged approximately $133,900,000 in 1999. Net income for the years ended December 31, 1999, and December 31, 1998, was $11,231,000 and $10,606,000, respectively for a year over year increase of $625,000. For the year ended December 31, 1999 the diluted earnings per share was $1.27 reflecting a $0.07, or 5%, decrease over the prior year. This decrease is primarily due to Preferred Dividend payments in 1999 to AEW of $1,383,000 which reduces the earnings available to common shareholders. Diluted earnings per share prior to reduction for Preferred Dividends would be $1.45, or an 8% increase. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD FROM FEBRUARY 12 (INCEPTION) TO DECEMBER 31, 1997 For the year ended December 31, 1998 and the period from February 12 to December 31, 1997, the Company recognized $44,384,000 and $18,727,000, respectively, in revenue from the participating leases and from the mortgage note receivable. The increase in revenues of $25,657,000 or 137% is due to 1) minimum increases in rent of approximately $422,000, 2) rent of $14,735,000 from new course acquisitions and expansions subsequent to December 31, 1997, 3) $4,604,000 of increased interest from 45 the Mortgage Note Receivable, which was issued June 20, 1997, 4) the $369,000 increase in Participating Rent, 5) rent of $5,527,000 for a full year of operations for 1997 acquisitions. Expenses totaled $17,083,000 and $5,705,000 for the year ended December 31, 1998 and the period from February 12 to December 31, 1997, respectively. The increase of $11,378,000 or 200%, reflects 1) additional depreciation of $8,494,000 for the acquisitions made during 1998 and a full year of depreciation for those courses added in 1997, and 2) additional general and administrative costs of $2,884,000 for loan cost amortization, for amortization of restricted stock compensation, additional salaries and administrative costs. For the year ended December 31, 1998, interest expense was $9,673,000, compared to $1,879,000 for the period from February 12 to December 31, 1997. The increase for $7,794,000 reflects the increase in outstanding borrowings from $4,325,000 at December 31, 1997 to $210,634,000 at December 31, 1998. The proceeds of the current year borrowings ($188,600,000) and $14,968,000 of the proceeds of the Company's secondary offering were used primarily to fund $195,541,000 of the cash paid for acquisitions and improvements and advances of $5,963,000 under the mortgage note receivable commitment. The loss on disposal of assets occurred when the golf carts at one course were traded in as part of a new leasing program and at another location where a new clubhouse was built and the existing facility was removed. Net income for the period from February 12 to December 31, 1997 and the year ended December 31, 1998 was $5,969,000 and $10,606,000, respectively. For the year ended December 31, 1998 the diluted earnings per share was $1.34, reflecting a $0.05, or 4%, increase over the period from February 12 to December 31, 1997. LESSEE RESULTS OF OPERATIONS GTA has a policy of acting promptly and aggressively on tenant defaults in accordance with the terms of the Participating Leases. In the event a tenant fails to pay their rent in accordance with the applicable Participating Lease, an "Event of Default" (further defined under ITEM 2. PROPERTIES) may be asserted by GTA as landlord. In the third quarter of 1999, GTA elected to pursue legal remedies available to it under its Participating Leases as a result of tenant defaults at Bonaventure and the four Golf Courses previously leased to Granite Golf (I.E., Tiburon Golf Club, Silverthorn Country Club, Persimmon Ridge Golf Club and Black Bear Golf Course). As a result, GTA approved the assignment of the tenant's interest in these Participating Leases to a new lessee. The financial results submitted by the new lessee indicated that same store rounds at these Golf Courses for the fourth quarter 1999 increased--75% for Bonaventure and an average of 6% for the four Granite Golf Courses. Same store revenues for the fourth quarter 1999 increased 23% for Bonaventure and an average of 23% for the four Granite Golf Courses. GTA has also declared events of default in the past several months at four other Golf Courses "Tierra Del Sol Golf Club," "Osage National Golf Club," "Mystic Creek Golf Course," and "Brentwood Golf & Country Club". GTA management believes that in cases where events of default occur under its Participating Leases, proactive management of the issues in a timely manner is required and, that such action is necessary (i) to ensure an effective and efficient legal process, (ii) to maintain the value of the Golf Course, and 46 (iii) to stabilize and/or improve operating performance of the applicable Golf Course. When GTA is forced to "foreclose" on a Golf Course, the Internal Revenue Code (Section 856(e)(4)(C)) allows a 90-day grace period during which GTA can operate the Golf Course and still permit these revenues to be qualifying income for REIT tax purposes. At the expiration of such period, the Golf Course should either be sold, leased to an experienced Golf Course operator, or an agreement must be secured with an independent contractor to assume management of the applicable Golf Course. Management by an independent contractor is allowed until the close of the third taxable year following the taxable year in which the "foreclosure" occurred. GTA has elected to pursue legal remedies available to it under its Participating Lease to cure events of default that have occurred in the past several months at the four Golf Courses listed below: GRANITE GOLF ASSIGNMENT OF LEASES Granite golf or one of its affiliates was the lessee ("Granite") at four of our Golf Courses until June of 1999. Those Golf Courses included: Silverthorn Country Club, an 18-hole private Golf Course located in Florida and purchased in June of 1998 for $4,700,000; Black Bear Golf Course, an 18-hole high-end daily fee Golf Course located in Florida and purchased in November of 1997 for $4,784,000; Tiburon Golf Club, a 27-hole high-end daily fee Golf Course located in Nebraska and purchased in August of 1997 for $6,003,000; Persimmon Ridge Country Club, an 18-hole high-end daily fee Golf Course located in Kentucky and purchased in March of 1998 for $7,500,000. On June 24, 1999, GTA declared a tenant default under each of the Participating Leases where Granite Golf or one of its affiliates was the lessee for failure to timely pay rent under the respective Participating Leases. GTA applied the redemption value of Granite's OP units against past due rent obligations. W. Bradley Blair, II, President and Chief Executive Officer of GTA, purchased the 21,429 common shares (previously held by Granite as OP units) for $22.15 per share, the 10 day trailing average market price of GTA common stock, from Golf Trust of America, L.P., in conjunction with this default. Effective August 17, 1999, each of the tenant's interest in the Participating Leases with Granite was assigned to and assumed by Legends National Golf Management, LLC, an affiliate of Mr. Young. As yet, we have not restructured the Participating Leases in any material manner. However, new working capital loans aggregating $1.2 million and bearing interest under existing Participating Lease terms were committed by GTA to facilitate the transition period and to cover seasonal financial needs. The new lessee had a positive impact on the financial performance of these Golf Courses in the fourth quarter of 1999 reporting an average increase of 6% in same store rounds and an average increase of 23% in same store revenues for the four Golf Courses. BONAVENTURE ASSIGNMENT OF LEASE BONAVENTURE: This club is made up of two 18 hole, high-end daily fee Golf Courses located in Ft. Lauderdale, Florida which GTA purchased in January of 1998 for $24,500,000. Effective July 1, 1999, Mr. Young acquired the outstanding stock of Emerald Dunes - Bonaventure, Inc., the lessee at Bonaventure. There was no reduction in payment terms under the Participating Lease; however, the Participating Lease was modified to allow the new lessee additional capital improvement and working capital funding to facilitate the repositioning and improvement of the facility. The collateral to secure the lessee's obligations under the participating lease pledged by the initial lessee was released and substituted with equivalent collateral by Mr. Young and his affiliates. This restructure had a positive impact on the financial performance of the Course in the fourth quarter of 1999 with the lessee reporting an increase in same store rounds of 75% with a corresponding increase in same store revenue of 23%. 47 GTA ASSUMES MANAGEMENT OF TIERRA DEL SOL GOLF CLUB TIERRA DEL SOL GOLF CLUB: This Golf Course is an 18 hole, high-end daily fee Golf Course located in Albuquerque, New Mexico which GTA purchased in May 1998 for $3,600,000. On November 3, 1999, GTA filed an eviction action against the tenant at Tierra Del Sol Golf Club with the District Clerk of Court in Valencia County, New Mexico, as a result of the tenant's failure to pay rent. As a result of this lawsuit, the tenant was removed and GTA took possession of this Golf Course on February 7, 2000, pursuant to an order issued by the District Court. GTA has created a wholly owned subsidiary, GTA Tierra Del Sol, LLC, to operate this Golf Course during the 90-day grace period. It is GTA's view that the operational problems at this Golf Course were due to the tenant's executive management; therefore, the existing Golf Course-level management team and all Course-level key employees at the Golf Course have remained employed at the Golf Course. GTA has also implemented additional financial reporting policies and procedures to enhance internal controls and facilitate tracking of the financial performance of the Golf Course. GTA has initiated a business plan to explore opportunities to (i) seek to re-let the Golf Course, (ii) enter into a management agreement with a more experienced golf operator than the original tenant, or (iii) potentially sell the Golf Course. OP Units initially pledged as collateral for the lease by the former tenant of the Golf Course have been redeemed and applied to past due rent obligations and other accrued charges. The collateral balance remaining after these outstanding amounts were cured is valued at approximately $170,000, which represents approximately five months of Base Rent, and will be recognized as Other Income in the first quarter of 2000. OSAGE NATIONAL GOLF CLUB OSAGE NATIONAL GOLF CLUB: This Golf Course is a 27-hole, high-end daily fee Golf Course in Lake of the Ozarks, Missouri, which GTA purchased in August 1998 for $11,200,000 in a sale-leaseback transaction. On February 25, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. As a result, GTA, the prior owner of the Golf Course, and the tenant entered into discussions to terminate the tenant's Participating Lease and the tenant's possessory rights at the Golf Course. We expect to have the Participating Lease terminated and obtain possession of the Golf Course within aproximately 30-45 days. We have created a wholly owned subsidiary, GTA Osage, LLC, which expects to assume management of the Golf Course during the 90-day grace period. In this role, GTA will facilitate the transition of management, implement additional internal controls to more effectively manage the operations of the Golf Course and implement additional financial reporting policies and procedures to improve the monitoring of the financial performance of the Golf Course. In addition, GTA has initiated a business plan to explore opportunities to (i) seek to re-let the Golf Course, (ii) enter into a management agreement with a more experienced golf course operator than the original tenant, or (iii) potentially sell the Golf Course. We expect that all Golf Course-level key management and employees will remain employed at the Golf Course. Under GTA management's current assumptions, the value of the tenant's collateral (66,124 OP units) securing the obligations of the defaulting tenant under the Participating Lease will be adequate to cover accrued rent (approximately $408,000 through February 25, 2000) and any other accrued charges. The remaining collateral value will be recognized as Other Income and should offset any possible shortfalls in revenue in fiscal year 2000 resulting from tenant's event of default. MYSTIC CREEK GOLF COURSE 48 MYSTIC CREEK GOLF COURSE: This Golf Course is a 27-hole, high-end daily fee Golf Course located in Milford, Michigan, which GTA purchased in January 1998 for $10,000,000 in a sale-leaseback transaction. On October 25, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. On February 3, 2000, GTA filed an eviction action with a District Court in Oakland County, Michigan. A hearing was set for February 29, 2000, but was stayed because the tenant filed a voluntary petition for Chapter 11 Bankruptcy in the United States Bankruptcy Court on February 25, 2000. It is our intention to continue the eviction action as soon as legally permissible to seek to shorten the time for the tenant to accept the lease (by bringing the rent current) or reject the lease (which would mean a return of the Golf Course to GTA) and to seek to compel the payment of ongoing rent during the pendancy of the bankruptcy. The tenant continues to operate the Golf Course pending the resolution of the pending action and its bankruptcy. Under GTA management's current assumptions, the value of the tenant's collateral ($879,630 in cash and 52,724 OP units) securing the obligations of the defaulting tenant under the Participating Lease is adequate to cover accrued rent (approximately $554,000 through February 29, 2000) and any other accrued charges. The remaining collateral value will be recognized as Other Income and should offset any possible shortfalls in revenue in fiscal year 2000 resulting from tenant's event of default. BRENTWOOD GOLF & COUNTRY CLUB: This Golf Course is an 18-hole, daily fee Golf Course in White Lake, Michigan, that GTA purchased in December of 1998 for $7,000,000. On November 21, 1999, GTA declared an event of default under the Participating Lease as a result of the tenant's failure to pay rent. On February 3, 2000, GTA filed an eviction action with a District Court in Oakland County, Michigan. In response, the tenant filed a counterclaim against GTA. On March 8, 2000, a hearing was held and the Court ruled that the case be moved to Oakland County Circuit Court, where the action for possession and the allegations in the counterclaim will be heard. On March 28, 2000, an order was entered requiring escrow payment of rent and prorated taxes within seven days of the Order, and thereafter, within seven days of the 25th of each month. The first payment required will be February and March rents, and payments in the subsequent months will be current months rent. Subject to the foregoing limitations, the tenant continues to operate the Golf Course pending resolution of the pending actions. Under management's current assumptions, the value of the tenant's collateral (a $350,000 Certificate of Deposit and 24,482 OP Units) securing the obligations of the defaulting tenant under the Participating Lease is adequate to cover accrued rent (approximately $455,000 through February 29, 2000) and any other accrued charges. Any remaining collateral value will be recognized as Other Income and will be used to offset any possible shortfalls in revenue in fiscal year 2000 resulting from tenant's event of default. 49 LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY CASH FLOWS CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 Cash flow from operating activities for the year ended December 31,1999 was $24,467,000 compared to $30,593,000 for the year ended December 31, 1998. This reflects net income before minority interest, plus non-cash charges to income for depreciation, loan cost amortization, restricted stock compensation amortization, straight line rents and interest and working capital changes. The decrease of $6,126,000 year over year is primarily due to the release of escrowed funds from Golf Courses purchased in 1998. Cash flows used in investing activities reflect increases in the Participating Mortgage notes receivable related to the Westin Innisbrook facility of $94,000, golf course acquisitions and capital additions of $15,371,000 offset by the disposition of a parcel of land at the Sandpiper Golf Course for $975,000. The Golf Course acquisitions and capital additions included the $3.3 million acquisition of an additional nine holes at Northgate Country Club, the cash portion of the Metamora Golf Course of $5.0 million, and $3.6 million for improvements at Eagle Ridge and $3.5 million in improvements at other Golf Courses. This compares to acquisitions of 22 Golf Courses plus capital additions totaling $195,541,000, and the increase in the Participating Mortgage notes receivable of $5,963,000 in the year ended December 31, 1998. On April 2, 1999, GTA completed a private placement of 800,000 shares of its 9.25% Series A Cumulative Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), at a price of $25.00 per share to a single purchaser, AEW Targeted Securities Fund, L.P., for gross proceeds of $20,000,000, net of associated costs of approximately $878,000. The net proceeds were used as follows: (i) to pay down $1,025,000 under the Credit Facility, (ii) to repay promissory notes to Nations Credit of $5,169,000; (iii) to pay loan costs associated with the amendment and restatement of the Credit Facility of $1,399,000; (iv) to make new officer loans of $648,000; and (v) the balance for general working capital needs. Cash flows used in financing activities, totaling $7,963,000 represents the net proceeds from the AEW offering of $19,122,000, net borrowings of $6,255,000 under the Credit Facility and Bridge Loan, proceeds from issuance of common stock $42,000, less promissory note payments to Nations Credit of $5,324,000 redemption of OP Units of $2,478,000, loans to officers of $1,278,000, and dividends and partner distributions totaling $24,302,000 for the year ended December 31,1999. The 1999 financing activities compare to net borrowings of $188,600,000 under the Credit Facility and Bridge Loan, less dividends and partner distributions totaling $27,135,000 for the year ended December 31,1998. CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD FROM FEBRUARY 12 (INCEPTION) TO DECEMBER, 1997 Cash flow from operating activities for the year ended December 31,1998 was $30,593,000 compared to $13,644,000 for the period from February 12, 1997 to December 31,1997. This reflects net income 50 before minority interest, plus noncash charges to income for depreciation, loan cost amortization and working capital changes. Cash flows used in investing activities reflect increases in the mortgage notes receivable of $5,963,000 and golf course acquisitions of $195,541,000 for the year ended December 31,1998. This compares to acquisitions and capital additions of $84,332,000 and the increase in the mortgage notes receivable of $64,406,000 in the period from February 12 to December 31,1997. Cash flows provided by financing activities, totaling $157,834,000 represents the net borrowing of $188,600,000 under the Credit Facility and Bridge Loan, less dividends and partner distributions totaling $27,135,000 for the year ended December 31,1998. This compares to the initial and follow-on offering proceeds of $155,720,000 and borrowings of $4,325,000 to fund the 1997 acquisitions and the participating mortgage for the period from February 12, 1997 to December 31,1997. Distributions to partners and stockholders totaled $8,535,000 represented a partial period distribution of $.21 per share for the first quarter of 1997 and $.41 per share for the remaining quarters through December 31,1997. FINANCING AND CAPITAL RESOURCES REVOLVING CREDIT FACILITY AND LINE OF CREDIT As of April 6, 1999, GTA amended and restated its unsecured Revolving Credit Facility ("Credit Facility") to increase the borrowing capacity to $200.0 million with a consortium of banks led by Bank of America, as lead agent. GTA pays interest-only on the Credit Facility with the principal balance due in April 2002. Borrowings typically bear interest at an adjusted Eurodollar rate plus an applicable margin. The applicable margin (between 1.50% and 2.00%) is subject to adjustment based upon certain leverage ratios. At December 31, 1999, all amounts outstanding under the Credit Facility were based on the Eurodollar rate and a margin of 1.75% for an average interest rate of 7.0% per annum. The amended and restated Credit Facility replaced the Bridge Loan. The Credit Facility availability is limited to an unencumbered pool calculation, including a 20% limitation for working capital needs. Financial covenants include net worth, liquidity and cash flow covenants, among others. Non-financial covenants include restrictions on loans outstanding, construction in progress, loan to officers and changes in the Board of Directors, among others. At the present time, these covenants have been met. In addition to the amended and restated Credit Facility, on April 6, 1999 GTA also obtained a $25.0 million unsecured line of credit from Bank of America which may be incorporated into the $200.0 million Credit Facility at a later date. The rates, covenants, conditions and other material provisions are essentially the same as the Credit Facility, except for the term, which was one year with an expiration date of April 1, 2000. In March of 2000, this line was granted a six-month extension with a new maturity date of October 1, 2000. The extension was granted with the same pricing that was in effect under the original line plus a 3/4% up-front commitment fee. INTEREST RATE SWAP AGREEMENT The interest rate swap agreement that GTA entered into with Bank of America in September 1998 expired on March 27, 2000. The notional amount under this agreement of $76,800,000 converted to floating rate debt as of the March 27th expiration date. This brings the total floating rate debt to 51 $210,700,000. As of the date of this filing, GTA had not entered into a new interest rate swap agreement. UNIVERSAL SHELF REGISTRATION GTA has on file with the Securities and Exchange Commission a universal shelf registration statement registering the issuance of debt securities, common stock, preferred stock or warrants as well as resales of securities issued upon redemption of certain OP Units by their holders, with a remaining availability of approximately $280.0 million. The exact amount of debt, common stock, preferred stock, and warrants issued will depend on acquisitions, asset shares, GTA's unsecured debt and preferred stock ratings, and the general interest rate environment. The Company believes that its current borrowing capacity and anticipated cash flow from operations are sufficient to meet liquidity needs for the foreseeable future. There can be no assurance that the Company will be able to negotiate extensions of such facilities or borrow from other lenders on similar terms. There can be no assurance that the impact of market conditions on the debt and equity markets will not adversely affect the Company's future needs for capital. FUTURE INVESTMENTS IN ASSETS The Company intends to continue to analyze potential investments in additional golf courses as suitable opportunities arise, but the Company will not undertake investments unless adequate sources of financing are available. The Company anticipates that future acquisitions would be funded with debt financing provided by the Credit Facility, secured borrowing options, the issuance of OP Units or with proceeds of additional equity offerings. In the future, the Company may negotiate additional credit facilities or issue corporate debt instruments. Any debt issued or incurred by the Company may be secured or unsecured, long-term or short-term, fixed or variable interest rate and may be subject to such other terms as the Board of Directors deems prudent. COMMITMENTS TO LESSEES The participating leases generally require the Company to reserve annually between 2% to 5% of the annual gross golf revenues of the golf courses to fund capital expenditures, which are funded on a monthly basis from the lessees in addition to the base rent. The lessees will fund any capital expenditures in excess of such amounts. The capital expenditure reserve is used for replacement and enhancement of the existing facilities and is allocated to short and long-term categories and therefore the balance may not be currently available to the lessees. At December 31, 1999, the amount reserved was $2,452,000 compared to $1,105,000 at December 31, 1998. Under certain circumstances, the underlying base rent for a course will be increased when the Company agrees to pay for significant capital improvements or to expand the existing facilities. Of the Company's $8,478,000 outstanding capital improvement commitments (which includes the Pete Dye Clubhouse loan for $2,300,000), approximately $1,918,000 has been funded to date. This loan may be capitalized into the base rent when the Clubhouse is completed. In limited circumstances the Company agrees to provide working capital loans to existing lessees. Working capital loans are evidenced by promissory notes or as set forth in the lease agreement and bear 52 interest at fixed rates between 9.74% and 10.5%. Of the Company's $12,224,000 working capital commitments, approximately $9,245,000 has been funded to date. In addition, a $3,500,000 land loan was funded to the Lessee of the Pete Dye Golf Club at the time of purchase. Typically, the Lessee is required to increase the pledged collateral for the funded amounts. In summary, the Company has currently funded $14,663,000 of the total commitments to date of $24,202,000, and subject to certain conditions, anticipates it will fund the balance of $9,539,000 over the next two years. The Company has agreed to maintain minimum loan balances of approximately $17.2 million for up to ten years to accommodate certain prior owners' efforts to seek to minimize certain adverse tax consequences from their contribution of their courses to the Company. LITIGATION Owners and operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal injury and property damage. Such proceedings are generally brought against the operator of a golf course, but may also be brought against the owner. Although the Company is currently not a party to any legal proceedings relating to the Golf Courses that would have a material adverse effect upon the Company's business or financial position, it is possible that in the future the Company could become a party to such proceedings. SEE "LESSEE RESULTS OF OPERATIONS" REGARDING LITIGATION BETWEEN GTA AND CERTAIN LESSEES OF ITS OF GOLF COURSES ARISING THROUGH EVENTS OF DEFAULT. NEW COURSES The Company may from time to time be in various stages of negotiation and due diligence review for the acquisition of a golf course. Completion of such a transaction would be subject to negotiation and execution of definitive documentation and certain other customary closing conditions. No assurances can be given that the Company will continue to pursue or complete any future golf course acquisitions. COMMITMENTS TO OFFICERS Loans of approximately $890,000, secured by OP Units and common stock, with interest rates of between 4.4 % to 6.2 % per annum were made to officers of the Company for the payment of related taxes for Restricted Stock Grants issued in 1997, 1998 and 1999. Of this total, approximately $173,000 related to the Restricted Stock Grants issued on March 10, 1999 for 44,000 shares. It is expected that additional loans will be made to the officers to cover tax liabilities resulting from future vesting of the Restricted Stock Grants. Under the 1998 Senior Executive Loan Program, as amended on August 10, 1999, loans of $2.3 million have been made to officers of the Company to purchase Company stock on the open market. These loans are collateralized by the shares purchased, bear interest at between 4.51 % to 5.89 % per annum and are due at the earlier of (i) sale greater than $25 per share, (ii) within 3 years of the applicable employee termination or (iii) five years after the making of the loan. These Promissory Notes are recourse to the borrower. Upon any change of control of GTA, all outstanding amounts to the current officers of GTA are forgiven and the promissory notes are cancelled. 53 Of the total officer loans outstanding, approximately $725,000 in loans to the former Executive Vice President were reclassified to Other Assets from Stockholders' Equity upon his resignation in November of 1999. ADOPTION OF SHAREHOLDER RIGHTS PLAN On August 6, 1999, the Board of Directors of Golf Trust of America, Inc. declared a dividend distribution of one preferred stock purchase right ("Right") for each outstanding share of common stock to stockholders of record at the close of business on September 6, 1999 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share (the "Preferred Stock"), at a purchase price of $75.00, subject to adjustment. The agreement (the "Rights Agreement") is between the Company and the rights agent thereunder. On August 30, 1999, the Company filed a current report on Form 8-K more fully describing the terms of the Rights. REORGANIZATION OF THE ACQUISITION DEPARTMENT In November 1999, Mr. David D. Joseph resigned as Director of Acquisitions and Executive Vice President of the Company and as a member of our Board of Directors to pursue other business interests. At the present time, we do not contemplate replacing this management position due to (i) the current reduced priority on acquisitions, (ii) the skills of our existing acquisition staff, and (iii) our ability to utilize outside brokers and tenant introductions to support this function. As a part of the separation agreement, Mr. Joseph executed an extension to his covenant not to compete. A one-time charge of $0.5 million is included in the General & Administrative expenses for fourth quarter 1999 related to this reorganization. STOCK REPURCHASE PROGRAM On December 15, 1999, GTA announced that its Board of Directors authorized a program to repurchase up to one million shares of its common stock. Any such repurchases will be made on the open market or in block purchase transactions. The timing of any repurchases and the number of shares repurchased pursuant to the stock repurchase program are dependent upon market conditions and corporate requirements. Under this program, on January 4, 2000, GTA purchased 10,000 shares of its common stock at a price of $16.9375 per share. UNSOLICITED PROPOSAL On December 15, 1999, GTA received a letter from Schooner Capital LLC. In sum, Schooner expressed its belief that GTA's current real estate investment trust structure is not optimal to best leverage both current and future marketing opportunities. Schooner expressed interest in working with GTA on a going private transaction that would seek to address the interests of all shareholders. Schooner Capital LLC filed a 13D, a General Statement of Beneficial Ownership, on January 28, 2000. As yet, Schooner Capital LLC has not been willing to meet with our financial advisor, Banc of America Securities LLC, to review any proposal it may have. 54 APPOINTMENT OF FINANCIAL ADVISOR After a deliberate interview and diligence process by management and review by the Company's Board of Directors, on February 9, 2000 GTA engaged Banc of America Securities LLC to act as its financial advisor to undertake a review of a broad range of strategic alternatives available to the Company in light of the current and prospective market conditions facing the Company and the REIT industry. Executive management is meeting regularly with our financial advisor in furtherance of considering alternatives to enhance shareholder value. These alternatives include the possiblity of a merger, sale, recapitalization, privatization or restructuring, including de-REITing (revoking election of REIT-tax status), among others. The professional fee structure of Banc of America Securities LLC should not have a material minimal impact on General & Administrative expenses for 2000. 55 FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION Funds From Operations and Cash Available for Distribution are calculated as follows:
YEAR YEAR ENDED ENDED PERIOD FROM DECEMBER 31, DECEMBER 31, FEBRUARY 12 TO 1999 1998 DECEMBER 31, 1997 -------------------------------------------------------- (in thousands) Income before Minority Interest $18,257 $ 17,736 $11,767 Loss on sale of assets............. - 370 - Depreciation and amortization for real estate assets.......... 17,299 11,667 3,132 - ---------------------------------------------------------------------------------------------- Funds from Operations............... 35,556 29,773 14,899 - ---------------------------------------------------------------------------------------------- Adjustments: Noncash mortgage interest and straight line rents........... (1,106) (1,417) (723) Preferred Dividends/Distributions (1,449) - - Capital expenditure reserve ...... (2,452) (1,135) (524) - ---------------------------------------------------------------------------------------------- Cash Available for Distribution..... $30,549 $ 27,221 $ 13,652 ==============================================================================================
Noncash mortgage interest revenue and straight line rents represents the difference between interest revenue on the Participating Mortgage and the rent recognized and reported by the Company in accordance with generally accepted accounting principles ("GAAP") and the actual cash payments received by the Company. The participating leases generally require the Company to reserve annually between 2% to 5% of the gross golf revenues of the golf courses to fund capital expenditures. The lessees will fund any capital expenditures in excess of such amounts. Preferred dividends/distributions represent preferred dividends paid on the 800,000 shares of 9.25% Series A Cumulative Convertible Preferred Stock that were issued to AEW Targeted Securities through a private placement in April of 1999 and preferred distributions on 59,118 preferred OP units issued to the sellers in the 1999 acquisitions of Pete Dye Golf Club and Metamora Golf & Country Club. In accordance with the resolution adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") (as revised on October 27, 1999), Funds From Operations represents net income (computed in accordance with GAAP) including all operating results, both recurring and non-recurring -- EXCLUDING those results defined as "extraordinary items" under GAAP and gains (or losses) from sales of depreciable property. Funds From Operations should not be considered as an alternative to net income or other measurements under GAAP as an indication of operating performance or to cash flows from operating investing or financial activities as a measure of liquidity. Funds From Operations does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. The Company believes that Funds From Operations is helpful to investors as a measure of the performance of an equity REIT, because along with cash flows from operating activities, financing activities and investing activities, it provides investors with an understanding of the ability of the Company to incur and service debt and make capital expenditures. Compliance with the NAREIT definition of Funds From Operations is voluntary. Accordingly, the Company's calculation of Funds From Operations in accordance with the NAREIT definition may be different than similarly titled measures used by other REITs. 56 As noted above NAREIT approved a revision to the definition of FFO on October 27, 1999. Effective January 1, 2000, FFO includes both recurring and non-recurring results of operations which encompasses "costs of unusual compensation or severance arrangements." This definition has been applied in calculating FFO in this report. Under the former definition of FFO, the Company's non-recurring restructuring charge of $462,000 would be added back to Net Income in the FFO calculation resulting in Total FFO of $36,018,000 and Total Cash Available for Distribution of $31,011,000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal quarters of fiscal years beginning after June 15, 1999 (subsequently delayed to June 15, 2000). SFAS No. 133 requires recording all derivative instruments as assets or liabilities measured at fair value. The Company does not expect this pronouncement to have a material impact on its financial results. INFLATION The golf course leases generally provide for initial term of 10 years with base rent and participating rent features. Base rent will increase by a base rent escalator for each year during the first five years of the term of each lease and for an additional five years if certain conditions are met. All of such leases are triple net lease requiring the lessees to pay for all maintenance and repair, insurance, utilities and services. The participating mortgage has a 5% increase in the base interest for up to five years, and an additional 3% for an additional five years if the performance option is exercised. As a result, the Company believes the effect of inflation on the Company is not material. SEASONALITY The golf industry is seasonal in nature because of weather conditions and fewer available tee times in the rainy season and the winter months. The operator of each of the daily fee golf courses may vary greens fees based on changes in demand. The Company does not expect seasonal fluctuation in Lessee revenues to have a significant impact on the Company's operating result. The Company's leases require Base Rent to be paid ratably throughout to year. IMPACT OF YEAR 2000 There have been no malfunctions, to date, of the Company's computer system with respect to dates in the Year 2000 and thereafter. In addition, there has been no impact on the Company with respect to third parties and any Year 2000 complications that they may have experienced. 57 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any transactions using derivative commodity instruments. The Company is subject to market risk associated with changes in interest rates. Prior to the expiration of the Company's interest rate swap agreement on March 27, 2000, GTA's interest rate exposure was primarily limited to the $133.9 million of debt of the Company outstanding at December 31, 1999 that was priced at interest rates that float with the market. As of the date of this filing the Company has not entered in to a new interest rate swap agreement; therefore, the total outstanding debt subject to interest rate exposure is $210.7 million. A 25 basis point movement in the interest rate on the floating rate debt would result in an approximate $.527 million annualized increase or decrease in interest expense and cash flows. The remaining debt is fixed rate debt. Reference is made to Item 2 above and Note 7 for additional debt information. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Annual Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN THE COMPANY'S CERTIFIED PUBLIC ACCOUNTANT Effective February 28, 1997, the Company engaged BDO Seidman, LLP as principal accountants. There have been no changes in the most recent two fiscal years. 58 PART III CERTAIN INFORMATION REQUIRED IN PART III IS OMITTED FROM THIS REPORT BUT WILL BE INCLUDED IN A DEFINITIVE PROXY STATEMENT WHICH THE COMPANY WILL FILE WITHIN 120 DAYS OF THE END OF ITS FISCAL YEAR PURSUANT TO REGULATION 14A FOR ITS ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN MAY 1999 (THE "PROXY STATEMENT"). ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the Proxy Statement under the caption "Directors and Officers" is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information contained in the Proxy Statement under the caption "Executive Compensation" is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by this reference. 59 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a) FINANCIAL STATEMENTS 1) FINANCIAL STATEMENTS The financial statements filed as part of this Annual Report on Form 10-K are listed on page F-1 2) FINANCIAL STATEMENT SCHEDULES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (SEE PAGE S-1) SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (SEE PAGE S-2) 3) EXHIBITS The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index that follows the financial statements. b) REPORTS ON FORM 8-K No Current Reports on Form 8-K were filed during the 4th Quarter of 1999. 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report for the year ended December 31, 1999 to be signed on its behalf by the undersigned, thereunto duly authorized, in Charleston, South Carolina, on March 27, 2000. GOLF TRUST OF AMERICA, INC. By: /S/ W. Bradley Blair, II ------------------------- W. Bradley Blair, II PRESIDENT & CHIEF EXECUTIVE OFFICER 61 POWER OF ATTORNEY We, the undersigned officers and directors of Golf Trust of America, Inc., do hereby constitute and appoint W. Bradley Blair, II and Scott D. Peters, and each of them, our true and lawful attorneys-in-fact and agents, each with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby, ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - -------------------------------- ---------------------------------------------------------------- ---------------------- /s/ W. Bradley Blair, II - -------------------------------- President, Chief Executive Officer and Chairman of March 27, 2000 W. Bradley Blair, II the Board of Directors -------------- /s/ Scott D. Peters - -------------------------------- Senior Vice President, Chief Financial Officer, and March 27, 2000 Scott D. Peters Director -------------- /s/ Larry D. Young - -------------------------------- Director March 27, 2000 Larry D. Young -------------- /s/ Roy C. Chapman - -------------------------------- Director March 27, 2000 Roy C. Chapman -------------- /s/ Raymond V. Jones - -------------------------------- Director March 27, 2000 Raymond V. Jones -------------- /s/ Fred W. Reams - -------------------------------- Director March 27, 2000 Fred W. Reams -------------- /s/ Edward L. Wax - -------------------------------- Director March 27, 2000 Edward L. Wax --------------
62 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON EXHIBIT 8-K
PAGE FINANCIAL STATEMENTS OF GOLF TRUST OF AMERICA, INC. Report of Management........................................................................... F-2 Report of Independent Certified Accountants.................................................... F-3 Consolidated Balance Sheets at December 31, 1999 and December 31, 1998......................... F-4 Consolidated Statements of Income for the years ended December 31, 1999 and December 31, 1998 and for the Period from February 12, 1997 (inception) through December 31, 1997 ............... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999 and December 31, 1998 and for the Period from February 12, 1997 (inception) through December 31, 1997........................................................................................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1999 and December 31, 1998 and for the Period from February 12, 1997 (inception) through December 31, 1997......... F-8 Notes to Consolidated Financial Statements..................................................... F-10 GOLF TRUST OF AMERICA, INC. 1998 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN (1) Report of Independent Certified Accountants.................................................... F-31 Statement of Financial Condition as of December 31, 1999 and December 31, 1998................. F-32 Statement of Financial Changes in Plan Equity for the year ended December 31, 1999 and for the Period from March 1, 1998 (inception) to December 31, 1998......................... F-33 Notes to Financial Statements.................................................................. F-34 FINANCIAL STATEMENTS OF LEGENDS GOLF (2) Table of Contents.............................................................................. F-37 Report of Independent Certified Public Accountants............................................. F-38 Combined Balance Sheets as of December 31, 1999, December 31, 1998, and December 31, 1997...... F-39 Combined Statements of Operations for the years Ended December 31, 1999, December 31, 1998, and December 31, 1997.......................................................................... F-40 Combined Statements of Owner's Equity for the years ended December 31, 1999, December 31, 1998, and December 31, 1997.................................................................... F-41 Combined Statements of Cash Flows -- Years Ended December 31, 1997, 1998 and 1999.............. F-42 Notes to Combined Financial Statements......................................................... F-43 REPORTS ON FORM 8-K SCHEDULES EXHIBITS
F-1 REPORT OF MANAGEMENT To the Directors and Stockholders of Golf Trust of America, Inc.: The consolidated financial statements and other financial information of Golf Trust of America, Inc. in this report was prepared by management that is responsible for their contents. They reflect amounts based upon management's best estimates and informed judgments. In management's opinion, the financial statements present fairly the financial position, results of operations and cash flows of the Company in conformity with generally accepted accounting principles. The Company maintains a system of internal accounting controls and procedures which is intended, consistent with reasonable cost, to provide reasonable assurance that transactions are executed as authorized, that they are included in the financial records in all material respects, and that accountability for assets is maintained. The accounting controls and procedures are supported by careful selection and training of personnel and a continuing management commitment to the integrity of the system. The financial statements have been audited to the extent required by generally accepted auditing standards by BDO Seidman, LLP independent auditors. The independent auditors have evaluated the Company's internal control structure and performed tests of procedures and accounting records in connection with the issuance of their report on the fairness of the financial statements. The Board of Directors has appointed an Audit Committee composed entirely of directors who are not employees of the Company. The Audit Committee meets with representatives of management and the independent auditors, both separately and jointly. The Committee discusses with the independent auditors and approves in advance the scope of the audit, reviews with the independent auditors the financial statements and their auditor's report, consults with and reviews management's administration of the system of internal accounting controls. The Committee reports to the Board on its activities and findings. /S/ W. BRADLEY BLAIR, II /S/ SCOTT D. PETERS - ------------------------ ------------------- W. Bradley Blair, II Scott D. Peters Chairman, President and Chief Senior Vice President and Chief Executive Officer Financial Officer F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Directors and Stockholders of Golf Trust of America, Inc.: We have audited the accompanying consolidated balance sheets of Golf Trust of America, Inc. and subsidiaries as of December 31, 1998 and 1999 and the related consolidated statements of income, stockholders' equity and cash flows for the period from February 12, 1997 (inception) through December 31, 1997, and each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Golf Trust of America, Inc. at December 31, 1998 and 1999 and the results of its operations and its cash flows for the period from February 12, 1997 (inception) through December 31, 1997 and each of the two years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Charlotte, North Carolina /S/BDO SEIDMAN, LLP February 4, 2000 F-3 GOLF TRUST OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1999 1998 ASSETS Property and equipment (Notes 1, 3 and 7): Land ..................................................................... $ 53,779 $ 55,462 Golf course improvements ................................................. 204,635 171,348 Buildings and improvements ............................................... 80,708 77,629 Furniture, fixtures, and equipment ....................................... 31,581 44,756 --------- --------- Total property and equipment ............................................... 370,703 349,195 Less accumulated depreciation ............................................ 43,001 25,695 --------- --------- Property and equipment, net ................................................ 327,702 323,500 --------- --------- Mortgage notes receivable (Notes 4 and 6) .................................. 73,160 72,252 Cash and cash equivalents .................................................. 3,905 1,891 Receivable from affiliates (Note 13) ....................................... 6,952 1,030 Other assets (Notes 5, 6 and 9) ............................................ 22,193 13,308 --------- --------- Total assets ............................................................... $ 433,912 $ 411,981 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Debt (Note 7) .............................................................. $ 223,085 $ 210,634 Accounts payable and other liabilities (Note 3) ............................ 10,796 15,190 --------- --------- Total liabilities .......................................................... 233,881 225,824 --------- --------- Commitments and Contingencies (Notes 4, 6, 7 and 14) Minority interest (Notes 8, 12 and 14) ..................................... 69,747 76,510 --------- --------- Stockholders' equity: Convertible Preferred stock, $.01 par value, 10,000,000 shares authorized, 800,000 and -0- shares issued and outstanding, respectively (Note 8) .... 20,000 - Common stock, $.01 par value, 90,000,000 shares authorized, 7,736,450 and 7,637,488 shares issued and outstanding, respectively ..... 78 76 Additional paid-in capital ............................................... 125,218 120,253 Accumulated earnings (dividends in excess of accumulated earnings) ....... (7,720) (3,958) Unamortized restricted stock compensation (Note 9) ....................... (1,530) (1,533) Note receivable from stock sale (Note 4) ................................. (3,298) (3,298) Loans to officers (Note 9) ............................................... (2,464) (1,893) --------- --------- Stockholders' equity ....................................................... 130,284 109,647 --------- --------- Total liabilities and stockholders' equity ................................. $ 433,912 $ 411,981 ========= =========
See accompanying notes to financial statements F-4 GOLF TRUST OF AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
PERIOD FROM FEBRUARY 12 (INCEPTION) YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ----------------- REVENUES (Notes 4 and 5): Rent from affiliates (Note 13) ................... $ 15,041 $ 12,365 $ 10,802 Rent ............................................. 31,630 23,097 3,607 Mortgage interest ................................ 9,106 8,922 4,318 -------- -------- -------- Total revenues ..................................... 55,777 44,384 18,727 -------- -------- -------- EXPENSES: Depreciation and amortization .................... 17,299 11,667 3,173 General and administrative ....................... 6,098 5,416 2,532 -------- -------- -------- Total expenses ..................................... 23,397 17,083 5,705 -------- -------- -------- Operating income ................................... 32,380 27,301 13,022 -------- -------- -------- OTHER INCOME (EXPENSE): Interest income .................................. 1,480 478 624 Interest expense ................................. (15,603) (9,673) (1,879) Loss on disposal of assets ....................... - (370) - -------- -------- -------- Total other income (expense) ....................... (14,123) (9,565) (1,255) -------- -------- -------- Income before minority interest .................... 18,257 17,736 11,767 Income applicable to minority interest ............. 7,026 7,130 5,798 -------- -------- -------- Net income ......................................... 11,231 $ 10,606 $ 5,969 Preferred Dividends ................................ (1,383) - - -------- -------- -------- Net income available to Common Shareholders ........ $ 9,848 $ 10,606 $ 5,969 ======== ======== ======== Basic earnings per share ........................... $ 1.28 $ 1.39 $ 1.32 ======== ======== ======== Weighted average number of shares - basic .......... 7,720 7,635 4,535 ======== ======== ======== Diluted earnings per share ......................... $ 1.27 $ 1.34 $ 1.29 ======== ======== ======== Weighted average number of shares - diluted ........ 7,734 7,905 4,626 ======== ======== ========
See accompanying notes to financial statements F-5 GOLF TRUST OF AMERICA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED EARNINGS (DIVIDENDS IN UNEARNED PREFERRED SHARES COMMON STOCK ADDITIONAL EXCESS OF RESTRICTED PAID-IN ACCUMULATED STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS) COMPENSATION --------------------------------------------------------------------------------- BALANCE, February 12, 1997 ........... - $ - - $ - $ - $ - $ - Proceeds from Initial Public Offering ............................. - - 3,910 39 82,071 - - Payment of underwriters discount and initial offering costs ........... - - - - (9,055) - - Issuance of shares in exchange for note .................... - - 159 2 3,296 - - Issuance of shares for acquistion .... - - - 22 - 600 - Issuance of restricted stock ......... - - 70 1 1,827 - (1,828) Proceeds from follow-on offering ..... - - - 3,450 34 88,372 - Payment of underwriters discount and costs ................... - - - - (5,741) - - Amortization of restricted stock Compensation ......................... - - - - - - - Adjustment for minority interest in operating partnership ................ - - - - (33,882) - - Dividends ............................ - - - - - (4,195) - Net income ........................... - - - - - 5,969 - --------------------------------------------------------------------------------- BALANCE, December 31, 1997 ........... - $ - 7,611 $ 76 $127,488 $ 1,774 $(1,713) Issuance of restricted stock ......... - - 21 - 607 - (607) Issuance of shares for option exercise and employee stock purchase plans ....................... - - 5 - 159 - - Amortization of restricted stock compensation ................... - - - - - - 787 Loans to officers .................... - - - - - - - Adjustment for minority interest in operating partnership ................ - - - - (8,001) - - Dividends ............................ - - - - - (16,338) - Net income ........................... - - - - - 10,606 - --------------------------------------------------------------------------------- BALANCE, December 31, 1998 ........... - $ - 7,637 $ 76 $120,253 $ (3,958) $(1,533) NOTE RECEIVABLE LOANS TOTAL FROM STOCK TO STOCKHOLDERS' SALE OFFICERS EQUITY ------------------------------------------ BALANCE, February 12, 1997 ........... $ - $ - $ - Proceeds from Initial Public Offering ............................. - - 82,110 Payment of underwriters discount and initial offering costs ........... - - (9,055) Issuance of shares in exchange for note .................... (3,298) - - Issuance of shares for acquistion .... - - 600 Issuance of restricted stock ......... - - - Proceeds from follow-on offering ..... - - 88,406 Payment of underwriters discount and costs ................... - - (5,741) Amortization of restricted stock Compensation ......................... 115 - 115 Adjustment for minority interest in operating partnership ................ - - (33,882) Dividends ............................ - - (14,993) Net income ........................... - - 11,231 -------- -------- -------- BALANCE, December 31, 1997 ........... $(3,298) $ - $124,327 Issuance of restricted stock ......... - - - Issuance of shares for option exercise and employee stock purchase plans ....................... - - 159 Amortization of restricted stock compensation ................... - - 787 Loans to officers .................... - (1,893) (1,893) Adjustment for minority interest in operating partnership ................ - - (8,001) Dividends ............................ - - (16,338) Net income ........................... - - 10,606 -------- -------- -------- BALANCE, December 31, 1998 ........... $(3,298) $ (1,893) $109,647
See accompanying notes to financial statements F-6 GOLF TRUST OF AMERICA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
ACCUMULATED EARNINGS (DIVIDENDS IN UNEARNED PREFERRED SHARES COMMON STOCK ADDITIONAL EXCESS OF RESTRICTED PAID-IN ACCUMULATED STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS) COMPENSATION --------------------------------------------------------------------------------- Issuance of preferred stock .......... 800 $20,000 - $ - $ - $ - $ - Costs of preferred stock issuance .... - - - - (878) - - Issuance and cancellation of restricted stock ..................... - - 32 1 555 - (4,001) Amortization and cancellation of restricted stock .................. - - - - - - 1,004 Value of unvested options for non-employees .................... - - - - 72 - - Adjustments for minority interest in operating partnership .......... - - - - 3,503 - - Conversion of OP Units into common stock ...................... - - 63 1 1,671 - - Loans to officers .................... - - - - - - - Issuance of shares of employee stock purchase plan ............... - - 4 - 42 - - Dividends ............................ - - - - - (14,993) - Net Income ........................... - - - - - 11,231 - --------------------------------------------------------------------------------- BALANCE at December 31, 1999 ......... 800 $20,000 7,736 $78 $125,218 $ (7,720) $(1,530) NOTE RECEIVABLE LOANS TOTAL FROM STOCK TO STOCKHOLDERS' SALE OFFICERS EQUITY ------------------------------------- Issuance of preferred stock .......... $ - $ - $ 20,000 Costs of preferred stock issuance .... - - (878) Issuance and cancellation of restricted stock ..................... - - (445) Amortization and cancellation of restricted stock .................. - - 1,004 Value of unvested options for non-employees .................... - - 72 Adjustments for minority interest in operating partnership .......... - - 3,503 Conversion of OP Units into common stock ...................... - - 1,672 Loans to officers .................... - (571) (571) Issuance of shares of employee stock purchase plan ............... - - 42 Dividends ............................ - - (14,993) Net Income ........................... - - 11,231 ------------------------------------- BALANCE at December 31, 1999 ......... $(3,298) $(2,464) $130,284
See accompanying notes to financial statements F-7 GOLF TRUST OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM YEAR ENDED YEAR ENDED FEBRUARY 12 DECEMBER 31, DECEMBER 31, (INCEPTION) 1999 1998 THROUGH DECEMBER 31, 1997 -------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................ $ 11,231 $ 10,606 $ 5,969 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................... 17,414 11,667 3,173 Loss on disposal of assets ...................................... - 370 - Loan cost amortization .......................................... 958 588 280 Straight-line interest and rent ................................. (1,106) (1,417) (723) Amortization of restricted stock compensation ................... 563 787 115 Income applicable to minority interest .......................... 7,026 7,130 5,798 Increase in receivable from affiliate ........................... (5,922) (26) (1,004) Increase in other assets ........................................ (1,303) (8,265) (2,993) Increase(decrease) in accounts payable and other liabilities .... (4,394) 9,153 3,029 --------------- ------------------ --------------- Net cash provided by operating activities ........................... 24,467 30,593 13,644 --------------- ------------------ --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Golf course acquisitions and improvements ......................... (15,371) (195,541) (84,332) Disposition of Property ........................................... 975 - - Increase in mortgage notes receivable ............................. (94) (5,963) (64,406) --------------- ------------------ --------------- Net cash used in investing activities ............................... (14,490) (201,504) (148,738) --------------- ------------------ --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on line of credit .................................. 7,775 120,675 4,325 Payments on notes ................................................. (5,324) (292) - Bridge loan proceeds .............................................. - 67,925 - Loan fees ......................................................... (1,520) (1,213) (1,448) Loans to officers ................................................. (1,278) (1,853) - Net Proceeds from issuance of Preferred Stock ..................... 19,122 Net proceeds from issuance of common stock ........................ 42 159 155,720 Redemption of OP Units ............................................ (2,478) (432) - Distributions to partners ......................................... (9,309) (10,797) (4,340) Dividends paid .................................................... (14,993) (16,338) (4,195) --------------- ------------------ --------------- Net (cash used in) provided by financing activities ................. (7,963) 157,834 150,062 --------------- ------------------ --------------- Net increase (decrease) in cash and cash equivalents ............... 2,014 (13,077) 14,968 --------------- ------------------ --------------- Cash and cash equivalents, beginning of period ...................... 1,891 14,968 - Cash and cash equivalents, end of period ............................ 3,905 $ 1,891 $ 14,968 =============== ================== ===============
See accompanying notes to financial statements F-8 GOLF TRUST OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
PERIOD FROM FEBRUARY 12 (INCEPTION) YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------------------------------------------------ NON-CASH INVESTING AND FINANCING TRANSACTIONS Net assets of Legends Golf transferred to the Company .......... - $ 3,296 $ 981 Accrued receivables for disposals of property and equipment and deferred payments for purchases of property and < $2,588 > $ 4,523 $ - equipment....................................................... OP Units issued in golf course acquisitions .................... $ 1,645 $14,687 $18,304 Common stock issued in golf course acquisition ................. - $ - $ 600 Debt assumed with acquisitions ................................. $10,000 $18,001 $ - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid during the period ................................ $15,603 $ 9,243 $ 1,829
See accompanying notes to financial statements F-9 GOLF TRUST OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Golf Trust of America, Inc. (the "Company") was incorporated in Maryland on November 8, 1996. The Company is a self-administered real estate investment trust ("REIT") formed to capitalize upon consolidation opportunities in the ownership of upscale golf courses in the United States. The principal business strategy of the Company is to own upscale golf courses with superior marketplace positions and to lease the golf courses pursuant to long-term triple net leases to qualified third party operators, including affiliates of the sellers. Title to the acquired courses, is held by Golf Trust of America, L.P., a Delaware limited partnership (the "Operating Partnership" or "OP") or a wholly owned subsidiary of the Operating Partnership. Golf Trust of America, Inc., through its wholly owned subsidiaries GTA GP, Inc. ("GTA GP") and GTA LP, Inc. ("GTA LP"), holds a 64.4 percent interest as of March 22, 2000, in the Operating Partnership. GTA GP is the sole general partner of the Operating Partnership and owns a 0.2 percent interest therein. GTA LP is a limited partner in the Operating Partnership and owns a 58.69 percent interest therein. Larry D. Young, a director of the Company, along with his affiliates, owns 27.0 percent of the Operating Partnership and is a significant lessee. Operators of the golf courses, their affiliates and officers of the Company hold the remaining interest in the Operating Partnership. The Company commenced operations on February 12, 1997 with the completion of its initial public stock offering ("IPO") which raised net proceeds of approximately $73.0 million through the sale of 3,910,000 shares of common stock. The Company contributed the net proceeds of the IPO to the Operating Partnership in exchange for a then 48.6 percent interest in the Operating Partnership. Concurrently with the closing of the IPO, the Operating Partnership acquired ten golf courses in exchange for the issuance of 4.1 million OP Units, the repayment of $47.5 million of related debt and $6.2 million in cash. Seven of the courses were acquired from Legends Golf, a group of companies controlled by Larry D. Young in exchange for 3,738,556 OP Units and the repayment of debt. The courses acquired from Legends Golf have been accounted for at a carryover basis as Legends Golf is considered the accounting acquirer under APB Opinion No. 16. The value of the OP Units issued and debt assumed was approximately $73.7 million greater than the carryover basis of Legends Golf. In November 1997, the Company completed a follow-on equity offering of 3,450,000 shares of common stock. The Company contributed the net proceeds of approximately $82.7 million to the Operating Partnership to repay approximately $60.6 million under the credit facility that had been used primarily for golf course acquisitions and for golf course acquisitions subsequent to the offering. On April 2, 1999, GTA completed a private placement of 800,000 shares of its 9.25% Series A Cumulative Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), at a price of $25.00 per share to a single purchaser, AEW Targeted Securities Fund, L.P., for gross proceeds of $20,000,000 net of associated costs of approximately $878,000. The net proceeds were used as follows: (i) to pay down $1,025,000 under the credit facility; (ii) to repay promissory notes to Nations Credit of $5,169,000; (iii) to pay loan costs associated with the amendment and restatement of the Credit Facility of $1,399,000; (iv) to make new officer loans of $648,000; and (v) the balance for general working capital needs. In order for the Company to maintain its qualification as a REIT, not more than 50% in value of its Common Stock may be owned, directly or constructively, by five or fewer individuals. For the purpose of preserving the Company's REIT qualification, the Certificate of Incorporation prohibits direct or constructive ownership of more than 9.8% of the Common Stock by any person. Thus, although an OP Unit is convertible into a share of Common Stock, the conversion of the majority of the OP Units owned by affiliates of Larry D. Young is restricted by the Company through these ownership limitations in order to preserve its REIT status. F-10 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company, the Operating Partnership and their wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company calculates the fair value of financial instruments and includes this additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value. The carrying value of receivables, the mortgage notes receivable and liabilities reasonably approximates the fair value. The estimated fair value has been determined using available market information and appropriate valuation methodologies. However, considerable judgement is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. CONCENTRATION OF CREDIT RISK The Company has cash and cash equivalents in a financial institution which is insured by the Federal Deposit Insurance Corporation (FDIC) for amounts up to $100,000 per institution. At December 31, 1999, 1998 and 1997, the Company had amounts in excess of FDIC limits. The Company limits its risk by placing its cash and cash equivalents in a high quality financial institution. Concentration of credit risk with respect to the Company's portfolio of 47 golf courses for 1999 was:
--------------------------- ------------------------ ---------------------- Revenue Amounts (In thousands) Percentage Florida(1) $ 19,091 34.2% South Carolina (1) $ 8,087 14.5% Virginia (1) $ 3,905 7.0% Illinois $ 5,994 10.8% California $ 3,589 6.4% Other(1) $ 15,111 27.1% --------------------------- ------------------------ ---------------------- -------------------------- ------------------------ ----------------------- Total $ 55,777 100.0% -------------------------- ------------------------ -----------------------
(1)The courses operated by Legends Golf located in VA and in the Myrtle Beach areas of NC and SC plus the partial year of revenue on those courses that Legends assumed in 1999 located in Nebraska, Kentucky, and FL (4 out of 14 in that state) comprised approximately $15,131,000 in revenue or 27.0% of the total revenues. F-11 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) CONCENTRATION OF CREDIT RISK (CONT'D) The Company mitigates concentration of credit risk with respect to its leases by requiring collateral of up to 15% of the initial purchase price. The Company has assessed the credit worthiness of its lessees and is continually evaluating and monitoring the ongoing and additional collateral requirements. These collateral requirements are adjusted annually for working capital loans to certain lessees and for capital improvements made at particular properties. The Company is also subject to a concentration of credit risk from the participating mortgage. The Company has evaluated the credit worthiness of the borrower and its affiliates and has obtained a security interest in the property and equipment of the borrower. The Company has also obtained a limited guarantee of the debt service from the operator of the resort. PROPERTY AND EQUIPMENT Property and equipment is carried at the lower of cost or net realizable value (except for the golf courses acquired from Legends Golf that are carried at the prior basis of Legends Golf). Cost includes purchase price, closing costs and other direct costs associated with the purchase. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows: -------------------------------------------------------------------- Golf course improvements 15 years -------------------------------------------------------------------- Buildings and improvements 30 years -------------------------------------------------------------------- Furniture, fixtures, and equipment 3-8 years --------------------------------------------------------------------
The leases presently provide that at the end or termination of the existing leases, all improvements and fixtures placed on the rental property, become the property of the Company. In addition, the leases provide for a capital replacement reserve to be established by the Company for each property. The Company will approve disbursements from this fund for capital improvements to the properties and the acquisition of equipment. The Company assesses whether there has been a permanent impairment in the value of rental property by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include a lessee's ability to perform its duties and pay rent under the terms of the lease. If the property was leased at a significantly lower rent, the Company may recognize a permanent impairment of loss if the income stream were not sufficient to recover its investment. Such a loss would be determined as the difference between the carrying value and the fair value of the property. Management believes no permanent impairment has occurred in its net property carrying values. LOAN COSTS Loan costs, included in other assets, are amortized over the contractual term of the agreement. Accumulated amortization of these costs at December 31, 1999 and 1998 was approximately $1,826,000 and $868,000, respectively. REVENUE RECOGNITION The Company recognizes rental revenue on an accrual basis over the terms of the leases. The Company recognizes interest income ratably over the term of the loan. See accompanying notes to financial statements F-12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) In May 1998, the Emerging Issues Task Force ("EITF") issued Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods." This statement provided that recognition of contingent rental income should be deferred until specified targets that trigger the contingent rent are achieved. Consequently, we generally will not recognize percentage rent until the third or fourth quarter of a tenant's fiscal year, which in some instances may be different than the third and fourth quarter of the calendar year. This statement applies to all contingent rental income effective with the second quarter of 1998. On a quarterly basis, there may be material impact to GTA's earnings per share, financial condition, and results of operations while, on an annual basis, there is no effect to GTA's earnings per share, financial condition, or results of operations. In November 1998, Issue No. 98-9 was withdrawn by the EITF. However, the Company has continued to account for contingent rents in accordance with Issue No. 98-9. As a result of EITF 98-9, no percentage rent or participating interest was recognized in the first three quarters of 1999.3. INCOME TAXES The Company qualifies as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). A REIT will generally not be subject to federal income taxation to the extent that it distributes at least 95% of its taxable income to its stockholders and complies with other requirements. When GTA is forced to foreclose on a Golf Course, the Internal Revenue Code (Section 856(e)(4)(C)) allows a 90-day grace period during which GTA can operate the Golf Course and still permit these revenues to be qualifying income for REIT tax purposes. At the expiration of such period, the property should either be sold or an agreement must be secured with an Independent Contractor to assume management. Management by an Independent Contractor is allowed until the close of the third taxable year following the taxable year in which the foreclosure occurred. The only Golf Course subject to this rule as of March 22, 2000, is Tierra Del Sol Golf Club; however, the other three Golf Courses ("Osage National Golf Club," "Mystic Creek Golf Course" and "Brentwood Golf & Country Club") currently in default may be subject to this rule within the next 30-45 days. The Company paid distributions to common stockholders of $1.76 per share in 1999 of which $1.72 was ordinary income and $0.04 was return of capital. The Company paid distributions to common stockholders of $2.14 per share in 1998, of which $2.03 was ordinary income and $0.11 was return of capital. The Company paid distributions to common stockholders of $1.03 per share in 1997 which was ordinary income. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The Company uses the "intrinsic value" method of accounting for its plan in accordance with Accounting Principle Board (APB) Opinion No. 25, and, therefore, recognized no compensation expense for stock options. For disclosure purposes only, the Black-Scholes option-pricing model was used to calculate the "fair values" of stock options. USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENT ACCOUNTING PRONOUNCEMENTS F-13 EARNINGS PER COMMON SHARE Earnings per common share are presented under two formats: basic earnings per common share and diluted earnings per common share. Earnings per common share are computed by dividing net income (after deducting dividends on preferred stock) by weighted average number of common shares outstanding during the year. Diluted earnings per common share are computed by dividing net income (after deducting dividends on preferred stock) by the weighted average number of common shares outstanding during the year, plus the impact of those common stock equivalents (i.e., stock options, convertible preferred stock and OP Units) that are dilutive. Common Stock equivalents for the effect of dilutive stock options were 14,000, 270,000 and 91,000 for the years ended December 31, 1999 and 1998 and for the period from February 12, 1997 through December 31, 1997, respectively. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal quarters of fiscal years beginning after June 15, 1999 (subsequently delayed to June 15, 2000). SFAS No. 133 requires recording all derivative instruments as assets or liabilities measured at fair value. The Company does not expect this pronouncement to have a material impact on its financial results. F-14 3. ACQUISITION OF GOLF COURSES The following is a summary of the acquisitions in 1999:
Acquisition Acquisition Cost Date Course Name Location (In thousands) - ------------------------------------------------------------------------------------------------------------------- 5/11/99 Metamora Golf & Country Club Metamora, MI $5,900 7/28/99 Pete Dye Golf Club Bridgeport, WV 10,000 ----------------- $ 15,900 =================
For the year ended December 31, 1999, the Company purchased two Golf Courses for an aggregate acquisition cost of approximately $15.9 million. In conjunction with the purchase of the Pete Dye Golf Club, the lessee executed two promissory notes: the first being a $2.3 million capital improvement loan to construct the new clubhouse and the second being a $3.5 million secured land loan. These two promissory notes initially bear interest at 10.5% per annum with annual increases of 5% per annum. The purchase price together with the promissory notes totaled $21.7 million and were funded as follows: $8.6 million in cash, $10.0 million in assumed debt, $1.4 million in deferred payments ($0.7 million on the Pete Dye Clubhouse Construction and $0.7 million reserve for a Maintenance Facility and Wastewater Treatment at Metamora), and $1.7 million represented by the issuance of Preferred OP Units (approximately 59,000 OP Units) to the sellers. 4. MORTGAGE NOTES RECEIVABLE In June of 1997, the Operating Partnership closed and funded an initial $69.975 million participating loan to Golf Host Resorts, Inc. ("Golf Host Resorts"), which is affiliated with Starwood Capital Group LLC. The loan is secured by the Innisbrook Resort, a 63-hole destination golf and conference facility located near Tampa, Florida. The additional collateral includes, cash, excess land at the Innisbrook Resort and a security interest in the Tamarron Golf Course, which may be released upon the achievement of certain performance levels. The operator of the resort, Westin, has guaranteed up to $2.5 million of debt service for each of the first five years. The initial loan of $69.975 million is being followed by a $9 million loan, which is being used for a nine-hole expansion and other improvements to the Innisbrook Resort facilities. The loan term is 30 years, with an initial base interest rate of 9.63% per annum (10.377% at December 31, 1999), annual increases (of at least 5% but no more than 7%) in the interest payment for the first five years, and a participating interest feature throughout the term based upon the growth in revenues, if any, over the base year. Participating interest of approximately $100,000 and $243,000 was received for the years ended December 31, 1999, December 31, 1998 respectively, and none for 1997. Golf Host Resorts used $8,975,000 of the proceeds of the loan to purchase 274,039 OP Units, 159,326 shares of common stock of the Company and were granted an option to purchase an additional 150,000 shares of common stock of the Company at a price (subject to certain adjustments) of $26 per share, exercisable before December 31, 1999 (subject to extension in certain circumstances). The $5,677,000 used to purchase the OP Units has been recorded as a reduction in minority interest and the $3,298,000 used to purchase common stock has been recorded as a reduction of stockholders' equity. The OP Units and 2,985 common shares are pledged as collateral against the F-15 loan. The 274,039 OP Units were converted to shares of common stock at the request of Golf Host Resorts on March 3, 2000. These shares continue to be pledged as collateral against the loan. The Company recognizes interest income on a straight-line basis. Interest income in excess of the cash received for this mortgage recognized was approximately $814,000, $1,160,000 and $723,000, respectively, for the years ended December 31, 1999 and 1998 and for the period from February 12 to December 31, 1997. F-16 5. LEASES The non-cancelable leases generally provide for the Company to receive the greater of Base Rent or Participating Rent. Participating Rent is generally equal to the original Base Rent plus 33 1/3 percent of the difference between that year's Gross Golf Revenue and the Gross Golf Revenue at the Golf Course in the year prior to acquisition as adjusted in determining the original Base Rent. The Base Rent generally increases annually by the lesser of (i) 3% to 5% or (ii) a multiple of the change in the Consumer Price Index ). Annual increases in lease payments are generally limited to 5% to 7% during the first five years of the lease terms. Participating rent was $450,000, $657,000 and $280,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Scheduled future minimum rents to be received by the Company under the Leases, excluding Tierra Del Sol for whom we will recognize their Net Income, are as follows for the year ending December 31:
--------------------- ------------ (in thousands) Amount 2000 $ 44,269 2001 44,541 2002 40,822 2003 38,792 2004 38,792 Thereafter 71,118 --------------------- ------------
6. COMMITMENTS AND CONTINGENCIES LESSEES Typically, the Company leases its golf courses to affiliates of the prior owners and other qualified operators under non-cancelable lease agreements for an initial period of ten years with options to extend the term of each lease up to six consecutive times for a period of 5 years. From the minimum lease payments, the Company is generally required to make available a reserve of 2% to 5% of the annual gross golf revenue of each course for capital expenditure reimbursement to the lessee subject to approval by the Company. The capital expenditure reserve is used for replacement and enhancement of the existing facilities and is allocated to short and long-term categories and therefore the balance may not be currently available to the lessees. At December 31, 1999, the amount reserved was $2,452,000 compared to $1,105,000 at December 31, 1998. Under certain circumstances, the underlying base rent for a course will be increased when the Company agrees to pay for significant capital improvements or to expand the existing facilities. Of the Company's $8,478,000 outstanding capital improvement commitments (which includes the Pete Dye Clubhouse loan for $2,300,000), approximately $1,918,000 has been funded to date. This loan may be capitalized into the base rent when the Clubhouse is completed. In limited circumstances the Company agrees to provide working capital loans to existing lessees. Working capital loans are evidenced by promissory notes or as set forth in the lease agreement and bear interest at fixed rates between 9.74% and 10.5%. Of the Company's $12,224,000 working capital commitments, approximately $9,245,000 has been funded to date. In addition, a $3,500,000 land loan was funded to the lessee of the Pete Dye Golf Club at the time of purchase. Typically, the lessee is required to increase the pledged collateral for the funded amounts. In summary, the Company has currently funded $14,663,000 of the total commitments to date of $24,202,000, and subject to certain conditions, anticipates it will fund the balance of $9,539,000 over the next two years. F-17 The Company has agreed to maintain minimum loan balances of approximately $17.2 million for up to ten years to accommodate certain prior owner's efforts to seek to minimize certain adverse tax consequences from their contribution of their courses to the Company. Under the Performance Option for the Participating Leases, during years three through five of each Participating Lease, the operator or its affiliate, subject to certain qualifications and restrictions, may elect one time to increase the Base Rent in order to receive additional OP Units or Common Stock. An operator's ability to exercise the Performance Option and the number of OP Units or Common Stock issuable to such Prior Owner in connection therewith, will depend on future operating results at the applicable Golf Course and therefore cannot be determined in advance. LITIGATION Owners and operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal injury and property damage. Such proceedings are generally brought against the operator of a golf course, but may also be brought against the owner. The Participating Leases provide that each Lessee is responsible for claims based on personal injury and property damage at the Golf Courses which are leased and require each Lessee to maintain insurance for such purposes. Although the Company is currently not party to any legal proceedings relating to the Golf Courses that would have a material adverse effect upon the Company's business or financial position, it is possible that in the future the Company could become a party to such proceedings. EVENTS OF DEFAULT UNDER THE PARTICIPATING LEASE An "event of default" may be declared when a tenant fails to pay rent timely under the Participating Lease. GTA has elected to pursue legal remedies available to it under its Participating leases to cure such events of default that have occurred at the following courses in the past several months: Tierra Del Sol Golf Club, Osage National Golf Club, Mystic Creek Golf Club and Brentwood Golf & Country Club. As a result GTA has taken possession of Tierra Del Sol Golf Club and is in various stages of litigation with regard to the possession of the other three Golf Courses. These Golf Courses have a combined Net Book Value of approximately $29,993,000 and each of them have adequate pledged collateral to cover accrued rent and related charges to date. Based on our review of underlying operations of these Golf Courses, we do not believe that there has been any permanent impairment in the value of these assets. F-18 7. DEBT Debt consists of the following:
-------------------------------------------------------------------------- ------------------ ----------------- DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 1999 1998 -------------------------------------------------------------------------- ------------------ ----------------- REVOLVING CREDIT FACILITY $200.0 million unsecured revolver with weighted average interest rates of 7.0% maturing April 2002 $200,000 $125,000 -------------------------------------------------------------------------- ------------------ ----------------- LINE OF CREDIT $25.0 million unsecured line of credit with weighted average interest 700 _ rates of 7.3% maturing October 1, 2000 -------------------------------------------------------------------------- ------------------ ----------------- BRIDGE LOAN $100.0 million unsecured bridge loan with a weighted average interest - 67,925 rate of 6.7% that matured April 1999 and was consolidated into the Revolving Credit Facility -------------------------------------------------------------------------- ------------------ ----------------- NOTE PAYABLE Secured financing, net book value of the property of $20.3 million, with 12,385 12,691 an interest rate of 8.75% maturing November 2016 -------------------------------------------------------------------------- ------------------ ----------------- NOTE PAYABLE Secured financing, net book value of the property is $9.8 million with 10,000 interest rate of prime (8.25% at December 31, 1999) maturing through 2002 -------------------------------------------------------------------------- ------------------ ----------------- Note Repaid in 1999 - 5,018 -------------------------------------------------------------------------- ------------------ ----------------- TOTAL $ 223,085 $210,634 -------------------------------------------------------------------------- ------------------ -----------------
REVOLVING CREDIT FACILITY AND LINE OF CREDIT On April 6, 1999, GTA amended and restated its unsecured Revolving Credit Facility ("Credit Facility") to increase the borrowing capacity to $200.0 million with a consortium of banks led by Bank of America, as lead agent. GTA pays interest-only on the Credit Facility with the principal balance due in April 2002. Borrowings typically bear interest at an adjusted Eurodollar rate plus an applicable margin. The applicable margin (between 1.50% and 2.00%) is subject to adjustment based upon certain leverage ratios. At December 31, 1999, all amounts outstanding under the Credit Facility were based on the Eurodollar rate and a margin of 1.75% for an average interest rate of 7.1% per annum. The amended and restated Credit Facility replaced the Bridge Loan. The Credit Facility availability is limited to an unencumbered pool calculation, including a 20% limitation for working capital needs of The Company. Financial covenants include net worth, liquidity and cash flow covenants, among others. Non-financial covenants include restrictions on loans outstanding, construction in progress, loans to officers and changes in certain members of the Board of Directors, among others. At the present time, these covenants have been met. In addition to the amended and restated Credit Facility, on April 6, 1999 GTA also obtained a $25.0 million unsecured line of credit from Bank of America which may be incorporated into the $200.0 million Credit Facility at a later date. The rates, covenants, conditions and other material provisions are essentially the same as the Credit Facility, except for the term, which was one year with an expiration date of April 1, 2000. In March of 2000, this line was granted a six-month extension with a new maturity date of October 1, 2000. The extension was granted with the same pricing that was in effect under the original line plus a 3/4% up-front commitment fee. F-19 DEBT MATURITIES Aggregate maturities of long-term debt for each of the five years following December 31, 1999, are as follows:
------------------------ -------------------- YEAR AMOUNT ------------------------ -------------------- (In thousands) 2000 $ 1,035 2001 $ 5,365 2002 $ 205,398 2003 $ 435 2004 $ 474 Thereafter $ 10,378 ------------------------ --------------------
INTEREST RATE SWAP AGREEMENT In September 1998, the Company entered into an interest rate swap agreement with Bank of America N.A. to reduce the impact of changes in interest rates on its floating rate Credit Facility. The agreement, which covered a total notional amount of $76,800,000 matures on March 27, 2000. The swap agreement effectively converts a portion of the Company's floating rate debt to a fixed rate. The Company pays Bank of America N.A. a fixed rate of 5.08% per annum (for an all-inclusive rate of 6.83% for December 31, 1999). The Company is exposed to credit loss in the event of nonperformance by Bank of America N.A., however, the Company does not anticipate nonperformance by Bank of America N.A. As of the date of this filing, the Company had not entered in to a new interest rate swap agreement; therefore, $76,800,000 will convert to floating rate debt as of March 27, 2000 bringing the total floating rate debt to $210,700,000. F-20 8. PREFERRED STOCK AND OTHER PREFERRED INTERESTS SERIES A PREFERRED STOCK On April 2, 1999, GTA completed a private placement of 800,000 shares of its 9.25% Series A Cumulative Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), at a price of $25.00 per share to a single purchaser, AEW Targeted Securities Fund, L.P. Dividends on the Series A Preferred Shares are cumulative from the date of original issue and are payable quarterly in arrears, when, and as if declared by the Board of Directors, on the 15th day of January, April, July and October, commencing on July 15, 1999. Such dividends will be in an amount per share equal to the greater of (i) $0.578125 per quarter (or $2.3125 per annum)(equal to an annual rate of 9.25% of the $25 price per share) or (ii) the cash dividend 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 paid in second quarter was prorated and paid on July 15, 1999 based on the number of days between April 2, 1999 and June 30, 1999, the final day of the fiscal quarter. The Series A Preferred Stock is convertible, in whole or in part, at the option of the holder at any time into common shares at a conversion price of $26.25 per common share (equivalent to an initial conversion rate of approximately 0.95238 common shares per Series A Preferred Share), subject to adjustment in certain circumstances. Except in certain circumstances relating to preservation of GTA's status as a "REIT", the Series A Preferred Shares are not redeemable at GTA's option 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 GTA on 20 days' notice for a cash payment equal to $25.00 plus accrued and unpaid dividends (whether or not declared) to the redemption date without interest, plus a premium initially equal to 4% of such sum and, thereafter, declining by 1% each year so that the premium is zero on and after April 2, 2008. SERIES B OP UNITS In May 1999, GTA acquired Metamora Golf and Country Club, an 18-hole upscale golf facility located in Metamora, Michigan for $5.9 million. As part of the purchase price, at the closing, 10,172 units of Series B OP Units valued at $295,000 were issued at $29.00 per share (which reflects a 20% conversion premium at the time of closing). The newly created Series B OP Units are convertible into OP Units on a one-for-one basis at the election of the holder. These perpetual preferred units are scheduled to pay a distribution of 8.25% based on the initial issuance price. SERIES C OP UNITS In July 1999, GTA acquired the Pete Dye Golf Club, an 18-hole upscale, private golf facility located in Bridgeport, West Virginia, approximately 90 miles south of Pittsburgh. As part of the $10.0 million purchase price, at the closing, 48,949 units of Series C OP Units valued at $1,350,000 were issued at $27.58 per share. The newly created Series C OP Units are convertible on a one-for-one basis into common OP Units basis at the election of the holder. These perpetual preferred units are scheduled to pay a distribution of 8.91% based on the initial issuance price. F-21 9. STOCK OPTION AND AWARDS EMPLOYEE STOCK OPTIONS AND AWARDS The Compensation Committee of the Board of Directors ("Compensation Committee") determines compensation, including stock options and awards. Options are generally awarded with the exercise price equal to the market price at the date of grant and become exercisable in three to five years. In February 1997, the Company adopted the 1997 Stock Incentive Plan (the "Stock Incentive Plan"). Under the Stock Incentive Plan, the Compensation Committee granted stock awards relating to 500,000 shares of Common Stock which vest ratably over a period of three years from the date of grant and expire ten years from the date of grant. In February 1997, the Company adopted the 1997 Non-Employee Directors' Plan (the "Directors' Plan"). Under the Directors' Plan, the Compensation Committee is authorized to grant stock awards to purchase up to 100,000 shares of the Company's common stock at prices equal to the fair value of the stock on the date of grant. On February 6, 1997, 1998, 1999, and 2000, respectively, 20,000 options were granted and vested immediately. As of February 6, 2000, 20,000 shares remain available for options and restricted stock grants. In May 1997, the Company adopted the 1997 Stock-Based Incentive Plan (the "New 1997 Plan"). Under the New 1997 Plan, the Compensation Committee is authorized to grant awards of up to 600,000 shares of the Company's common stock. Option grants generally vest ratably over a period of three years from the date of grant and expire ten years from the date of grant. At December 31, 1999, 42,968 shares remained available for options and restricted stock grants. On January 30, 2000, 25,000 options were issued under this plan leaving a remaining balance of 17,968. On November 11, 1998, the Company adopted the 1998 Stock-Based Incentive Plan (the "1998 Plan") subject to approval by stockholders. Concurrently with the plan approval, the Compensation Committee granted 350,000 of the authorized 500,000 options at an exercise price of $25.06. These options generally vest ratably over a period of five years from the date of grant and expire ten years from the date of grant. Eighty-eight thousand of these options were cancelled upon the resignation the Company's executive Vice President in November 1999. In addition, 8,000 of the 44,000 shares that were granted in March 1999 were cancelled. At December 31, 1999, 202,000 shares remained available for options and restricted stock grants. On January 30, 2000, 145,000 options and 55,000 restricted shares were issued under this plan leaving a remaining balance of 2,000. The New 1997 Plan and the 1998 Plan provides that the Company may grant stock options or restricted stock to executive officers and other key employees. Restricted stock is subject to restrictions determined by the Company's Compensation Committee. The shares of restricted stock will be sold at a purchase price equal to $0.01 and will vest over four-year period. Restricted stock has the same dividend and voting rights as other common stock and is considered to be currently issued and outstanding. On September 19, 1997, the Company issued 70,000 restricted common shares for $.01 when the market price was $26.1875 to officers of the Company under the New 1997 Plan. On January 1, 1998 the Company issued 20,939 restricted common shares for $0.01 when the market price was $29.00 to officers of the Company under the New 1997 Plan. On March 10, 1999, the Company issued 44,000 restricted common shares for $.01 when the market prices was $22.75 to officers of the Company under the 1998 Plan. Subsequent to these issuances, loans of approximately $938,000, secured by OP Units and common stock, with interest rates of 4.4% to 6.2% were made to officers of the Company for the payment of related taxes through the date of this report. In November 1999, 11,904 of the previously issued grants were cancelled as a result of the resignation of one of the officers of the Company. Compensation expense is determined by reference to the market value on the date of grant and is being amortized on a straight-line basis over the vesting period. Such expense amounted to approximately $563,000 and $787,000 and $115,000 for the years ended December 31, 1999, 1998, and for the period ended 1997, respectively. F-22 9. STOCK OPTIONS AND AWARDS (CONT'D) LOANS TO OFFICERS Loans of approximately $890,000, secured by OP Units and common stock, with interest rates of 4.4 to 6.2 % per annum were made to officers of the Company for the payment of related taxes for Restricted Stock Grants issued in 1997, 1998 and 1999. Of this total, approximately $173,000 related to the Restricted Stock Grants issued on March 10, 1999 for 44,000 shares. Additional loans will be made to the officers to cover tax liabilities resulting from future vesting of the Restricted Stock Grants. Under the 1998 Senior Executive Loan Program, as amended on August 10, 1999, loans of $2,300,000 have been made to officers of the Company to purchase Company stock on the open market. These loans are collateralized by the shares purchased, bear interest at 4.51 to 5.89 % per annum and are due at the earlier time of (i) sale greater than $25 per share, (ii) within 3 years of employee termination or (iii) 5 years. These Promissory Notes are recourse to the borrower. Upon any change of control in the lender, all outstanding amounts to the current officers of GTA are forgiven and the Promissory Notes are cancelled. Of the total officer loans outstanding, approximately $725,000 in loans to the former Executive Vice President were reclassified to Other Assets from Stockholders Equity upon his resignation in November of 1999. F-23 Transactions involving the plans are summarized as follows:
WEIGHTED AVERAGE Option Shares SHARES EXERCISE PRICE ------------------ ------------ ----------------- Outstanding at February 12, 1997................................. - $ - Granted.......................................................... 940,000 23.88 Exercised........................................................ - - Expired and/or canceled.......................................... - - --------- Outstanding at December 31, 1997................................. 940,000 $23.88 Granted.......................................................... 445,000 26.08 Exercised........................................................ (4,666) (25.75) Expired and/or canceled.......................................... - - --------- Outstanding at December 31, 1998................................. 1,380,334 $24.59 Granted.......................................................... 55,000 17.80 Exercised........................................................ - - Expired and/or canceled.......................................... (173,002) (25.27) ----------- Outstanding at December 31, 1999................................. 1,262,332 $24.30 ===========
---------------------------------------------------------------- ----------------------------------- Options Outstanding Options Exercisable ---------------------------------------------------------------- ----------------------------------- Range of Remaining Average Exercise Contractual Exercise Price Shares Life (years) Price Shares Price ---------------------------------------------------------------- ----------------------------------- $16 - $18 35,000 9.9 $17.71 - - $21 335,000 7.1 $21.00 230,000 $21.00 $24 - $26 797,332 7.9 $25.32 598,999 $25.32 $29 70,000 8.1 $29.00 36,666 $29.00 $32 - $33 25,000 8.4 $32.13 8,333 $32.13
F-24 9. STOCK OPTIONS AND AWARDS (CONT'D). Pro forma net income and earnings per share, as if the fair value method in SFAS No. 123 had been used to account for stock-based compensation, and the assumptions used, are as follows:
PERIOD FROM FEBRUARY 12 YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------ Basic earnings per share As reported $1.28 $1.39 $1.32 Pro forma $1.26 $1.16 $1.03 Diluted earnings per share As reported $1.27 $1.34 $1.29 Pro forma $1.26 $1.12 $1.01 Black-Scholes assumptions* Fair market value of option granted $2.29 $3.89 $1.16 Risk-free interest rate 5.96% 5.47% 6.00% Dividend yield 8.96% 6.72% 5.66% Stock volatility 36.23% 27.21% 17.14% Expected option life 3 years 4.57 years 3 years *Weighted-averages ------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN Effective March 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees an opportunity to purchase shares of its common stock through payroll deduction, up to 10% of eligible compensation with a $25,000 maximum deferral. Semi-annually, participant account balances will be used to purchase shares of stock at the lesser of 85 percent of the fair market value of shares at the beginning or ending of such six-month period. The Employee Stock Purchase Plan expires on February 28, 2008. A total of 250,000 shares will be available for purchase under this plan. Shares have been issued as per the table below:
----------------- -------------- PURCHASE DATE # OF SHARES ISSUED ----------------- -------------- 6/30/98 1,128 ----------------- -------------- 12/31/98 1,768 ----------------- -------------- 6/30/99 2,149 ----------------- -------------- 12/31/99 1,592 ----------------- --------------
Compensation expense related to the Employee Stock Purchase Plan was $12,000 for 1999 and $18,000 for 1998. NON-AFFILIATED STOCK OPTIONS In conjunction with the February 1998 purchase of the Emerald Dunes Golf Course, Raymond Finch, Jr. and Ray Finch, III (collectively, the "Finches"), were granted 50,000 options each, of which 25,000 in the aggregate will vest when, in any calendar year, the Company acquires $25.0 million in golf courses identified by the Finches. After year five, all options immediately vest if the stock price is $10.00 over the strike price at which the options were issued ($28.00) and if the Finches have otherwise undertaken to promote and market the Company. These options expire on May 1, 2003. F-25 9. STOCK OPTIONS AND AWARDS (CONT'D). In addition, options to acquire 20,000 shares of common stock were granted to J. Graffeo, J. Galante, H. Rostoff, I. Smoley and A. Inelli (for a total of 100,000 options) as partial consideration for their interest in the Polo Trace Golf Course. Ten Thousand of the options vested on January 4, 1999, at $26.75 and 10,000 vested on January 4, 2000, at $16.83. All 100,000 of these options expire on July 1, 2000. 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data is as follows (in thousands, except per share amounts):
QUARTER ENDED ------------------------------------------------------------------------------- March 31 June 30 September 30 December 31 - ------------------------------- ------------------- ------------------ ------------------- -------------------- 1999 - ------------------------------- ------------------- ------------------ ------------------- -------------------- Revenues $13,325 $13,720 $14,104 $14,628 Operating income $7,803 $8,513 $8,314 $7,750 Net income (after Preferred $2,714 $2,460 $2,413 $2,261 Dividends) Basic earnings per share $.35 $.32 $.31 $.29 Diluted earnings per share $.35 $.32 $.31 $.29 - ------------------------------- ------------------- ------------------ ------------------- -------------------- 1998 - ------------------------------- ------------------- ------------------ ------------------- -------------------- Revenues $ 8,920 $ 10,448 $ 12,039 $ 12,977 Operating income $ 5,943 $ 6,692 $ 7,646 $ 7,020 Net income $ 3,081 $ 2,639 $ 2,779 $ 2,107 Basic earnings per share $ .40 $ .35 $ .36 $ .28 Diluted earnings per share $ .39 $ .33 $ .35 $ .27 - ------------------------------- ------------------- ------------------ ------------------- -------------------- 1997 - ------------------------------- ------------------- ------------------ ------------------- -------------------- Revenues $2,042 $3,998 $6,065 $6,622 Operating income $1,383 $2,598 $4,216 $4,825 Net income $ 716 $1,292 $1,615 $2,346 Basic earnings per share $ .19 $ .33 $ .40 $ .40 Diluted earnings per share $ .18 $ .32 $ .39 $ .39
F-26 11. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma financial information set forth below is presented as if the 1999 acquisitions (Note 3) had been consummated as of January 1, 1998. The pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated as of January 1, 1998, nor does it purport to represent a forecast of the results of operations for future periods (in thousands, except per share amounts).
FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------------------------------------------------------------------------ Revenues $56,678 $46,229 Net income Available to Common Shareholders $10,112 $11,177 Basic earnings per share $1.31 $1.45 Diluted earnings per share $1.30 $1.40
The pro forma financial information includes the following adjustments: (1) increase in revenues; (2) an increase in depreciation and amortization expense; (3) an increase in interest expense; (4) an increase in interest income; and (5) an increase in income applicable to minority interest. F-27 12. MINORITY INTEREST Minority interest represents the OP Units not held by GTA, GP and GTA, LP and is adjusted for the OP Unit holders', proportionate share of net income and distributions. An OP Unit and share of Common Stock of the Company have the same economic characteristics inasmuch as they effectively share equally in the net income or loss and any distributions of the Operating Partnership. OP Unit holders have the right, subject to certain terms and conditions, to convert their OP Units to shares of Common Stock or to cash at the discretion of the Company. In 2000, 100% of the 5,252,995 OP Units will be convertible. The following activity occurred in the OP Unit activity and the minority interest account:
- ---------------------------------- ----------------------------- -------------------------- ----------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 - ---------------------------------- ----------------------------- -------------------------- ----------------------------- (IN THOUSANDS) OP UNITS DOLLARS OP UNITS DOLLARS OP UNITS DOLLARS - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Beginning Balance 5,325 $76,510 4,815 $54,625 -- $-- - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Purchase of golf courses & 90 2,645 524 14,687 4,815 19,296 Recapitalization of leases - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Redemption (162) (3,556) (14) (432) -- -- - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Contribution of property -- -- -- 3,296 -- -- - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Adjustment of minority interest -- (3,569) -- 8,001 -- 33,882 - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Distributions -- (9,309) -- (10,797) -- (4,351) - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Net income -- 7,026 -- 7,130 -- 5,798 - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ---------------- Ending Balance 5,253 $69,747 5,325 $76,510 4,815 $54,625 - ---------------------------------- ------------ ---------------- ------------ ------------- ------------ ----------------
F-28 13. TRANSACTIONS WITH AFFILIATE AND SIGNIFICANT LESSEE Legends Golf is a significant lessee of the golf courses in the Company's portfolio. Legends Golf is a golf course management group consisting of eight companies affiliated through common ownership that operates a portfolio of thirteen golf courses owned by the Company under triple-net leases. Legends Golf derives revenues from the operation of golf courses principally through receipt of green fees, membership fees, golf cart rentals, and sales of food, beverage and merchandise. During 1999, Legends Golf acquired five additional leases for six courses from the prior lessee in exchange for cash of $25 and the assumption of debt including advances from the Company of $2,899. Capital improvement and working capital Advances from the Company totaling $5,328 bear interest at 10-percent. Advances of $661 are due in August 2000 with the balance due at the end of the lease term. The following table sets forth certain combined condensed financial information for Legends Golf:
(IN THOUSANDS) 1999 1998 ---------------------------------------------------------------------------------------------------- Current assets $ 4,912 $ 2,978 Non-current assets 29,884 20,650 ------------------------------ Total assets $34,796 $23,628 ============================== Payable to Golf Trust of America, L.P. $ 6,952 $ 1,030 Other current liabilities 22,229 1,340 Total long-term liabilities 12,976 20,916 Total owners' equity (capital deficit) (7,360) 342 ------------------------------ Total liabilities and owners' equity (capital deficit) $34,796 $23,628 ==============================
(IN THOUSANDS) FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ---------------------------------------------------------------------------------------------------------------------- Total Revenues $27,375 $22,874 $22,384 Operating Loss $(6,104) $(4,685) $(4,983) Net Income (loss) $(934) $746 $(244)
(Unaudited) Total revenues from golf course operations for Legends Golf increased by $4.5 million or 19.7 percent to $27.4 million for the year ended December 31, 1999. The increase was primarily attributed to the additional revenue of $4.2 million from the additional six courses under lease and increases in the Myrtle Beach revenues of $1.0 million from higher green fees, cart fees, and food and beverage sales offset by a $0.7 million decrease of revenue inVirginia. Operating loss increased from $4.7 million to $6.1 million for the years ended December 31, 1998 and 1999, respectively. The increase is primarily due to the additional administrative, operating, and transition expenses of $6.7 million related to the additional six Golf Courses under lease offset by reductions of $0.8 million in administrative and operating expenses at the Myrtle Beach and Virginia Golf Courses and the $4.5 million increase in revenues as noted above. Legends Golf incurred a net loss of $0.9 million for the year ended December 31, 1999 compared to net income of $0.7 million for the year ended December 31, 1998 primarily as a result of the increase in the operating loss and an increase in interest expense of $0.3 million in 1999. F-29 13. TRANSACTIONS WITH AFFILIATE AND SIGNIFICANT LESSEE (CONT'D) RELATED PARTY TRANSACTIONS Concurrent with the acquisition of the Sandpiper Golf Course, the Company formed Sandpiper-Golf Trust, LLC (of which the Operating Partnership is the sole member) to hold title to the golf course. In addition, the Operating Partnership owns approximately 95% of the economic interest in a preferred stock subsidiary formed to hold title to a 14 acre development site adjacent to the Sandpiper Golf Course, with the balance owned by Mr. Blair, President, and Mr. Young, in order to comply with certain REIT restrictions imposed by the Internal Revenue Code. This parcel of land was sold in June of 1999 and this related preferred stock subsidiary was dissolved effective December 31, 1999. 14. SUBSEQUENT EVENTS PAYMENT OF DIVIDENDS On December 15, 1999 the Board of Directors declared a quarterly dividend distribution of $0.44 per share for the quarter ended December 31, 1999, to common stockholders of record on December 31, 1999, which was paid on January 15, 2000. Preferred Stockholders were paid the dividend calculated according to their contracted yield. ISSUANCE OF STOCK OPTIONS AND RESTRICTED STOCK GRANTS As consistent with prior years, on February 6, 2000, 20,000 stock options at an exercise price of $17.938 were issued under the "Director's Plan" to GTA's independent directors. These options vested upon issuance. On January 30, 2000, 25,000 stock options under the New 1997 Plan and 145,000 stock options under the 1998 Plan were issued to GTA employees at an exercise price of $17.25. These options vest ratably over a period of three years. On January 30, 2000, 55,000 restricted stock grants at a par value of $0.01 per share were issued to the Officers of GTA under the 1998 Plan. STOCK REPURCHASE PROGRAM On December 15, 1999, GTA announced that its Board of Directors authorized a program to repurchase up to one million shares of its common stock. Any such repurchases will be made on the open market or in block purchase transactions. The timing of any repurchases and the number of shares repurchased pursuant to the stock repurchase program are dependent upon market conditions and corporate requirements. Under this program, on January 4, 2000, GTA purchased 10,000 shares of its stock at a price of $16.9375 per share. APPOINTMENT OF FINANCIAL ADVISOR After an extended interview and diligence process by management and review by the Company's Board of Directors, on February 9, 2000 GTA engaged Banc of America Securities LLC to act as its financial advisor to undertake a review of a broad range of strategic alternatives available to the Company in light of the current and prospective market conditions facing the Company and the REIT industry. Executive management and/or the Board is meeting regularly with our financial advisor in furtherance of consideration of alternatives to enhance shareholder value. These alternatives include a merger, sale, recapitalization, privatization or restructuring, including de-REITing (revoking election of REIT-tax status), among others. F-30 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Compensation Committee of the Board of Directors Golf Trust of America, Inc. 1998 Non-Qualified Employee Stock Purchase Plan: We have audited the accompanying statements of financial condition of the Golf Trust of America, Inc. 1998 Non-Qualified Employee Stock Purchase Plan (the Plan) as of December 31, 1998 and 1999, and the related statements of changes in net assets for the period from March 1, 1998 (inception) through December 31, 1998, and the year ended December 31, 1999. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial condition of the Plan at December 31, 1998 and 1999, and the changes in net assets for the period from March 1, 1998 (inception) through December 31, 1998, and the year ended December 31, 1999, in conformity with generally accepted accounting principles. Charlotte, North Carolina /s/ BDO Seidman, LLP February 4, 2000 F-31 GOLF TRUST OF AMERICA, INC. 1998 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN STATEMENTS OF FINANCIAL CONDITION ASSETS:
DECEMBER 31, 1999 DECEMBER 31, 1998 Receivable from Golf Trust of America, Inc.: Participant contributions $ 22,921 $ 41,707 Employer contributions 4,045 7,354 ---------------------------- ---------------------------- NET ASSETS $ 26,965 $ 49,061 ============================ ============================
F-32 GOLF TRUST OF AMERICA, INC. 1998 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 1 YEAR ENDED (INCEPTION) TO DECEMBER 31, DECEMBER 31, 1999 1998 Net Assets at the Beginning of the Year $49,061 $ - ADDITIONS: Participant contributions 67,549 69,693 Employer contributions 11,921 18,143 ------------------ ------------------- Total additions 79,471 87,836 ------------------ ------------------- Deductions: Purchase and distribution of common stock to participants 101,566 38,775 ------------------ ------------------- NET ASSETS AT THE END OF THE YEAR $ 26,965 $ 49,061 ================== ===================
See accompanying notes to financial statements F-33 GOLF TRUST OF AMERICA, INC. 1998 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN NOTES TO FINANCIAL STATEMENTS 1. THE PLAN: The Golf Trust of America, Inc. (the Company) 1998 Non-Qualified Employee Stock Purchase Plan (the Plan) was adopted by the Company's Board of Directors in March 1998 and became effective on March 1, 1998. The Plan is a non-qualified voluntary contribution plan designed to enable eligible employees and directors (the Participants) of the Company to purchase common stock in the Company at a discount. The Plan allows each Participant to purchase up to $25,000 per year of the Company's common stock. The Plan is administered by the Company that has delegated certain administrative responsibilities to the Compensation Committee of the Board of Directors of the Company. The Plan provides for a series of six month purchase periods ("purchase period"). A purchase period is a period of six months beginning each January 1 and July 1 and ending each June 30 and December 31, respectively. The price of the shares of the common stock purchased is the lesser of 85 percent of the closing price of such shares either on (a) the first day of each purchase period, or (b) the last day of each purchase period. The Company has reserved 250,000 shares of common stock for participants under the Plan. PARTICIPANTS CONTRIBUTIONS: Full time employees who have completed three months service with the Company are eligible to participate in the Plan by payroll withholding at any time during each purchase period. Participants elect to participate in the Plan by completing and submitting an election form to the plan administrator. EMPLOYER CONTRIBUTIONS: Employer contributions represent the discount or aggregate difference between the market value price of the Company's common stock and the established discount purchase price at the end of a purchase period. DISTRIBUTIONS: The Company's transfer agent and registrar issues shares of common stock upon receipt of participant and Company contributions. The transfer agent and registrar then prepares stock certificates, which are registered in the participant's name, and holds such certificates on behalf of the participants or issues stock certificates to the participant upon their written request. Accordingly, all shares purchased under the provisions of the Plan are deemed to be immediately distributed to the participants. WITHDRAWALS: A participant may withdraw all or any part of the contributions made during a purchase period by delivering an amended election form to the plan administrator on or before the last day of such purchase period. F-34 1. THE PLAN (CONT'D). PLAN TERMINATION: The Board of Directors of the Plan may terminate this Plan and any purchase period at any time (together with any related contribution elections) or may terminate any purchase period (together with any related contribution elections) at any time, provided, however, no such termination shall be retroactive unless the Board determines that applicable law requires a retroactive termination of this Plan. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF ACCOUNTING: The accompanying financial statements have been prepared on the accrual basis of accounting. ADMINISTRATIVE EXPENSES: All administrative expenses of the Plan are paid by the Company. DISTRIBUTIONS: Distributions are recorded when common stock has been distributed to participants. 3. INTERNAL REVENUE SERVICE STATUS: The Plan is not a qualified plan under Section 423(b) of the Internal Revenue Code. Participants are subject to any required tax withholding by the Company on the discount/compensation earned under the Plan. 4. DISTRIBUTIONS: A summary of stock purchased and distributed for the purchase periods ended June 30th and December 31st is as follows:
6/30/99 12/31/98 6/30/98 Participant contributions $44,629 $ 41,707 $ 27,986 Employer contributions 7,876 7,354 10,789 -------------- -------------- --------------- Market value of stock $ 52,505 $ 49,061 $ 38,775 ============== ============== =============== Market value of stock purchased and distributed per share $24.44 $27.75 $ 29.19 -------------- -------------- --------------- Shares purchased and distributed 2,149 1,768 1,128 ============== ============== ===============
F-35 5. SUBSEQUENT EVENT: On January 4, 2000, an additional 1,592 shares of common stock with a market value of approximately $27,000 were purchased and distributed for the purchase period ended December 31, 1999. F-36 LEGENDS GOLF TABLE OF CONTENTS FINANCIAL INFORMATION Report of Independent Public Accountants--BDO Seidman, LLP.............................. F-38 Combined Balance Sheets--December 31, 1998 and 1999..................................... F-39 Combined Statements of Operations--Years Ended December 31, 1997, 1998, and 1999.............................................................................. F-40 Combined Statements of Owners' Equity (Deficit)--Years Ended December 31, 1997, 1998, and 1999.................................................................. F-41 Combined Statements of Cash Flows--Years Ended December 31, 1997, 1998, and 1999........................................................................ F-42 Notes to Combined Financial Statements................................................. F-43
F-37 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Legends Golf Myrtle Beach, South Carolina We have audited the accompanying combined balance sheets of LEGENDS GOLF (as defined in Note 1) as of December 31, 1998 and 1999, and the related combined statements of operations, owners' equity, and cash flows for each of the three years in the period ended December 31, 1999. These combined financial statements are the responsibility of LEGENDS GOLF'S management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As more fully described in the notes to the combined financial statements, LEGENDS GOLF has material transactions with its majority stockholder and affiliates. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of LEGENDS GOLF at December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. BDO Seidman, LLP February 12, 2000 Charlotte, North Carolina F-38 LEGENDS GOLF COMBINED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, 1998 1999 - --------------- ------------------------ ASSETS: CURRENT: Cash.................................................................................. $ 974 $ 1,127 Accounts receivable (Note 4): Golf packages........................................................................ 818 2,285 Related parties...................................................................... 398 501 Other................................................................................ 215 84 Inventories........................................................................... 573 915 ------------------------ Total current assets.............................................................. 2,978 4,912 ------------------------ Property and equipment, less accumulated depreciation and amortization (Notes 5 and 8)....................................................... 1,083 1,607 ------------------------ Other assets: Advances to affiliates (Note 4)....................................................... 14,401 20,464 Investment in GTA, LP (Notes 2 and 7)................................................. 5,126 4,151 Goodwill, net of accumulated amortization of $144..................................... - 3,508 Miscellaneous......................................................................... 40 154 ------------------------ Total other assets................................................................ 19,567 28,277 ------------------------ $ 23,628 $ 34,796 ======================== LIABILITIES AND OWNERS' EQUITY (CAPITAL DEFICIT): CURRENT LIABILITIES: Accounts payable...................................................................... $ 550 $ 1,178 Accrued expenses: Rent................................................................................. 1,061 1,624 Other................................................................................ 278 1,562 Advances from affiliates (Note 4)..................................................... - 661 Current maturities of long-term debt (Note 7)......................................... 481 19,489 ------------------------ Total current liabilities......................................................... 2,370 24,514 Advances from affiliates (Note 7)....................................................... 9,039 15,682 Long-term debt, less current maturities (Note 7)........................................ 11,877 1,960 ------------------------ Total liabilities................................................................. 23,286 42,156 ------------------------ Commitments and contingencies (Notes 6 and 8) Owners' equity (capital deficit): Common stock, $1 par--shares authorized, 300,100; outstanding, 3,100................... 3 3 Members' contributions................................................................ 7 8 Additional paid-in capital............................................................ 3,832 3,857 Members' accumulated deficit.......................................................... (10,610) (14,840) Retained earnings (deficit)........................................................... 7,110 3,612 ------------------------ Total owners' equity (capital deficit)............................................ 342 (7,360) ------------------------ $ 23,628 $ 34,796 ========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-39 LEGENDS GOLF COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1997 1998 1999 - ---------------------------- ------------------------------------- REVENUES (NOTE 4): Green fees................................................................. $ 12,081 $ 12,766 $ 14,453 Cart rentals............................................................... 5,335 5,112 5,778 Membership dues............................................................ 149 175 771 Food and beverage sales.................................................... 2,464 2,579 3,743 Pro shop merchandise sales................................................. 2,355 2,242 2,630 ------------------------------------- Total revenues......................................................... 22,384 22,874 27,375 ------------------------------------- COSTS AND EXPENSES: General and administrative (Note 4)........................................ 5,511 5,588 7,168 Repairs, maintenance, and other course operating expenses.................. 5,667 5,039 5,351 Depreciation and amortization.............................................. 958 219 274 Cost of merchandise sold................................................... 1,154 1,088 1,290 Rents (Note 8)............................................................. 11,068 12,601 15,445 Pro shop operations........................................................ 1,231 1,138 1,442 Cost of food and beverage sold............................................. 1,024 1,068 1,376 Food and beverage operations............................................... 754 818 1,133 ------------------------------------- Total costs and expenses............................................... 27,367 27,559 33,479 ------------------------------------- Operating loss............................................................... (4,983) (4,685) (6,104) ------------------------------------- OTHER INCOME (EXPENSE): Equity in earnings of GTA, LP (Note 2)..................................... 4,887 5,197 5,381 Interest expense........................................................... (347) (327) (659) Gain on sale of assets..................................................... - 158 - Miscellaneous.............................................................. 199 403 448 ------------------------------------- Total other income (expense)........................................... 4,739 5,431 5,170 ------------------------------------- Net income (loss)............................................................ $ (244) $ 746 $ (934) =====================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-40 LEGENDS GOLF COMBINED STATEMENTS OF OWNERS' EQUITY (CAPITAL DEFICIT) (IN THOUSANDS)
MEMBERS' PAID-IN RETAINED ACCUMULATED SHARES AMOUNT CONTRIBUTIONS CAPITAL EARNINGS DEFICIT -------------------------------------------------------------------------- BALANCE, January 1, 1997............... 3 $ 3 $ 1 $ 300 $ 8,840 $ (1,970) Capital contributions: Cash................................. - - 6 - - - Land (Note 2)........................ - - - 3,532 - - Net income (loss)...................... - - - - 3,517 (3,761) Cash dividends......................... - - - - (1,871) - -------------------------------------------------------------------------- BALANCE, December 31, 1997............. 3 3 7 3,832 10,486 (5,731) Net income (loss)...................... - - - - 4,514 (3,768) Cash dividends......................... - - - - (7,890) (1,111) -------------------------------------------------------------------------- BALANCE, December 31, 1998............. 3 3 7 3,832 7,110 (10,610) Net income (loss)...................... - - - - 2,676 (3,610) Cash dividends......................... - - - - (6,174) (620) Capital contributions.................. - - 1 - - - Acquisition of company................. - - - 25 - - -------------------------------------------------------------------------- BALANCE, December 31, 1999............. 3 $ 3 $ 8 $ 3,857 $ 3,612 $ (14,840) ==========================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-41 LEGENDS GOLF COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1997 1998 1999 - ---------------------------- ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................................ $ (244) $ 746 $ (934) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.......................................... 958 219 274 (Gain) loss on disposal of property and equipment...................... - (158) - Equity in earnings of GTA, LP.......................................... (4,887) (5,197) (5,381) Decrease (increase) in: Accounts receivable................................................... 171 350 (763) Inventories........................................................... 45 (119) 97 Other assets.......................................................... (157) 7 29 Increase (decrease) in: Accounts payable...................................................... (544) (323) (1,174) Accrued expenses...................................................... 791 (141) 1,148 ------------------------------------- Net cash provided by (used in) operating activities........................ (3,867) (4,616) (6,704) ------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment additions......................................... (2,014) (2,018) (294) Proceeds from sale of property and equipment............................. - 807 - Proceeds from transfer to GTA, LP........................................ 523 - - Cash acquired in lease acquisitions...................................... - - 130 Distributions from GTA, LP............................................... 3,851 6,356 6,356 Increase in advances to affiliates....................................... (988) (1,253) (6,063) ------------------------------------- Net cash provided by (used in) investing activities........................ 1,372 3,892 129 ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt............................................. 1,086 11,368 16,049 Payments on long-term debt............................................... (226) (616) (6,958) Increase (decrease) in advances from affiliates.......................... 3,228 (622) 4,405 Payments of dividends.................................................... (1,871) (9,001) (6,794) Capital contribution..................................................... 6 - 26 ------------------------------------- Net cash provided by financing activities.................................. 2,223 1,129 6,728 ------------------------------------- Net increase (decrease) in cash............................................ (272) 405 153 Cash, beginning of year.................................................... 841 569 974 ------------------------------------- Cash, end of year.......................................................... $ 569 $ 974 $ 1,127 =====================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-42 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION The combined financial statements include the accounts of two S-Corporations (Golf Legends, Ltd. and Legends at Bonaventure, Inc.) and six limited liability companies (Legends of Virginia, LC; Legends Golf Management, LLC; Heritage Golf Management, LLC; Oyster Bay Golf Management, LLC; Legends National Golf Management, LLC; and Virginia Legends Golf Management, LLC). The entities, referred to collectively as Legends Golf (the Company), are engaged in the operation of 14 golf courses in South Carolina (5), Florida (4), Virginia (2), Kentucky, Nebraska, and North Carolina. The operations of the companies listed above are being presented on a combined basis, as under the terms of the operating leases, the lease obligations are cross-collateralized among all Legends lessees. This presentation better presents the ability of the lessees to service the leases. All significant intercompany balances and transactions have been eliminated. Additionally, certain classifications may vary from those of the individual company's financial statements. All dollar amounts are presented in thousands unless otherwise indicated. INVENTORIES Inventories are valued at the lower-of-cost (first-in, first-out) or market and consist primarily of food, beverages, golf equipment, and clothing. REVENUE RECOGNITION Revenue from green fees, cart rentals, food and beverage sales, merchandise sales, and range income are generally recognized at the time of sale. Membership dues are recognized ratably over the applicable period. Initiation fees are refundable and are not recognized as revenue. CASH EQUIVALENTS The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. INVESTMENTS IN PARTNERSHIP The Company accounts for its investments in Golf Trust of America, LP (GTA, LP) under the equity method of accounting. Under this method, equity earnings (losses) are recorded as increases (decreases) to the investment account and dividend distributions, to the extent they do not lower the investment below zero, are recorded as reductions in the investments. GOODWILL Goodwill is amortized on a straight-line basis over 15 years. F-43 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using straight-line methods. Estimated useful lives for major asset categories approximate:
DESCRIPTION YEARS ----------- ----- Buildings.................................................................................. 40 Machinery and equipment.................................................................... 3-8 Furniture.................................................................................. 8 Golf carts................................................................................. 5
Major renewals and betterments are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, related cost and accumulated depreciation are removed from the accounts. Golf course improvements, to the extent they are not reimbursed by the Landlord, are amortized over the lesser of their useful lives or the related lease term. INCOME TAXES For the S-Corporations, the absence of a provision for income taxes is due to the election by the companies, and consent by their sole stockholder, to include the taxable income or loss of the companies in his individual tax returns. As a result, no federal or state income taxes are imposed on the companies. For the limited liability companies, no provision has been made for income taxes or related credits as under the Internal Revenue Code a limited liability company is treated as a partnership for income tax purposes. Therefore, the results of operations are includable in the income tax returns of the members. USE OF ESTIMATES The preparation of combined financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION Certain 1998 amounts have been reclassified to conform to 1999 presentation. CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. Concentration of credit risk with respect to trade receivables, which consists primarily of golf packages from hotels and charges, is limited due to the large number of hotels comprising the Company's customer base. The trade receivables are billed and due monthly, and all probable bad debt losses have been appropriately considered in establishing an allowance for doubtful accounts. As of December 31, 1998 and 1999, the Company had no significant concentration of credit risk. F-44 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING The Company expenses advertising costs as incurred. Advertising costs are included in general and administrative costs in the amounts of $626, $655, and $867 for December 31, 1997, 1998, and 1999, respectively. 2. TRANSFER OF ASSETS AND INVESTMENT IN GTA, LP On February 12, 1997, the Company transferred land and improvements, buildings, and certain equipment with a net book value of $36.3 million net of related debt of $34.8 million to Golf Trust of America, LP (GTA, LP) for approximately 3.7 million OP Units and reimbursement of approximately $522,500 of out-of-pocket expenses. Immediately prior to the transfer, the Company's majority owner contributed land, previously leased to the Company, at a value of $3.5 million. The transfer was concurrent with an initial public offering of the common stock of Golf Trust of America, Inc. (GTA, Inc.), its general partner. OP Units are convertible, subject to certain limitations as defined in the transfer agreement, to common shares of GTA, Inc. At December 31, 1999, the common stock equivalent value of the OP Units was approximately $63 million. In addition, with the contribution of assets, the operations of the golf courses were transferred to four newly formed management companies. These companies entered into lease agreements with GTA, LP more fully described in Note 7. During 1998, the Company completed construction of two clubhouses in Virginia as required under the terms of the contribution agreement with GTA, LP at a cost of approximately $3.4 million. These assets were transferred to GTA, Inc. during 1998. 3. ACQUISITION OF LEASES During 1999, Mr. Young and an affiliate acquired the operations of six additional golf courses under lease to GTA. Effective July 1, 1999, Mr. Young purchased the stock of Legends at Bonaventure, Inc. (formerly known as Emerald Dunes--Bonaventure, Inc.) for $25,000 plus the assumption of certain liabilities. Effective August 17, 1999, Legends National Golf Management, LLC acquired the leases for four courses through assignment from the Granite Golf Group in exchange for the assumption of certain liabilities. The acquisition value has been allocated as follows:
AMOUNT ------------ Current assets................................................................ $ 1,359 Property and equipment........................................................ 384 Other assets.................................................................. 29 Goodwill...................................................................... 3,652 ------------ TOTAL ASSETS.................................................................. 5,424 ------------ Current liabilities........................................................... 2,500 Payable to GTA................................................................ 2,899 ------------ TOTAL LIABILITIES............................................................. 5,399 ------------ NET ASSETS $ 25 ============
F-45 4. RELATED PARTY TRANSACTIONS The Company's majority owner owns and operates Marsh Harbour, Ltd.; Heritage Plantation, Ltd.; Legends Golf Development, Ltd.; The Legends Group, Ltd.; Legends Scottish Village, LLC; Legends Properties, LLC; Legends Golf Resorts, LLC; Gleneagles, Ltd.; and other related businesses. The Legends Group, Ltd. provides various management and administrative services including reservations, advertising, accounting, payroll and related benefits, and telephone for all affiliated companies. These expenses are allocated to the businesses using procedures deemed appropriate to the nature of the expenses involved. The procedures utilize various allocation bases such as relative investment and number of employees and direct effort expended. Interest on allocated external debt is charged as incurred. The Company's management believes the allocations are reasonable, but they are not necessarily indicative of the costs that would have been incurred if the businesses had operated as separate companies. Administrative fees paid by the Company for such services are as follows:
YEAR ENDED DECEMBER 31, AMOUNT ----------------------- ------ 1997...................................................................................... $ 1,506 1998...................................................................................... $ 1,585 1999...................................................................................... $ 1,387
During 1997, 1998, and 1999, the Company recognized golf course revenue of $1,744, $2,972, and $3,653 respectively, under golf packages with an affiliated company. Advances to and from affiliated companies, as shown on the combined balance sheets, have no fixed payment/repayment provisions. Interest income and expense on advances to and from affiliates are not recorded for financial statement purposes. Interest income of $577, in 1999 which approximates the borrowing rate on the payable to bank, was recognized on advances to Mr. Young. Included in advances from affiliates is $2,899 payable to GTA, assumed by the Company in the acquisition of the Bonaventure lessee and $2,429 in additional advances from GTA to assist in the transition period for all the new leases. In August 2000, $661 is due and the balance has no fixed payment terms. All amounts bear interest at 10 percent per annum. Interest expense on these advances was $124. 5. PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following:
DECEMBER 31, 1998 1999 ---------------- ------------------------- Golf course improvements.......................................................... $ 628 $ 1,206 Buildings......................................................................... 539 552 Machinery and equipment........................................................... 58 101 Furniture......................................................................... 288 86 Golf carts........................................................................ 15 15 Construction-in-progress.......................................................... - 8 ------------------------- 1,528 1,967 Less accumulated depreciation..................................................... 445 360 ------------------------- Net property and equipment........................................................ $ 1,083 $ 1,607 =========================
6. RETIREMENT PLAN The Company sponsors a 401(k) profit-sharing plan for all eligible employees of the Company and other affiliated companies including officers. Legends Group, Ltd. may annually elect to make matching contributions as defined in the plan. No matching contributions were made for the years ended December 31, 1997, 1998, and 1999. F-46 7. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, 1998 1999 - ---------------- ------------------------- Payable to bank, under a $6 million loan agreement that the Company participates in, along with Marsh Harbour, Ltd., an affiliated company. The note bears interest at the 30-day LIBOR rate (6.01% at December 31, 1999) plus 175 basis points. The outstanding balance for the Company and Marsh Harbour, Ltd. is payable in graduated principal payments of $83 plus accrued interest; balance due May 2002. The aforementioned companies are jointly liable for the debt and the majority owner has guaranteed the loans. The loan is collateralized by certain OP Units..... $ 2,000 $ 2,000 Payable to bank, under a $12.5 million line-of-credit agreement. The line-of-credit bears interest at the 30-day LIBOR rate plus 175 basis points. Interest is payable in monthly installments, with the balance due April 2000. The majority owner has guaranteed the line-of-credit. The loan is collateralized by certain OP Units............................................................................... 4,858 7,692 Payable to financial institution, under a $12.5 million line-of-credit agreement. The line-of-credit bears interest at the 30-day LIBOR rate plus 240 basis points. Interest is payable in monthly installments, with the balance due April 2000. The majority owner has guaranteed the line-of-credit. The loan is collateralized by certain OP Units.................................................................... 5,500 11,757 ------------------------- 12,358 21,449 Less current maturities .............................................................. 481 19,498 ------------------------- $ 11,877 $ 1,960 =========================
The $6 million loan agreement provides, among other covenants, restrictions on certain financial ratios, capital expenditures, indebtedness, liens, changes in the nature of the business and significant other limitations as to the use of funds. The Company has obtained a waiver of certain of the covenants as of December 31, 1999. Total debt of all affiliated entities of which the Company is jointly liable is approximately $29,489 at December 31, 1999. The Company has obtained commitments to extend the Payable to bank and payable to financial institution agreements to January 2001. The aggregate annual maturities for the above mortgage notes payable at December 31, 1999, are as follows:
DECEMBER 31, AMOUNT ---------------- ------------ 2000................................................................... $ 19,489 2001................................................................... 1,374 2002................................................................... 586 ------------ Total.................................................................. $ 21,449 ============
Notes payable increased primarily due to disbursements made to the majority owner. F-47 8. COMMITMENTS AND CONTINGENCIES LEASES Concurrent with the transfer of assets, as described in Note 2, the Company entered into four lease agreements with GTA, LP. The leases provide for initial annual payments aggregating approximately $12 million with annual adjustments equal to the lesser of 3 percent or 200 percent of the consumer price index. In addition, the leases provide for percentage rents based on one-third of the increase in gross golf revenues, as defined in the agreement, over the base year of 1996. The leases assumed as described in Note 3 have similar terms. The leases, which have terms ending through December 31, 2006, may be renewed for up to six additional periods of five years each. In addition, the leases provide for reimbursements, subject to landlord approval, up to 2 percent of gross golf revenues, of certain qualified capital expenditures, as defined in the lease agreements. The Company records these expenditures as leasehold improvements or equipment as applicable until they are reimbursed by the lessor. As of December 31, 1999, the lessor had approximately $182 available to the Company under these lease agreements. The Company also leases land from a third party under an agreement that expires in 2032. The lease requires rental payments of 10 percent of monthly green fees as defined in the lease agreement. During 1996 and prior to the transfer of assets on February 12, 1997, the Company leased land from the sole stockholder. Total rental expense approximated the following:
THIRD YEAR ENDED DECEMBER 31, STOCKHOLDER PARTY GTA, LP ----------------------- ----------- ----- ------- 1997................................................ $ 25 $ 236 $ 10,807 1998................................................ $ - $ 236 $ 12,365 1999................................................ $ - $ 314 $ 15,131
The Company also leases certain equipment under noncancelable operating leases. Total equipment lease expense approximated $1,000, $604, and $1,275 for 1997, 1998, and 1999, respectively. Minimum lease commitments for all noncancelable operating leases at December 31, 1999, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ----------------------------- ------------- 2000...................................................................... $18,296 2001...................................................................... 18,134 2002...................................................................... 17,635 2003...................................................................... 17,236 2004...................................................................... 17,230 Thereafter................................................................ 32,781 ------------- Total..................................................................... $121,312 =============
SELF-INSURANCE The Company along with its affiliates maintains a self-insurance program for that portion of health care costs not covered by insurance. The Company is liable for claims up to $20 per employee annually with an annual aggregate maximum liability under the program for all companies of $336. Cumulative amounts estimated to be payable by the Company with respect to pending and potential claims have been accrued as liabilities. F-48 9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest:
YEAR ENDED DECEMBER 31, AMOUNT ---------------------------- ---------- 1997................................................................... $ 578 1998................................................................... $ 332 1999................................................................... $ 1,247
During 1997 and 1998, the Company transferred assets and related debt to GTA, LP (see Note 2). During 1999, the Company acquired certain lease rights in exchange for the assumption of certain liabilities (see Note 3). F-49 SCHEDULE III GOLF TRUST OF AMERICA, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999
COST CAPITALIZED SUBSEQUENT Initial Cost to Acquisition ------------------------------------------------- Building & Property/Location Encumbrances Land Improvements Improvements Other - ---------------------------------------------------------------------------------------------------------------------------------- Eagle Ridge Inn & Resort- Galena, IL - 7,087 39,913 1,020 Sandpiper Golf Course-Santa Barbara, CA - 2,668 33,832 - Bonaventure-Green Monster and The Resort Course-Ft. Lauderdale, FL - 2,912 21,588 3,461 Emerald Dunes Golf Course- West Palm Beach 12,384 3,348 19,052 212 Heathland, Parkland, and Moorland- Myrtle Beach, SC - 3,207 15,609 560 Miscellaneous investments 10,000 38,713 163,682 8,227 - Total $ 22,384 $ 57,935 $ 293,676 $ 13,480 $ -
GROSS AMOUNTS OF WHICH Carried at End of period ------------------------------------- Building & Accumulated Property/Location Land Improvements Total Depreciation - --------------------------------------------------------------------------------------------------------------------- Eagle Ridge Inn & Resort- Galena, IL 7,087 43,868 50,955 4,617 Sandpiper Golf Course-Santa Barbara, CA 2,668 30,079 32,747 1,571 Bonaventure-Green Monster and The Resort Course-Ft. Lauderdale, FL 2,912 25,689 28,601 2,834 Emerald Dunes Golf Course- West Palm Beach 3,348 19,326 22,674 2,341 Heathland, Parkland, and Moorland- Myrtle Beach, SC 3,207 16,169 19,376 8,958 Miscellaneous investments 38,713 177,636 216,349 22,680 Total $ 57,935 $ 312,767 $ 370,702 $ 43,001
LIFE ON WHICH DEPRECIATION IN LATEST Statement of Date of Date Operation is Property/Location Construction Acquired Completed - --------------------------------------------------------------------------------------------------------------- Eagle Ridge Inn & Resort- Galena, IL 1977 5/22/98 3-30 years Sandpiper Golf Course-Santa Barbara, CA 1972 3/6/98 3-30 years Bonaventure-Green Monster and The Resort Course-Ft. Lauderdale, FL 1970 1/1/98 3-30 years Emerald Dunes Golf Course- West Palm Beach 1990 2/1/98 3-30 years Heathland, Parkland, and Moorland- Myrtle Beach, SC 1990 2/12/97 3-30 years Miscellaneous investments Various Various Various
SCHEDULE IV Golf Trust of America, Inc. Mortgage Loans on Real Estate December 31, 1999
Face Amount Description Interest Rate Final Maturity Date Prior Liens of Mortgage - ------------------------------------------------------------------------------------------------------------- Golf Host Resorts, Inc. 10.377-10.505% 6/20/2027 $-- $69,975,000
Principal Amount Carrying Of Loans Subject to Amount of Delinquent Principal Description Mortgage Of Interest - --------------------------------------------------------------------- Golf Host Resorts, Inc. $73,160,000 $--
PERIOD PAYMENT TERMS Note payable interest only of $605,117 at 10.377% monthly with 5% annual increases continuing until 2002. Amounts drawn on $9,000,000 Tranche I bear interest at 10.505% with 5% annual increases continuing until 2002. EXHIBIT INDEX Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index immediately precedes the exhibits. The following exhibits are part of this Annual Report on Form 10-K for fiscal year 1999 (and are numbered in accordance with Item 601 of Regulation S-K). Items marked with an asterisk (*) are filed herewith.
NO. DESCRIPTION - --- ----------- 3.1.1 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). 3.1.2 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, filed August 14, 1998 and incorporated herein by reference). 3.2.1 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). 3.2.2 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). 3.3 Bylaws of the Company, as amended by the 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, filed May 15, 1998 and incorporated herein by reference). 4.1 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). 4.2 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). 4.3 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). 10.1.1 First Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") of Golf Trust of America, L.P. (the "Operating Partnership"), dated February 12, 1997 (previously filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K, filed March 31, 1997, and incorporated herein by reference).
10.1.2 First Amendment to the Partnership Agreement, dated as of February 1, 1998 (previously filed as Exhibit 10.1.2 to the Company's Annual Report on Form 10-K, filed March 31, 1998, and incorporated herein by reference). 10.1.3* Exhibit A to the Partnership Agreement (Schedule of Partnership Interests), as revised through March 22, 2000. 10.1.4 Designation of Class B Common OP Units of the Operating Partnership, dated February 1, 1998, which has been added as the first entry in Exhibit D to the Partnership Agreement (included within the First Amendment to the Partnership Agreement, which was previously filed as Exhibit 10.1.2 to the Company's Annual Report on Form 10-K, filed March 31, 1998, and incorporated herein by reference). 10.1.5 Designation of Series A Preferred OP Units of the Operating Partnership, dated April 2, 1999, which has been added to Exhibit D to the Partnership Agreement (previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference). 10.1.6* Designation of Series B Preferred OP Units of the Operating Partnership, dated May 11, 1999, which has been added to Exhibit D to the Partnership Agreement. 10.1.7* Designation of Series C Preferred OP Units of the Operating Partnership, dated July 28, 1999, which has been added to Exhibit D to the Partnership Agreement. 10.2.1 Credit Agreement, dated as of June 20, 1997, by and among Golf Trust of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to therein, and NationsBank N.A., as Agent (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by reference). 10.2.2 Amended and Restated Credit Agreement, dated as of July 8, 1998, by and among Golf Trust of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to therein, and NationsBank N.A., as Agent (previously filed as Exhibit 10.2.2 to the Company's Amended Annual Report on Form 10-K/A, filed April 1, 1999, and incorporated herein by reference). 10.2.3* Amended and Restated Credit Agreement, dated as of March 31, 1999, by and among Golf Trust of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to therein, NationsBank, N.A., as Administrative Agent, First Union National Bank as Syndication Agent, and BankBoston, N.A., as Documentation Agent. 10.3* Credit Agreement, dated as of March 31, 1999, by and among Golf Trust of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to therein, and NationsBank, N.A., as Administrative Agent for the Lenders 10.4 Loan Agreement, dated as of June 20, 1997, by and between Golf Host Resorts, Inc., as Borrower, and Golf Trust of America, L.P., as Lender (previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by reference). 10.5 1997 Non-Employee Directors' Plan of the Company (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).
10.6 1997 Stock Incentive Plan (the "Original 1997 Plan") of the Company (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). 10.7 1997 Stock-Based Incentive Plan of the Company (the "New 1997 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). 10.8 Form of Nonqualified Stock Option Agreement for use under the New 1997 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). 10.9 Form of Employee Incentive Stock Option Agreement for use under the New 1997 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). 10.10 General Provisions Applicable to Restricted Stock Awards Granted Under the New 1997 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). 10.11 Form of Restricted Stock Award Agreement for use under the New 1997 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). 10.12 1998 Stock-Based Incentive Plan of the Company (previously filed as Exhibit A to the Company's definitive Proxy Statement, dated April 1, 1999 and filed March 29, 1999, and incorporated herein by reference). 10.13 Employee Stock Purchase Plan of the Company (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Commission File No. 333-46659), filed February 20, 1998, and incorporated herein by reference). 10.14 Subscription Agreement for use with the Employee Stock Purchase Plan (previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (Commission File No. 333-46659), filed February 20, 1998, and incorporated herein by reference). 10.15* First Amended and Restated Employment Agreement between the Company and W. Bradley Blair, II, dated November 7, 1999. 10.16* Second Amended and Restated Employment Agreement between the Company and Scott D. Peters, dated November 7, 1999. 10.17 Stock Purchase Agreement, dated April 2, 1999, by and among Golf Trust of America, Inc., Golf Trust of America, L.P., GTA GP, Inc., GTA LP, Inc. and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference). 10.18 Registration Rights Agreement, dated April 2, 1999, by and between Golf Trust of America, Inc. and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.2
to the Company's Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference). 12.1* Computation of Earnings to Fixed Charges 21.1* List of Subsidiaries of the Company 23.1* Consent of BDO Seidman LLP 24.1 Powers of Attorney (included under the caption "Signatures") 27.1* Financial Data Schedule
* Filed herewith EX-10.1(3) 2 EXHIBIT 10.1.3 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Golf Legends Ltd., Inc. $ 30,647,030 1,532,352 11.82% 57-0886834 1500 Legends Drive Myrtle Beach, SC 29577 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Seaside Resorts Ltd., Inc. $ 16,129,118 806,456 6.22% 57-0729308 1500 Legends Drive Myrtle Beach, SC 29577 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Heritage Golf Club, Ltd., Inc. $ 16,031,230 801,561 57-0818596 1500 Legends Drive Myrtle Beach, SC 29577 1/6/1999 Heritage (conversion) (11,700) ----------- 789,861 6.09% - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Legends of Virginia L.C. $ 11,963,738 598,187 4.61% 57-1003883 1500 Legends Drive Myrtle Beach, SC 29577 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Northgate $ 3,797,071 189,854 76-0527250 16450 Northgate Forest Drive Houston, TX 77068 5/20/1998 Northgate (redemption) $ (158,969) (5,000) 1/6/1999 Northgate (conversion) $ - (30,000) ----------------- ----------- Northgate Total $ 3,638,102 154,854 1.19% - -----------------------------------------------------------------------------------------------------------------------------
1 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Olde Atlanta Golf Club Limited Partnership $ 1,444,926 72,246 36-3834881 c/o The Crescent Company 1580 S. Milwaukee Ave., Suite 101 Libertyville, IL 60048 4/13/1998 Olde Atlanta (redemption) $ (62,837.60) (2,000) 5/20/1998 Olde Atlanta (redemption) $ (64,017.60) (2,000) 8/21/1998 Olde Atlanta (redemption) $ (52,387.50) (1,500) 12/10/1998 Olde Atlanta (redemption) $ (30,166.11) (1,150) 1/20/1999 Olde Atlanta (redemption) $ (66,078.50) (2,500) 4/6/1999 Olde Atlanta (conversion) $ - (2,000) 5/1/1999 Olde Atlanta (recapitalization) $ 683,967 30,826 5/27/1999 Olde Atlanta (conversion) (2,000) 7/15/1999 Olde Atlanta (conversion) (3,500) 1/10/2000 Olde Atlanta (conversion) (3,300) 1/26/2000 Olde Atlanta (conversion) (4,100) ----------------- ----------- Olde Atlanta Total $ 1,853,405.98 79,022 0.61% - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/12/1997 Bright's Creek Development Co. LLC $ 2,119,005 105,950 0.82% 63-1120089 104 Cotton Creek Drive Gulf Shores, AL 36542 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 10/31/1996 David Dick Joseph - 12,500 0.00% ###-##-#### 14 North Adger's Wharf Charleston, SC 29401 12/14/1999 David Dick Joseph (conversion) (12,500) ---------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/4/1997 W. Bradley Blair, II $ - 12,500 0.10% ###-##-#### 14 North Adger's Wharf Charleston, SC 29401 - -----------------------------------------------------------------------------------------------------------------------------
2 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- 2/4/1997 James Hoppenrath $ - 3,750 0.00% ###-##-#### 109 E. Bay Street Charleston, SC 29401 1/6/2000 James Hoppenrath (conversion) (3,750) ----------------- ----------- $ - - - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 6/20/1997 Golf Host Resorts, Inc. $ - 274,039 0.00% 84-0631130 c/o Starwood Capital Group, LP Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 3/3/2000 Golf Host (conversion) (274,039) ----------------------- - - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 9/2/1997 John J. Rainieri, Sr. $ 3,198,168 114,237 0.88% ###-##-#### Betty Rainieri ###-##-#### 4350 Mayfair Road Uniontown, OH 44685 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 9/2/1997 Raintree Country Club, Inc. $ 204,138 7,292 0.06% 34-1736212 4350 Mayfair Road Uniontown, OH 44685 - ----------------------------------------------------------------------------------------------------------------
3 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- 9/30/1997 Eagle Watch Golf Club, Limited Partnership $ 1,890,682 70,158 36-3903287 c/o E. Neal Trogdon The Crescent Company 1580 South Milwaukee Avenue, Suite 101 Libertyville, IL 60048 11/2/1998 Eagle Watch (redemption) $ (64,199.00) (2,150) 5/21/1999 Eagle Watch (conversion) (1,250) ----------------- ----------- Eagle Watch Total $ 1,826,483 66,758 0.51% - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 10/17/1997 Properties of the Country, Inc. $ 500,000 19,231 0.15% 48-1157265 908 N. 2nd Street East Louisburg, KS 66053 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 11/25/1997 Granite Golf Corporation $ 650,000 24,424 86-0926890 1510 N. Hayden Road, Suite 7 Scottsdale, AZ 85260 ------------- ------------- 7/2/1999 Granite Golf (redemption) $ (200,257) (8,393) 7/27/1999 Granite Golf (redemption) $ (237,935) (10,354) 8/13/1999 Granite Golf (redemption) $ (125,746) (5,677) 8/13/1999 Residual Value $ (86,062.00) (Value at Issue - Value at Redemption) - - 0.00% ----------------- ----------- - ---------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 12/19/1997 Stonehenge Golf Development, LLC $ 4,500,000 169,811 0.92% 56-2027442 90 Mallet Hill Road Columbia, SC 29223 1/10/2000 Stonehenge Golf (conversion) $ - (50,000) ----------------- ----------- $ 4,500,000 119,811 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 1/16/1998 Mystic Creek Golf Club, Limited Partnership$ 1,500,000 52,724 0.41% 38-3187304 32605 West 12 Mile Road Suite 350 Farmington Hills, MI 48334 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/1/1998 Okeechobee Championship Golf, Inc. $ 6,138,369 227,347 (1) 1.75% 65-0115196 2100 Emerald Dunes Drive West Palm Beach, FL 33411 - ----------------------------------------------------------------------------------------------------------------------------- (1) Includes 218,088 Class A Common Units issued with a valuation of $5,888,376 and 9,259 Class B Common OP Units issued with a valuation of $249,993 - ----------------------------------------------------------------------------------------------------------------------------- 5/22/1998 Eagle Ridge Lease Company LLC $ 1,198,750 35,794 0.28% 52-2099405 16100 N. Greenway-Hayden Loop Scottsdale, AZ 85260 - -----------------------------------------------------------------------------------------------------------------------------
4 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- 5/28/1998 Golf Classic Resorts, LLC $ 879,995 26,357 0.00% 85-0453484 536 South Avenue Glencoe, IL 60022 11/26/1999 Golf Classic Resorts (redemption) $ (199,633) (11,577) 12/31/1999 Golf Classic Resorts (redemption) $ (34,517) (2,060) 2/7/2000 Golf Classic Resorts (redemption) $ (221,408) (12,720) 2/7/2000 Residual Value $ (424,437) (Value at Issue - Value at Redemption) ---------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- 8/28/1998 Osage National Golf Club LLC $ 3,451,068 124,700 43-1735431 900 Hickory Street St. Louis, MO 63104 6/30/1999 Osage (Redemption) $ (1,393,382) (58,576) ----------------- ----------- $ 2,057,686 66,124 0.51% - -----------------------------------------------------------------------------------------------------------------------------
5 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- 12/14/1998 Brentwood Golf & Country Club, Inc. $ 650,000 24,482 0.19% 38-3148750 4801 Faircourt, West Bloomfield, MI 48322 PO Box 386, Union Lake, MI 48387 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 12/22/1998 Gutta-Percha Golf, Inc. $ 870,000 32,986 0.25% 95-4493507 365 W. California Blvd. Suite 2 Pasadena, CA 91105 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/4/1997 GTA LP, Inc. $ - 8,090,594 62.41% 58-2290326 14 North Adger's Wharf Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 2/4/1997 GTA GP, Inc. $ - 27,553 0.21% 58-2290217 14 North Adger's Wharf Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Total Common OP Units 12,964,115 100.00% - -----------------------------------------------------------------------------------------------------------------------------
6 Exhibit A SCHEDULE OF PARTNERS, ALLOCATION OF PARTNERSHIP UNITS, PERCENTAGE INTERESTS AND THE AGREED UPON VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
Date Value of non-cash Partnership Approx. Percentage Federal ID # Admitted Name and address of partners capital contribution units issued Interests -------- ---------------------------- -------------------- ------------ --------- - ----------------------------------------------------------------------------------------------------------------------------- Series A Preferred OP Units - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 4/2/1999 GTA LP, Inc. 20,000,000 800,000 100% 14 North Adger's Wharf Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Series B Preferred OP Units - ----------------------------------------------------------------------------------------------------------------------------- 5/11/1999 Metamora Golf Operating Company, L.L.C. 295,003 10,169 100% 38-3462287 c/o Total Golf, Inc. 1303 W. Commerce Drive Milford, MI 48380 - ----------------------------------------------------------------------------------------------------------------------------- Series C Preferred OP Units - ----------------------------------------------------------------------------------------------------------------------------- 7/28/1999 Burning Embers Corporation 1,350,000 48,949 100% 55-0720833 Cooks Mine Road Bridgeport, WV 26330 - -----------------------------------------------------------------------------------------------------------------------------
7 EX-10.1(6) 3 EXHIBIT 10.1.6 Exhibit D GOLF TRUST OF AMERICA, L.P. Articles of Designation Classifying and Designating 10,169 Units of 8.29% SERIES B LIMITED PARTNERSHIP INTEREST May 11, 1999 SECTION 1. Number of Units and Designation. This series of preferred partnership interest shall be designated as the 8.29% Series B Preferred Partnership Interest (the "Series B Preferred Units") and the number of units of 8.29% Series B Preferred Partnership Interest which shall initially constitute such series shall be 10,169 units. SECTION 2. Definitions. For purposes of the Series B Preferred Units, the following terms shall have the meanings indicated: "AMEX" shall mean the American Stock Exchange. "Asset Disposition" shall mean a sale, transfer or capital lease (as determined in accordance with GAAP) of all or substantially all of the assets of the Partnership to a Person that is not an affiliate of the Corporation or the Operating Partnership. "Articles of Designation" shall mean these provisions in Exhibit D to the Partnership Agreement recording the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms and conditions of redemption and other terms and conditions of the Series B Preferred Units. "Board of Directors" shall mean the Board of Directors of the General Partner or any committee authorized by such Board of Directors to perform any of its responsibilities with respect to the Series B Preferred Units. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Common Share" shall mean one share of the common stock of GTA. "Common Units" shall mean the common units of limited partnership interest in the Partnership. Exhibit D - Series B Preferred Page 1 "Constituent Person" shall have the meaning set forth in paragraph (e) of Section 7 hereof. "Conversion Price" shall mean the conversion price per Common Share for which each Series B Preferred Unit is convertible. The initial conversion price shall be $29.01 (equivalent to a conversion rate of 1.0 Common Units for each Series B Preferred Unit). "Corporation" means Golf Trust of America, Inc., a Maryland Corporation. "Current Market Price" shall mean, on any date specified herein, the average of the Market Price during the period of the most recent twenty consecutive trading days ending on such date. "Distribution Payment Date" shall mean, with respect to each Distribution Period, the 15th calendar day of January, April, July and October, in each year, commencing on July 15, 1999; provided, however, that if any Distribution Payment Date falls on any day other than a Business Day, the distribution payment due on such Distribution Payment Date shall be paid on the first Business Day immediately following such Distribution Payment Date. "Distribution Periods" shall mean quarterly distribution periods commencing on January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period (other than the initial Distribution Period, which shall commence on the Issue Date and end on and include June 30, 1999). "GAAP" shall mean generally acceptable accounting practices, consistently applied. "Issue Date" shall mean the first date on which any Series B Preferred Units are issued and sold. "Junior Units" shall have the meaning set forth in paragraph (c) of Section 9 hereof. "Liquidation" shall mean a liquidation, dissolution or winding up of the Corporation or the Partnership, whether voluntary or involuntary. "Liquidation Event" shall mean (A) a Liquidation, or (B) an Asset Disposition. "Liquidation Preference" shall have the meaning set forth in paragraph (a) of Section 4 hereof. "Market Price" shall mean, with respect to the Common Shares on any date, the last reported sales price, regular way on such day, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way on such day, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange ("AMEX") or, if the Common Shares are not listed or admitted for trading on AMEX, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted for trading or, if the Common Shares are not listed or admitted for trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the NASD Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use, or if the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker regularly making a market in the Common Shares selected for such purpose by the Board of Directors or, if there is no such professional market maker, such amount as an independent investment banking firm selected by the Board of Directors determines to be the value of a Common Share. Exhibit D - Series B Preferred Page 2 "Partnership" shall mean Golf Trust of America, L.P., a Delaware limited partnership. "Partnership Agreement" shall mean the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated February 12, 1997, as amended. "Parity Units" shall have the meaning set forth in paragraph (b) of Section 9 hereof. "Person" shall mean any individual, firm, partnership, Corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Preferred Units" shall mean the Series B Preferred Units of limited partnership interest in the Partnership in number and with rights and preferences identical to the Series B Preferred Units. "Senior Units" shall have the meaning set forth in paragraph (a) of Section 9 hereof. "Series B Preferred Unit" shall have the meaning set forth in Section 1 hereof. "Set apart for payment" shall be deemed to include, without any action other than the following, the recording by the Partnership in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of a distribution or other distribution by the Board of Directors, the allocation of funds to be so paid on any series or class of units of partnership interest of the Partnership; provided, however, that if any funds for any class or series of Junior Units or any class or series of Parity Units are placed in a separate account of the Partnership or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series B Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Trading Day" shall mean any day on which the securities in question are traded on the AMEX, or if such securities are not listed or admitted for trading on the AMEX, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the Nasdaq National Market, or if such securities are not quoted on such Nasdaq National Market, in the applicable securities market in which the securities are traded. "Transaction" shall have the meaning set forth in paragraph (e) of Section 7 hereof. SECTION 3. Distributions. (a) The holders of the Series B Preferred Units shall be entitled to receive, when, as and if authorized and declared by the General Partner out of funds legally available for that purpose, distributions payable in cash at the rate per annum equal to the greater of (i) $2.40 per Series B Preferred Unit or (ii) an amount per Series B Preferred Unit equal to the aggregate annual amount of cash distributions paid or payable, if any, with respect to that number of Common Units, or portion thereof, into which each Series B Preferred Unit is then convertible, in accordance with the terms of these Articles of Designation (such greater amount, the "Annual Distribution Rate"). The amount referred in clause (ii) of this subparagraph (a) with respect to each Distribution Period shall be determined as of the applicable Distribution Payment Date by multiplying the number of Common Units, or portion thereof calculated to the fourth decimal point, into which a Series B Preferred Unit would be convertible at the opening of business on such Distribution Payment Date (based on the Conversion Price then in effect) by the quarterly cash distribution payable or paid for such Distribution Period in respect of a Common Unit outstanding as of the record date for the payment of distributions on the Common Units with respect to such Distribution Period and multiplying such product by four. Such distributions shall be cumulative from the Issue Date, whether or not in any Distribution Period or Periods there shall be funds of the Partnership legally available for the payment of such distributions and shall be payable quarterly, when, as and if authorized and declared by the Board of Directors, in arrears on Distribution Payment Dates, commencing on the first Distribution Payment Date after the Issue Date. Each such distribution shall be payable in arrears to the holders of record of the Series B Preferred Units, as they appear on the records of the Partnership at the close of business on each record date which shall not be more than 30 days preceding the applicable Distribution Payment Date (the "Distribution Payment Record Date"), as shall be fixed by the Board of Directors. Accrued and unpaid distributions for any past Distribution Periods may be authorized and declared and paid at any time, without reference to any regular Distribution Payment Date, to holders of record on such date, which shall not be more than 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. The amount of accrued and unpaid distributions on any Series B Preferred Unit at any date shall be the amount of any distributions accumulated to and including such date, whether or not earned or declared, which have not been paid in cash or set aside for payment. Accumulated and unpaid distributions will not bear interest. Exhibit D - Series B Preferred Page 3 (b) The amount of distributions payable for each full Distribution Period for the Series B Preferred Units shall be computed by dividing the Annual Distribution Rate by four. The amount of distributions payable for the initial Distribution Period, or any other period shorter or longer than a full Distribution Period, on the Series B Preferred Units shall be computed on the basis of twelve 30-day months and a 360-day year. Holders of Series B Preferred Units shall not be entitled to any distributions, whether payable in cash, property or stock, in excess of cumulative distributions, as herein provided, on the Series B Preferred Units, plus any other amounts provided in these Articles of Designation. So long as any Series B Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be authorized and declared or paid or set apart for payment on any series or class or classes of Parity Units for any period unless full cumulative distributions have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for such payment on the Series B Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions authorized and declared upon Series B Preferred Units and all distributions authorized and declared upon any other series or class or classes of Parity Units shall be authorized and declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series B Preferred Units and such Parity Units. Exhibit D - Series B Preferred Page 4 (c) So long as any Series B Preferred Units are outstanding, no distributions (other than distributions or distributions paid solely in Units of, or options, warrants or rights to subscribe for or purchase Units of, Junior Units) shall be authorized and declared or paid or set apart for payment or other distribution authorized and declared or made upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made in connection with an employee incentive or benefit plan of GTA or any subsidiary or pursuant to the Redemption Right referred to in Section 8.05 of the Partnership Agreement), for any consideration (or any moneys to be paid to or made available for a sinking fund for the redemption of any such Units by the Partnership, directly or indirectly (except by conversion into or exchange for Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series B Preferred Units and any other Parity Units of the Partnership shall have been paid or set apart for payment for all past Distribution Periods with respect to the Series B Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series B Preferred Units and any Parity Units. (d) Any distribution payment made on the Series B Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to such Units which remains payable. SECTION 3. Liquidation Preference. (a) In the event of any Liquidation Event, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Junior Units, the holders of Series B Preferred Units shall be entitled to receive a liquidation preference which is an amount equal to the greater of (i) Twenty-Nine Dollars and One Cent ($29.01) per Series B Preferred Unit plus distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holder (the "Liquidation Preference") or (ii) an amount per Series B Preferred Unit equal to the amount which would have been payable on the Common Units, or portion thereof, into which one Series B Preferred Unit is then convertible had each Series B Preferred Unit been converted into Common Units immediately prior to such Liquidation Event. The foregoing amounts shall be subject to equitable adjustment whenever there shall occur a stock distribution, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the capital structure of the Series B Preferred Units. Until the holders of the Series B Preferred Units have been paid in full the amounts owed pursuant to this Section 4(a), no payment will be made to any holder of Junior Units upon a Liquidation Event. If, upon any such Liquidation Event, the assets of the Partnership, or proceeds thereof, distributable among the holders of Series B Preferred Units shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other Units of any class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of such Series B Preferred Units and such other Parity Units ratably in accordance with the amounts that would be payable on such Series B Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. Exhibit D - Series B Preferred Page 5 (b) Subject to the rights of the holders of any Parity Units, upon any Liquidation Event of the Partnership, after payment shall have been made in full to the holders of Series B Preferred Units and any Parity Units, as provided in this Section 4, any other series or class or classes of Junior Units shall, subject to the respective terms thereof, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series B Preferred Units and any Parity Units shall not be entitled to share therein. SECTION 5. Mandatory Redemption. Upon the occurrence of a Liquidation, the Partnership will automatically redeem for cash all, and not less than all, of the outstanding shares of Series B Preferred Units at a price per Series B Preferred Unit equal to the Liquidation Preference. In order to effect the mandatory redemption, the Partnership will deliver written notice to all holders of Series B Preferred Units (the "Mandatory Redemption Notice"), such notice not be delivered later than 60 days prior to the Liquidation, setting forth the date of the intended redemption and the Liquidation Preference amount. SECTION 6. Reacquired Units to be Retired. All Series B Preferred Units which shall have been issued and reacquired in any manner by the Partnership (including any Series B Preferred Units surrendered upon conversion as described in Section 7) shall be retired and cancelled. SECTION 7. Conversion. Holders of Series B Preferred Units shall have the right to convert all or a portion of such shares into Common Units, as follows: (a) Subject to and upon compliance with the provisions of this Section 7, a holder of Series B Preferred Units shall have the right, at such holder's option, at any time and from time to time, to convert such shares into the number of fully paid and non-assessable Common Units obtained by dividing the aggregate Liquidation Preference (excluding, for this purpose only, any dividends accrued in respect of the then-current Distribution Period) of such Series B Preferred Units by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of paragraph (b) of this Section 7) by surrendering such Series B Preferred Units to be converted, such surrender to be made in the manner provided in paragraph (b) of this Section 7; provided, however, that the right to convert Series B Preferred Units called for redemption pursuant to Section 5 hereof shall terminate at the close of business on the Redemption Date fixed for such redemption, unless the Partnership shall default in making payment of any cash payable upon such redemption under Section 5 hereof. (b) In order to exercise the conversion right, the holder of each Series B Preferred Unit to be converted shall provide written notice to the Partnership that the holder thereof elects to convert such Series B Preferred Units. Unless the Common Units issuable on conversion are to be issued in the same name as the name in which such Series B Preferred Units are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Partnership, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Partnership demonstrating that such taxes have been paid). Exhibit D - Series B Preferred Page 6 Holders of Series B Preferred Units at the close of business on any Distribution Payment Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Distribution Payment Date notwithstanding the conversion thereof following such Distribution Payment Record Date and prior to such Distribution Payment Date. A holder of Series B Preferred Units on a Distribution Payment Record Date who (or whose transferee) tenders any such shares for conversion into Common Units on such Distribution Payment Date will receive the distribution payable by the Partnership on such Series B Preferred Units on such date. As promptly as practicable, the Partnership shall issue and shall deliver at such office to such holder, or send on such holder's written order, a confirmation of the number of full Common Units issuable upon the conversion of such Series B Preferred Units in accordance with the provisions of this Section 7, and any fractional interest in respect of a Common Unit arising upon such conversion shall be settled as provided in paragraph (c) of this Section 7. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which notice is received by the Partnership as aforesaid, and the Person or Persons in whose name or names any certificate or certificates for Common Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Common Units represented thereby at such time on such date, and such conversion shall be at the Conversion Price in effect at such time and on such date unless the stock transfer books of the Partnership shall be closed on that date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such Series B Preferred Units shall have been surrendered and such notice received by the Partnership. If the Distribution Payment Record Date for the Series B Preferred and Common Units do not coincide, and the preceding sentence does not operate to ensure that a holder of Series B Preferred Units whose shares are converted into Common Units does not receive dividends on both the Series B Preferred Units and the Common Units into which such shares are converted for the same Distribution Period, then notwithstanding anything herein to the contrary, it is the intent of this paragraph that, and the transfer agent is authorized to ensure that, no conversion after the earlier of such record dates will be accepted until after the latter of such record dates. (c) No fractional shares or scrip representing fractions of Common Units shall be issued upon conversion of the Series B Preferred Units. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series B Preferred Shares, the Partnership shall pay to the holder of such Series B Preferred Shares an amount in cash based upon the Current Market Price of Common Share on the Trading Day immediately preceding the date of conversion. If more than one Series B Preferred Shares shall be surrendered for conversion at one time by the same holder, the number of full Common Units issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series B Preferred Units so surrendered. Exhibit D - Series B Preferred Page 7 (d) The Conversion Price shall be adjusted from time to time as follows: (i) If the Partnership shall after the Issue Date (A) pay a dividend or make a distribution on its shares of capital stock in Common Units, (B) subdivide its outstanding Common Units into a greater number of shares, (C) combine its outstanding Common Units into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Units, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the day following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series B Preferred Units thereafter surrendered for conversion shall be entitled to receive the number of Common Units that such holder would have owned or have been entitled to receive after the happening of any of the events described above, had such Series B Preferred Units been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subparagraph (i) shall become effective immediately upon the opening of business on the day next following the record date (subject to paragraph (h) below) in the case of a dividend or distribution and shall become effective immediately upon the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. (ii) Notwithstanding anything else contained herein, if the Partnership shall issue, after the Issue Date, rights, options or warrants to all holders of Common Units entitling them (for a period expiring within 45 days after the record date mentioned below in this subparagraph (ii)) to subscribe for or purchase Common Units at a price per share less than the Market Price per Common Share on the record date for the determination of stockholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the day next following such record date shall be adjusted to equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the opening of business on the day following the date fixed for such determination by (B) a fraction, the numerator of which shall be the sum of (I) the number of Common Units outstanding on the close of business on the date fixed for such determination and (II) the number of Common Units that the aggregate proceeds to the Partnership from the exercise of such rights, options or warrants for Common Units would purchase at such Market Price, and the denominator of which shall be the sum of (I) the number of Common Units outstanding on the close of business on the date fixed for such determination and (II) the number of additional Common Units offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately upon the opening of business on the day next following such record date (subject to paragraph (h) below). In determining whether any rights, options or warrants entitle the holders of Common Units to subscribe for or purchase Common Units at less than such Market Price, there shall be taken into account any consideration received by the Partnership upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive. Exhibit D - Series B Preferred Page 8 (iii) If the Corporation shall distribute to all holders of its Common Shares any shares of capital stock of the Corporation (other than Common Shares) or evidence of its indebtedness or assets (excluding cash dividends or distributions paid out of assets based upon a fair valuation of the assets, in excess of the sum of the liabilities of the Corporation and the amount of stated capital attributable to Common Shares, determined on the basis of the most recent annual consolidated cost basis and current value basis and quarterly consolidated balance sheets of the Corporation and its consolidated subsidiaries available at the time of the declaration of the dividend or distribution) or rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subparagraph (ii) above to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subparagraph (ii) above) (any of the foregoing being hereinafter in this subparagraph (iii) called the "Securities"), then in each case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (B) a fraction, the numerator of which shall be the Market Price per Common Share on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the shares of capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one Common Share, and the denominator of which shall be the Current Market Price per Common Share on the record date mentioned below. Such adjustment shall become effective immediately upon the opening of business on the day next following (subject to paragraph (h) below) the record date for the determination of stockholders entitled to receive such distribution. For the purposes of this subparagraph (iii), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is required to be distributed with each Common Share delivered to a Person converting a Series B Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subparagraph (iii); provided that on the date, if any, on which a person converting a Series B Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred, and the Conversion Price shall be adjusted as provided in this subparagraph (iii) (and such day shall be deemed to be "the date fixed for the determination of the shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). The occurrence of a distribution or the occurrence of any other event as a result of which holders of Series B Preferred Shares shall not be entitled to receive rights, including exchange rights (the "Rights"), pursuant to any shareholders protective rights agreement (the "Agreement") that may be adopted by the Corporation as if such holders had converted such shares into Common Shares immediately prior to the occurrence of such distribution or event shall not be deemed a distribution of Securities for the purposes of any Conversion Price adjustment pursuant to this subparagraph (iii) or otherwise give rise to any Conversion Price adjustment pursuant to this Section 7; provided, however, that in lieu of any adjustment to the Conversion Price as a result of any such a distribution or occurrence, the Corporation shall make provision so that Rights, to the extent issuable at the time of conversion of any Series B Preferred Shares into Common Shares, shall issue and attach to such Common Shares then issued upon conversion in the amount and manner and to the extent and as provided in the Agreement in respect of issuances at the time of Common Shares other than upon conversion. Exhibit D - Series B Preferred Page 9 (iv) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this subparagraph (iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this Section 7 (other than this subparagraph (iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this Section 7, the Corporation shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in Common Shares under such plan. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this paragraph (d) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (d), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, reclassification or combination of shares, distribution of rights, options or warrants to purchase stock or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Corporation to its shareholders shall not be taxable. (e) If the Partnership shall be a party to any transaction (including without limitation a merger, consolidation, partnership interest exchange, self tender offer for all or substantially all Common Units outstanding, sale of all or substantially all of the Partnership's assets or recapitalization of the Common Units (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which Common Units shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each Series B Preferred Unit that is not redeemed or converted into the right to receive stock, securities or other property in connection with such Transaction shall thereafter be convertible into the kind and amount of Units of stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Units into which one Series B Preferred Unit was convertible immediately prior to such Transaction, assuming such holder of Common Units (i) is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an affiliate of a Constituent Person and (ii) failed to exercise his or her rights of the election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Unit of the Partnership held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Unit"), then for the purpose of this paragraph (d) the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Unit shall be deemed to be the kind and amount so receivable per Unit by a plurality of the Non-Electing Units). The Partnership shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (c), and it shall not consent or agree to the occurrence of any Transaction until the Partnership has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series B Preferred Units that will contain provisions enabling the holders of the Series B Preferred Units that remain outstanding after such Transaction to convert their Series B Preferred Units into the consideration received by holders of Common Units at the Conversion Price in effect under the Articles of Designation immediately prior to such Transaction. The provisions of this paragraph (e) shall similarly apply to successive Transactions. Exhibit D - Series B Preferred Page 10 (f) The Partnership covenants that any Common Units issued upon conversion of the Series B Preferred Units shall be validly issued and fully paid. (g) Prior to the delivery of any securities that the Partnership shall be obligated to deliver upon conversion of the Series B Preferred Units, the Partnership shall comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval or consent to the delivery thereof, by any governmental authority. (h) The Partnership shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Units or other securities or property on conversion of the Series B Preferred Units pursuant hereto; provided, however, that the Partnership shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of any Common Units or other securities or property in a name other than that of the holder of the Series B Preferred Units to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Partnership the amount of any such tax or established, to the reasonable satisfaction of the Partnership, that such tax has been paid. (i) In any case in which paragraph (d) of this Section 7 provides that an adjustment shall become effective on the day next following the record date for an event, the Partnership may defer until the occurrence of such event (A) issuing to the holder of any Series B Preferred Share converted after such record date and before the occurrence of such event the additional Common Units issuable upon such conversion by reason of the adjustment required by such event over and above the Common Units issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of this Section 7. (j) There shall be no adjustment of the Conversion Price in case of the issuance of any shares of capital stock of the Partnership in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 7. If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section 7, only one adjustment shall be made, and such adjustment shall be the amount of adjustment that has the highest absolute value. (k) If the Partnership shall take any action affecting the Common Units, other than action described in this Section 7, that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the Series B Preferred Shares, the Conversion Price for the Series B Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors, in its sole discretion, may determine to be equitable in the circumstances. Exhibit D - Series B Preferred Page 11 SECTION 8. Permissible Distributions. In determining whether a distribution (other than upon liquidation, dissolution or winding up), whether by distribution, or upon redemption or other acquisition of Units or otherwise, is permitted under Delaware law, amounts that would be needed, if the Partnership were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Units of any class or series of capital stock whose preferential rights upon dissolution are superior or prior to those receiving the distribution shall not be added to the Partnership's total liabilities. SECTION 9. Ranking. Any class or series of partnership interests of the Partnership shall be deemed to rank: (a) prior to the Series B Preferred Units, as to the payment of distributions and as to distribution of assets upon liquidation, dissolution or winding up, if the holders of such class or series shall be entitled to the receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series B Preferred Units ("Senior Units"); (b) on a parity with the Series B Preferred Units, as to the payment of distributions and as to the distribution of assets upon liquidation, dissolution or winding up, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit thereof be different from those of the Series B Preferred Units, if the holders of such class of stock or series and the Series B Preferred Units shall be entitled to the receipt of distributions and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid distributions per Unit or liquidation preferences, without preference or priority one over the other ("Parity Units"); and (c) junior to the Series B Preferred Units, as to the payment of distributions or as to the distribution of assets upon liquidation, dissolution or winding up, if such stock or series shall be Common Units or Class B Limited Partnership Interests or if the holders of Series B Preferred Units shall be entitled to receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of units of such class series of partnership interest, and such class or series shall not in either case rank prior to the Series B Preferred Units ("Junior Units"). SECTION 10. Voting. (a) Other than as required by law or paragraph (b) and (c) of this Section 10, the Series B Preferred Units shall not have any voting rights or powers, and the consent of the holders thereof shall not be required for the taking of any partnership action. Exhibit D - Series B Preferred Page 12 (b) So long as any Series B Preferred Units are outstanding, in addition to any other vote or consent of Unitholders required by the Partnership Agreement, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of Series B Preferred Units, at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any amendment, alteration of or repeal of the Partnership Agreement materially and adversely affecting, directly or indirectly, the terms and conditions of, or the rights or preferences of the Preferred Units; provided, however, that (A) the amendment or supplement of the provisions of the Partnership Agreement so as to authorize or create, or to increase the authorized amount of, any Junior Units or any Parity Units shall not be deemed to adversely affect Series B Preferred Units, and (B) any amendment, alteration of or repeal of the Partnership Agreement in connection with a merger or consolidation of GTA or the Partnership or the sale of all or substantially all of the assets of the Partnership shall not be deemed to adversely affect the Series B Preferred Units so long as (1) the Partnership is the surviving entity and the Series B Preferred Units remains outstanding with the terms thereof materially unchanged or (2) the Series B Preferred Units are exchanged for a security of the resulting, surviving or transferee entity having substantially the same terms and rights as the Series B Preferred Stock, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up. (c) So long as any Series B Preferred Units are outstanding, in addition to any other vote or consent of Unitholders required by the Partnership Agreement, the affirmative vote of 100% of the votes entitled to be cast by the holders of Series B Preferred Units, at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating the authorization or creation of, or the issuance of, any Senior Units. (d) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Preferred Units shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. (e) Except as otherwise required by law or provided herein or elsewhere in the Partnership Agreement, the holders of Series B Preferred Units shall not be entitled to receive any notice of any proceedings of the Company or the Partnership. For purposes of the foregoing provisions of this Section 10, each Series B Preferred Unit shall have one (1) vote per Unit. SECTION 11. Record Holders. The Partnership may deem and treat the record holder of any Series B Preferred Units as the true and lawful owner thereof for all purposes, and the Partnership shall not be affected by any notice to the contrary. SECTION 12. Effective Date. These Articles of Designation shall be effective as of May 11, 1999. Exhibit D - Series B Preferred Page 12 EX-10.1(7) 4 EXHIBIT 10.1.7 EXHIBIT D GOLF TRUST OF AMERICA, L.P. Articles of Designation Classifying and Designating 48,949 Units of 8.90% SERIES C LIMITED PARTNERSHIP INTEREST July 28, 1999 SECTION 1. Number of Units and Designation. This series of preferred partnership interest shall be designated as the 8.90% Series C Preferred Partnership Interest (the "Series C Preferred Units") and the number of units of 8.90% Series C Preferred Partnership Interest which shall initially constitute such series shall be 48,949 units. SECTION 2. Definitions. For purposes of the Series C Preferred Units, the following terms shall have the meanings indicated: "AMEX" shall mean the American Stock Exchange. "Asset Disposition" shall mean a sale, transfer or capital lease (as determined in accordance with GAAP) of all or substantially all of the assets of the Partnership to a Person that is not an affiliate of the Corporation or the Operating Partnership. "Articles of Designation" shall mean these provisions in Exhibit D to the Partnership Agreement recording the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms and conditions of redemption and other terms and conditions of the Series C Preferred Units. "Board of Directors" shall mean the Board of Directors of the General Partner or any committee authorized by such Board of Directors to perform any of its responsibilities with respect to the Series C Preferred Units. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Common Share" shall mean one share of the common stock of GTA. "Common Units" shall mean the common units of limited partnership interest in the Partnership. "Constituent Person" shall have the meaning set forth in paragraph (e) of Section 7 hereof. "Conversion Price" shall mean the conversion price per Common Share for which each Series C Preferred Unit is convertible. The initial conversion price shall $27.58 (equivalent to a conversion rate of 1.0 Common Units for each Series C Preferred Unit). Exhibit D - Series C Preferred Page 1 "Corporation" means Golf Trust of America, Inc., a Maryland corporation. "Current Market Price" shall mean, on any date specified herein, the average of the Market Price during the period of the most recent twenty consecutive trading days ending on such date. "Distribution Payment Date" shall mean, with respect to each Distribution Period, the 15th calendar day of January, April, July and October, in each year, commencing on October 15, 1999; provided, however, that if any Distribution Payment Date falls on any day other than a Business Day, the distribution payment due on such Distribution Payment Date shall be paid on the first Business Day immediately following such Distribution Payment Date. "Distribution Periods" shall mean quarterly distribution periods commencing on January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period (other than the initial Distribution Period, which shall commence on the Issue Date and end on and include September 30, 1999). "GAAP" shall mean generally acceptable accounting practices, consistently applied. "Issue Date" shall mean the first date on which any Series C Preferred Units are issued and sold. "Junior Units" shall have the meaning set forth in paragraph (c) of Section 9 hereof. "Liquidation" shall mean a liquidation, dissolution or winding up of the Corporation or the Partnership, whether voluntary or involuntary. "Liquidation Event" shall mean (A) a Liquidation, or (B) an Asset Disposition. "Liquidation Preference" shall have the meaning set forth in paragraph (a) of Section 4 hereof. "Market Price" shall mean, with respect to the Common Shares on any date, the last reported sales price, regular way on such day, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way on such day, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange ("AMEX") or, if the Common Shares are not listed or admitted for trading on AMEX, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted for trading or, if the Common Shares are not listed or admitted for trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the NASD Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use, or if the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker regularly making a market in the Common Shares selected for such purpose by the Board of Directors or, if there is no such professional market maker, such amount as an independent investment banking firm selected by the Board of Directors determines to be the value of a Common Share. Exhibit D - Series C Preferred Page 2 "Partnership" shall mean Golf Trust of America, L.P., a Delaware limited partnership. "Partnership Agreement" shall mean the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated February 12, 1997, as amended. "Parity Units" shall have the meaning set forth in paragraph (b) of Section 9 hereof. "Person" shall mean any individual, firm, partnership, Corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Preferred Units" shall mean the Series C Preferred Units of limited partnership interest in the Partnership in number and with rights and preferences identical to the Series C Preferred Units. "Senior Units" shall have the meaning set forth in paragraph (a) of Section 9 hereof. "Series C Preferred Unit" shall have the meaning set forth in Section 1 hereof. "Set apart for payment" shall be deemed to include, without any action other than the following, the recording by the Partnership in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of a distribution or other distribution by the Board of Directors, the allocation of funds to be so paid on any series or class of units of partnership interest of the Partnership; provided, however, that if any funds for any class or series of Junior Units or any class or series of Parity Units are placed in a separate account of the Partnership or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series C Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Trading Day" shall mean any day on which the securities in question are traded on the AMEX, or if such securities are not listed or admitted for trading on the AMEX, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the Nasdaq National Market, or if such securities are not quoted on such Nasdaq National Market, in the applicable securities market in which the securities are traded. "Transaction" shall have the meaning set forth in paragraph (e) of Section 7 hereof. SECTION 3. Distributions. Exhibit D - Series C Preferred Page 3 (a) The holders of the Series C Preferred Units shall be entitled to receive, when, as and if authorized and declared by the General Partner out of funds legally available for that purpose, distributions payable in cash at the rate per annum equal to the greater of (i) $2.45 per Series C Preferred Unit or (ii) an amount per Series C Preferred Unit equal to the aggregate annual amount of cash distributions paid or payable, if any, with respect to that number of Common Units, or portion thereof, into which each Series C Preferred Unit is then convertible, in accordance with the terms of these Articles of Designation (such greater amount, the "Annual Distribution Rate"). The amount referred in clause (ii) of this subparagraph (a) with respect to each Distribution Period shall be determined as of the applicable Distribution Payment Date by multiplying the number of Common Units, or portion thereof calculated to the fourth decimal point, into which a Series C Preferred Unit would be convertible at the opening of business on such Distribution Payment Date (based on the Conversion Price then in effect) by the quarterly cash distribution payable or paid for such Distribution Period in respect of a Common Unit outstanding as of the record date for the payment of distributions on the Common Units with respect to such Distribution Period and multiplying such product by four. Such distributions shall be cumulative from the Issue Date, whether or not in any Distribution Period or Periods there shall be funds of the Partnership legally available for the payment of such distributions and shall be payable quarterly, when, as and if authorized and declared by the Board of Directors, in arrears on Distribution Payment Dates, commencing on the first Distribution Payment Date after the Issue Date. Each such distribution shall be payable in arrears to the holders of record of the Series C Preferred Units, as they appear on the records of the Partnership at the close of business on each record date which shall not be more than 30 days preceding the applicable Distribution Payment Date (the "Distribution Payment Record Date"), as shall be fixed by the Board of Directors. Accrued and unpaid distributions for any past Distribution Periods may be authorized and declared and paid at any time, without reference to any regular Distribution Payment Date, to holders of record on such date, which shall not be more than 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. The amount of accrued and unpaid distributions on any Series C Preferred Unit at any date shall be the amount of any distributions accumulated to and including such date, whether or not earned or declared, which have not been paid in cash or set aside for payment. Accumulated and unpaid distributions will not bear interest. (b) The amount of distributions payable for each full Distribution Period for the Series C Preferred Units shall be computed by dividing the Annual Distribution Rate by four. The amount of distributions payable for the initial Distribution Period, or any other period shorter or longer than a full Distribution Period, on the Series C Preferred Units shall be computed on the basis of twelve 30-day months and a 360-day year. Holders of Series C Preferred Units shall not be entitled to any distributions, whether payable in cash, property or stock, in excess of cumulative distributions, as herein provided, on the Series C Preferred Units, plus any other amounts provided in these Articles of Designation. So long as any Series C Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be authorized and declared or paid or set apart for payment on any series or class or classes of Parity Units for any period unless full cumulative distributions have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for such payment on the Series C Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions authorized and declared upon Series C Preferred Units and all distributions authorized and declared upon any other series or class or classes of Parity Units shall be authorized and declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series C Preferred Units and such Parity Units. (c) So long as any Series C Preferred Units are outstanding, no distributions (other than distributions or distributions paid solely in Units of, or options, warrants or rights to subscribe for or purchase Units of, Junior Units) shall be authorized and declared or paid or set apart for payment or other distribution authorized and declared or made upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made in connection with an employee incentive or benefit plan of GTA or any subsidiary or pursuant to the Redemption Right referred to in Section 8.05 of the Partnership Agreement), for any consideration (or any moneys to be paid to or made available for a sinking fund for the redemption of any such Units by the Partnership, directly or indirectly (except by conversion into or exchange for Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series C Preferred Units and any other Parity Units of the Partnership shall have been paid or set apart for payment for all past Distribution Periods with respect to the Series C Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series C Preferred Units and any Parity Units. (d) Any distribution payment made on the Series C Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to such Units which remains payable. Exhibit D - Series C Preferred Page 4 SECTION 4. Liquidation Preference. (a) In the event of any Liquidation Event, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Junior Units, the holders of Series C Preferred Units shall be entitled to receive a liquidation preference which is an amount equal to the greater of (i) $27.58 per Series C Preferred Unit plus distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holder (the "Liquidation Preference") or (ii) an amount per Series C Preferred Unit equal to the amount which would have been payable on the Common Units, or portion thereof, into which one Series C Preferred Unit is then convertible had each Series C Preferred Unit been converted into Common Units immediately prior to such Liquidation Event. The foregoing amounts shall be subject to equitable adjustment whenever there shall occur a stock distribution, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the capital structure of the Series C Preferred Units. Until the holders of the Series C Preferred Units have been paid in full the amounts owed pursuant to this Section 4(a), no payment will be made to any holder of Junior Units upon a Liquidation Event. If, upon any such Liquidation Event, the assets of the Partnership, or proceeds thereof, distributable among the holders of Series C Preferred Units shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other Units of any class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of such Series C Preferred Units and such other Parity Units ratably in accordance with the amounts that would be payable on such Series C Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. (b) Subject to the rights of the holders of any Parity Units, upon any Liquidation Event of the Partnership, after payment shall have been made in full to the holders of Series C Preferred Units and any Parity Units, as provided in this Section 4, any other series or class or classes of Junior Units shall, subject to the respective terms thereof, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series C Preferred Units and any Parity Units shall not be entitled to share therein. Exhibit D - Series C Preferred Page 5 SECTION 5. Mandatory Redemption. Upon the occurrence of a Liquidation, the Partnership will automatically redeem for cash all, and not less than all, of the outstanding shares of Series C Preferred Units at a price per Series C Preferred Unit equal to the Liquidation Preference. In order to effect the mandatory redemption, the Partnership will deliver written notice to all holders of Series C Preferred Units (the "Mandatory Redemption Notice"), such notice not be delivered later than 60 days prior to the Liquidation, setting forth the date of the intended redemption and the Liquidation Preference amount. SECTION 6. Reacquired Units to be Retired. All Series C Preferred Units which shall have been issued and reacquired in any manner by the Partnership (including any Series C Preferred Units surrendered upon conversion as described in Section 7) shall be retired and cancelled. SECTION 7. Conversion. Holders of Series C Preferred Units shall have the right to convert all or a portion of such shares into Common Units, as follows: (a) Subject to and upon compliance with the provisions of this Section 7, a holder of Series C Preferred Units shall have the right, at such holder's option, at any time and from time to time, to convert such shares into the number of fully paid and non-assessable Common Units obtained by dividing the aggregate Liquidation Preference (excluding, for this purpose only, any dividends accrued in respect of the then-current Distribution Period) of such Series C Preferred Units by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of paragraph (b) of this Section 7) by surrendering such Series C Preferred Units to be converted, such surrender to be made in the manner provided in paragraph (b) of this Section 7; provided, however, that the right to convert Series C Preferred Units called for redemption pursuant to Section 5 hereof shall terminate at the close of business on the Redemption Date fixed for such redemption, unless the Partnership shall default in making payment of any cash payable upon such redemption under Section 5 hereof. (b) In order to exercise the conversion right, the holder of each Series C Preferred Unit to be converted shall provide written notice to the Partnership that the holder thereof elects to convert such Series C Preferred Units. Unless the Common Units issuable on conversion are to be issued in the same name as the name in which such Series C Preferred Units are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Partnership, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Partnership demonstrating that such taxes have been paid). Holders of Series C Preferred Units at the close of business on any Distribution Payment Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Distribution Payment Date notwithstanding the conversion thereof following such Distribution Payment Record Date and prior to such Distribution Payment Date. A holder of Series C Preferred Units on a Distribution Payment Record Date who (or whose transferee) tenders any such shares for conversion into Common Units on such Distribution Payment Date will receive the distribution payable by the Partnership on such Series C Preferred Units on such date. Exhibit D - Series C Preferred Page 6 As promptly as practicable, the Partnership shall issue and shall deliver at such office to such holder, or send on such holder's written order, a confirmation of the number of full Common Units issuable upon the conversion of such Series C Preferred Units in accordance with the provisions of this Section 7, and any fractional interest in respect of a Common Unit arising upon such conversion shall be settled as provided in paragraph (c) of this Section 7. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which notice is received by the Partnership as aforesaid, and the Person or Persons in whose name or names any certificate or certificates for Common Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Common Units represented thereby at such time on such date, and such conversion shall be at the Conversion Price in effect at such time and on such date unless the stock transfer books of the Partnership shall be closed on that date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such Series C Preferred Units shall have been surrendered and such notice received by the Partnership. If the Distribution Payment Record Date for the Series C Preferred and Common Units do not coincide, and the preceding sentence does not operate to ensure that a holder of Series C Preferred Units whose shares are converted into Common Units does not receive dividends on both the Series C Preferred Units and the Common Units into which such shares are converted for the same Distribution Period, then notwithstanding anything herein to the contrary, it is the intent of this paragraph that, and the transfer agent is authorized to ensure that, no conversion after the earlier of such record dates will be accepted until after the latter of such record dates. (c) No fractional shares or scrip representing fractions of Common Units shall be issued upon conversion of the Series C Preferred Units. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series C Preferred Shares, the Partnership shall pay to the holder of such Series C Preferred Shares an amount in cash based upon the Current Market Price of Common Share on the Trading Day immediately preceding the date of conversion. If more than one Series C Preferred Shares shall be surrendered for conversion at one time by the same holder, the number of full Common Units issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series C Preferred Units so surrendered. (d) The Conversion Price shall be adjusted from time to time as follows: (i) If the Partnership shall after the Issue Date (A) pay a dividend or make a distribution on its shares of capital stock in Common Units, (B) subdivide its outstanding Common Units into a greater number of shares, (C) combine its outstanding Common Units into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Units, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the day following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series C Preferred Units thereafter surrendered for conversion shall be entitled to receive the number of Common Units that such holder would have owned or have been entitled to receive after the happening of any of the events described above, had such Series C Preferred Units been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subparagraph (i) shall become effective immediately upon the opening of business on the day next following the record date (subject to paragraph (h) below) in the case of a dividend or distribution and shall become effective immediately upon the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. Exhibit D - Series C Preferred Page 7 (ii) Notwithstanding anything else contained herein, if the Partnership shall issue, after the Issue Date, rights, options or warrants to all holders of Common Units entitling them (for a period expiring within 45 days after the record date mentioned below in this subparagraph (ii)) to subscribe for or purchase Common Units at a price per share less than the Market Price per Common Share on the record date for the determination of stockholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the day next following such record date shall be adjusted to equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the opening of business on the day following the date fixed for such determination by (B) a fraction, the numerator of which shall be the sum of (I) the number of Common Units outstanding on the close of business on the date fixed for such determination and (II) the number of Common Units that the aggregate proceeds to the Partnership from the exercise of such rights, options or warrants for Common Units would purchase at such Market Price, and the denominator of which shall be the sum of (I) the number of Common Units outstanding on the close of business on the date fixed for such determination and (II) the number of additional Common Units offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately upon the opening of business on the day next following such record date (subject to paragraph (h) below). In determining whether any rights, options or warrants entitle the holders of Common Units to subscribe for or purchase Common Units at less than such Market Price, there shall be taken into account any consideration received by the Partnership upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive. (iii) If the Corporation shall distribute to all holders of its Common Shares any shares of capital stock of the Corporation (other than Common Shares) or evidence of its indebtedness or assets (excluding cash dividends or distributions paid out of assets based upon a fair valuation of the assets, in excess of the sum of the liabilities of the Corporation and the amount of stated capital attributable to Common Shares, determined on the basis of the most recent annual consolidated cost basis and current value basis and quarterly consolidated balance sheets of the Corporation and its consolidated subsidiaries available at the time of the declaration of the dividend or distribution) or rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subparagraph (ii) above to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subparagraph (ii) above) (any of the foregoing being hereinafter in this subparagraph (iii) called the "Securities"), then in each case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (B) a fraction, the numerator of which shall be the Market Price per Common Share on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the shares of capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one Common Share, and the denominator of which shall be the Current Market Price per Common Share on the record date mentioned below. Such adjustment shall become effective immediately upon the opening of business on the day next following (subject to paragraph (h) below) the record date for the determination of stockholders entitled to receive such distribution. For the purposes of this subparagraph (iii), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is required to be distributed with each Common Share delivered to a Person converting a Series C Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subparagraph (iii); provided that on the date, if any, on which a person converting a Series C Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred, and the Conversion Price shall be adjusted as provided in this subparagraph (iii) (and such day shall be deemed to be "the date fixed for the determination of the shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). Exhibit D - Series C Preferred Page 8 The occurrence of a distribution or the occurrence of any other event as a result of which holders of Series C Preferred Shares shall not be entitled to receive rights, including exchange rights (the "Rights"), pursuant to any shareholders protective rights agreement (the "Agreement") that may be adopted by the Corporation as if such holders had converted such shares into Common Shares immediately prior to the occurrence of such distribution or event shall not be deemed a distribution of Securities for the purposes of any Conversion Price adjustment pursuant to this subparagraph (iii) or otherwise give rise to any Conversion Price adjustment pursuant to this Section 7; provided, however, that in lieu of any adjustment to the Conversion Price as a result of any such a distribution or occurrence, the Corporation shall make provision so that Rights, to the extent issuable at the time of conversion of any Series C Preferred Shares into Common Shares, shall issue and attach to such Common Shares then issued upon conversion in the amount and manner and to the extent and as provided in the Agreement in respect of issuances at the time of Common Shares other than upon conversion. (iv) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this subparagraph (iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this Section 7 (other than this subparagraph (iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this Section 7, the Corporation shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in Common Shares under such plan. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this paragraph (d) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (d), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, reclassification or combination of shares, distribution of rights, options or warrants to purchase stock or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Corporation to its shareholders shall not be taxable. Exhibit D - Series C Preferred Page 9 (e) If the Partnership shall be a party to any transaction (including without limitation a merger, consolidation, partnership interest exchange, self tender offer for all or substantially all Common Units outstanding, sale of all or substantially all of the Partnership's assets or recapitalization of the Common Units (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which Common Units shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each Series C Preferred Unit that is not redeemed or converted into the right to receive stock, securities or other property in connection with such Transaction shall thereafter be convertible into the kind and amount of Units of stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Units into which one Series C Preferred Unit was convertible immediately prior to such Transaction, assuming such holder of Common Units (i) is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an affiliate of a Constituent Person and (ii) failed to exercise his or her rights of the election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Unit of the Partnership held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Unit"), then for the purpose of this paragraph (d) the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Unit shall be deemed to be the kind and amount so receivable per Unit by a plurality of the Non-Electing Units). The Partnership shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (c), and it shall not consent or agree to the occurrence of any Transaction until the Partnership has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series C Preferred Units that will contain provisions enabling the holders of the Series C Preferred Units that remain outstanding after such Transaction to convert their Series C Preferred Units into the consideration received by holders of Common Units at the Conversion Price in effect under the Articles of Designation immediately prior to such Transaction. The provisions of this paragraph (e) shall similarly apply to successive Transactions. (f) The Partnership covenants that any Common Units issued upon conversion of the Series C Preferred Units shall be validly issued and fully paid. (g) Prior to the delivery of any securities that the Partnership shall be obligated to deliver upon conversion of the Series C Preferred Units, the Partnership shall comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval or consent to the delivery thereof, by any governmental authority. (h) The Partnership shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Units or other securities or property on conversion of the Series C Preferred Units pursuant hereto; provided, however, that the Partnership shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of any Common Units or other securities or property in a name other than that of the holder of the Series C Preferred Units to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Partnership the amount of any such tax or established, to the reasonable satisfaction of the Partnership, that such tax has been paid. Exhibit D - Series C Preferred Page 10 (i) In any case in which paragraph (d) of this Section 7 provides that an adjustment shall become effective on the day next following the record date for an event, the Partnership may defer until the occurrence of such event (A) issuing to the holder of any Series C Preferred Share converted after such record date and before the occurrence of such event the additional Common Units issuable upon such conversion by reason of the adjustment required by such event over and above the Common Units issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of this Section 7. (j) There shall be no adjustment of the Conversion Price in case of the issuance of any shares of capital stock of the Partnership in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 7. If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section 7, only one adjustment shall be made, and such adjustment shall be the amount of adjustment that has the highest absolute value. (k) If the Partnership shall take any action affecting the Common Units, other than action described in this Section 7, that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the Series C Preferred Shares, the Conversion Price for the Series C Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors, in its sole discretion, may determine to be equitable in the circumstances. SECTION 8. Permissible Distributions. In determining whether a distribution (other than upon liquidation, dissolution or winding up), whether by distribution, or upon redemption or other acquisition of Units or otherwise, is permitted under Delaware law, amounts that would be needed, if the Partnership were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Units of any class or series of capital stock whose preferential rights upon dissolution are superior or prior to those receiving the distribution shall not be added to the Partnership's total liabilities. SECTION 9. Ranking. Any class or series of partnership interests of the Partnership shall be deemed to rank: (a) prior to the Series C Preferred Units, as to the payment of distributions and as to distribution of assets upon liquidation, dissolution or winding up, if the holders of such class or series shall be entitled to the receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series C Preferred Units ("Senior Units"); Exhibit D - Series C Preferred Page 11 (b) on a parity with the Series C Preferred Units, as to the payment of distributions and as to the distribution of assets upon liquidation, dissolution or winding up, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit thereof be different from those of the Series C Preferred Units, if the holders of such class of stock or series and the Series C Preferred Units shall be entitled to the receipt of distributions and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid distributions per Unit or liquidation preferences, without preference or priority one over the other ("Parity Units"); and (c) junior to the Series C Preferred Units, as to the payment of distributions or as to the distribution of assets upon liquidation, dissolution or winding up, if such stock or series shall be Common Units or Class B Limited Partnership Interests or if the holders of Series C Preferred Units shall be entitled to receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of units of such class series of partnership interest, and such class or series shall not in either case rank prior to the Series C Preferred Units ("Junior Units"). SECTION 10. Voting. (a) Other than as required by law or paragraph (b) and (c) of this Section 10, the Series C Preferred Units shall not have any voting rights or powers, and the consent of the holders thereof shall not be required for the taking of any partnership action. (b) So long as any Series C Preferred Units are outstanding, in addition to any other vote or consent of Unitholders required by the Partnership Agreement, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of Series C Preferred Units, at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any amendment, alteration of or repeal of the Partnership Agreement materially and adversely affecting, directly or indirectly, the terms and conditions of, or the rights or preferences of the Preferred Units; provided, however, that (A) the amendment or supplement of the provisions of the Partnership Agreement so as to authorize or create, or to increase the authorized amount of, any Junior Units or any Parity Units shall not be deemed to adversely affect Series C Preferred Units, and (B) any amendment, alteration of or repeal of the Partnership Agreement in connection with a merger or consolidation of GTA or the Partnership or the sale of all or substantially all of the assets of the Partnership shall not be deemed to adversely affect the Series C Preferred Units so long as (1) the Partnership is the surviving entity and the Series C Preferred Units remains outstanding with the terms thereof materially unchanged or (2) the Series C Preferred Units are exchanged for a security of the resulting, surviving or transferee entity having substantially the same terms and rights as the Series C Preferred Stock, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up. (c) So long as any Series C Preferred Units are outstanding, in addition to any other vote or consent of Unitholders required by the Partnership Agreement, the affirmative vote of 100% of the votes entitled to be cast by the holders of Series C Preferred Units, at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating the authorization or creation of, or the issuance of, any Senior Units. Exhibit D - Series C Preferred Page 12 (d) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series C Preferred Units shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. (e) Except as otherwise required by law or provided herein or elsewhere in the Partnership Agreement, the holders of Series C Preferred Units shall not be entitled to receive any notice of any proceedings of the Company or the Partnership. For purposes of the foregoing provisions of this Section 10, each Series C Preferred Unit shall have one (1) vote per Unit. SECTION 11. Record Holders. The Partnership may deem and treat the record holder of any Series C Preferred Units as the true and lawful owner thereof for all purposes, and the Partnership shall not be affected by any notice to the contrary. SECTION 12. Effective Date. These Articles of Designation shall be effective as of July 28, 1999. Exhibit D - Series C Preferred Page 13 EX-10.2(3) 5 EXHIBIT 10.2.3 ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 31, 1999 by and among GOLF TRUST OF AMERICA, L.P., as Borrower, the Guarantors referred to in this Agreement, the Lenders referred to in this Agreement, NATIONSBANK, N.A. as Administrative Agent, NATIONSBANC MONTGOMERY SECURITIES LLC, Sole Lead Arranger and Book Manager, and FIRST UNION NATIONAL BANK, As Syndication Agent and BANKBOSTON, N.A., As Documentation Agent ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS.......................................................1 SECTION 1.1 Definitions....................................................1 SECTION 1.2 General.......................................................18 SECTION 1.3 Other Definitions and Provisions..............................18 ARTICLE II REVOLVING CREDIT FACILITY.......................................18 SECTION 2.1 Loans.........................................................18 SECTION 2.2 Procedure for Advances of Loans...............................19 SECTION 2.3 Repayment of Loans............................................19 SECTION 2.4 Notes.........................................................20 SECTION 2.5 Termination of Credit Facility................................20 SECTION 2.6 Increases in Credit Facility..................................20 SECTION 2.7 Use of Proceeds...............................................21 ARTICLE IIA LETTER OF CREDIT FACILITY......................................21 SECTION 2A.1 Commitment....................................................21 SECTION 2A.2 Procedure for Issuance of Letters of Credit...................22 SECTION 2A.3 Commissions and Other Charges.................................22 SECTION 2A.4 L/C Participations............................................23 SECTION 2A.5 Reimbursement Obligation of the Borrower......................24 SECTION 2A.6 Obligations Absolute..........................................24 SECTION 2A.7 Effect of Application.........................................25 ARTICLE III GENERAL LOAN PROVISIONS........................................25 SECTION 3.1 Interest......................................................25 SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans......27 SECTION 3.3 Fees..........................................................27 SECTION 3.4 Payment.......................................................28 SECTION 3.5 Right of Set-off; Adjustments.................................28 SECTION 3.6 Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by the Administrative Agent........................29 SECTION 3.7 Indemnity.....................................................30 SECTION 3.8 Increased Cost and Reduced Return.............................30 SECTION 3.9 Limitation on Types of Loans..................................32 SECTION 3.10 Illegality....................................................32 SECTION 3.11 Treatment of Affected Loans...................................32 SECTION 3.12 Compensation..................................................32 SECTION 3.13 Taxes.........................................................33 SECTION 3.14 REIT Status...................................................34 SECTION 3.15 Senior Debt...................................................33 i ARTICLE IV GUARANTY........................................................35 SECTION 4.1 Guaranty of Obligations of the Guarantors.....................35 SECTION 4.2 Nature of Guaranty............................................35 SECTION 4.3 Demand by the Administrative Agent............................36 SECTION 4.4 Waivers.......................................................36 SECTION 4.5 Benefits of Guaranty..........................................37 SECTION 4.6 Modification of Loan Documents etc............................37 SECTION 4.7 Reinstatement.................................................38 SECTION 4.8 Waiver of Subrogation and Contribution........................38 SECTION 4.9 Remedies......................................................38 SECTION 4.10 Limit of Liability............................................38 ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING.....................39 SECTION 5.1 Closing.......................................................39 SECTION 5.2 Conditions to Closing and Initial Loan........................39 SECTION 5.3 Conditions to All Loans.......................................42 ARTICLE VI REPRESENTATIONS AND WARRANTIES..................................42 SECTION 6.1 Representations and Warranties................................42 SECTION 6.2 Survival of Representations and Warranties, Etc...............49 ARTICLE VII FINANCIAL INFORMATION AND NOTICES..............................50 SECTION 7.1 Financial Statements..........................................50 SECTION 7.2 Officer's Compliance Certificate..............................50 SECTION 7.3 Accountants'Certificate.......................................51 SECTION 7.4 Other Reports.................................................51 SECTION 7.5 Notice of Litigation and Other Matters........................51 SECTION 7.6 Accuracy of Information.......................................52 ARTICLE VIII AFFIRMATIVE COVENANTS.........................................53 SECTION 8.1 Preservation of Existence and Related Matters.................53 SECTION 8.2 Maintenance of Property.......................................53 SECTION 8.3 Insurance.....................................................53 SECTION 8.4 Accounting Methods and Financial Records......................53 SECTION 8.5 Payment and Performance of Obligations........................53 SECTION 8.6 Compliance With Laws and Approvals............................54 SECTION 8.7 Environmental Laws............................................54 SECTION 8.8 Compliance with ERISA.........................................54 SECTION 8.9 Compliance With Agreements....................................54 SECTION8.10 Unencumbered Pool.............................................55 SECTION 8.11 Visits and Inspections........................................57 SECTION 8.12 Subsidiaries..................................................57 SECTION 8.13 Further Assurances............................................57 SECTION 8.14 Line of Business..............................................57 ii SECTION 8.15 Participating Leases..........................................57 SECTION 8.16 Year 2000 Compliance..........................................57 ARTICLE IX FINANCIAL COVENANTS.............................................58 SECTION 9.1 Minimum Tangible Net Worth....................................58 SECTION 9.2 Liabilities to Assets Ratio...................................58 SECTION 9.3 Interest Coverage Ratio.......................................58 SECTION 9.4 Debt Service Coverage Ratio...................................58 SECTION 9.5 Fixed Charge Coverage Ratio...................................58 ARTICLE X NEGATIVE COVENANTS...............................................59 SECTION 10.1 Limitations on Debt...........................................59 SECTION 10.2 Limitations on Contingent Obligations.........................59 SECTION 10.3 Limitations on Liens..........................................59 SECTION 10.4 Limitations on Loans, Advances, Investments and Acquisitions..60 SECTION 10.5 Limitations on Mergers and Liquidation........................61 SECTION 10.6 Limitations on Sale of Assets.................................61 SECTION 10.7 Limitations on Dividends and Distributions....................61 SECTION 10.8 Transactions with Affiliates..................................62 SECTION 10.9 Certain Accounting Changes....................................62 SECTION 10.10 Restrictions on Prepayments...................................62 SECTION 10.11 Limitations on Improvements...................................62 SECTION 10.12 Restrictive Agreements........................................62 SECTION 10.13 Amendments....................................................62 ARTICLE XI DEFAULT AND REMEDIES............................................63 SECTION 11.1 Events of Default.............................................63 SECTION 11.2 Remedies......................................................65 SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc...............66 ARTICLE XII THE ADMINISTRATIVE AGENT.......................................66 SECTION 12.1 Appointment, Powers, and Immunities...........................66 SECTION 12.2 Reliance by Agent.............................................67 SECTION 12.3 Defaults......................................................68 SECTION 12.4 Rights as Lender..............................................68 SECTION 12.5 Indemnification...............................................68 SECTION 12.6 Non-Reliance on Agent and Other Lenders.......................69 SECTION 12.7 Resignation; Removal of Agent; Successor Agents...............69 SECTION 12.8 Documentation Agent and Syndication Agent.....................70 ARTICLE XIII MISCELLANEOUS.................................................70 SECTION 13.1 Notices.......................................................70 SECTION 13.2 Expenses; Indemnification.....................................71 SECTION 13.3 Set-off.......................................................72 iii SECTION 13.4 Governing Law.................................................72 SECTION 13.5 Consent to Jurisdiction.......................................72 SECTION 13.6 Waiver of Jury Trial..........................................73 SECTION 13.7 Reversal of Payments..........................................73 SECTION 13.8 Injunctive Relief; Punitive Damages...........................73 SECTION 13.9 Accounting Matters............................................74 SECTION 13.10 Assignments and Participations................................74 SECTION 13.11 Amendments and Waivers........................................76 SECTION 13.12 Performance of Duties.........................................76 SECTION 13.13 All Powers Coupled with Interest..............................76 SECTION 13.14 Survival of Indemnities.......................................77 SECTION 13.15 Titles and Captions...........................................77 SECTION 13.16 Severability of Provisions....................................77 SECTION 13.17 Counterparts..................................................77 SECTION 13.18 Term of Agreement.............................................77 iv EXHIBITS -------- A - Form of Revolving Credit Note B - Form of Notice of Borrowing C - Form of Notice of Repayment D - Form of Notice of Conversion/Continuation E - Form of Officer's Compliance Certificate F - Form of Assignment and Acceptance G - Form of Guaranty Supplement H - Form of Pool Valuation Certificate I - Form of "K-1" Report J-1 - Form of New Lender Supplement J-2 - Form of Commitment Increase Supplement K - Form of Lessor's Estoppel Agreement SCHEDULES --------- 1 - Lenders and Commitments 6.1(a) - Jurisdictions 6.1(b) - Subsidiaries; Capitalization 6.1(h) - Employee Benefit Plans 6.1(l) - Material Contracts 6.1(q) - Liens 6.1(r) - Debt and Contingent Obligations 6.1(s) - Litigation 8.10(b) - Unencumbered Pool (List of Properties and Property Value of Each) v AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 31st day of March, 1999, by and among (i) GOLF TRUST OF AMERICA, L.P., a limited partnership formed under the laws of Delaware (the "Borrower"), (ii) the Guarantors who are or may become a party to this Agreement, (iii) the Lenders who are or may become a party to this Agreement, (iv) NATIONSBANK, N.A. ("NationsBank"), as Administrative Agent for the Lenders, (v) FIRST UNION NATIONAL BANK, as Syndication Agent and (vi) BANKBOSTON, N.A., as Documentation Agent. STATEMENT OF PURPOSE Pursuant to a Credit Agreement, dated as of February 27, 1998 (as amended and restated, the "Original Credit Agreement"), among the Borrower, the Guarantors, the Lenders party thereto (collectively, the "Original Lenders") and NationsBank, as Administrative Agent and Bank of America National Trust and Savings Association ("BofA"), as Documentation Agent, the Original Lenders extended certain credit facilities to the Borrower. The Guarantors and the Borrower have requested, and the Lenders have agreed, to amend and restate the provisions of the Original Credit Agreement on the terms and conditions of this Agreement. All extensions of credit to the Borrower will inure to the benefit of the Guarantors, directly or indirectly. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. The following terms when used in this Agreement shall have the meanings assigned to them below: "Adjusted Eurodollar Rate" means, with respect to any Eurodollar Loan, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) mathematically determined by the Administrative Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Interest Period by (b) 1 minus the Reserve Requirement for such Interest Period. "Adjusted NOI [EBITDA]" means with respect to any Eligible Property or prospective Eligible Property, at any date of determination, the "Adjusted NOI [EBITDA]" for such Eligible Property for the twelve month period ending on or immediately prior to such date of determination, as set forth in the Borrower's Form K-1 with respect to such Eligible Property (which shall also equal the annual lease payment payable to the applicable Credit Party under the related Participating Lease, exclusive of the applicable capital expenditure reserve), subject to such adjustments as deemed reasonably appropriate by the Administrative Agent in its sole discretion. "Administrative Agent" means NationsBank in its capacity as the Administrative Agent under this Agreement, and any successor thereto appointed pursuant to Section 12.7. "Administrative Agent's Office" means the office of the Administrative Agent specified in or determined in accordance with the provisions of Section 13.1. "Affiliate" means, with respect to any Person, any other Person (other than a Subsidiary) which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person or any of its Subsidiaries. The term "control" means (a) the lawful power to vote five percent (5%) or more of the securities or other equity interests of a Person having ordinary voting power, or (b) the possession, directly or indirectly, of any other lawful power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Agents" means the collective reference to the Administrative Agent, the Documentation Agent and the Syndication Agent. "Aggregate Commitment" means the aggregate amount of the Lenders' Commitments under this Agreement, as such amount may be increased, reduced or modified at any time or from time to time pursuant to the terms of this Agreement. On the Closing Date, the Aggregate Commitment shall be Two Hundred Million Dollars ($200,000,000). "Agreement" means this Amended and Restated Credit Agreement, as amended or modified from time to time. "Applicable Law" means all applicable provisions of constitutions, statutes, laws, rules, treaties, regulations and orders of all Governmental Authorities and all orders and decrees of all courts and arbitrators. "Applicable Lending Office" means, for each Lender, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated on Schedule 1 of this Agreement or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower by written notice in accordance with the terms of this Agreement as the office by which its Loans are to be made and maintained. "Applicable Margin" has the meaning assigned thereto in Section 3.1(b). "Application" means an application, in the form specified by the Issuing Lender from time to time, requesting the Issuing Lender to issue a Letter of Credit. 2 "Assignment and Acceptance" has the meaning assigned thereto in Section 13.10 of this Agreement. "Available Commitment" means, as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Commitment over (b) such Lender's Extensions of Credit. "Base Rate" means, at any time, the higher of (a) the rate per annum equal to the rate announced by NationsBank as its "prime rate" or (b) the Federal Funds Rate plus 0.5% for such day. Any change in the Base Rate due to a change in the prime rate shall be effective on the effective date of such change in the prime rate. "Base Rate Loan" means any Loan that bears interest at the Base Rate. "Borrower" means Golf Trust of America, L.P. "Bridge Facility" shall have the meaning given to such term in Section 2.3(d). "Business Day" means (a) for all purposes other than as set forth in clause (b) immediately below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York, are open for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any Loan, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Capital Lease" means, with respect to any Person, any lease of any property that is, in accordance with GAAP, classified and accounted for as a capital lease on a Consolidated balance sheet of such Person. "Closing Date" means the date of this Agreement. "Code" means the Internal Revenue Code of 1986, and the rules and regulations thereunder, each as amended or supplemented from time to time. "Commitment" means, as to any Lender, the obligation of such Lender to make Loans to or to participate in Letters of Credit for the benefit of the Borrower under this Agreement in an aggregate principal amount at any time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 1 to this Agreement, or as set forth in any Assignment and Acceptance relating to any assignment that has become effective pursuant to Section 13.10, as the same may be reduced or modified at any time or from time to time pursuant to the terms of this Agreement. "Commitment Percentage" means, as to any Lender at any time, the ratio of (a) the amount of the Commitment of such Lender to (b) the Aggregate Commitment. 3 "Consolidated" means, when used with reference to financial statements or financial statement items of the Credit Parties, such statements or items on a consolidated basis in accordance with applicable principles of consolidation under GAAP. "Contingent Obligation" means, with respect to any Credit Party, without duplication, any obligation, contingent or otherwise, of such Person pursuant to which such Person has directly or indirectly guaranteed any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such first Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement condition or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, that the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. "Convert," "Conversion," and "Converted" shall refer to a conversion pursuant to Section 3.2, 3.9 or 3.11 of a Eurodollar Loan into a Base Rate Loan or vice versa. "Credit Facility" means the revolving credit facility established pursuant to Article II. "Credit Parties" means, collectively, the Borrower and the Guarantors. Notwithstanding Section 8.12, if GTA hereafter creates or acquires any Subsidiary and the Required Lenders elect not to require such Subsidiary to become a Guarantor, such Subsidiary shall nonetheless be deemed to be a Credit Party for purposes of this Agreement. "Date of Determination" means the effective date on which the purchase price for any Eligible Property is determined by the Borrower. "Debt" means, with respect to the Credit Parties at any date and without duplication, the sum of the following calculated in accordance with GAAP: (a) all liabilities, obligations and indebtedness including, but not limited to, obligations evidenced by bonds, debentures, notes or other similar instruments of any such Person; (b) all obligations to pay the deferred purchase price of property or services of any such Person, except trade payables arising in the ordinary course of business not more than one hundred and twenty (120) days past due; (c) all obligations of any such Person as lessee under Capital Leases; (d) all Contingent Obligations of any such Person; (e) all obligations, contingent or otherwise, of any such Person relative to the face amount of letters of credit, whether or not drawn, and banker's acceptances issued for the account of any such Person; and (f) all obligations incurred by any such Person pursuant to Hedging Agreements. "Debt Service" means, for any fiscal quarter, (a) Interest Expense of the Credit Parties for such quarter plus (b) all principal payments of Debt of the Credit Parties scheduled to be made during such quarter. 4 "Default" means any of the events specified in Section 11.1 which, with the passage of time, the giving of notice or any other condition, would constitute an Event of Default. "Defaulting Lender" has the meaning assigned thereto in Section 3.6. "Documentation Agent" means BankBoston, N.A., in its capacity as the Documentation Agent under this Agreement and any successor thereto appointed pursuant to Section 12.8. "Dollars" or "$" means, unless otherwise qualified, lawful currency of the United States. "EBITDA" means, with respect to any Person for any period, (a) Net Income of such Person for such period, excluding any extraordinary gains or other non-recurring gains or non-cash losses occurring outside the ordinary course of business including any gains or non-cash losses from the sale or other disposition of assets other than in the ordinary course of business, plus (b) the sum of the following for such period to the extent properly deducted in the determination of Net Income: (i) Interest Expense of such Person; (ii) income and franchise taxes of such Person; and (iii) amortization, depreciation and other non-cash charges (including amortization of good will and other intangible assets) of such Person, minus (c) to the extent included in the determination of Net Income (x) payments under any Participating Lease (or any mortgage or promissory note) with respect to which, at the time of determination of EBITDA, any payment is more than thirty (30) days past due, and (y) that portion of any payment under (i) any Participating Lease accrued to the Capital Replacement Fund (as defined under such Participating Lease) or (ii) the Innisbrook Loan Agreement accrued to the Capital Replacement Reserve (as defined in the Innisbrook Loan Agreement). "Eligible Assignee" means (i) a Lender, (ii) an Affiliate of a Lender, (iii) a financial institution, institutional lender or other entity that is an "accredited investor" (as defined in Rule 501 under the Securities Act of 1933, as amended) having (A) total assets of at least $10,000,000,000, (B) a long-term unsecured debt rating of at least BBB by S&P (or an equivalent rating by another nationally recognized statistical ratings organization) and (C) an office in the United States, and (iv) any other Person approved by the Administrative Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 13.10, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Lender and the Administrative Agent from the Borrower within two Business Days after written notice of such proposed assignment has been provided by the assigning Lender to the Borrower; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Eligible Properties" means (i) the Innisbrook Assets, (ii) the Legends of Virginia Golf Courses and (iii) those certain golf course properties now or hereafter owned by the Credit Parties which the Administrative Agent deems to have satisfied each of the following conditions: (a) Such property is (i) wholly-owned by a Credit Party in fee simple or (ii) subject to a Qualified Ground Lease exclusively in favor of a Credit Party. 5 (b) Such property is not subject to (i) any Lien, except Liens permitted under Section 10.3(a) through (e), inclusive, or (ii) a negative pledge or other restriction on Liens. (c) All improvements (including the golf course) to be built on such property have been substantially completed and the golf course has been in operation for at least one year. (d) Such property is located in the United States. (e) The Borrower shall have delivered to the Administrative Agent all material financial information used by the Borrower in establishing the purchase price of the property, including, without limitation, all third party reports, if any, and the Form K-1 report, substantially in the form of Exhibit I hereto, with respect to such property and operating history for the golf course for a minimum of twelve (12) months immediately preceding the Date of Determination, together with the following: (i) With respect to any property for which the Purchase Price is less than $10,000,000, a copy of the federal tax return filed by the owner and operator of such golf course property or, if available to the Borrower, financial statements of the owner and operator of the golf course property (the financial statements of the operator to be with respect to the property only), audited, reviewed or compiled by a certified public accounting firm reasonably acceptable to the Administrative Agent, for the fiscal year immediately preceding the Credit Party's acquisition of such property; (ii) With respect to any property for which the Purchase Price is at least $10,000,000 but less than $40,000,000, if available to the Borrower, financial statements of the owner and operator of such golf course property (the financial statements of the operator to be with respect to the property only), audited or reviewed by a certified public accounting firm reasonably acceptable to the Administrative Agent, for the fiscal year immediately preceding the Credit Party's acquisition of such property, and if not available, a copy of the federal tax return filed by the owner or operator of such golf course property for the fiscal year immediately preceding such Credit Party's acquisition of such property; (iii) With respect to any property for which the Purchase Price is at least $40,000,000, financial statements of the owner and operator of such golf course property (the financial statements of the operator to be with respect to the property only), audited by a certified public accounting firm reasonably acceptable to the Administrative Agent for the fiscal year immediately preceding the Credit Party's acquisition of such property; and (iv) In each case and to the extent available, monthly financial statements with respect to the property for the period from the end of the immediately preceding fiscal year-end to the date of acquisition by any Credit Party. (f) No more than fifty percent (50%) of (i) the number of Eligible Properties and (ii) the Pool Value may consist of properties located (A) within the same golf market (as determined in the reasonable discretion of the Administrative Agent) and (B) within seventy (70) miles of any other Eligible Property. 6 (g) The Borrower shall have delivered to the Administrative Agent a current Phase I Environmental Site Assessment report (an "Environmental Assessment Report") relating to each Eligible Property. Such Environmental Assessment Report shall be addressed to the Administrative Agent on behalf of the Lenders by a qualified environmental consultant, reasonably acceptable to the Administrative Agent, in form and substance (including a property condition survey) satisfactory to the Administrative Agent, indicating appropriate inquiry into the previous ownership and use of the property, which use shall have been consistent with good commercial practices, and indicating that there are no material present or potential environmental problems or material hazards on, under or about such property and confirming material compliance by the property with all applicable environmental laws; such assessment to include at least the following: historical research into previous ownership and uses, comprehensive governmental records review at federal, state and local levels, review of available aerial photographs and topographical maps, on-site visual investigation, review of surrounding land uses, and review of operating and housekeeping practices of any Credit Party (and previous owners) at the property. (h) No more than twenty percent (20%) of the Pool Value may consist of properties subject to a Qualified Ground Lease. (i) The Credit Party which owns the property shall have an owner's title insurance policy, or a binding commitment for the issuance of such policy, with respect to each property wholly owned in fee simple by such Credit Party and a leasehold policy with respect to each property which is subject to a Qualified Ground Lease, which policy shall insure such Credit Party's ownership of or a valid leasehold interest in each such property, free of all Liens except Liens permitted under Section 10.3(a) through (d), inclusive. and (iv) with the approval of the Required Lenders, any other golf course property now or hereafter owned by any Credit Party. "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower or any ERISA Affiliate or (b) has at any time within the preceding six years been maintained for the employees of the Borrower or any current or former ERISA Affiliate. "Environmental Assessment Report" has the meaning assigned thereto in clause (g) of the Eligible Properties definition. "Environmental Laws" means any and all applicable federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities, relating to the protection of human health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Materials. Environmental Laws include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. ss. 331 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 300, et seq.), the Environmental Protection Agency's regulations relating to underground storage tanks (40 C.F.R. Parts 280 and 281), and the rules and regulations promulgated under each of these statutes, each as amended or supplemented. 7 "ERISA" means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, each as amended or modified from time to time. "ERISA Affiliate" means any Person who, together with the Borrower, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA. "Eurodollar Loan" means any Loan that bears interest at a rate based on the Adjusted Eurodollar Rate. "Eurodollar Rate" means for any Eurodollar Loan for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Dow Jones Markets screen as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Event of Default" means any of the events specified in Section 11.1, provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied. "Extensions of Credit" means, as to any Lender at any time, an amount equal to the aggregate principal amount of all Loans made by such Lender and all participations by such Lender in Letters of Credit then outstanding. "FDIC" means the Federal Deposit Insurance Corporation, or any successor thereto. "Federal Funds Rate" means the rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) representing the daily effective federal funds as quoted by the Administrative Agent and confirmed in Federal Reserve Board Statistical Release H.15 (519) or any successor or substitute publication selected by the Administrative Agent. If, for any reason, such rate is not available, then "Federal Funds Rate" shall mean a daily rate which is determined, in the opinion of the Administrative Agent, to be the rate at which federal funds are being offered for sale in the national federal funds market at 9:00 a.m. (Charlotte time). Rates for weekends or holidays shall be the same as the rate for the most immediate preceding Business Day. 8 "Fiscal Year" means with respect to any Credit Party, the fiscal year of such Credit Party ending on December 31. "Fixed Charges" means, for any fiscal quarter, (a) Interest Expense of the Credit Parties for such quarter plus (b) all principal payments of Debt of the Credit Parties scheduled to be made during such quarter plus (c) all payments of dividends or other distributions on preferred stock (whether in cash or in kind) scheduled to made or accrued during such quarter. "Funds from Operations" means, with respect to the Credit Parties on a Consolidated basis, Net Income less, to the extent included in the determination of Net Income, (a) the income (or loss) of any Person (other than a Subsidiary of a Credit Party) in which such Credit Party has a minority ownership interest, (b) the income (or loss) arising from the restructuring of any Debt or the disposition of any asset (other than in the ordinary course of business) plus, without duplication, real estate depreciation and amortization (but excluding therefrom any amortization of financing costs), in each case for the Credit Parties on a Consolidated basis for the relevant period in accordance with GAAP. "GAAP" means generally accepted accounting principles, as recognized by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, consistently applied and maintained on a consistent basis for the Credit Parties throughout the period indicated and consistent with the prior financial practice of the Credit Parties. "Governmental Approvals" means all required authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities. "Governmental Authority" means any applicable nation, province, state or political subdivision thereof, and any government or any Person exercising executive, legislative, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Gross Golf Revenues" means, with respect to any operator of an Eligible Property for any period, all revenues accrued (whether by operator or any subtenants, assignees, concessionaires or licensees of any Credit Party) from or by reason of the operation of the golf operations at the Eligible Property to which such Credit Party is entitled, calculated in accordance with GAAP (but excluding reasonable reserves for refunds, allowances and bad debts applicable to such operations), including, without limitation, (i) revenues from membership initiation fees, to the extent provided in the applicable Participating Lease or other relevant governing agreement, (ii) periodic membership dues, (iii) greens fees, (iv) fees to reserve a tee time, (v) guest fees, (vi) golf cart rentals, (vii) parking lot fees, (viii) locker rentals, (ix) fees for golf club storage, (x) fees for the use of swim, tennis or other facilities, (xi) charges for range balls, range fees or other fees for golf practice facilities, (xii) fees or other charges paid for golf or tennis lessons (except where retained by or paid to a USTA or a PGA professional in accordance with historical practice at such Eligible Property), (xiii) fees or other charges for fitness centers, (xiv) forfeited deposits with respect to any membership application, (xv) transfer fees imposed on any member in connection with the transfer of any membership interest, (xvi) fees or other charges paid to such operator by sponsors of golf tournaments at such Eligible Property, to the extent provided in the applicable Participating Lease or other relevant governing agreements, (xvii) advertising or placement fees paid by vendors in exchange for exclusive use or name rights at such Eligible Property, and (xviii) fees received in connection with any golf package sponsored by any hotel group, condominium group, golf association, travel agency, tourist or travel association or similar payments; provided, however, that Gross Golf Revenues shall not include: 9 (a) Any revenue received from or by reason of such Eligible Property relating to (i) the operation of snack bars, restaurants, bars, catering functions and banquet operations, (ii) the sale of merchandise and inventory on such Eligible Property, and (iii) photography services. (b) The amount of any city, county, state or federal sales, admissions, usage, or excise tax on any item included in Gross Golf Revenue, which is both added to or incorporated in the selling price and paid to the taxing authority by such operator; (c) Revenues or proceeds from sales or trade-ins of machinery, vehicles, trade fixtures or personal property owned by such operator used in connection with the operation of such Eligible Property; and (d) Any other revenues or proceeds to which the Credit Parties are not entitled. "GTA" means Golf Trust of America, Inc., a Maryland corporation. "GTA GP" means GTA GP, Inc., a Maryland corporation. "GTA LP" means GTA LP, Inc., a Maryland corporation. "Guaranteed Obligations" has the meaning assigned thereto in Section 4.1. "Guarantors" means, collectively, GTA, GTA GP and GTA LP and each such other person executing this Agreement as a Guarantor, as set forth on the signature pages hereto, together with any Subsidiaries of GTA that become Guarantors pursuant to Section 8.12. "Guaranty" means the Guarantors' obligations set forth in Article IV. "Hazardous Materials" means any substances or materials (a) which are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants, chemical substances or mixtures or toxic substances under any applicable Environmental Law, (b) which are toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human health or the environment and are or become regulated by any Governmental Authority with jurisdiction, (c) the presence of which require investigation or remediation under any applicable Environmental Law or common law, (d) the discharge or emission or release of which requires a permit or license under any Environmental Law or other Governmental Approval, (e) which are deemed to constitute a nuisance or a trespass or pose a health or safety hazard to persons or neighboring properties, (f) which are materials consisting of underground or aboveground storage tanks, whether empty, filled or partially filled with any toxic substance, or (g) which contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas, excepting, however, any such materials lawfully operated and/or managed pursuant to applicable Environmental Laws. 10 "Hedging Agreement" means any agreement with respect to an interest rate swap, collar, cap or floor or a forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of the Borrower under this Agreement, and any confirming letter executed pursuant to such hedging agreement, all as amended, restated or otherwise modified. "Innisbrook Assets" means all of the Borrower's right, title and interest in and to: (a) the Promissory Note, dated June 20, 1997, made by Golf Host Resorts, Inc. ("Golf Host") in favor of the Borrower (the "Innisbrook Note"); (b) the Loan Agreement, dated June 20, 1997, between Golf Host and the Borrower, as amended by that certain First Amendment dated as of October 1, 1998 (the "Innisbrook Loan Agreement"); (c) the Mortgage, Security Agreement and Fixture Filing, dated as of June 20, 1997, between Golf Host and the Borrower (the "Innisbrook Mortgage"); and (d) each other document executed in connection with the transactions contemplated by the Innisbrook Loan Agreement, all as amended, restated or supplemented from time to time. "Interest Expense" means, with respect to any Person for any period, the gross interest expense (including, without limitation, capitalized interest and interest expense attributable to Capital Leases) of such Person, all determined for such period on a Consolidated basis in accordance with GAAP. "Interest Period" means each period of thirty (30) days with respect to which the Eurodollar Rate shall be determined under this Agreement; provided that: (a) each Interest Period shall commence on the date of advance of or Conversion to any Eurodollar Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the next preceding Interest Period expires; (b) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; 11 (c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period; (d) no Interest Period shall be permitted to extend beyond the Termination Date; and (e) there shall be no more than seven (7) Interest Periods outstanding at any time. "Issuing Lender" means NationsBank in its capacity as issuer of any Letter of Credit, or any successor thereto. "L/C Commitment" means Ten Million Dollars ($10,000,000). "L/C Facility" means the letter of credit facility established pursuant to Article IIA. "L/C Participants" means, collectively, all Lenders other than the Issuing Lender. "Legends of Myrtle Beach Golf Courses" means Heathland, Moorland and Parkland. "Legends of Virginia Golf Courses" means Stonehouse Golf Club and Royal New Kent. "Lender" means each Person executing this Agreement as a Lender set forth on the signature pages hereto and each Person that hereafter becomes a party to this Agreement as a Lender pursuant to Section 13.10. "Lending Office" means, with respect to any Lender, the office of such Lender maintaining such Lender's Commitment Percentage of the Loans. "Lessee" means the operator of a golf course property under a Participating Lease. "Letter of Credit Obligations" means, at any time, an amount equal to the sum of (a) the aggregate undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 2A.5. "Letters of Credit" has the meaning assigned thereto in Section 2A.1(a). "Leverage Ratio" means the ratio of Total Liabilities to Total Assets. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. 12 "Loan" means any loan made to the Borrower pursuant to Article II and all such loans collectively as the context requires. "Loan Documents" means, collectively, this Agreement, the Notes and each other document, instrument and agreement executed and delivered by any Credit Party or on behalf of such entity by its counsel in connection with this Agreement or otherwise referred to in this Agreement or contemplated hereby, all as may be amended, restated or otherwise modified. "Material Adverse Effect" means, with respect to any Credit Party, a material adverse effect on the properties, business, prospects, operations or condition (financial or otherwise) of any such Person or the ability of any such Person to perform its material obligations under the Loan Documents, Participating Leases or Material Contracts, in each case to which it is a party, after the applicable notice and cure periods, if any, have elapsed. "Material Contract" means (a) any contract or other agreement, written or oral, of any Credit Party involving monetary liability of or to any such Person in an amount in excess of $250,000 per annum, or (b) any other contract or agreement, written or oral, of any Credit Party the failure to comply with which could reasonably be expected to have a Material Adverse Effect. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions within the preceding six years. "Myrtle Beach Golf Courses" means, collectively, Heathland, Moorland, Parkland, Heritage Golf Club and Oyster Bay. "NationsBank" means NationsBank, N.A., a national banking association, and its successors. "Net Income" means, with respect to the Credit Parties for any period, the Consolidated net income (or loss) of the Credit Parties for such period determined in accordance with GAAP. "Net Income Before Coverage Ratio" means with respect to any Eligible Property or prospective Eligible Property, at any date of determination, the "net income before coverage ratio" for such Eligible Property for the twelve month period ending on or immediately prior to such date of determination, as set forth in the Borrower's Form K-1 with respect to such Eligible Property and after provision for a capital expenditure reserve of at least 3.00%, subject to such adjustments as deemed reasonably appropriate by the Agent in its sole discretion. "Notes" means the separate promissory notes made by the Borrower payable to the order of each of the Lenders, substantially in the form of Exhibit A hereto, evidencing the Credit Facility, and any amendments, modifications and supplements thereto, any substitutes therefor, and any replacements, restatements, renewals or extension thereof, in whole or in part; "Note" means any of such Notes. 13 "Notice of Repayment" has the meaning assigned thereto in Section 2.3(c). "Notice of Borrowing" has the meaning assigned thereto in Section 2.2(a). "Obligations" means, in each case, whether now in existence or hereafter arising: (a) the principal of and interest on (including interest accruing after the filing of any bankruptcy or similar petition) the Loans; (b) the Letter of Credit Obligations; (c) all payment and other obligations owing by the Borrower to any Lender under any Hedging Agreement; and (d) all other fees and commissions (including attorney's fees), charges, indebtedness, loans, liabilities, financial accommodations, obligations, covenants and duties owing by the Borrower to the Lenders or the Agent, of every kind, nature and description, direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note, and whether or not for the payment of money under or in respect of this Agreement, any Note or any of the other Loan Documents. "Officer's Compliance Certificate" has the meaning assigned thereto in Section 7.2. "Original Credit Agreement" has the meaning assigned thereto in the Statement of Purpose. "Other Taxes" has the meaning assigned thereto in Section 3.13(b). "Participating Lease" means each Lease between any Credit Party, as lessor and the operator of a golf course property, as the lessee. "PBGC" means the Pension Benefit Guaranty Corporation or any successor agency. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (a) is maintained for employees of the Borrower or any ERISA Affiliates or (b) has at any time within the preceding six years been maintained for the employees of the Borrower or any of their current or former ERISA Affiliates. "Permitted Liens" means any Liens permitted under Section 10.3. "Person" means an individual, corporation, partnership, association, trust, business trust, joint venture, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity or group thereof. "Pool Valuation Certificate" means the Pool Value report to be delivered by the Borrower, substantially in the form of Exhibit H. "Pool Value" means the aggregate Property Value of all Eligible Properties in the Unencumbered Pool. 14 "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by NationsBank as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by NationsBank as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks. "Property Value" means the value of each Eligible Property determined in accordance with Section 8.10(b). "Purchase Price," with respect to any golf course property, means the purchase price paid by any Credit Party, including all assumption of debt and other consideration, for such golf course property. "Qualified Ground Lease" means (i) the Oyster Bay lease and (ii) any other lease (a) which is a direct ground lease (or indirect ground lease, so long as each ground lease in the chain of title meets the following criteria) granted by the fee owner of real property, (b) which may be transferred and/or assigned without the consent of the lessor (or as to which the lease expressly provides that (i) such lease may be transferred and/or assigned with the consent of the lessor and (ii) such consent shall not be unreasonably withheld or delayed), (c) which has a remaining term (including any renewal terms exercisable at the sole option of the lessee) of at least 25 years, (d) under which no material default has occurred and is continuing, (e) with respect to which a security interest may be granted without the consent of the lessor, and (f) which contains lender protection provisions reasonably acceptable to the Administrative Agent including, without limitation, provisions to the effect that (A) the lessor shall notify the Administrative Agent of the occurrence of any default by the lessee under such lease and shall afford the Administrative Agent the right to cure such default, and (B) in the event that such lease is terminated, the Administrative Agent shall have the option to enter into a new lease having terms substantially identical to those contained in the terminated lease. Upon the submission to the Administrative Agent of a written request for approval of the lender protection provisions and other terms of a proposed Qualified Ground Lease, the Administrative Agent may waive any non-compliances with the foregoing which it considers in its reasonable judgment not to be material and adverse with respect to the eligibility of the golf course property subject to the Qualified Ground Lease, and shall use its best effort to accept or reject such proposal within five (5) Business Days, and shall accept or reject such proposal within ten (10) Business Days, in each case following receipt of such request. "Register" has the meaning assigned thereto in Section 13.10(b). "Required Lenders" means, at any date, any combination of holders other than Defaulting Lenders of at least sixty-six and two-thirds percent (66-2/3%) of the aggregate unpaid principal amount of the Notes exclusive of Notes held by Defaulting Lenders, or if no amounts are outstanding under the Notes, any combination of Lenders other than Defaulting Lenders whose Commitment Percentages would aggregate at least sixty-six and two-thirds percent (66-2/3%) if the Commitments of each Defaulting Lender were excluded from the Aggregate Commitment. 15 "Reimbursement Obligation" means the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 2A.5 for amounts drawn under Letters of Credit. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Seasoned Eligible Property" means any Eligible Property (a) that has been owned by any Credit Party for at least twelve months or (b) with respect to Eligible Properties owned less than twelve months, for which at least twelve months of historical financial statements are available in form and substance reasonably acceptable to the Agent. "S&P" means Standard and Poors Ratings Group. "Solvent" means, as to the Credit Parties on a particular date, that any such Person (a) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage and is able to pay its debts as they mature, (b) owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liabilities (including contingencies), and (c) does not believe that it will incur debts or liabilities beyond its ability to pay such debts or liabilities as they mature. "Stock" means all shares, options, interests or other equivalents (howsoever designated) of or in a corporation, whether voting or nonvoting, including, without limitation, common stock, warrants, preferred stock, convertible debentures and all agreements, instruments and documents convertible, in whole or in part, into any one or more or all of the foregoing. "Subordinated Debt" means all Debt of any Credit Party subordinated in right and time of payment to the Obligations on terms satisfactory to the Administrative Agent and Required Lenders. "Subsidiary" means, as to any Person, any corporation, partnership or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership or other entity is at the time, directly or indirectly, owned by or the management is otherwise controlled by such Person (irrespective of whether, at the time, capital stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency). Unless otherwise qualified, references to "Subsidiary" or "Subsidiaries" in this Agreement shall refer to those of GTA. 16 "Syndication Agent" means First Union National Bank, in its capacity as the Syndication Agent under this Agreement and any successor thereto appointed pursuant to Section 12.8. "Tangible Net Worth" means, as of any date, Total Assets (but excluding therefrom capitalized interest, debt discount and expense, goodwill, patents, trademarks, copyrights, franchises, licenses, amounts due from officers, directors, stockholders and Affiliates and any other items which would be treated as intangibles under GAAP), less Total Liabilities. "Taxes" has the meaning assigned thereto in Section 3.13(a). "Termination Date" means the earliest of the dates referred to in Section 2.5. "Termination Event" means: (a) a "Reportable Event" described in Section 4043 of ERISA; or (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC; or (e) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (f) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan; or (g) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (h) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA; or (i) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA. "Total Assets" means, as of any date, the aggregate amount of (a) all assets which would be reflected on a Consolidated balance sheet of the Credit Parties prepared in accordance with GAAP plus (b) accumulated depreciation in accordance with GAAP plus (c) an amount equal to $51,403,099, the difference between (x) the total consideration paid for The Heritage Golf Club, The Legends Golf Club and Oyster Bay Golf Club and (y) the aggregate book value of such golf course properties as shown on the Consolidated balance sheet of the Credit Parties due to downward adjustments required by APB No. 16. "Total Liabilities" means, as of any date, the sum of (i) the aggregate amount of all liabilities which would be reflected on a Consolidated balance sheet of the Credit Parties prepared in accordance with GAAP and (ii) the aggregate amount of all Contingent Obligations of the Credit Parties. "UCC" means the Uniform Commercial Code as in effect in the State of North Carolina. 17 "UCP" means the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500. "Unencumbered Pool" has the meaning assigned thereto in Section 8.10. "United States" means the United States of America. SECTION 1.2 General. Unless otherwise specified, a reference in this Agreement to a particular section, subsection, Schedule or Exhibit is a reference to that section, subsection, Schedule or Exhibit of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Any reference in this Agreement to "Charlotte time" shall refer to the applicable time of day in Charlotte, North Carolina. SECTION 1.3 Other Definitions and Provisions. (a) Use of Capitalized Terms. Unless otherwise defined therein, all capitalized terms defined in this Agreement shall have the defined meanings when used in this Agreement, the Notes and the other Loan Documents or any certificate, report or other document made or delivered pursuant to this Agreement. (b) Miscellaneous. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. ARTICLE II REVOLVING CREDIT FACILITY SECTION 2.1 Loans. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Loans to the Borrower from time to time from the Closing Date through, but not including, the Termination Date as requested by the Borrower in accordance with the terms of Section 2.2; provided, that (a) the aggregate principal amount of all outstanding Loans (after giving effect to any amount requested) and Letter of Credit Obligations shall not exceed the Aggregate Commitment, (b) the principal amount of outstanding Loans from any Lender to the Borrower plus such Lender's Commitment Percentage of the Letter of Credit Obligations then outstanding shall not at any time exceed such Lender's Commitment and (c) the Pool Value shall at all times be at least 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the outstanding Obligations). Each Loan by a Lender shall be in a principal amount equal to such Lender's Commitment Percentage of the aggregate principal amount of Loans requested on such occasion. Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow Loans under this Agreement until the Termination Date. 18 SECTION 2.2 Procedure for Advances of Loans. (a) Requests for Borrowing. The Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached hereto as Exhibit B (a "Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) (i) at least two (2) Business Days before each Base Rate Loan and (ii) at least three (3) Business Days before each Eurodollar Loan, of its intention to borrow, specifying (A) the date of such borrowing, which shall be a Business Day, (B) the amount of such borrowing, which shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof, and (C) whether such Loan is to be a Eurodollar Loan or a Base Rate Loan. Notices received after 11:00 a.m. (Charlotte time) shall be deemed received on the next Business Day. The Administrative Agent shall promptly notify the Lenders of each Notice of Borrowing. (b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte time) on the proposed borrowing date, each Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, such Lender's Commitment Percentage of the Loans to be made on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section 2.2 in immediately available funds by crediting such proceeds to a deposit account of the Borrower maintained with the Administrative Agent or by wire transfer to such account as may be agreed upon by the Borrower and the Administrative Agent from time to time. Unless the Administrative Agent shall have received notice from a Lender that such Lender will not make available to the Administrative Agent such Lender's Commitment Percentage of the requested Loan, the Administrative Agent shall disburse such Lender's Commitment Percentage of the Loans. SECTION 2.3 Repayment of Loans. (a) Repayment on Termination Date. The Borrower shall repay the outstanding principal amount of all Loans in full, together with all accrued but unpaid interest thereon, on the Termination Date. (b) Mandatory Repayments. (i) If at any time the outstanding principal amount of all Loans plus the Letter of Credit Obligations exceeds the Aggregate Commitment or the Pool Value is less than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the amount of the outstanding Obligations), the Borrower shall repay immediately upon written notice from the Administrative Agent, by payment to the Administrative Agent for the account of the Lenders, the Loans in an amount necessary to bring the Borrower into compliance. (ii) The Loans shall also be prepaid by any amount required to be paid under Section 10.6 of this Agreement. 19 (iii) Each such repayment under this Section 2.3(b) shall be (i) accompanied by any amount required to be paid pursuant to Section 3.12 of this Agreement, together with interest accrued thereon to the date of repayment and (ii) applied first to the outstanding Base Rate Loans up to the full amount thereof and second to the outstanding Eurodollar Loans up to the full amount thereof. (c) Optional Repayments. The Borrower may, subject to Section 2.3(d), at any time and from time to time repay the Loans, in whole or in part, by giving the Administrative Agent irrevocable notice in the form attached hereto as Exhibit C (a "Notice of Repayment") not later than 11:00 a.m. (Charlotte time) at least three (3) Business Days before each prepayment of a Loan specifying the date and amount of repayment, provided, however, that the Borrower may not repay any Eurodollar Loan on any day other than the last day of the Interest Period applicable thereto unless such payment is accompanied by any amount required to be paid pursuant to Section 3.12 of this Agreement. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender. If any such notice is given, the amount specified in such notice shall be due and payable on the date set forth in such notice. Partial repayments shall be in an aggregate amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each such repayment shall be accompanied by any amount required to be paid pursuant to Section 3.12 of this Agreement. (d) Restriction on Repayments. The Loans may not be voluntarily repaid prior to the repayment in full of any loans outstanding under the Credit Agreement dated as of March 31, 1999 between the Borrower, the Guarantors and NationsBank, as lender (the "Bridge Facility"). Upon the occurrence and during the continuance of an Event of Default, this Section 2.3(d) shall not be applicable and the Obligations of the Borrower under this Agreement and the obligations of the Borrower under the Bridge Facility shall be pari passu. SECTION 2.4 Notes. Each Lender's Loans and the obligation of the Borrower to repay such Loans shall be evidenced by a Note executed by the Borrower payable to the order of such Lender representing the Borrower's obligation to pay such Lender's Commitment or, if less, the aggregate unpaid principal amount of all Loans made and to be made by such Lender to the Borrower under this Agreement, plus interest and all other fees, charges and other amounts due thereon as required under this Agreement. Each Note shall bear interest on the unpaid principal amount thereof at the applicable interest rate per annum specified in Section 3.1. SECTION 2.5 Termination of Credit Facility. The Credit Facility shall terminate on the earlier of (a) the third anniversary of the Closing Date, and (b) the date of termination by the Administrative Agent on behalf of the Lenders pursuant to Section 11.2(a). 20 SECTION 2.6 Increases in Credit Facility. The Borrower shall have the right, on ten (10) Business Days' prior written notice to the Administrative Agent (a copy of which shall be furnished to the Lenders by the Administrative Agent), so long as no Default or Event of Default shall have occurred and be continuing, at any time and from time to time prior to the first anniversary of the Closing Date, to increase the total amount of the Aggregate Commitment by (a) accepting the offer or offers of any Person or Persons (not then a Lender) with the consent of the Administrative Agent constituting an Eligible Assignee to become a new Lender hereto with a Commitment up to the amount of any such increase and/or (b) accepting the offer of any existing Lender or Lenders to increase its (or their) Commitment up to the amount of any such increase; provided, however, that (i) in no event shall any Lender's Commitment be increased without the consent of such Lender, (ii) if any Loans are outstanding hereunder on the date that any such increase is to become effective, the Administrative Agent and Lenders shall make such transfers of funds as are necessary in order that the outstanding balance of such Loans reflect the Commitment Percentages of the Lenders after giving effect to any increase pursuant to this Section 2.6 (iii) each such increase shall be in minimum amounts of at least Five Million Dollars ($5,000,000), and (iv) in no event shall any such increase result in the amount of the Aggregate Commitment exceeding Two Hundred Twenty-five Million Dollars ($225,000,000). Any increase to the Commitment pursuant to clause (a) of the first sentence of this Section 2.6 shall become effective upon the execution of a supplement in the form of Exhibit J-1 hereto (a "New Lender Supplement") by the Borrower, Administrative Agent and the applicable new Lender or Lenders together with a corresponding Note, and any increase to the Commitment pursuant to clause (b) of the first sentence of this Section 2.6 shall become effective upon the execution of a supplement in the form of Exhibit J-2 hereto (a "Commitment Increase Supplement"), executed by the Borrower, the Administrative Agent and the applicable increasing Lender or Lenders, together with a replacement Note. The Administrative Agent shall forward copies of any such supplement to the Lenders and Credit Parties promptly upon receipt thereof. Increases in the Aggregate Commitment shall permanently reduce the committed amount under the Bridge Facility. SECTION 2.7 Use of Proceeds. The Borrower shall use the proceeds of the Loans and the Letters of Credit (a) first, to pay in full the existing Debt under the Original Credit Agreement, (b) then to repay the existing Debt under the Credit Agreement dated as of July 9, 1998 between the Borrower, certain of the Guarantors, NationsBank as Administrative Agent and Lender, and Bank of America as Documentation Agent and Lender, and (c) then to finance the purchase of golf courses; provided that up to 20% of the Aggregate Commitment may be used for working capital and general corporate requirements of the Borrower, including, without limitation, the payment of certain fees and expenses incurred in connection with this transaction. ARTICLE IIA LETTER OF CREDIT FACILITY SECTION 2A.1 Commitment. Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 2A.4(a), agrees to issue standby letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day from the Closing Date through, but not including, the date which is sixty (60) days prior to the Termination Date in such form as may be approved from time to time by the Issuing Lender; provided, that the Issuing Lender shall have no obligation to (and shall not, without the prior consent of all of the Lenders) issue any Letter of Credit if, after giving effect to such issuance, (a) the Letter of Credit Obligations would exceed the L/C Commitment or (b) the sum of the aggregate principal amount of all outstanding Loans and Letter of Credit Obligations would exceed the Aggregate Commitment or (c) the Pool Value is less than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the amount of the outstanding Obligations). Each Letter of Credit shall (i) be denominated in Dollars, (ii) be a standby letter of credit issued to support obligations of the Borrower, contingent or otherwise, incurred in the ordinary course of business, (iii) expire on a date not more than one year later in the case of a standby letter of credit but in no event later than the Termination Date, and (iv) be subject to the UCP and, to the extent not inconsistent therewith, the laws of the State of North Carolina. The Issuing Lender shall not issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any Applicable Law. References herein to "issue" and derivations thereof with respect to Letters of Credit shall also include extensions, modifications or confirmations of any existing Letters of Credit, unless the context otherwise requires. 21 SECTION 2A.2 Procedure for Issuance of Letters of Credit. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at the Administrative Agent's Office an Application therefor, completed to the reasonable satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any Application, the Issuing Lender shall process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, subject to Section 2A.1 and Article V, promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three (3) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing Lender shall furnish to the Borrower a copy of such Letter of Credit and furnish to each Lender a copy of such Letter of Credit and the amount of each Lender's participation therein, determined in accordance with Section 2A.4(a), all promptly following the issuance of such Letter of Credit. SECTION 2A.3 Commissions and Other Charges. (a) The Borrower shall pay to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants, a letter of credit commission on the face amount of each Letter of Credit in an amount per annum equal to the then Applicable Margin, determined in accordance with Section 3.1(b). Such commission shall be payable quarterly in arrears on the last Business Day of each calendar quarter and on the Termination Date. (b) In addition to the foregoing commission, the Borrower shall pay the Issuing Lender an issuance fee of 0.125 percent (0.125%) per annum on the face amount of each Letter of Credit, payable quarterly in arrears on the last Business Day of each calendar quarter and on the Termination Date. (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Lender and the L/C Participants all commissions received by the Administrative Agent in accordance with their respective Commitment Percentages. 22 SECTION 2A.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Commitment Percentage in the Issuing Lender's obligations and rights under and in respect of each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Administrative Agent for the account of the Issuing Lender upon demand, and upon one (1) Business Day's notice, an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed, which payment shall constitute a Base Rate Loan by such L/C Participant to the Borrower as provided in Section 2A.5. (b) Upon becoming aware of any amount required to be paid by any L/C Participant to the Administrative Agent for the account of the Issuing Lender pursuant to Section 2A.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit, the Issuing Lender shall notify the Administrative Agent who, in turn, shall notify each L/C Participant of the amount and due date of such required payment and such L/C Participant shall pay to the Administrative Agent for the account of the Issuing Lender the amount specified on the applicable due date. If any such amount is paid to the Administrative Agent for the account of the Issuing Lender after the date such payment is due, upon one (1) Business Day's notice such L/C Participant shall pay to the Administrative Agent for the account of the Issuing Lender, in addition to such amount, the product of (i) such amount, times (ii) the daily average Federal Funds Rate as determined by the Administrative Agent during the period from and including the date such payment is due to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. A certificate of the Issuing Lender with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. With respect to payment to the Administrative Agent for the account of the Issuing Lender of the unreimbursed amounts described in this Section 2A.4(b), if the L/C Participants receive notice that any such payment is due, such payment shall be due on the following Business Day. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its Commitment Percentage of such payment in accordance with this Section 2A.4, the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise), or any payment of interest on account thereof, the Issuing Lender will promptly distribute to such L/C Participant its pro rata share thereof; provided, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. 23 SECTION 2A.5 Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft paid under any Letter of Credit for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Article IIA from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Base Rate Loans which were then overdue. If the Borrower fails to timely reimburse the Issuing Lender on the date the Borrower receives the notice referred to in this Section 2A.5, the Borrower shall be deemed to have timely given a Notice of Borrowing hereunder to the Administrative Agent requesting the Lenders to make a Base Rate Loan on such date in an amount equal to the amount of such drawing and, subject to the satisfaction or waiver of the conditions precedent specified in Article V, the Lenders shall make Base Rate Loans in such amount, the proceeds of which shall be applied to reimburse the Issuing Lender for the amount of the related drawing and costs and expenses. SECTION 2A.6 Obligations Absolute. The Borrower's obligations under this Article IIA (including, without limitation, the Reimbursement Obligation) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any L/C Participant or any beneficiary of a Letter of Credit. The Borrower also agrees with the Issuing Lender that the Issuing Lender and L/C Participants shall not be responsible for, and the Borrower's Reimbursement Obligation under Section 2A.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of a Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender and L/C Participants shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit; provided, that the Issuing Lender shall be responsible for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct or breach under this Agreement. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct or breach under this Agreement and in accordance with the standards of care specified in the UCP and, to the extent not inconsistent therewith, the UCC shall be binding on the Borrower and shall not result in any liability of the Issuing Lender or any L/C Participant to the Borrower. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 24 SECTION 2A.7 Effect of Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Article IIA, the provisions of this Article IIA shall apply. ARTICLE III GENERAL LOAN PROVISIONS SECTION 3.1 Interest. (a) Interest Rate Options. Subject to the provisions of this Section 3.1, at the election of the Borrower in accordance with Article II, the unpaid principal balance of any Loan shall bear interest at (A) the Base Rate, or (B) the Adjusted Eurodollar Rate plus the Applicable Margin. The Borrower shall select the type of interest rate applicable to any Loan at the time a Notice of Borrowing is given pursuant to Section 2.2(a) or at the time a Notice of Conversion/Continuation is given pursuant to Section 3.2. Any Loan as to which the Borrower has not duly specified an interest rate as provided immediately above shall be deemed a Base Rate Loan. (b) Applicable Margin. The applicable margin provided for in Section 3.1(a) with respect to the Eurodollar Loans (the "Applicable Margin") shall be determined by reference to the Leverage Ratio as of the end of each fiscal quarter, as follows: Leverage Ratio Applicable Margin Per Annum -------------- --------------------------- Greater than or equal to 2.00% .50 to 1.00 Greater than or equal to 1.75% .375 to 1.00 but less than .50 to 1.00 Less than .375 to 1.00 1.50% Adjustments, if any, in the Applicable Margin based on the Leverage Ratio shall be made by the Administrative Agent on the tenth (10th) Business Day (each an "Adjustment Date") after receipt by the Administrative Agent of quarterly financial statements for GTA and the other Credit Parties and the accompanying Officer's Compliance Certificate setting forth the Leverage Ratio of GTA and the other Credit Parties as of the most recent fiscal quarter end. Subject to Section 3.1(c), in the event such financial statements and certificate of covenant compliance are not delivered within the time required by Sections 7.1 and 7.2, the Applicable Margin shall be the highest Applicable Margin set forth above until the Adjustment Date following the delivery of such financial statements and certificate or evidence of covenant compliance, as applicable. 25 Notwithstanding the foregoing, at such time as the Borrower or GTA obtains an investment-grade senior debt rating by Moody's and S&P (the "Dual Rating") and for so long as the Borrower or GTA retains such Dual Rating, the Applicable Margin shall be determined by reference to the lower of Moody's or S&P's ratings thereof in accordance with the following pricing matrix: Senior Debt Rating Applicable Margin Per Annum ------------------ --------------------------- BBB/Baa2 or higher 1.25% BBB-/Baa3 1.35% ; provided, that, in the event the Borrower or GTA obtains an investment-grade senior debt rating by either Moody's (Baa3 or higher) or S&P (BBB- or higher) (the "Senior Rating"), and provided the rating of the other rating agency is not less than the grade immediately below investment grade (i.e., Ba1 if Moody's and BB+ if S&P) (the "Junior Rating" and collectively with the Senior Rating, the "Combined Rating")) and for so long as the Borrower or GTA retains such Combined Rating, the Applicable Margin shall be 1.50% per annum. In the event the Borrower or GTA, as applicable, loses (i) the Dual Rating or (ii) the Senior Rating or the Junior Rating, as applicable, the Applicable Margin shall thereafter be determined by reference to the Leverage Ratio as provided above until such time as the Borrower or GTA obtains a Dual Rating or a Combined Rating. (c) Default Rate. Upon the occurrence and during the continuance of an Event of Default, (i) the Borrower shall no longer have the option to request or Convert to Eurodollar Loans, (ii) all outstanding Eurodollar Loans may at the option of the Administrative Agent and shall at the direction of the Required Lenders bear interest at a rate per annum which shall be two percent (2%) in excess of the rate then applicable to Eurodollar Loans, as applicable, until the end of the applicable Interest Period and thereafter at a rate equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans, and (iii) all outstanding Base Rate Loans shall bear interest at a rate per annum equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans. Interest shall continue to accrue on the Notes after the filing by or against the Borrower of any petition seeking any relief in bankruptcy or under any act or law pertaining to insolvency or debtor relief, whether state, federal or foreign. (d) Interest Payment and Computation. Interest on each Base Rate Loan shall be payable in arrears on the last Business Day of each month, commencing April 30, 1999, and on the Termination Date. Interest on each Eurodollar Loan shall be payable in arrears on the last day of each applicable Interest Period and on the Termination Date. All interest rates, fees and commissions provided under this Agreement shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed. (e) Maximum Rate. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest under this Agreement or under any of the Notes charged or collected pursuant to the terms of this Agreement or pursuant to any of the Notes exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Lenders have charged or received interest under this Agreement in excess of the highest rate permissible under Applicable Law, the rate in effect under this Agreement shall automatically be reduced to the maximum rate permitted by Applicable Law and the Lenders shall at the Administrative Agent's option promptly refund to the Borrower any interest received by Lenders in excess of the maximum rate permitted by Applicable Law or shall apply such excess to the principal balance of the Obligations if permitted by Applicable Law (in either event, the Administrative Agent shall advise the Borrower in writing promptly of its decision). It is the intent of this Agreement that the Borrower not pay or contract to pay, and that neither the Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under Applicable Law. 26 SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans. Provided that no Event of Default has occurred and is then continuing, the Borrower shall have the option to (a) Convert at any time all or any portion of its outstanding Base Rate Loans in a principal amount equal to $500,000 or any whole multiple of $100,000 in excess thereof into one or more Eurodollar Loans, and (b) upon the expiration of any Interest Period, (i) Convert all or any part of its outstanding Eurodollar Loans in a principal amount equal to $500,000 or a whole multiple of $100,000 in excess thereof into Base Rate Loans, or (ii) continue such Eurodollar Loans as Eurodollar Loans. Whenever the Borrower desires to Convert or continue Loans as provided immediately above, the Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached as Exhibit D (a "Notice of Conversion/Continuation") not later than 11:00 a.m. (Charlotte time) three (3) Business Days before the day on which a proposed Conversion or continuation of such Loan is to be effective specifying (A) the Loans to be Converted or continued, and, in the case of any Eurodollar Loan to be Converted or continued, the last day of the Interest Period therefor, (B) the effective date of such Conversion or continuation (which shall be a Business Day), and (C) the principal amount of such Loans to be Converted or continued. The Administrative Agent shall promptly notify the Lenders of such Notice of Conversion/Continuation. SECTION 3.3 Fees. (a) Unused Fee. Commencing on June 30, 1999, the Borrower shall pay to the Administrative Agent, for the account of the Lenders, a non-refundable fee at a rate per annum equal to 0.20% on the average daily unused portion of the Aggregate Commitment exclusive of Letter of Credit Obligations. The commitment fee shall be payable quarterly in arrears on the last Business Day of each quarter during the term of this Agreement commencing March 31, 1999, and on the Termination Date. Such commitment fee shall be distributed by the Administrative Agent to the Lenders pro rata in accordance with the Lenders' respective Commitment Percentages. (b) Administrative Agent's and Other Fees. The Borrower shall pay to the Administrative Agent, for its account, the fees set forth in the separate fee letter agreement executed by the Borrower and the Administrative Agent dated December 21, 1998. 27 SECTION 3.4 Payment. (a) Manner of Payment. Each payment by the Borrower on account of the principal of or interest on the Loans or of any fee, commission or other amounts payable to the Lenders under this Agreement or any Note shall be made not later than 1:00 p.m. (Charlotte time) on the date specified for payment under this Agreement to the Administrative Agent at the Administrative Agent's Office for the account of the Lenders (other than as set forth below) pro rata in accordance with their respective Commitment Percentages, in Dollars, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 2:00 p.m. (Charlotte time) on such day shall be deemed a payment on such date for the purposes of Section 11.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on the next succeeding Business Day for all purposes. On the Business Day that each such payment is deemed made, the Administrative Agent shall distribute to each Lender at its address for notices set forth in this Agreement its pro rata share of such payment in accordance with this Section 3.4 such Lender's Commitment Percentage and shall wire advice of the amount of such credit to each Lender; provided that if the Administrative Agent fails to distribute such funds on the date on which any payment is deemed made, the Administrative Agent shall pay interest thereon at the Federal Funds Rate from the date such payment is received until the date such funds are distributed by the Administrative Agent. Each payment to the Administrative Agent of the Administrative Agent's fees or the expenses of the Administrative Agent or the Issuing Lender shall be made for the account of the Administrative Agent. Each payment to the Administrative Agent of the Issuing Lender's fees or L/C Participants' commissions shall be made in like manner, but for the account of the Issuing Lender or the L/C Participants, as the case may be. Any amount payable to any Lender under Sections 3.7, 3.8, 3.12 or 13.2 shall be paid to the Administrative Agent for the account of the applicable Lender. (b) Crediting of Payments and Proceeds. In the event that the Borrower shall fail to pay any of the Obligations when due and the Obligations have been accelerated pursuant to Section 11.2, all payments received by the Lenders upon the Notes and the other Obligations and all net proceeds from the enforcement of the Obligations shall be applied first to all expenses then due and payable by the Borrower under this Agreement, second, to all indemnity obligations then due and payable by the Borrower under this Agreement, and third, to all Administrative Agent's fees, all commitment and other fees and commissions then due and payable by Borrower under this Agreement, accrued and unpaid interest on the Notes, any termination payments due from Borrower in respect of a Hedging Agreement with any Lender and the principal amount of the Notes (all such amounts to be allocated pro rata in accordance with all such amounts due), in that order. SECTION 3.5 Right of Set-off; Adjustments. (a) Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its Affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. 28 (b) If any Lender (a "Benefited Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such Benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this Section 3.5 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. SECTION 3.6 Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by the Administrative Agent. The obligations of the Lenders under this Agreement to make the Loans are several and are not joint or joint and several. Unless the Administrative Agent shall have received notice from a Lender prior to a proposed borrowing date that such Lender will not make available to the Administrative Agent such Lender's ratable portion of the amount to be borrowed on such date (which notice shall not release such Lender of its obligations under this Agreement), the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the proposed borrowing date in accordance with Section 2.2(b) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If such amount is made available to the Administrative Agent on a date after such borrowing date, such Lender shall pay to the Administrative Agent on demand an amount, until paid, equal to the product of (a) the amount of such Lender's Commitment Percentage of such borrowing, times (b) the daily average Federal Funds Rate during such period as determined by the Administrative Agent, times (c) a fraction the numerator of which is the number of days that elapse from and including such borrowing date to the date on which such Lender's Commitment Percentage of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent with respect to any amounts owing under this Section 3.6 shall be conclusive, absent manifest error. If such Lender's Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three (3) Business Days of such borrowing date, the Administrative Agent shall be entitled to recover such amount made available by the Administrative Agent with interest thereon at the Adjusted Eurodollar Rate, on demand, from the Borrower. The failure of any Lender (a "Defaulting Lender") to make its Commitment Percentage of any Loan available shall not relieve it or any other Lender of its obligation, if any, under this Agreement to make its Commitment Percentage of such Loan available to Borrower on such borrowing date, but no Lender shall be responsible for the failure of any other Lender to make its Commitment Percentage of such Loan available on the applicable borrowing date. 29 SECTION 3.7 Indemnity. The Borrower hereby indemnifies each of the Lenders against any reasonable and actually incurred loss or expense which arises or is directly attributable to each Lender's obtaining, liquidating or employing deposits or other funds acquired to effect, fund or maintain any Loan (a) as a consequence of any failure by the Borrower to make any payment when due of any amount due under this Agreement in connection with a Loan, (b) due to any failure of the Borrower to borrow on a date specified therefor in a Notice of Borrowing, or (c) due to any payment or prepayment of any Loan on a date other than the date specified for such payment in the applicable Notice of Repayment; provided, however, the Borrower shall have no such obligation to any Lender who is a Defaulting Lender. The amount of such reasonable and actually incurred loss or expense shall be determined, in the applicable Lender's sole reasonable discretion, based upon the condition that such Lender funded its Commitment Percentage of the Loans in the London interbank market and using any reasonable attribution or averaging methods which such Lender deems appropriate and practical. A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error. SECTION 3.8 Increased Cost and Reduced Return. (a) If, after the date of this Agreement, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency; excepting, however, any such change occasioned by such Lender's default or non-compliance with such applicable rules: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Loans, its Letters of Credit, its Note, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); 30 (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender under this Agreement; or (iii) shall impose on such Lender (or its Applicable Lending Office) or the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Loans, then the Borrower shall pay to such Lender on demand (and a full written explanation for the increase) such amount or amounts solely applicable to its Loan or in relationship of its Loan to other loans of such Lender as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 3.8, the Borrower may, in its sole discretion, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender to make or continue Eurodollar Loans until the event or condition giving rise to such request ceases to be in effect; provided that such suspension shall not affect the right of such Lender to receive the compensation so requested, if applicable, subject to the foregoing conditions and caveats. (b) If, after the date of this Agreement, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations under this Agreement to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Administrative Agent in writing of any event of which it has knowledge, occurring after the date of this Agreement, which will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section shall promptly furnish to the Borrower and the Administrative Agent a written statement setting forth the additional amount or amounts to be paid to it under this Agreement which (subject to the terms of this Agreement) shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 31 SECTION 3.9 Limitation on Types of Loans. If on or prior to the first day of any Interest Period the Administrative Agent reasonably determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, then the Administrative Agent shall give the Borrower prompt written notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans or continue Eurodollar Loans, and the Borrower shall, at its election, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, prepay such Eurodollar Loans, or Convert such Eurodollar Loans into Base Rate Loans, or prepay the Obligations in full and terminate this Agreement. SECTION 3.10 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans under this Agreement, then such Lender shall promptly notify the Borrower thereof in writing and such Lender's obligation to make or continue Eurodollar Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 3.11 shall be applicable). SECTION 3.11 Treatment of Affected Loans. If the obligation of any Lender to make or continue Eurodollar Loan shall be suspended pursuant to Section 3.9 or 3.10 and unless such Eurodollar Loans are paid, until such Lender gives prior written notice to the Borrower as provided below that the circumstances specified in Section 3.9 or 3.10 no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted into Base Rate Loans, all payments and prepayments of principal that would otherwise be applied to the Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or continued by such Lender as Eurodollar Loans shall be made or continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives written notice to the Borrower (with a copy to the Administrative Agent) that the circumstances specified in Section 3.9 or 3.10 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) such Lender's Base Rate Loans may be Converted to Eurodollar Loans. SECTION 3.12 Compensation. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable, good faith opinion of such Lender) to compensate it for any reasonable and actually incurred loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: 32 (a) any payment, prepayment, or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 11.2 and any increase in the Aggregate Commitment pursuant to Section 2.6) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article V to be satisfied) to borrow or prepay a Eurodollar Loan on the date for such borrowing or prepayment specified in the relevant Notice of Borrowing or Notice of Repayment under this Agreement. SECTION 3.13 Taxes. (a) Any and all payments by the Borrower to or for the account of any Lender or the Administrative Agent under this Agreement or under or in respect of any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Administrative Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or under or in respect of any other Loan Document to any Lender or the Administrative Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.13) such Lender or the Administrative Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 13.1, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement by the Borrower or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.13) properly paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. 33 (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages of this Agreement and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Administrative Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying to the Administrative Agent and the Borrower that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Administrative Agent with the appropriate form pursuant to Section 3.13(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 3.13(a) or 3.13(b) with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required under this Agreement, the Borrower shall take such reasonable steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 3.13, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower arising in connection with this Agreement, the agreements and obligations of the Borrower contained in this Section 3.13 shall survive the termination of the Commitments and the payment in full of the Notes. SECTION 3.14 REIT Status. GTA has made an election to be treated as a "real estate investment trust" under Sections 856 through 860 of the Code and will not hereafter (i) revoke such election, (ii) take or fail to take any action that will cause such election to be terminated or to cease to be valid at any time, (iii) incur liability for any excise tax under Section 4981 of the Code or (iv) incur liability for any prohibited transaction under Section 857(b) of the Code. 34 SECTION 3.15 Senior Debt. The Obligations of the Borrower under this Agreement and the obligations and indebtedness of the Borrower under the Bridge Facility constitute senior Debt and shall be pari passu subject only to the restrictions on prepayment provided for in Section 2.3(d). ARTICLE IV GUARANTY SECTION 4.1 Guaranty of Obligations of the Guarantors. Each of the Guarantors hereby jointly and severally unconditionally guarantees to the Administrative Agent for the ratable benefit of the Administrative Agent and the Lenders, and their permissible respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of all Obligations of the Borrower, whether primary or secondary (whether by way of endorsement or otherwise), whether now existing or hereafter arising, whether or not from time to time reduced or extinguished (except by payment thereof) or hereafter increased or incurred, whether or not recovery may be or hereafter become barred by the statute of limitations, whether enforceable or unenforceable as against the Borrower, whether or not discharged, stayed or otherwise affected by any bankruptcy, insolvency or other similar law or proceeding, whether created directly with the Administrative Agent or any Lender or acquired by the Administrative Agent or any Lender through assignment, endorsement or otherwise as permitted under this Agreement, whether matured or unmatured, whether joint or several, as and when the same become due and payable (whether at maturity or earlier, by reason of acceleration, mandatory repayment or otherwise), in accordance with the terms of any such instruments evidencing any such obligations, including all renewals, extensions or modifications thereof (all Obligations of the Borrower to the Administrative Agent or any Lender, including all of the foregoing, being hereinafter collectively referred to as the "Guaranteed Obligations"). SECTION 4.2 Nature of Guaranty. Each Guarantor agrees that this Guaranty is a continuing, unconditional guaranty of payment and performance and not of collection, and that its obligations under this Agreement shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement or any other Loan Document or any other agreement, document or instrument to which the Borrower is or may become a party; (b) the absence of any action to enforce this Agreement or any other Loan Document or the waiver or consent by the Administrative Agent or any Lender with respect to any of the provisions of this Agreement or any other Loan Document; (c) the existence, value or condition of, or failure to perfect its Lien against, any security for or other guaranty of the Guaranteed Obligations or any action, or the absence of any action, by the Administrative Agent or any Lender in respect of such security or guaranty (including, without limitation, the release of any such security or guaranty); or 35 (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by each Guarantor that its obligations under this Guaranty shall not be discharged until the final and indefeasible payment and performance, in full, of the Guaranteed Obligations and the termination of the Aggregate Commitment. Each Guarantor expressly waives all rights it may now or in the future have under any statute (including, without limitation, North Carolina General Statutes Section 26-7, et seq. or similar law), or at law or in equity, or otherwise, to compel the Administrative Agent or any Lender to proceed in respect of the Guaranteed Obligations against the Borrower or any other party or against any security for or other guaranty of the payment and performance of the Guaranteed Obligations before proceeding against, or as a condition to proceeding against, such Guarantor. Each Guarantor further expressly waives and agrees not to assert or take advantage of any defense based upon the failure of the Administrative Agent or any Lender to commence an action in respect of the Guaranteed Obligations against the Borrower, any Guarantor or any other party or any security for the payment and performance of the Guaranteed Obligations. Each Guarantor agrees that any notice or directive given at any time to the Administrative Agent or any Lender which is inconsistent with the waivers in the preceding two sentences shall be null and void and may be ignored by the Administrative Agent or Lender, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the Administrative Agent and the Required Lenders have specifically agreed otherwise in writing. The foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and, but for this Guaranty and such waivers, the Administrative Agent and Lenders would decline to enter into this Agreement. SECTION 4.3 Demand by the Administrative Agent. In addition to the terms set forth in Section 4.2, and in no manner imposing any limitation on such terms, if all or any portion of the then outstanding Guaranteed Obligations under this Agreement are declared to be immediately due and payable in accordance with the terms of this Agreement, then the Guarantors shall, upon demand in writing therefor by the Administrative Agent to the Guarantors, pay all or such portion of the outstanding Guaranteed Obligations then declared due and payable. Payment by the Guarantors shall be made to the Administrative Agent, to be credited and applied upon the Guaranteed Obligations, in immediately available federal funds to an account designated by the Administrative Agent or at the address referenced in this Agreement for the giving of notice to the Administrative Agent or at any other address that may be specified in writing from time to time by the Administrative Agent. SECTION 4.4 Waivers. In addition to the waivers contained in Section 4.2, each Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by such Guarantor of its obligations under, or the enforcement by the Administrative Agent or the Lenders of, this Guaranty. Each Guarantor further hereby waives diligence, presentment, demand, protest and notice of whatever kind or nature with respect to any of the Guaranteed Obligations and waives the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Each Guarantor represents, warrants and agrees that its obligations under this Guaranty are not and shall not be subject to any counterclaims, offsets or defenses of any kind against the Administrative Agent, the Lenders or the Borrower whether now existing or which may arise in the future. 36 SECTION 4.5 Benefits of Guaranty. The provisions of this Guaranty are for the benefit of the Administrative Agent and the Lenders and their respective successors, transferees, endorsees and assigns, and nothing in this Agreement contained shall impair, as between the Borrower, the Administrative Agent and the Lenders, the obligations of the Borrower under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, endorsed or assigned by the Administrative Agent or any Lender to any Person or Persons, any reference to any "Administrative Agent" or "Lenders" in this Agreement shall be deemed to refer equally to such Person or Persons. SECTION 4.6 Modification of Loan Documents etc. If the Administrative Agent or the Lenders shall at any time or from time to time, with or without the consent of, or notice to, the Guarantors: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, in equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; (d) extend or waive the time for performance by the Guarantors, the Borrower or any other Person of, or compliance with, any term, covenant or agreement (other than this Guaranty) on its part to be performed or observed under a Loan Document, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold security or collateral for the payment of the Guaranteed Obligations or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which the Administrative Agent or the Lenders have been granted a Lien, to secure any Debt of any Guarantor or the Borrower to the Administrative Agent or the Lenders; (f) release anyone who may be liable in any manner for the payment of any amounts owed by the Guarantors or the Borrower to the Administrative Agent or any Lender; 37 (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of the Guarantors or the Borrower are subordinated to the claims of the Administrative Agent or any Lender; or (h) apply any sums by whomever paid or however realized to any amounts owing by the Guarantors or the Borrower to the Administrative Agent or any Lender in such manner as the Administrative Agent or any Lender shall determine in its discretion; then neither the Administrative Agent nor any Lender shall incur any liability to the Guarantors as a result thereof, and no such action shall impair or release the obligations of the Guarantors under this Agreement. SECTION 4.7 Reinstatement. Each Guarantor agrees that if any payment made by the Borrower or any other Person applied to the Obligations is at any time annulled, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid by the Administrative Agent or Lender to the Borrower, their estate, trustee, receiver or any other party, including, without limitation, such Guarantor, under any Applicable Law or equitable cause, then, to the extent of such payment or repayment, such Guarantor's liability under this Agreement shall be and remain in full force and effect, as fully as if such payment had never been made, and, if prior thereto, this Guaranty shall have been canceled or surrendered, this Guaranty shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of such Guarantor in respect of the amount of such payment. SECTION 4.8 Waiver of Subrogation and Contribution. Each Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Borrower that arise from the existence or performance of such Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of the Administrative Agent or the Lenders against the Borrower security or collateral which the Administrative Agent or the Lenders now have or may hereafter acquire, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made under this Agreement or otherwise, including without limitation, the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. SECTION 4.9 Remedies. Upon the occurrence of any Event of Default, the Administrative Agent may enforce against any Guarantor its obligations and liabilities under this Agreement and exercise such other rights and remedies as may be available to the Administrative Agent under this Agreement, the other Loan Documents or applicable law. SECTION 4.10 Limit of Liability. The obligations of each Guarantor under this Agreement shall be limited to an aggregate amount equal to the largest amount that would not render its obligations under this Agreement subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law. 38 ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING SECTION 5.1 Closing. The closing shall take place at the offices of Kennedy Covington Lobdell & Hickman, L.L.P. in Charlotte, North Carolina at 10:00 a.m. on March 31, 1999 or at such other place and on such other date as the parties hereto shall mutually agree. SECTION 5.2 Conditions to Closing and Initial Loan. The obligation of the Lenders to close this Agreement and to make the initial Loan and of the Issuing Lender to issue any Letter of Credit is subject to the satisfaction of each of the following conditions: (a) Executed Loan Documents. This Agreement and the Notes, in form and substance satisfactory to the Administrative Agent and each Lender shall have been duly authorized, executed and delivered by the Borrower and each other Credit Party, as applicable, shall be in full force and effect, no Default or Event of Default shall exist, and the Borrower and each other Credit Party, as applicable, shall have delivered original counterparts thereof to the Administrative Agent. (b) Insurance. The Administrative Agent shall have received certificates of insurance and, if requested, certified copies of insurance policies in the form required under Section 8.3 and otherwise in form and substance reasonably satisfactory to the Administrative Agent. (c) Title Insurance. The Administrative Agent shall have received a copy of the owner's or leasehold title insurance policy, or a binding commitment for the issuance of such policy, with respect to each Eligible Property. (d) Closing Certificates; etc. (i) Certificate of GTA. The Administrative Agent shall have received a certificate from the chief executive officer or chief financial officer of GTA, in form and substance reasonably satisfactory to the Administrative Agent, to the effect that all representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true, correct and complete to the best knowledge of such Person; that to the best knowledge of such Person none of the Credit Parties is in violation of any of the covenants contained in this Agreement and the other Loan Documents; that, after giving effect to the transactions contemplated by this Agreement, no Default or Event of Default has occurred and is continuing; and that to the best knowledge of such Person the Borrower has satisfied each of the closing conditions. (ii) Certificate of Secretary of the General Partner. The Administrative Agent shall have received a certificate of the secretary or assistant secretary of GTA GP, in its capacity as the Managing General Partner of the Borrower certifying on behalf of the Borrower that attached thereto is a true and complete copy of the Certificate of Limited Partnership of the Borrower and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of formation and a true and complete copy of the Agreement of Limited Partnership of the Borrower and all amendments thereto; that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of GTA GP authorizing the execution, delivery and performance of the Loan Documents to which the Borrower is a party; and as to the incumbency and genuineness of the signature of each officer of GTA GP executing Loan Documents to which the Borrower is a party. 39 (iii) Certificate of Secretary of each Guarantor. The Administrative Agent shall have received a certificate of the secretary or assistant secretary of each Guarantor certifying that attached thereto is a true and complete copy of the articles of incorporation of such Guarantor and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation; that attached thereto is a true and complete copy of the bylaws of such Guarantor as in effect on the date of such certification; that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Guarantor authorizing the borrowings contemplated under this Agreement and the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party; and as to the incumbency and genuineness of the signature of each officer of such Guarantor executing Loan Documents to which it is a party. (iv) Certificates of Existence. The Administrative Agent shall have received long-form certificates as of a recent date of the good standing of the Borrower and each Guarantor under the laws of its jurisdiction of organization and each other jurisdiction where such Person is qualified to do business and a certificate of the relevant taxing authorities of such jurisdictions certifying that such Person has filed required tax returns and owes no delinquent taxes. (v) Opinions of Counsel. The Administrative Agent shall have received favorable opinions of counsel to the Credit Parties addressed to the Administrative Agent and the Lenders with respect to the Credit Parties, the Loan Documents and such other matters as the Lenders shall reasonably request. (vi) Tax Forms. The Administrative Agent shall have received copies of the United States Internal Revenue Service forms required by Section 3.13(d) of this Agreement. (vii) Pool Valuation Certificate. The Administrative Agent shall have received a Pool Valuation Certificate properly completed and executed by the Borrower, setting forth the Pool Value, the amount of which shall be equal to or greater than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the amount of the outstanding Obligations (after giving effect to the Loans to be advanced to the Borrower and Letters of Credit to be issued on the Closing Date). (e) Consents; Defaults. (i) Governmental and Third Party Approvals. All necessary approvals, authorizations and consents, if any be required, of any Person and of all Governmental Authorities and courts having jurisdiction with respect to the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained. 40 (ii) No Injunction, Etc. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby, or which, in the Administrative Agent's reasonable discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement and such other Loan Documents. (iii) No Event of Default. No Default or Event of Default shall have occurred and be continuing. (f) Financial Statements. The Administrative Agent shall have received the most recent audited Consolidated financial statements of the Credit Parties, all in form and substance satisfactory to the Administrative Agent. (g) Payment at Closing; Fee Letter. There shall have been paid by the Borrower to the Administrative Agent and the Lenders the fees set forth or referenced in Section 3.3 and any other accrued and unpaid fees or commissions due under this Agreement (including, without limitation, legal fees and expenses), and to any other Person such amount as may be due thereto in connection with the transactions contemplated hereby, including all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of any of the Loan Documents. The Administrative Agent shall have received duly authorized and executed copies of the fee letter agreement referred to in Section 3.3(b). (h) Miscellaneous. (i) Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing from the Borrower and identification of the account or accounts into which the proceeds of such Loans are to be disbursed. (ii) Proceedings and Documents. All opinions, certificates and other instruments and all proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Lenders. The Lenders shall have received copies of all other instruments and other evidence as the Lenders may reasonably request, in form and substance reasonably satisfactory to the Lenders, with respect to the transactions contemplated by this Agreement and the taking of all actions in connection therewith. (iii) Due Diligence and Other Documents. The Borrower shall have delivered to the Administrative Agent such other documents, certificates and opinions as the Administrative Agent reasonably requests, certified by a secretary or assistant secretary of GTA, in its capacity as the Borrower's managing general partner, as a true and correct copy thereof. 41 SECTION 5.3 Conditions to All Loans. The obligation of the Lenders to make any Loan and the obligation of the Issuing Lender to issue any Letter of Credit are subject to the satisfaction of the following conditions precedent on the relevant borrowing or issuance date: (a) Continuation of Representations and Warranties. The representations and warranties contained in Article VI shall be true and correct in all material respects, and shall be deemed to be remade, on and as of such borrowing date with the same effect as if made on and as of such date. (b) No Existing Default. No Default or Event of Default shall have occurred and be continuing under this Agreement (i) on the borrowing date with respect to such Loan or after giving effect to the Loans to be made on such date or (ii) on the issue date with respect to any Letter of Credit or after giving effect to such Letter of Credit on such date. (c) Officer's Compliance Certificate; Additional Documents. The Administrative Agent shall have received the current Officer's Compliance Certificate and each additional document, instrument, legal opinion or other item of information reasonably requested by it. (d) Availability. After giving effect to the requested Loan or Letter of Credit, the outstanding Extensions of Credit will not exceed (i) with respect to a Loan, the amount available pursuant to Section 2.1 and (ii) with respect to a Letter of Credit, the amount available pursuant to Section 2A.1. (e) Pool Valuation Certificate. The Administrative Agent shall have received a Pool Valuation Certificate properly completed and executed by the Borrower, setting forth the Pool Value, the amount of which shall be equal to or greater than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the amount of all Obligations outstanding after giving effect to the requested Loan or Letter of Credit). ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1 Representations and Warranties. To induce the Administrative Agent to enter into this Agreement and the Lenders to make the Loans and issue or participate in the Letters of Credit, the Credit Parties hereby represent and warrant to the Administrative Agent and the Lenders that: (a) Organization; Power; Qualification. Each of the Credit Parties is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, has the power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted and is duly qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization and in which the failure to qualify would have a Material Adverse Effect. The jurisdictions in which the Credit Parties are qualified to do business are described on Schedule 6.1(a). 42 (b) Ownership. The Subsidiaries of the Borrower are set forth on Schedule 6.1(b). GTA owns no Subsidiary other than GTA GP, GTA LP and the Borrower. Neither GTA GP nor GTA LP owns any Subsidiary other than the Borrower. The capitalization of the Guarantors is described on Schedule 6.1(b). All outstanding shares of stock of the Guarantors have been duly authorized and validly issued and are fully paid and nonassessable. (c) Authorization of Agreement, Loan Documents and Borrowing. Each of the Credit Parties has the right, power and authority and has taken all necessary action to authorize the execution, delivery and performance of this Agreement and each of the other Loan Documents to which it is a party and the borrowings hereunder and the transactions contemplated hereby and thereby, in each case in accordance with their respective terms. This Agreement and each of the other Loan Documents have been duly executed and delivered by the duly authorized officers of each Guarantor and of the duly authorized general partner of the Borrower, and each such document constitutes the legal, valid and binding obligation of each of the Credit Parties, to the best of its knowledge, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal debtor relief laws from time to time in effect which affect the enforcement of creditors' rights in general and the availability of equitable remedies. (d) Compliance of Agreement, Loan Documents and Borrowing with Laws, Etc. The execution, delivery and performance by each of the Credit Parties of the Loan Documents to which such Person is a party, in accordance with their respective terms, the borrowings under this Agreement and the transactions contemplated hereby and thereby do not and will not, by the passage of time, the giving of notice or otherwise, (i) require any Governmental Approval or violate any Applicable Law relating to any Credit Party, (ii) conflict with, result in a breach of or constitute a default under the agreement of limited partnership of the Borrower, the articles of incorporation, bylaws or other organizational documents of any Guarantor or any indenture, agreement or other instrument to which any Credit Party is a party or by which any of its properties may be bound or any Governmental Approval relating to any Credit Party, or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Credit Party other than Liens arising under the Loan Documents. (e) Compliance with Law; Governmental Approvals. Each of the Credit Parties, to the best of its knowledge, (i) has all material Governmental Approvals required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of any pending or, to the best of its knowledge, threatened attack by direct or collateral proceeding, and (ii) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws relating to it or any of its respective properties, to the extent such failure to comply would have a Material Adverse Effect on the Credit Parties. 43 (f) Tax Returns and Payments. Each of the Credit Parties has duly filed (or will duly file in accordance with Applicable Laws) or caused (or will cause in accordance with Applicable Laws) to be filed all federal, state, local and other tax returns required by Applicable Law (including the provisions of the Code and the regulations thereunder relating to "real estate investment trusts") to be filed, and has paid (or will pay in accordance with Applicable Laws), or made adequate provision for the payment of, all federal, state, local and other taxes, assessments and governmental charges or levies upon it and its property, income, profits and assets which are due and payable. No Governmental Authority has asserted any Lien or other claim against any Credit Party with respect to unpaid taxes which has not been discharged or resolved. The charges, accruals and reserves on the books of each of the Credit Parties in respect of federal, state, local and other taxes for all Fiscal Years and portions thereof since the organization of each Credit Party are in the judgment of such Person adequate, and such Person does not anticipate any additional taxes or assessments for any of such years. (g) Environmental Matters. (i) The golf course properties of the Credit Parties do not contain, and to its knowledge have not previously contained, any Hazardous Materials in amounts or concentrations which (A) constitute or constituted a violation of, or (B) could give rise to liability under, applicable Environmental Laws, except as otherwise set forth in the Environmental Assessment Reports; (ii) The golf course properties of the Credit Parties and all operations conducted in connection therewith are in compliance, and have been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about such golf course properties or such operations which could interfere with the continued operation of such golf course properties or impair the fair saleable value thereof, except as otherwise set forth in the Environmental Assessment Reports; (iii) No Credit Party has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any golf course property or the operations conducted in connection therewith, nor does any Credit Party have knowledge or reason to believe that any such notice will be received or is being threatened, except as otherwise set forth in the Environmental Assessment Reports; (iv) Hazardous Materials have not been transported or disposed of from the golf course properties of any Credit Party in violation of, or in a manner or to a location which could give rise to liability under, applicable Environmental Laws, nor have any Hazardous Materials been generated, treated, stored or disposed of at, on or under any of such golf course properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Laws, except as otherwise set forth in the Environmental Assessment Reports; (v) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of any Credit Party, threatened, under any applicable Environmental Law to which any Credit Party is or will be named as a party with respect to such golf course properties or operations conducted in connection therewith, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any applicable Environmental Law with respect to such golf course properties or such operations, except as set forth in the Environmental Assessment Reports; and 44 (vi) There has been no release, or to the best of any Credit Party's knowledge, the threat of release, of Hazardous Materials at or from such properties, in violation of or in amounts or in a manner that could give rise to liability under applicable Environmental Laws, except as set forth in the applicable Environmental Assessment Reports. (h) ERISA. (i) Neither the Borrower nor any ERISA Affiliate maintains or contributes to, or has any obligation under, any Employee Benefit Plans other than those identified on Schedule 6.1(h); (ii) the Borrower and each ERISA Affiliate is in material compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (iii) No Pension Plan has been terminated, nor has any accumulated funding deficiency (as defined in Section 412 of the Code) been incurred (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the Internal Revenue Service been received or requested with respect to any Pension Plan, nor has the Borrower or any ERISA Affiliate failed to make any contributions or to pay any amounts due and owing as required by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension Plan prior to the due dates of such contributions under Section 412 of the Code or Section 302 of ERISA, nor has there been any event requiring any disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any Pension Plan; (iv) Neither the Borrower nor any ERISA Affiliate has: (A) engaged in a nonexempt prohibited transaction described in Section 406 of the ERISA or Section 4975 of the Code, (B) incurred any liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid, (C) failed to make a required contribution or payment to a Multiemployer Plan, or (D) failed to make a required installment or other required payment under Section 412 of the Code; 45 (v) No Termination Event has occurred or is reasonably expected to occur; and (vi) No proceeding, claim, lawsuit and/or investigation is existing or, to the best knowledge of the Borrower after due inquiry, threatened concerning or involving any (A) employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate, (B) Pension Plan, or (C) Multiemployer Plan. (i) Eligible Properties. With respect to each Eligible Property as of the date hereof and as of the date of each Pool Value Certificate: (i) No portion of any improvements on any such Eligible Property is located in an area identified on a flood hazard map or flood insurance rate map issued by the Secretary of Housing and Urban Development or the Federal Emergency Management Agency, or any successor thereto, as a special flood hazard area, or, if located within any such area, the Borrower has obtained and will maintain on such Eligible Property an appropriate flood insurance policy meeting the requirements of the National Flood Insurance Program. (ii) To the Borrower's knowledge, each such Eligible Property and the development, use and occupancy thereof are in material compliance with all applicable zoning ordinances (without reliance upon adjoining or other properties), building codes, land use and Environmental Laws and other laws regulating the development, use and occupancy of real property and applicable to such Eligible Property. (iii) Each such Eligible Property is served by all utilities required for the current and contemplated uses thereof. All utility service is provided by public utilities and such Eligible Property has accepted or is equipped to accept such utility service. (iv) All public roads and streets necessary for service of and access to each such Eligible Property for the current or contemplated use thereof have been completed, are serviceable and all-weather and are physically and legally open for use by the public. (v) Each such Eligible Property is served by public water and sewer systems. All liquid and solid waster disposal, septic and sewer systems located on each such Eligible Property are in a good and safe condition and repair and are in compliance with all Applicable Laws with respect to such systems. (vi) Each such Eligible Property is free of any patent or, to the best knowledge of the Credit Parties, latent structural or other material defect or deficiency. Each Eligible Property is free of damage and waste that would materially and adversely affect its value, is in good repair and there is no deferred maintenance other than ordinary wear and tear. Each such Eligible Property is free from damage caused by fire or other casualty. There is no pending or, to the best knowledge of the Credit Parties after due inquiry, threatened condemnation proceedings affecting any such Eligible Property, or any material part thereof. 46 (vii) All improvements on each such Eligible Property lie within the boundaries and building restrictions of the legal description of record of such Eligible Property and no such improvements encroach upon any adjoining property, other than encroachments for which the applicable Credit Party has obtained a written waiver from the owner of the adjoining property or permit from the appropriate Governmental Authority, which permit or waiver is in form and substance satisfactory to the Administrative Agent. No improvements on adjoining properties encroach upon such Eligible Property or easements benefiting such Eligible Property. All amenities, access routes or other items that benefit such Eligible Property are under direct control of the applicable Credit Party, constitute permanent or non-terminable easements that benefit all or part of such Eligible Property or are public property, and such Eligible Property, by virtue of such easements or otherwise, is contiguous to a physically open, dedicated all weather public street, and has the necessary permits for ingress and egress. (viii) There are no delinquent taxes, ground rents, water charges, sewer rents, assessments, insurance premiums, leasehold payments, or other outstanding charges affecting any such Eligible Property, except to the extent such items are being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided. (j) Margin Stock. The Borrower is not engaged principally or as one of its activities in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each such term is defined or used in Regulations G and U of the Board of Governors of the Federal Reserve System). No part of the proceeds of any of the Loans or the Letters of Credit will be used for purchasing or carrying margin stock or for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of such Board of Governors. (k) Government Regulation. The Borrower is not an "investment company" or a company "controlled" by an "investment company" (as each such term is defined or used in the Investment Company Act of 1940, as amended) and neither the Borrower nor any Subsidiary thereof is, or after giving effect to any Extension of Credit will be, subject to regulation under the Public Utility Holding Company Act of 1935 or the Interstate Commerce Act, each as amended, or any other Applicable Law which limits its ability to incur or consummate the transactions contemplated hereby. (l) Material Contracts. Schedule 6.1(l) sets forth a complete and accurate list of all Material Contracts of the Credit Parties in effect as of the Closing Date not listed on any other Schedule hereto; other than as set forth in Schedule 6.1(l), each such Material Contract is, and after giving effect to the consummation of the transactions contemplated by the Loan Documents will be, to the best of each Credit Party's knowledge, in full force and effect in accordance with the terms thereof. The Borrower has delivered to the Administrative Agent a true and complete copy of each Material Contract required to be listed on Schedule 6.1(l). 47 (m) Financial Statements. The (i) audited Consolidated balance sheet of the Credit Parties as of December 31, 1997 and the related statements of income and retained earnings and cash flows for the period then ended and (ii) unaudited Consolidated balance sheet of the Credit Parties as of September 30, 1998 and related unaudited interim statements of revenue and retained earnings, copies of which have been furnished to the Administrative Agent and each Lender, are, and all financial statements hereafter delivered to the Administrative Agent or any Lender, whether pursuant to Article VII or otherwise, shall be, complete and correct in all material respects and fairly present the assets, liabilities (including, without limitation, material contingent liabilities) and financial position of the Credit Parties as at such dates, and the results of the operations and changes of financial position for the periods then ended. All such financial statements, including the related schedules and notes thereto, have been, or will be, as the case may be, prepared in accordance with GAAP. The Credit Parties have and shall have no Debt, obligation or other unusual forward or long-term commitment which is not fairly reflected in the foregoing financial statements or in the notes thereto. (n) No Material Adverse Change. Since December 31, 1997 there has been no material adverse change in the properties, business, operations, prospects, or condition (financial or otherwise) of the Credit Parties and no event has occurred or condition arisen that could reasonably be expected to have a Material Adverse Effect. (o) Solvency. As of the Closing Date and after giving effect to each Extension of Credit made under this Agreement, each of the Credit Parties will be Solvent. (p) Titles to Properties. Each Credit Party has such title to the real property owned by it as is necessary or desirable to the conduct of its business and valid and legal title to all of its personal property and assets, including, but not limited to, those reflected on the Consolidated balance sheet of the Credit Parties delivered pursuant to Section 6.1(m), except those which have been disposed of by the Credit Parties subsequent to such date, which dispositions have been in the ordinary course of business or as otherwise expressly permitted under this Agreement. (q) Liens. None of the properties and assets of any Credit Party is subject to any Lien, except Permitted Liens that are more specifically identified on Schedule 6.1(q). No financing statement under the Uniform Commercial Code of any state which names any Credit Party or any of its trade names or divisions as debtor and which has not been terminated, has been filed in any state or other jurisdiction and no Credit Party has signed any such financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement, except to perfect those Liens permitted by Section 10.3. (r) Debt and Contingent Obligations. Schedule 6.1(r) is a complete and correct listing of all existing Debt and Contingent Obligations of the Credit Parties. The Credit Parties have performed and are in compliance with all of the terms of such Debt and Contingent Obligations and all instruments and agreements relating thereto, and no default or event of default, or event or condition which with notice or lapse of time or both would constitute such a default or event of default on the part of any Credit Party exists with respect to any such Debt or Contingent Obligation. 48 (s) Litigation. Except as set forth on Schedule 6.1(s), there are no actions, suits or proceedings pending after service on any of the Credit Parties nor, to the knowledge of the Credit Parties, threatened against or in any other way relating adversely to or affecting any of the Credit Parties or any of their properties in any court or before any arbitrator of any kind or before or by any Governmental Authority. (t) Absence of Defaults. No event has occurred or is continuing which constitutes a Default or an Event of Default, or which constitutes, or which with the passage of time or giving of notice or both would constitute, a default or event of default by any Credit Party under any Material Contract or judgment, decree or order to which any Credit Party is a party or by which such Credit Party or any of its properties may be bound or which would require such Credit Party to make any payment thereunder prior to the scheduled maturity date therefor. (u) Accuracy and Completeness of Information. All written information, reports and other papers and data prepared by or on behalf of the Credit Parties and furnished to the Lenders were, at the time the same were so furnished, complete and correct in all respects to the extent necessary to give the recipient a true and accurate knowledge of the subject matter. No such document furnished or written statement made to the Administrative Agent or the Lenders by the Credit Parties in connection with the negotiation, preparation or execution of this Agreement or any of the Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of the Borrower or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading. None of the Credit Parties is aware of any facts which it has not disclosed in writing to the Administrative Agent having a Material Adverse Effect, or insofar as such Person can now foresee, could reasonably be expected to have a Material Adverse Effect. (v) Judgments. There are no judgments or orders for the payment of money outstanding against any Credit Party. (w) Participating Leases/Innisbrook Documents. To the best knowledge of the Credit Parties, and except with respect to the Osage National Participating Lease, no monetary default, and no non-monetary default which would have a material adverse effect on the enforcement thereof, exists under any Participating Lease or under the Innisbrook Note, the Innisbrook Loan Agreement or the Innisbrook Mortgage. SECTION 6.2 Survival of Representations and Warranties, Etc. All representations and warranties set forth in this Article VI and all representations and warranties contained in any certificate, or any of the Loan Documents (including, but not limited to, any such representation or warranty made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Closing Date and at and as of the date of each Loan and each issuance of a Letter of Credit, shall survive the Closing Date and the date of each such Loan and issuance, and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Lenders or any borrowing under this Agreement. 49 ARTICLE VII FINANCIAL INFORMATION AND NOTICES Until all the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.11, the Credit Parties will furnish or cause to be furnished to the Lenders at their respective addresses as set forth on Schedule 1, or such other office as may be designated by the Lenders from time to time: SECTION 7.1 Financial Statements. (a) Quarterly Financial Statements. As soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter, an unaudited Consolidated balance sheet of GTA and the other Credit Parties as of the close of such fiscal quarter and unaudited Consolidated statements of income, retained earnings and cash flows for the fiscal quarter then ended and that portion of the Fiscal Year then ended, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures for the preceding Fiscal Year and prepared by GTA in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the period, and certified by the chief financial officer of GTA to present fairly in all material respects the financial condition of GTA and the other Credit Parties as of their respective dates and the results of operations of GTA and the other Credit Parties for the respective periods then ended, subject to normal year end adjustments. (b) Annual Financial Statements. As soon as practicable and in any event within one hundred twenty (120) days after the end of each Fiscal Year, an audited Consolidated balance sheet of GTA and the other Credit Parties as of the close of such Fiscal Year and audited Consolidated statements of income, retained earnings and cash flows for the Fiscal Year then ended, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the preceding Fiscal Year and prepared in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operation of any change in the application of accounting principles and practices during the year, and accompanied by a report thereon by an independent certified public accounting firm that is not qualified with respect to scope limitations imposed by GTA and the other Credit Parties or any of its Subsidiaries or with respect to accounting principles followed by GTA and the other Credit Parties not in accordance with GAAP or with respect to the financial impact of, or failure to take all appropriate steps to successfully address, year 2000 issues. SECTION 7.2 Officer's Compliance Certificate. At each time financial statements are delivered pursuant to Section 7.1 (a) or (b) and at such other times as the Administrative Agent shall reasonably request, a certificate of the chief financial officer or the treasurer of GTA in the form of Exhibit E attached hereto (an "Officer's Compliance Certificate"). 50 SECTION 7.3 Accountants' Certificate. At each time financial statements are delivered pursuant to Section 7.1(b), a certificate of the Borrower's independent public accountants certifying such financial statements addressed to the Administrative Agent for the benefit of the Lenders: (a) stating that in making the examination necessary for the certification of such financial statements, they obtained no knowledge of any Default or Event of Default or, if such is not the case, specifying such Default or Event of Default and its nature and period of existence; (b) including the calculations prepared by such independent public accountants required to establish whether or not the Credit Parties are in compliance with the financial covenants set forth in Article IX of this Agreement as at the end of each respective period; and (c) including a fully executed copy of a letter from such accountants to GTA expressly authorizing the Lenders to rely on the examination and report of such independent public accountants with respect to the audited financial statements of the Credit Parties as of and for such Fiscal Year then ending. SECTION 7.4 Other Reports. (a) Within thirty (30) days after transmission thereof, copies of all financial statements, proxy statements, reports and any other general written communications which the Borrower sends to its stockholders and copies of all registration statements and all regular, special or periodic reports which GTA files with the Securities and Exchange Commission (including each report made on Form 8-K, 10-Q and 10-K) or with any securities exchange on which any of its securities are then listed, and copies of all press releases and other statements made available generally by GTA to the public; and (b) Such other information regarding the operations, business affairs and financial condition of the Credit Parties as the Administrative Agent or any Lender may reasonably request. SECTION 7.5 Notice of Litigation and Other Matters. Prompt (but in no event later than thirty (30) days after an executive officer of GTA obtains knowledge thereof) telephonic and written notice of: (a) the commencement of all material proceedings and material investigations by or before any Governmental Authority and all actions and proceedings in any court or before any arbitrator against or involving any Credit Party or any of their respective properties, assets or businesses exceeding $250,000; (b) any notice of any material violation received by any Credit Party from any Governmental Authority including, without limitation, any notice of material violation of Environmental Laws; 51 (c) any material labor controversy that has resulted in, or threatens to result in, a strike or other work action against any Credit Party; (d) any attachment, judgment, lien, levy or order exceeding $250,000 that may be assessed against or threatened against any Credit Party; (e) (i) any Default or Event of Default, or (ii) any event which constitutes or which with the passage of time or giving of notice or both would constitute a default or event of default under any Material Contract to which any Credit Party is a party or by which any Credit Party or any of their respective properties may be bound; (f) (i) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all written notices received by any Credit Party or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (iii) all written notices received by any Credit Party or any ERISA Affiliate from a Multi-employer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA, and (iv) any Credit Party obtaining written notice that any Credit Party or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA; (g) promptly after receipt thereof, any written communication from the Internal Revenue Service which challenges GTA's status as a "real estate investment trust" within the meaning of Section 856 of the Code; (h) any event which makes any of the representations set forth in Section 6.1 inaccurate in any material respect; and (i) any monetary default, or non-monetary default which would have a material adverse effect on the enforcement thereof, under any Participating Lease or the Innisbrook Note or Innisbrook Mortgage. SECTION 7.6 Accuracy of Information. All written information, reports, statements and other papers and data furnished by or on behalf of any Credit Party to the Administrative Agent or any Lender (other than financial forecasts) respecting any Credit Party whether pursuant to this Article VII or any other provision of this Agreement, or any of the Security Documents, shall be, at the time the same is so furnished, to the best of such Credit Party's knowledge, complete and correct in all material respects to the extent necessary to give the Administrative Agent or any Lender complete, true and accurate knowledge of the subject matter based on the Credit Party's knowledge thereof. 52 ARTICLE VIII AFFIRMATIVE COVENANTS Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner provided for in Section 13.11, each Credit Party will, and will cause each of its Subsidiaries to: SECTION 8.1 Preservation of Existence and Related Matters. Preserve and maintain its separate corporate or partnership existence, as applicable, and all rights, franchises, licenses and privileges necessary to the conduct of its business, and qualify and remain qualified as a foreign corporation or partnership and authorized to do business in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect. SECTION 8.2 Maintenance of Property. Protect and preserve all properties useful in and material to its business, including copyrights, patents, trade names and trademarks and service marks; maintain in good working order and condition all buildings, equipment and other tangible real and personal property; and from time to time make or cause to be made all renewals, replacements and additions to such property necessary for the conduct of its business, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. SECTION 8.3 Insurance. (a) Keep its insurable properties adequately insured at all times; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with similarly-situated companies in the same or similar businesses and maintain such other insurance as may be required by Applicable Law, in each case with financially sound and reputable insurers reasonably acceptable to the Administrative Agent. (b) Require each lessee, pursuant to the related Participating Lease, and the Borrower under the Innisbrook Mortgage, to maintain comprehensive public liability insurance with amounts of coverage of not less than $3,000,000 per occurrence and in the aggregate. (c) On the Closing Date and from time to time thereafter deliver to the Administrative Agent upon its request a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. SECTION 8.4 Accounting Methods and Financial Records. Maintain a system of accounting, and keep such books, records and accounts (which shall be true and complete in all material respects) as may be required or as may be necessary to permit the preparation of financial statements in accordance with GAAP and in compliance with the regulations of any Governmental Authority having jurisdiction over it or any of its properties. SECTION 8.5 Payment and Performance of Obligations. Pay and perform all Obligations under this Agreement and the other Loan Documents, and pay or perform (a) all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its property, and (b) all other indebtedness, obligations and liabilities in accordance with customary trade practices; provided, that each Credit Party may contest any item described in this Section 8.5(a) in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP. 53 SECTION 8.6 Compliance With Laws and Approvals. Observe and remain in compliance with all Applicable Laws and maintain in full force and effect all Governmental Approvals, in each case applicable to the conduct of its business. SECTION 8.7 Environmental Laws. In addition to and without limiting the generality of Section 8.6, (i) comply with, and ensure such compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws, (ii) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, and promptly comply with all lawful orders and directives of any Governmental Authority regarding Environmental Laws, and (iii) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective parents, Subsidiaries, Affiliates, employees, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of any Credit Party, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable and actually incurred attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. SECTION 8.8 Compliance with ERISA. In addition to and without limiting the generality of Section 8.6, (a) comply with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans, (b) not take any action or fail to take action the result of which could be a liability to the PBGC or to a Multi-employer Plan, (c) not participate in any prohibited transaction that could result in any civil penalty under ERISA or tax under the Code, (d) operate each Employee Benefit Plan in such a manner that will not incur any tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code, and (e) furnish to the Administrative Agent upon the Administrative Agent's request such additional information about any Employee Benefit Plan as may be reasonably requested by the Administrative Agent. SECTION 8.9 Compliance With Agreements. Comply in all respects with each term, condition and provision of all leases, agreements and other instruments entered into in the conduct of its business including, without limitation, any Participating Lease or Material Contract; provided, that each Credit Party may contest any such lease, agreement or other instrument, including, without limitation, any Material Contract, in good faith through applicable proceedings so long as adequate reserves are maintained in accordance with GAAP. 54 SECTION 8.10 Unencumbered Pool. (a) Ownership of Eligible Properties in Unencumbered Pool. The Borrower will own at all times a minimum of seven (7) Eligible Properties (herein, the "Unencumbered Pool"). The aggregate Property Value, determined in accordance with Section 8.10(b), of the Eligible Properties in the Unencumbered Pool shall at all times equal or exceed an amount equal to 1.75 times the aggregate amount of unsecured Debt (including the Obligations hereunder) of the Credit Parties. (b) Determination of Property Value. (i) Unencumbered Pool. The Unencumbered Pool as of the date of this Agreement, and the Property Value of each Eligible Property in the Unencumbered Pool (as of the date of this Agreement) shall be as set forth on Schedule 8.10(b) hereto. (ii) Subsequently-Acquired Eligible Properties. The Property Value of each Eligible Property, other than the Eligible Properties set forth on Schedule 8.10(b), shall equal the Purchase Price of such Eligible Property; provided that (A) the Purchase Price is equal to or less than that amount which would be derived using a capitalization rate of not less than 9.00% (or conversely, a multiple not in excess of 11.11) based upon the Adjusted NOI [EBITDA] for such property; and (B) Net Income Before Coverage Ratio for such Eligible Property is at least 113.5% of the Adjusted NOI [EBITDA] for such Eligible Property. (iii) Non-Conforming Eligible Properties. The Property Value of each Eligible Property which does not conform to the criteria set forth in subsection (ii) above shall be determined as follows: (A) The Property Value of any Eligible Property for which the acquisition cost is determined upon the basis of a capitalization rate lower than 9.00% (or conversely, a multiple in excess of 11.11) shall be equal to the Adjusted NOI [EBITDA] for such property times 11.11 (i.e., that value which would be obtained by using a 9.00% capitalization rate); (B) The Property Value of any Eligible Property for which Net Income Before Coverage Ratio is less than 113.5% of Adjusted NOI [EBITDA], shall be determined by dividing Net Income Before Coverage Ratio of such property by 113.5% and then dividing the resulting number by the greater of (1) a capitalization rate of 9.00% or (2) the actual capitalization rate used by the applicable Credit Party in determining the acquisition cost of such property; provided, however, that upon the written request of the Borrower and delivery to the Administrative Agent of financial statements for a period of not less than 12 months showing that the Net Income Before Coverage Ratio (for such period) from such Eligible Property is at least 113.5% of the corresponding Adjusted NOI [EBITDA], the Property Value of such Eligible Property shall be equal to the lesser of (a) its acquisition cost or (b) the value that would be determined using paragraph (A), above; and provided, further, that the Borrower shall not be entitled to request more than one adjustment to the Property Value of any such Eligible Property. 55 (iv) Legends of Virginia. The aggregate Property Value of the Legends of Virginia Golf Courses shall be $20,000,000. (c) Pool Valuation Certificate. The Borrower shall deliver to the Administrative Agent within forty-five (45) days after the end of each quarter a Pool Valuation Certificate properly completed and executed by the Borrower, setting forth the Pool Value as of the most recent quarter-end. (d) Exclusion of Non-Performing or Delinquent Properties. (i) Any Eligible Property shall cease to be an Eligible Property and shall no longer be included in the determination of the Pool Value if (A) the Gross Golf Revenues for any Seasoned Eligible Property for the two-quarter period ending on the last day of the quarterly period covered by any Pool Valuation Certificate are less than eighty-five percent (85%) of the Gross Golf Revenues for such Seasoned Eligible Property for the corresponding two-quarter period during the immediately preceding year, or (B) an insolvency proceeding shall be commenced by or against the lessee under the Participating Lease for such Eligible Property (or the obligor under the Innisbrook Note), (C) the lessee under the related Participating Lease for such Eligible Property (or the obligor under the Innisbrook Note) shall at any time be more than thirty (30) days delinquent in its required payments to the applicable Credit Party under such Participating Lease or Innisbrook Note, as applicable, or (D) any other material default shall occur under the Participating Lease (or the Innisbrook Note or Innisbrook Mortgage) and such default shall continue for a period of ninety (90) days or more. No such property shall be reinstated as an Eligible Property or included in the determination of the Pool Value without the prior written consent of the Required Lenders. (ii) Provided the Sandpiper Golf Course is closed during calendar year 1999 for a re-design of all or any portion of the golf course, the Sandpiper Golf Course shall not be required to comply with the quarterly Gross Golf Revenues requirement set forth in Section 8.10(d)(i) above until the earlier of (x) the quarter commencing July 1, 2001 or (y) the second full calendar quarter after the completion of the work and the reopening of the Sandpiper Golf Course for play. The lessee of the Sandpiper Golf Course shall continue to make its required payments to the applicable Credit Party under the related Participating Lease. (iii) Oyster Bay shall cease to be an Eligible Property unless the Borrower shall, not later than April 30, 1999, cause the Lessor's Estoppel Agreement substantially in the form attached hereto as Exhibit K to be fully executed and delivered to the Administrative Agent. Oyster Bay shall not thereafter be included as an Eligible Property until such Lessor's Estoppel Agreement is fully executed and delivered to the Administrative Agent. 56 SECTION 8.11 Visits and Inspections. Upon reasonable prior notice, permit representatives of the Administrative Agent or any Lender, from time to time during normal business hours, to visit and inspect its properties; inspect, audit and make extracts from its books, records and files, including, but not limited to, management letters prepared by independent accountants; and discuss with its principal officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects. SECTION 8.12 Subsidiaries. Concurrently with the creation or acquisition of any Subsidiary (a) cause it to execute and deliver to the Administrative Agent a supplement to the Guaranty substantially in the form of Exhibit G hereto, and (b) cause to be delivered to the Administrative Agent such other documents as the Administrative Agent or Required Lenders shall reasonably request in connection therewith, including, without limitation, officers' certificates, financial statements, opinions of counsel, resolutions, charter documents, certificates of existence and authority to do business and any other closing certificates and documents described in Section 5.2. SECTION 8.13 Further Assurances. Perform, make, execute and deliver all such additional and further acts, things, deeds and instruments as the Administrative Agent or any Lender may reasonably require to document and consummate the transactions contemplated hereby and to vest completely in and insure the Administrative Agent and the Lenders their respective rights under this Agreement, the Notes, the Letters of Credit and the other Loan Documents. SECTION 8.14 Line of Business. Continue to have as its primary business the acquisition but not construction of golf courses and related improvements (such improvements not to include accommodations) and the leasing of such golf courses and related improvements to independent lessees; provided that to the extent the improvements related to any golf course property include a hotel, motel, condominiums or other lodging (collectively, "accommodations"), such accommodations shall not constitute a material portion, in the judgment of the Required Lenders, of the Property Value of the golf course and related improvements. SECTION 8.15 Participating Leases. Cause each Participating Lease hereafter entered into by any Credit Party to include a capital expenditure reserve of at least two percent (2%) of the annual Gross Golf Revenues from the relevant golf course property, which reserve amount shall be used by the relevant lessee solely as set forth in such Participating Lease. SECTION 8.16 Year 2000 Compliance. Each Credit Party has (i) initiated a review and assessment of all areas within its business and operations (including those affected by suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Such Credit Party (or its suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with that timetable. Each Credit Party reasonably believes that all computer applications (including those of its suppliers and vendors) that are material to its business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect on the Credit Parties. The Borrower will promptly notify the Agent in the event any Credit Party discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its business and operations will not be Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect on the Credit Parties. 57 ARTICLE IX FINANCIAL COVENANTS Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.11 of this Agreement, GTA and the other Credit Parties (on a Consolidated basis) will not: SECTION 9.1 Minimum Tangible Net Worth. As of the end of any quarter, permit their Tangible Net Worth of GTA and its Consolidated Subsidiaries to be less than $250,000,000 plus 80% of the aggregate net cash proceeds of any issuance or offering of capital stock received by any Credit Party after the Closing Date. SECTION 9.2 Liabilities to Assets Ratio. At any time, permit the Leverage Ratio to exceed 0.55 to 1.00. SECTION 9.3 Interest Coverage Ratio. As of the end of any quarter, permit the ratio of (a) EBITDA of GTA and its Consolidated Subsidiaries for such quarter then ended to (b) Interest Expense of GTA and its Consolidated Subsidiaries for the quarter then ended to be less than 2.50 to 1.00. SECTION 9.4 Debt Service Coverage Ratio. As of the end of any quarter, permit the ratio of (a) EBITDA of GTA and its Consolidated Subsidiaries for the quarter then ended to (b) Debt Service of GTA and its Consolidated Subsidiaries for the quarter then ended to be less than 2.00 to 1.00. SECTION 9.5 Fixed Charge Coverage Ratio. As of the end of any quarter, permit the ratio of (a) EBITDA of GTA and its Consolidated Subsidiaries for the quarter then ended to (b) Fixed Charges of GTA and its Consolidated Subsidiaries for the quarter then ended to be less than 1.50 to 1.00. 58 ARTICLE X NEGATIVE COVENANTS Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.11 of this Agreement, none of the Credit Parties will: SECTION 10.1 Limitations on Debt. Create, incur, assume or suffer to exist any Debt except: (a) The Obligations; (b) Other secured Debt of the Credit Parties; provided that (i) there shall be no recourse to the Borrower or any other Credit Party, directly or indirectly, for the payment of such Debt and or to any property of the Borrower or any other Credit Party, for the payment of such Debt (except to the property securing the Debt); and (ii) the aggregate amount of such Debt outstanding at any time shall not exceed twenty percent (20%) of the Consolidated tangible assets of the Credit Parties; (c) Debt of the Borrower arising under the Bridge Facility in the principal amount of up to $25,000,000; and (d) Any other non-revolving, unsecured Debt of the Borrower. As a condition precedent to the incurrence of or increase in the amount of any unsecured Debt of the Borrower, the Borrower shall deliver to the Administrative Agent a properly completed and executed Pool Valuation Certificate setting forth the Pool Value, which shall be at least 1.75 times the sum of the aggregate amount of all unsecured Debt of all Credit Parties (including the Obligations hereunder and Debt under the Credit Agreement referenced in Section 10.1(c)), after giving effect to the unsecured Debt to be incurred or increased SECTION 10.2 Limitations on Contingent Obligations. Create, incur, assume or suffer to exist any Contingent Obligations except Contingent Obligations in favor of the Administrative Agent for the benefit of the Administrative Agent and the Lenders. SECTION 10.3 Limitations on Liens. Create, incur, assume or suffer to exist, any Lien on or with respect to any of its assets or properties (including without limitation shares of capital stock or other ownership interests), real or personal, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or Environmental Laws) not yet due or as to which the period of grace (not to exceed thirty (30) days), if any, related thereto has not expired; 59 (b) The claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, (i) which are not overdue for a period of more than the greater of the applicable contractual period or sixty (60) days or (ii) which are being contested in good faith and by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (c) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers' compensation, unemployment insurance or similar legislation; (d) Liens constituting encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, detract from the value of such property or impair the use thereof in the ordinary course of business; (e) Equipment leases; and (f) Liens securing Debt permitted under Section 10.1(b). SECTION 10.4 Limitations on Loans, Advances, Investments and Acquisitions. Purchase, own, invest in or otherwise acquire, directly or indirectly, any capital stock, interests in any partnership or joint venture (including, without limitation, the creation or capitalization of any Subsidiary), evidence of Debt or other obligation or security, substantially all or a portion of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, or make or permit to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of property in, any Person, or enter into, directly or indirectly, any commitment or option in respect of the foregoing except for the following: (a) investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within 120 days from the date of acquisition thereof, (ii) commercial paper maturing no more than 120 days from the date of creation thereof and currently having the highest rating obtainable from either S&P or Moody's, (iii) certificates of deposit maturing no more than 120 days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of "A" or better by a nationally recognized rating agency, or (iv) time deposits maturing no more than 30 days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder; and repurchase agreements issued by any Lender having a maturity of less than one year; (b) loans to officers of GTA, the aggregate amount of which outstanding at any one time shall not exceed one percent (1%) of Total Assets; (c) investments in golf course properties and related improvements; 60 (d) investments in unconsolidated partnerships and joint ventures; the aggregate amount of such investment in such partnerships and joint ventures (including investments existing on the Closing Date) not to exceed five percent (5%) of Total Assets at any time; (e) loans to other Persons; provided that: (i) the proceeds of such loans will be used to construct improvements that are, or would become (as set forth below), part of a golf course property owned by the Credit Parties; (ii) the aggregate outstanding amount of such loans plus the amounts utilized for the construction of improvements to golf course properties to the extent permitted under Section 10.11 shall not exceed 10% of Total Assets at any time; (iii) the Person receiving such Loan shall have executed a promissory note in favor of the Borrower, in form and substance satisfactory to the Administrative Agent; (iv) the Borrower shall own the property on which the improvements are to be constructed or have a binding contractual right to purchase such property. (f) any other investment or acquisition, with the prior written consent of the Required Lenders. SECTION 10.5 Limitations on Mergers and Liquidation. Merge, consolidate or enter into any similar combination with any other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) except in cases where a Credit Party is the surviving party in the merger, consolidation or combination. SECTION 10.6 Limitations on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, the sale of any receivables and leasehold interests, any sale-leaseback or similar transaction and the forgiveness of any Debt), whether now owned or hereafter acquired except: (a) the sale of inventory in the ordinary course of business; and (b) the sale of obsolete assets no longer used or usable in the business of the Credit Parties; and (c) the sale of any golf course property; provided that the proceeds of such sale, net of ordinary and customary closing costs (including, without limitation, professional fees), are contemporaneously applied to the prepayment of the outstanding principal balance of the Credit Facility. SECTION 10.7 Limitations on Dividends and Distributions. During any Fiscal Year, declare or pay any dividends upon any of its capital stock, partnership units or other equity ownership interests; purchase, redeem, retire or otherwise acquire, directly or indirectly, any of its capital stock, partnership units or other equity ownership interests, or make any distribution of cash, property or assets among the holders of its capital stock, partnership units or other equity ownership interests in an aggregate amount exceeding ninety-five percent (95%) of the Funds from Operations for such fiscal year, or if any Default shall have occurred and be continuing or would result from such distribution. 61 SECTION 10.8 Transactions with Affiliates. Except as permitted under Section 10.4, directly or indirectly: (a) make any loan or advance to, or purchase or assume any note or other obligation to or from, any of its officers, directors, shareholders or other Affiliates, or to or from any member of the immediate family of any of its officers, directors, shareholders or other Affiliates, or subcontract any operations to any of its Affiliates, or (b) enter into, or be a party to, any transaction with any of its Affiliates, except pursuant to the reasonable requirements of its business and upon fair and reasonable terms that are fully disclosed to and approved in writing by the Required Lenders and are no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not its Affiliate. SECTION 10.9 Certain Accounting Changes. Change its Fiscal Year, or make any change in its accounting treatment and reporting practices except as required by GAAP. SECTION 10.10 Restrictions on Prepayments. Voluntarily prepay any Debt (other than Obligations) or amend any instrument evidencing the Debt of any Credit Party if such amendment would have a Material Adverse Effect. SECTION 10.11 Limitations on Improvements. Permit more than 10% of Total Assets less the aggregate outstanding amount of loans permitted under Section 10.4(e) at such time, to be utilized at any one time for the construction of improvements to golf course properties, provided that compliance by the Credit Parties with this Section 10.11 shall be determined without regard for funds used to construct the renovations and improvements to the Sandpiper Golf Course. SECTION 10.12 Restrictive Agreements. Incur any Debt or enter into any other agreement on terms which include a negative pledge on any material asset or any other covenant more restrictive than the provisions of Articles IX and X hereof. SECTION 10.13 Amendments. Amend the Innisbrook Note, the Innisbrook Loan Agreement, the Innisbrook Mortgage, or any Qualified Ground Lease or Participating Lease with respect to any golf course property included in the Unencumbered Pool in any manner materially adverse to any Credit Party without the prior written consent of the Agents (it being understood that any amendment of a Participating Lease which reduces the rent, shortens the term, releases any guarantor of or collateral for the obligations of the lessee, amends the capital expenditure reserve provision or terminates the lease shall be materially adverse to such Credit Party). 62 ARTICLE XI DEFAULT AND REMEDIES SECTION 11.1 Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority or otherwise: (a) Default in Payment of Principal of Loans. The Borrower shall default in any payment of principal of any Loan or Note when and as due (whether at maturity, by reason of acceleration or otherwise). (b) Other Payment Default. The Borrower shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on any Loan or Note or the payment of any other Obligation, and such default shall continue unremedied for five (5) Business Days. (c) Misrepresentation. Any representation or warranty made or deemed to be made by any Credit Party under this Agreement, any other Loan Document or any amendment hereto or thereto, shall at any time prove to have been incorrect or misleading in any material respect when made or deemed made. (d) Default in Performance of Certain Covenants. Any Credit Party shall default in the performance or observance of any covenant or agreement contained in Articles IX or X of this Agreement. (e) Default in Performance of Other Covenants and Conditions. Any Credit Party shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for otherwise in this Section 11.1) or any other Loan Document and such default shall continue for a period of thirty (30) days after written notice thereof has been given to such Credit Party by the Administrative Agent; or if such default cannot reasonably be cured within such period, the Borrower does not within such thirty (30)-day period commence such act or acts as shall be necessary to remedy the default and shall not cause such default to be cured within a reasonable time, not to exceed, in any event, one hundred twenty (120) days. (f) Hedging Agreement. Any termination payment shall be due by the Borrower under any Hedging Agreement and such amount is not paid within ten (10) Business Days of the due date thereof. (g) Debt Cross-Default. Any Credit Party shall (i) default in the payment of any Debt (other than the Notes) beyond the period of grace, if any, provided in the instrument or agreement under which such Debt was created, or (ii) be in material default in the observance or performance of any other agreement or condition relating to any Debt (other than the Notes) or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, any such Debt to become due prior to its stated maturity (any applicable grace period having expired). 63 (h) Other Cross-Defaults. Any Credit Party shall default in the payment when due, or in the performance or observance, of any obligation or condition of any Material Contract or any Participating Lease unless, but only as long as, the existence of any such default is being contested by such Credit Party in good faith by appropriate proceedings and adequate reserves in respect thereof have been established on the books of such Credit Party to the extent required by GAAP. (i) Change in Control. (A) Any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) other than GTA or Larry D. Young, shall obtain ownership or control, directly or indirectly, in one or more series of transactions of more than thirty percent (30%) of the partnership interests or other equity interests of the Borrower, or (B) more than fifty percent (50%) of the board of directors of GTA shall change during any twelve month period, exclusive of any change of members resulting from the death or incompetency of board members. (j) Change of Management. W. Bradley Blair, II shall cease to serve as an executive officer of the Borrower and is not replaced by an individual acceptable to the Required Lenders within a period of one hundred twenty (120) days. (k) Loss of REIT Status. GTA shall default in the performance of the covenant contained in Section 3.14 of this Agreement. (l) Voluntary Bankruptcy Proceeding. Any Credit Party shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing. (m) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against any Credit Party in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for any Credit Party or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue undismissed or unstayed for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered. 64 (n) Failure of Agreements. Any provision of this Agreement or of any other Loan Document (other than any usury savings clause, waiver or similar provision) shall for any reason cease to be valid and binding on any Credit Party or any such Person shall so state in writing, or this Agreement or any other Loan Document shall for any reason cease to create a valid and perfected first priority Lien on, or security interest in, any of the collateral purported to be covered thereby, in each case other than in accordance with the express terms of this Agreement or thereof. (o) Termination Event. The occurrence of any of the following events: (i) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Pension Plan or Section 412 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto, (ii) an accumulated funding deficiency in excess of $1,000,000 occurs or exists, whether or not waived, with respect to any Pension Plan, (iii) a Termination Event, or (iv) the Borrower or any ERISA Affiliate as employers under one or more Multi-employer Plan makes a complete or partial withdrawal from any such Multi-employer Plan and the plan sponsor of such Multi-employer Plans notifies such withdrawing employer that such employer has incurred a withdrawal liability requiring payments in an amount exceeding $100,000. (p) Judgment. A judgment or order for the payment of money which causes the aggregate amount of all such judgments to exceed $250,000 in any Fiscal Year shall be entered against any Credit Party by any court and such judgment or order shall continue undischarged or unstayed for a period of thirty (30) days. (q) Execution or Attachment. Any writ of execution, attachment or garnishment for an amount in excess of $250,000 shall be assessed against the assets of any Credit Party and such writ of execution, attachment or garnishment shall not be dismissed, discharged, stayed or quashed within thirty (30) days of issuance. (r) Default under Bridge Facility. Any Event of Default shall exist under the Bridge Facility. SECTION 11.2 Remedies. Upon the occurrence of an Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower: (a) Acceleration; Termination of Facilities. Declare the principal of and interest on the Loans and the Notes at the time outstanding, and all other amounts owed to the Lenders and to the Administrative Agent under this Agreement or any of the other Loan Documents (including, without limitation, all Letter of Credit Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and all other Obligations, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the Credit Facility and any right of the Borrower to request borrowings or the issuance of Letters of Credit hereunder; provided, that upon the occurrence of an Event of Default specified in Section 11.1(l) or (m), the Credit Facility and the L/C Commitment shall be automatically terminated and all Obligations shall automatically become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding. 65 (b) Letters of Credit. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, require the Borrower at such time to deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay the other Obligations. After all such Letters of Credit shall have expired or been fully drawn upon, the Reimbursement Obligation shall have been satisfied and all other Obligations shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower. (c) Rights of Collection. Exercise on behalf of the Lenders all of its other rights and remedies under this Agreement (including, without limitation, those provided for in Article IV), the other Loan Documents and Applicable Law, in order to satisfy all of the Obligations. SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration of the rights and remedies of the Administrative Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Administrative Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given under this Agreement or under the other Loan Documents or that may now or hereafter exist at law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Administrative Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Borrower, the Administrative Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default. ARTICLE XII THE ADMINISTRATIVE AGENT SECTION 12.1 Appointment, Powers, and Immunities. (a) Each Lender hereby irrevocably appoints and authorizes NationsBank to act as its Administrative Agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically and respectively delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. 66 (b) The Administrative Agent shall administer the Credit Facility in the same manner as if the entire Aggregate Commitment were held by the Administrative Agent in its own portfolio. The Administrative Agent shall forward to the Lenders all documents received by the Administrative Agent from any Credit Party pursuant to the terms of this Agreement, unless such Credit Party is obligated under this Agreement to make delivery of such documents to the Lenders. (c) The Administrative Agent (which term as used in this sentence and in Section 12.5 and the first sentence of Section 12.6 of this Agreement shall include its Affiliates and its own and its Affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations under this Agreement; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct or breach of an express agreement made by the Administrative Agent to any other Lender contained herein. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. SECTION 12.2 Reliance by Agent. The Administrative Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) reasonably believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Credit Party), independent accountants, and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes of this Agreement unless and until the Administrative Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 13.10. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to any Loan Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 67 SECTION 12.3 Defaults. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Administrative Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that any Lender receives such a notice of the occurrence of a Default or Event of Default, such Lender shall give prompt notice thereof to the Administrative Agent, the other Lenders and the Borrower. The Administrative Agent shall (subject to Section 12.2 of this Agreement) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. SECTION 12.4 Rights as Lender. With respect to its Commitment and the Loans made by it, the Administrative Agent (and any successor acting as Agent) in its capacity as a Lender under this Agreement shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not acting as Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent (and any successor acting as Administrative Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or Affiliates as if it were not acting as Administrative Agent, and the Administrative Agent (and any successor acting as Administrative Agent) and its Affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. SECTION 12.5 Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 3.7, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Administrative Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Administrative Agent under any Loan Document; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified or from the breach of an express agreement or made by the Administrative Agent to any Lenders contained herein. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 13.2, to the extent that the Administrative Agent is not promptly reimbursed for such reasonable and actually incurred costs and expenses by the Borrower. The agreements contained in this Section shall survive payment in full of the Loans and all other amounts payable under this Agreement. 68 SECTION 12.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Agreement and to make Loans hereunder and to issue or participate in Letters of Credit hereunder and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent under this Agreement, the Administrative Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or Affiliates that may come into the possession of the Administrative Agent or any of their Affiliates. SECTION 12.7 Resignation; Removal of Agent; Successor Agents. (a) Resignation of Agent. The Administrative Agent may resign at any time by giving prior written notice thereof to the Lenders and the Borrower. The Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders or such appointee shall not have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be an Eligible Assignee having total assets of at least $25,000,000,000. (b) Removal of Administrative Agent. The Lenders may remove the Administrative Agent hereunder and appoint a successor Administrative Agent upon not less than thirty (30) days' prior written notice signed by Lenders whose Commitment Percentages equal sixty six and two thirds percent (66.67%) of the Aggregate Commitment exclusive of the Administrative Agent's Commitment, if (i) the Administrative Agent's Commitment is less than twenty million dollars ($20,000,000) and no Event of Default has occurred and is continuing or (ii) the Administrative Agent is grossly negligent or is guilty of willful misconduct in the performance of its duties hereunder, as determined in the reasonable discretion of the Lenders signing the foregoing written notice. If the Administrative Agent's Commitment is less than twenty million dollars ($20,000,000) and no Event of Default has occurred and is continuing, the Administrative Agent will tender its resignation as Administrative Agent. (c) Successor Agents. Upon the acceptance of any appointment as Administrative Agent under this Agreement by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Administrative Agent upon written notice thereof to Borrower, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement excepting with respect to its willful misconduct or gross negligence occurring prior to its discharge. After any retiring Administrative Agent's resignation or removal under this Agreement as Administrative Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. 69 SECTION 12.8 Documentation Agent and Syndication Agent. The Documentation Agent and Syndication Agent, in their respective capacities as a documentation agent and a syndication agent, shall have no duties or responsibilities under this Agreement or any other Loan Document. ARTICLE XIII MISCELLANEOUS SECTION 13.1 Notices. (a) Method of Communication. Except as otherwise provided in this Agreement, all notices and communications under this Agreement shall be in writing, or by telephone subsequently confirmed in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service, and (iii) on the third Business Day following the date sent by certified mail, return receipt requested. A telephonic notice to the Administrative Agent as understood by the Administrative Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. (b) Addresses for Notices. Notices to any party shall be sent to it at the following addresses, or any other address as to which all the other parties are notified in writing. If to the Borrower: Golf Trust of America, L.P. c/o GTA 14 North Adgers Wharf Charleston, South Carolina 29401 Attention: W. Bradley Blair, II and Scott D. Peters Telephone No.: 843/723-4653 Telecopy No.: 843/723-0479 With copies to: O'Melveny & Myers LLP 275 Battery Street, 26th Floor San Francisco, California 94105 Attention: Peter T. Healy, Esq. Telephone No.: (415) 984-8833 Telecopy No.: (415) 984-8701 70 If to any Guarantor: c/o Golf Trust of America, Inc. 14 North Adgers Wharf Charleston, South Carolina 29401 Attention: W. Bradley Blair, II and Scott D. Peters Telephone No.: 843/723-4653 Telecopy No.: 843/723-0479 If to NationsBank as NationsBank, N.A. Administrative Agent Commercial Banking or as Issuing Lender: 2501 Oak Street, 2nd Floor Myrtle Beach, South Carolina 29577-0807 Attention: Dale Zeglin Telephone No.: (843) 946-3259 Telecopy No.: (843) 946-3211 If to any Lender: To the Address set forth on Schedule 1 hereto (c) Administrative Agent's Office. The Administrative Agent hereby designates its office located at the address set forth above, or any subsequent office which shall have been specified for such purpose by written notice to the Borrower and Lenders, as the Administrative Agent's Office referred to in this Agreement, to which payments due are to be made and at which Loans will be disbursed and Letters of Credit issued. SECTION 13.2 Expenses; Indemnification. (a) The Borrower agrees to pay on demand all reasonably and actually incurred costs and expenses of the Agents, NationsBanc Montgomery Securities LLC and the Lenders in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Agreement, the other Loan Documents, and the other documents to be delivered under this Agreement, including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent, NationsBanc Montgomery Securities LLC and the Lenders (including the cost of internal counsel) with respect thereto and with respect to advising the Administrative Agent or any Lender as to their rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all reasonably and actually incurred costs and expenses of the Agents and the Lenders, if any (including, without limitation, reasonable and actually incurred attorneys' fees and expenses and the reasonably and actually incurred cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered under this Agreement. 71 (b) The Borrower agrees to indemnify and hold harmless each Agent and each Lender and each of their Affiliates (including, without limitation, NationsBanc Montgomery Securities LLC) and their respective officers, directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable and actually incurred attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated in this Agreement or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 13.2 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Credit Party, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower agrees not to assert any claim against any Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Loan Documents, any of the transactions contemplated in this Agreement or the actual or proposed use of the proceeds of the Loans. (c) Without prejudice to the survival of any other agreement of the Borrower under this Agreement, the agreements and obligations of the Borrower contained in this Section 13.2 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. SECTION 13.3 Set-off. In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon and after the occurrence of any Event of Default and during the continuance thereof, the Lenders and any assignee or participant of a Lender in accordance with Section 13.10 are hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, time or demand, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Lenders, or any such assignee or participant to or for the credit or the account of the Borrower against and on account of the Obligations irrespective of whether or not (a) the Lenders shall have made any demand under this Agreement or any of the other Loan Documents or (b) the Administrative Agent shall have declared any or all of the Obligations to be due and payable as permitted by Section 11.2 and although such Obligations shall be contingent or unmatured. SECTION 13.4 Governing Law. This Agreement, the Notes and the other Loan Documents, unless otherwise expressly set forth therein, shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina, without reference to the conflicts or choice of law principles thereof. SECTION 13.5 Consent to Jurisdiction. Each Credit Party hereby irrevocably consents to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement, the Notes and the other Loan Documents, any rights or obligations under this Agreement or thereunder, or the performance of such rights and obligations. Each Credit Party hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by either the Agent or any Lender in connection with this Agreement, the Notes or the other Loan Documents, any rights or obligations under this Agreement or thereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner specified in Section 13.1. Nothing in this Section 13.5 shall affect the right of either the Agent or any Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of either the Agent or any Lender to bring any action or proceeding against any Credit Party or its properties in the courts of any other jurisdictions. 72 SECTION 13.6 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW, EACH AGENT, EACH LENDER AND EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. SECTION 13.7 Reversal of Payments. To the extent the Borrower makes a payment or payments to the Administrative Agent for the ratable benefit of the Lenders which payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds repaid, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been received by the Administrative Agent. SECTION 13.8 Injunctive Relief; Punitive Damages. (a) Each Credit Party recognizes that in the event the Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to the Lenders. Therefore, each Credit Party agrees that the Lenders, at the Lenders' option, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. (b) The Agents, the Lenders and the Credit Parties hereby agree that no such Person shall have a remedy of punitive or exemplary damages against any other party to a Loan Document and each such Person hereby waives any right or claim to punitive or exemplary damages that they may now have or may arise in the future in connection with any judicial proceeding, dispute, claim or controversy arising out of, connected with or relating to the Notes or any other Loan Documents ("Disputes"), whether such Dispute is resolved through arbitration or judicially. (c) The parties agree that they shall not have a remedy of punitive or exemplary damages against any other party in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. 73 SECTION 13.9 Accounting Matters. All financial and accounting calculations, measurements and computations made for any purpose relating to this Agreement, including, without limitation, all computations utilized by any Credit Party to determine compliance with any covenant contained in this Agreement, shall, except as otherwise expressly contemplated hereby or unless there is an express written direction by the Administrative Agent to the contrary agreed to by the Borrower, be performed in accordance with GAAP as in effect on the Closing Date. In the event that changes in GAAP shall be mandated by the Financial Accounting Standards Board, or any similar accounting body of comparable standing, or shall be recommended by the Borrower's certified public accountants, to the extent that such changes would modify such accounting terms or the interpretation or computation thereof, such changes shall be followed in defining such accounting terms only from and after the date the Borrower and the Lenders shall have amended this Agreement to the extent necessary to reflect any such changes in the financial covenants and other terms and conditions of this Agreement. SECTION 13.10 Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Notes, and its Commitment); provided, however, that (i) so long as no Default or Event of Default has occurred and is continuing, NationsBank's Commitment shall not be less than $20,000,000 and provided, further, that NationsBank shall promptly notify each of the other Lenders in writing if its Commitment is less than $20,000,000; (ii) each such assignment shall be to an Eligible Assignee; (iii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $10,000,000 or an integral multiple of $1,000,000 in excess thereof; (iv) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and its Note; (v) the parties to such assignment shall execute and deliver to the Administrative Agent for its acceptance an Assignment and Acceptance in the form of Exhibit F hereto, together with any Note subject to such assignment and, except in cases of assignment to a Lender or an Affiliate of a Lender, a processing fee of $3,500; and (vi) the Borrower shall receive prior written notice thereof. 74 Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender under this Agreement and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement excepting with respect to any gross negligence or willful misconduct on the part of such assigning Lender prior to the date of such assignment. Upon the consummation of any assignment pursuant to this Section, the assignor, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 3.13. (b) The Administrative Agent shall maintain at its address referred to in Section 13.1 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender under this Agreement for all purposes of this Agreement. The Register shall be available for inspection by the Borrower (or any of its agents or advisors) or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with the Note subject to such assignment and payment of the processing fee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt written notice thereof to the parties thereto and to the Borrower. (d) Each Lender may sell participations in minimum amounts of $10,000,000 to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article III and the right of set-off contained in Section 3.5, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers increasing or decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending the maturity date or any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note or increasing the Aggregate Commitment) or modifying the coverage ratio contained in clause (c) of Section 2.1 or Section 8.10 (or any defined term used therein). 75 (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations under this Agreement. (f) Any Lender may furnish any information concerning the Credit Parties in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). SECTION 13.11 Amendments and Waivers. Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if Article XII or the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Lenders (other than Defaulting Lenders), (i) increase the Commitments of the Lenders, (ii) extend the time of the obligation of the Lenders to make Loans or to issue or participate in Letters of Credit, (iii) reduce the principal of or rate of interest on any Loan or Reimbursement Obligation or any fees or other amounts payable under this Agreement, (iv) postpone any date fixed for the payment of any scheduled installment of principal of or interest on any Loan or Reimbursement Obligation or any fees or other amounts payable hereunder or for termination of any Commitment, (v) change the percentage of the Commitments or of the unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders, the Administrative Agent or any of them to take any action under this Section or any other provision of this Agreement, (vi) release any Guarantor, (vii) modify any provision of Article IX or Section 8.10 (or any defined term used therein), (viii) modify the provisions of Section 10.1(d) including any of the defined terms in Section 10.1(d), or (ix) modify the provisions of Section 10.3, this Section 13.11, the definition of Required Lenders, or any provision of any Loan Document which, by its terms, requires the consent, approval or satisfaction of all Lenders or each Lender, without the prior written consent of each Lender. In addition, no amendment, waiver or consent to the provisions of Article IIA shall be made without the written consent of the Issuing Lender. The Issuing Lender shall not, without the prior consent of all the Lenders, issue any Letter of Credit if, after giving effect to such issuance, (a) the Letter of Credit Obligations would exceed the L/C Commitment or (b) the sum of the aggregate principal amount of all outstanding Loans and Letter of Credit Obligations would exceed the Aggregate Commitment. No amendment or waiver of Section 2.3(d) shall be effective without the prior written consent of NationsBank. SECTION 13.12 Performance of Duties. Each Credit Party's obligations under this Agreement and each of the Loan Documents shall be performed by such Credit Party at its sole cost and expense. SECTION 13.13 All Powers Coupled with Interest. All powers of attorney and other authorizations granted to the Lenders, the Administrative Agent and any Persons designated by the Administrative Agent or any Lender pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied or the Credit Facility has not been terminated. 76 SECTION 13.14 Survival of Indemnities. Notwithstanding any termination of this Agreement, the indemnities to which the Agents and the Lenders are entitled under the provisions of this Article XIII and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect the Agents and the Lenders against events arising after such termination as well as before. SECTION 13.15 Titles and Captions. Titles and captions of Articles, Sections and subsections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. SECTION 13.16 Severability of Provisions. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions of this Agreement or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 13.17 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement. SECTION 13.18 Term of Agreement. This Agreement shall remain in effect from the Closing Date through and including the date upon which all Obligations shall have been indefeasibly and irrevocably paid and satisfied in full. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination. 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, all as of the day and year first written above. [CORPORATE SEAL] GOLF TRUST OF AMERICA, L.P., a Delaware limited partnership By: GTA GP, Inc., a Maryland corporation, its general partner By: ________________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] GOLF TRUST OF AMERICA, INC., a Maryland corporation By: ________________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] GTA GP, INC., a Maryland corporation By: ________________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] GTA LP, INC., a Maryland corporation By: ________________________________________ W. Bradley Blair, II Its Chief Executive Officer and President SANDPIPER--GOLF TRUST, LLC, a Delaware limited liability company By: Golf Trust of America, L.P., as Manager By: GTA GP, Inc., its General Partner By: ________________________________________ Name: __________________________________ Title:_________________________________ [CORPORATE SEAL] SANDPIPER GTA DEVELOPMENT, INC. By: ________________________________________ Name: __________________________________ Title:_________________________________ NATIONSBANK, N.A., as Administrative Agent and Lender By: ________________________________________ Name: __________________________________ Title:_________________________________ BANKBOSTON, N.A., as Documentation Agent and Lender By: ________________________________________ Name: __________________________________ Title:_________________________________ FIRST UNION NATIONAL BANK, as Syndication Agent and Lender By: ________________________________________ Name: __________________________________ Title:_________________________________ CREDIT LYONNAIS NEW YORK BRANCH, as Lender By: ________________________________________ Name: __________________________________ Title:_________________________________ SOCIETE GENERALE, SOUTHWEST AGENCY, as Lender By: ________________________________________ Name: __________________________________ Title:_________________________________ SCHEDULE 1: LENDERS AND COMMITMENTS
COMMITMENT AND COMMITMENT LENDER PERCENTAGE - ------ ---------- NationsBank N.A. $75,000,000 2501 Oak Street, 2nd Floor 37.5% Myrtle Beach, South Carolina 29577-0807 Attention: Dale Zeglin Telephone No.: (803) 946-3259 Telecopy No.: (803) 946-3211 First Union National Bank $40,000,000 301 South College Street NC0166 20.0% Charlotte, North Carolina 28288 Attention: Cindy Bean Telephone No.: (704) 383-7534 BankBoston, N.A. $40,000,000 115 Perimeter Center Place, N.E. 20.0% Suite 500 Atlanta, Georgia 30346 Attention: Michael Doss Assistant Vice President Telephone No.: (770) 390-6541 Credit Lyonnais New York Branch $25,000,000 1301 Avenue of the Americas 12.5% 18th Floor New York, New York 10019-6022 Attention: Jan Hazelton Vice President Telephone No.: (212) 261-3723 Societe Generale, Southwest Agency $20,000,000 2001 Ross Avenue 10.0% Suite 4900 Dallas, Texas 75201 Attention: Craig Sayers Associate Telephone No.: (214) 979-2731
EX-10.3 6 EXHIBIT 10.3 ================================================================================ CREDIT AGREEMENT dated as of March 31, 1999 by and among GOLF TRUST OF AMERICA, L.P., as Borrower, the Guarantors referred to in this Agreement, the Lenders referred to in this Agreement, and NATIONSBANK, N.A., as Administrative Agent ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS.......................................................1 SECTION 1.1 Definitions....................................................1 SECTION 1.2 Amended and Restated Credit Agreement..........................6 SECTION 1.3 General........................................................6 SECTION 1.4 Other Definitions and Provisions...............................6 ARTICLE II CREDIT FACILITY..................................................6 SECTION 2.1 Loans..........................................................6 SECTION 2.2 Procedure for Advances of Loans................................7 SECTION 2.3 Repayment of Loans.............................................7 SECTION 2.4 Notes..........................................................8 SECTION 2.5 Permanent Reduction of the Aggregate Commitment................8 SECTION 2.6 Termination of Credit Facility.................................9 SECTION 2.7 Use of Proceeds................................................9 ARTICLE III GENERAL LOAN PROVISIONS.........................................9 SECTION 3.1 Interest.......................................................9 SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans......11 SECTION 3.3 Unused Fee....................................................11 SECTION 3.4 Payment.......................................................12 SECTION 3.5 Right of Set-off; Adjustments.................................12 SECTION 3.6 Nature of Obligations of Lenders Regarding Loans; Assumption by the Administrative Agent..................................13 SECTION 3.7 Indemnity.....................................................14 SECTION 3.8 Increased Cost and Reduced Return.............................14 SECTION 3.9 Limitation on Types of Loans..................................16 SECTION 3.10 Illegality....................................................16 SECTION 3.11 Treatment of Affected Loans...................................16 SECTION 3.12 Compensation..................................................16 SECTION 3.13 Taxes.........................................................17 SECTION 3.14 Senior Debt...................................................18 ARTICLE IV GUARANTY........................................................19 SECTION 4.1 Guaranty of Obligations of Guarantors.........................19 SECTION 4.2 Nature of Guaranty............................................19 SECTION 4.3 Demand by the Administrative Agent............................20 SECTION 4.4 Waivers.......................................................20 SECTION 4.5 Benefits of Guaranty..........................................21 SECTION 4.6 Modification of Loan Documents etc............................21 SECTION 4.7 Reinstatement.................................................22 SECTION 4.8 Waiver of Subrogation and Contribution........................22 SECTION 4.9 Remedies......................................................22 SECTION 4.10 Limit of Liability............................................22 ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING.....................22 SECTION 5.1 Closing.......................................................22 SECTION 5.2 Conditions to Closing and Initial Loan........................23 SECTION 5.3 Conditions to All Loans.......................................25 ARTICLE VI REPRESENTATIONS AND WARRANTIES..................................26 SECTION 6.1 Reaffirmation of Representations and Warranties...............26 SECTION 6.2 No Material Adverse Change....................................26 ARTICLE VII FINANCIAL INFORMATION AND NOTICES..............................27 ARTICLE VIII AFFIRMATIVE COVENANTS.........................................27 ARTICLE IX FINANCIAL COVENANTS.............................................27 ARTICLE X NEGATIVE COVENANTS...............................................28 ARTICLE XI DEFAULT AND REMEDIES............................................28 SECTION 11.1 Events of Default.............................................28 SECTION 11.2 Remedies......................................................29 SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc...............29 ARTICLE XII THE ADMINISTRATIVE AGENT.......................................30 SECTION 12.1 Appointment, Powers, and Immunities...........................30 SECTION 12.2 Reliance by Administrative Agent..............................30 SECTION 12.3 Defaults......................................................31 SECTION 12.4 Rights as Lender..............................................31 SECTION 12.5 Indemnification...............................................31 SECTION 12.6 Non-Reliance on Agent and Other Lenders.......................32 SECTION 12.7 Resignation; Removal of Agents; Successor Agents..............32 ARTICLE XIII MISCELLANEOUS.................................................33 SECTION 13.1 Notices.......................................................33 SECTION 13.2 Expenses; Indemnification.....................................34 SECTION 13.3 Set-off.......................................................35 SECTION 13.4 Governing Law.................................................35 SECTION 13.5 Consent to Jurisdiction.......................................35 SECTION 13.6 Waiver of Jury Trial..........................................36 SECTION 13.7 Reversal of Payments..........................................36 SECTION 13.8 Injunctive Relief; Punitive Damages...........................36 SECTION 13.9 Accounting Matters............................................37 SECTION 13.10 Assignments and Participations................................37 SECTION 13.11 Amendments and Waivers........................................39 SECTION 13.12 Performance of Duties.........................................39 SECTION 13.13 All Powers Coupled with Interest..............................39 SECTION 13.14 Survival of Indemnities.......................................39 SECTION 13.15 Titles and Captions...........................................39 SECTION 13.16 Severability of Provisions....................................39 SECTION 13.17 Counterparts..................................................40 SECTION 13.18 Term of Agreement.............................................40 SCHEDULES --------- 1 - Lenders and Commitments EXHIBITS -------- A - Form of Note B - Form of Notice of Borrowing C - Form of Notice of Repayment D - Form of Notice of Conversion/Continuation E - Form of Officer's Compliance Certificate F - Form of Assignment and Acceptance G - Form of Guaranty Supplement CREDIT AGREEMENT CREDIT AGREEMENT, dated as of the 31st day of March, 1999, by and among (i) GOLF TRUST OF AMERICA, L.P., a limited partnership formed under the laws of Delaware (the "Borrower"), (ii) the Guarantors (as hereinafter defined), (iii) the Lenders who are or may become a party to this Agreement and (iv) NATIONSBANK, N.A. ("NationsBank"), as Administrative Agent for the Lenders. STATEMENT OF PURPOSE The Guarantors and the Borrower have requested, and the Lenders have agreed, to extend a revolving credit facility to the Borrower on the terms and conditions of this Credit Agreement. All extensions of credit to the Borrower will inure to the benefit of the Guarantors, directly or indirectly. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. The following terms when used in this Agreement shall have the meanings assigned to them below "Adjusted Eurodollar Rate" means, with respect to any Eurodollar Loan, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) mathematically determined by the Administrative Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Interest Period by (b) 1 minus the Reserve Requirement for such Interest Period. "Administrative Agent" means NationsBank in its capacity as the Administrative Agent under this Agreement, and any successor thereto appointed pursuant to Section 12.7. "Administrative Agent's Office" means the office of the Administrative Agent specified in or determined in accordance with the provisions of Section 13.1. "Aggregate Commitment" means the aggregate amount of the Lenders' Commitments under this Agreement, as such amount may be reduced or modified at any time or from time to time pursuant to the terms of this Agreement. On the Closing Date, the Aggregate Commitment shall be Twenty Five Million Dollars ($25,000,000). "Agreement" means this Credit Agreement, as amended or modified from time to time. "Amended and Restated Credit Agreement" shall have the meaning assigned thereto in Section 1.2. "Applicable Lending Office" means, for each Lender, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated on Schedule 1 of this Agreement or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower by written notice in accordance with the terms of this Agreement as the office by which its Loans are to be made and maintained. "Available Commitment" means, as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Commitment over (b) such Lender's Loans. "Base Rate" means, at any time, the higher of (a) the rate per annum equal to the rate announced by NationsBank as its "prime rate" or (b) the Federal Funds Rate plus 0.5% for such day. Any change in the Base Rate due to a change in the prime rate shall be effective on the effective date of such change in the prime rate. "Base Rate Loan" means any Loan that bears interest at the Base Rate. "Borrower" means Golf Trust of America, L.P. in its capacity as borrower under this Agreement. "Closing Date" means the date of this Agreement or such later Business Day upon which each condition described in Article V shall be satisfied or waived in all respects in a manner acceptable to the Administrative Agent, in its sole discretion. "Commitment" means, as to any Lender, the obligation of such Lender to make Loans to the Borrower under this Agreement in an aggregate principal amount at any time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 1 to this Agreement, or as set forth in any Assignment and Acceptance relating to any assignment that has become effective pursuant to Section 13.10, as the same may be reduced or modified at any time or from time to time pursuant to the terms of this Agreement. "Commitment Percentage" means, as to any Lender at any time, the ratio of (a) the amount of the Commitment of such Lender to (b) the Aggregate Commitment. "Convert," "Conversion," and "Converted" shall refer to a conversion pursuant to Section 3.2, 3.9 or 3.11 of a Eurodollar Loan into a Base Rate Loan or vice versa. "Credit Facility" means the non-revolving credit facility established pursuant to Article II of this Agreement. "Credit Parties" means, collectively, the Borrower and the Guarantors. Notwithstanding Section 8.13 of the Amended and Restated Credit Agreement, if Golf Trust of America hereafter creates or acquires any Subsidiary and the Required Lenders elect not to require such Subsidiary to become a Guarantor, such Subsidiary shall nonetheless be deemed to be a Credit Party for purposes of this Agreement. 2 "Default" means any of the events specified in Section 11.1 which with the passage of time, the giving of notice or any other condition, would constitute an Event of Default. "Defaulting Lender" shall have the meaning assigned thereto in Section 3.6. "Dollars" or "$" means, unless otherwise qualified, dollars in lawful currency of the United States. "Eurodollar Loan" means any Loan that bears interest at a rate based on the Adjusted Eurodollar Rate. "Eurodollar Rate" means for any Eurodollar Loan for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Event of Default" means any of the events specified in Section 11.1, provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied. "Existing Facility" means the Credit Agreement dated as of July 9, 1998 by and among the Borrower GTA, GTA GP and GTA LP, as guarantors, the lenders referred to therein, NationsBank, as administrative agent and Bank of America National Trust and Savings Association, as documentation agent. "GTA" means Golf Trust of America, Inc., a Maryland corporation. "GTA GP" means GTA GP, Inc., a Maryland corporation. "GTA LP" means GTA LP, Inc., a Maryland corporation. "Guaranteed Obligations" shall have the meaning assigned thereto in Section 4.1. "Guarantors" means, collectively, GTA, GTA GP, GTA LP, Sandpiper LLC and Sandpiper GTA, together with any Subsidiaries of GTA that become Guarantors pursuant to Section 8.3. "Guaranty" means the Guarantors' obligations set forth in Article IV. 3 "Interest Period" means each period of thirty (30) days, under this Agreement, with respect to which the Eurodollar Rate shall be determined; provided that: (a) each Interest Period shall commence on the date of advance of or Conversion to any Eurodollar Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the next preceding Interest Period expires; (b) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period; (d) no Interest Period shall be permitted to extend beyond the Termination Date; and (e) there shall be no more than seven (7) Interest Periods outstanding at any time. "Lender" means each Person executing this Agreement as a Lender set forth on the signature pages hereto and each Person that hereafter becomes a party to this Agreement as a Lender pursuant to Section 13.10. "Lending Office" means, with respect to any Lender, the office of such Lender maintaining such Lender's Commitment Percentage of the Loans. "Leverage Ratio" means the ratio of Total Liabilities to Total Assets. "Loan" means any revolving credit loan made to the Borrower pursuant to Article II and all such revolving credit loans collectively as the context requires. "Loan Documents" means, collectively, this Agreement, the Notes and each other document, instrument and agreement executed and delivered by any Credit Party or on behalf of such entity by its counsel in connection with this Agreement or otherwise referred to in this Agreement or contemplated hereby, all as may be amended, restated or otherwise modified. "NationsBank" means NationsBank, N.A., a national banking association, and its successors. "Notes" means the separate Notes made by the Borrower payable to the order of each of the Lenders, substantially in the form of Exhibit A hereto, evidencing the Credit Facility, and any amendments, modifications and supplements thereto, any substitutes therefor, and any replacements, restatements, renewals or extension thereof, in whole or in part; "Note" means any of such Notes. 4 "Notice of Borrowing" shall have the meaning assigned thereto in Section 2.2(a). "Notice of Repayment" shall have the meaning assigned thereto in Section 2.3(c). "Obligations" means, in each case, whether now in existence or hereafter arising: (a) the principal of and interest on (including interest accruing after the filing of any bankruptcy or similar petition) the Loans, (b) all payment and other obligations owing by the Borrower to any Lender under any Hedging Agreement and (c) all other fees and commissions (including attorney's fees), charges, indebtedness, loans, liabilities, financial accommodations, obligations, covenants and duties owing by the Borrower to the Lenders or the Administrative Agent, of every kind, nature and description, direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note, and whether or not for the payment of money under or in respect of this Agreement, any Note or any of the other Loan Documents. "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by NationsBank as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by NationsBank as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks. "Register" shall have the meaning assigned thereto in Section 13.10. "Required Lenders" means, at any date, any combination of holders other than Defaulting Lenders of at least sixty-six and two-thirds percent (66-2/3%) of the aggregate unpaid principal amount of the Notes exclusive of Notes held by Defaulting Lenders, or if no amounts are outstanding under the Notes, any combination of Lenders other than Defaulting Lenders whose Commitment Percentages would aggregate at least sixty-six and two-thirds percent (66-2/3%) if the Commitments of each Defaulting Lender were excluded from the Aggregate Commitment. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. 5 "Sandpiper LLC" means Sandpiper-Golf Trust, LLC, a Delaware limited liability company. "Sandpiper GTA" means Sandpiper GTA Development, Inc., a California corporation. "Termination Date" shall have the meaning assigned thereto in Section 2.6. SECTION 1.2 Amended and Restated Credit Agreement. All terms used in this Agreement and not defined herein shall have the meanings assigned to them in the Amended and Restated Credit Agreement dated as of the 31st day of March, 1999 by and among the Borrower, the Guarantors, the Lenders party thereto and NationsBank, N.A., as Administrative Agent for the Lenders. SECTION 1.3 General. Unless otherwise specified, a reference in this Agreement to a particular section, subsection, Schedule or Exhibit is a reference to that section, subsection, Schedule or Exhibit of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Any reference in this Agreement to "Charlotte time" shall refer to the applicable time of day in Charlotte, North Carolina. SECTION 1.4 Other Definitions and Provisions. (a) Use of Capitalized Terms. Subject to Section 1.2, unless otherwise defined therein, all capitalized terms defined in this Agreement shall have the defined meanings when used in this Agreement, the Notes and the other Loan Documents or any certificate, report or other document made or delivered pursuant to this Agreement. (b) Miscellaneous. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. ARTICLE II CREDIT FACILITY SECTION 2.1 Loans. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Loans to the Borrower from time to time from the Closing Date through, but not including, the Termination Date as requested by the Borrower in accordance with the terms of Section 2.2; provided, that (a) the aggregate principal amount of all outstanding Loans (after giving effect to any amount requested) shall not exceed the Aggregate Commitment, (b) the principal amount of outstanding Loans from any Lender to the Borrower shall not at any time exceed such Lender's Commitment and (c) the Pool Value shall at all times be at least 1.75 times the aggregate amount of all unsecured Debt of (including the outstanding Obligations). Each Loan by a Lender shall be in a principal amount equal to such Lender's Commitment Percentage of the aggregate principal amount of Loans requested on such occasion. Subject to the terms and conditions hereof, the Borrower may borrow, repay and reborrow Loans hereunder until the Termination Date. 6 SECTION 2.2 Procedure for Advances of Loans. (a) Requests for Borrowing. The Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached hereto as Exhibit B (a "Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) (i) at least two (2) Business Days before each Base Rate Loan and (ii) at least three (3) Business Days before each Eurodollar Loan, of its intention to borrow, specifying (A) the date of such borrowing, which shall be a Business Day, (B) the amount of such borrowing, which shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof, and (C) whether such Loan is to be a Eurodollar Loan or a Base Rate Loan. Notices received after 11:00 a.m. (Charlotte time) shall be deemed received on the next Business Day. The Administrative Agent shall promptly notify the Lenders of each Notice of Borrowing. (b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte time) on the proposed borrowing date, each Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, such Lender's Commitment Percentage of the Loans to be made on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section 2.2 in immediately available funds by crediting such proceeds to a deposit account of the Borrower maintained with the Administrative Agent or by wire transfer to such account as may be agreed upon by the Borrower and the Administrative Agent from time to time. Unless the Administrative Agent shall have received notice from a Lender that such Lender will not make available to the Administrative Agent such Lender's Commitment Percentage of the requested Loan, the Administrative Agent shall disburse such Lender's Commitment Percentage of the Loans. SECTION 2.3 Repayment of Loans. (a) Repayment on Termination Date. The Borrower shall repay the outstanding principal amount of all Loans in full, together with all accrued but unpaid interest thereon, on the Termination Date. (b) Mandatory Repayments. (i) If at any time the outstanding principal amount of all Loans exceeds the Aggregate Commitment or the Pool Value is less than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the outstanding Obligations), the Borrower shall repay immediately upon written notice from the Administrative Agent, by payment to the Administrative Agent for the account of the Lenders, the Loans in an amount necessary to bring the Borrower into compliance (ii) Each such repayment under this Section 2.3(b) shall be (x) accompanied by any amount required to be paid pursuant to Section 3.12 of this Agreement, together with interest accrued thereon to the date of repayment and (y) applied first to the outstanding Base Rate Loans up to the full amount thereof and second to the outstanding Eurodollar Loans up to the full amount thereof. 7 (c) Optional Repayments. The Borrower may at any time and from time to time repay the Loans, in whole or in part, by giving the Administrative Agent irrevocable notice in the form attached hereto as Exhibit C (a "Notice of Repayment") not later than 11:00 a.m. (Charlotte time) at least three (3) Business Days before each repayment of a Loan specifying the date and amount of repayment, provided, however, that the Borrower may not repay any Eurodollar Loan on any day other than the last day of the Interest Period applicable thereto unless such payment is accompanied by any amount required to be paid pursuant to Section 3.12 of this Agreement. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender. If any such notice is given, the amount specified in such notice shall be due and payable on the date set forth in such notice. Partial repayments shall be in an aggregate amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each such repayment shall be accompanied by any amount required to be paid pursuant to Sections 3.7 and 3.12 of this Agreement. SECTION 2.4 Notes. Each Lender's Loans and the obligation of the Borrower to repay such Loans shall be evidenced by a Note executed by the Borrower payable to the order of such Lender representing the Borrower's obligation to pay such Lender's Commitment or, if less, the aggregate unpaid principal amount of all Loans made and to be made by such Lender to the Borrower under this Agreement, plus interest and all other fees, charges and other amounts due thereon as required under this Agreement. Each Note shall bear interest on the unpaid principal amount thereof at the applicable interest rate per annum specified in Section 3.1. SECTION 2.5 Permanent Reduction of the Aggregate Commitment. (a) Voluntary Reduction. The Borrower shall have the right at any time and from time to time, upon at least five (5) Business Days prior written notice to the Administrative Agent, to permanently reduce, without premium or penalty, (i) the entire Aggregate Commitment at any time or (ii) portions of the Aggregate Commitment, from time to time, in an aggregate principal amount not less than $3,000,000 or any whole multiple of $1,000,000 in excess thereof. The amount of each partial permanent reduction shall be applied pro rata to reduce the remaining mandatory reduction amounts required under Section 2.6(b). (b) Mandatory Reduction. (i) Increase of Committed Amount under Amended and Restated Credit Agreement. The Aggregate Commitment shall be permanently reduced by an amount equal to any increase in the committed amount under the Amended and Restated Credit Agreement in excess of Two Hundred Million Dollars ($200,000,000). (ii) Debt Proceeds. The Aggregate Commitment shall be permanently reduced by one hundred percent (100%) of the net cash proceeds from the placement of any Debt by the Borrower. 8 (c) Each permanent reduction permitted or required pursuant to this Section 2.5 shall be accompanied by a payment of principal sufficient to reduce the aggregate outstanding Loans of the Lenders after such reduction to the Aggregate Commitment as so reduced. Any reduction of the Aggregate Commitment to zero shall be accompanied by payment of all outstanding Obligations and shall result in the termination of the Commitments and Credit Facility. If the reduction of the Aggregate Commitment requires the repayment of any Eurodollar Loan such repayment shall be accompanied by any amount required to be paid pursuant to Sections 3.7 and 3.12 of this Agreement. SECTION 2.6 Termination of Credit Facility. The Credit Facility shall terminate upon the earlier of (a) March 31, 2000, (b) the date of termination by the Borrower pursuant to Section 2.5(a) hereof and (c) the date of termination by the Administrative Agent on behalf of the Lenders pursuant to Section 11.2(a). SECTION 2.7 Use of Proceeds. The Borrower shall use the proceeds of the Loans for the purposes provided in Section 2.7 of the Amended and Restated Credit Agreement. ARTICLE III GENERAL LOAN PROVISIONS SECTION 3.1 Interest. (a) Interest Rate Options. Subject to the provisions of this Section 3.1, at the election of the Borrower in accordance with Article II, the unpaid principal balance of any Loan shall bear interest at (A) the Base Rate, or (B) the Adjusted Eurodollar Rate plus the Applicable Margin. The Borrower shall select the type of interest rate applicable to any Loan at the time a Notice of Borrowing is given pursuant to Section 2.2(a) or at the time a Notice of Conversion/Continuation is given pursuant to Section 3.2. Any Loan as to which the Borrower has not duly specified an interest rate as provided immediately above shall be deemed a Base Rate Loan. (b) Applicable Margin. The Applicable Margin provided for in Section 3.1(a) with respect to the Eurodollar Loans (the "Applicable Margin") shall be determined by reference to the Leverage Ratio as of the end of each fiscal quarter, as follows: Leverage Ratio Applicable Margin Per Annum -------------- --------------------------- Greater than or equal to 2.00% .50 to 1.00 Greater than or equal to 1.75% .375 to 1.00 but less than .50 to 1.00 Less than .375 to 1.00 1.50% 9 Adjustments, if any, in the Applicable Margin shall be made by the Administrative Agent on the tenth (10th) Business Day (each an "Adjustment Date") after receipt by the Administrative Agent of quarterly financial statements for GTA and the other Credit Parties and the accompanying Officer's Compliance Certificate setting forth the Leverage Ratio of GTA and the other Credit Parties as of the most recent fiscal quarter end. Subject to Section 3.1(d), in the event such financial statements and certificate of covenant compliance are not delivered within the time required by Sections 7.1 and 7.2 of the Amended and Restated Credit Agreement, the Applicable Margin shall be the highest Applicable Margin set forth above until the Adjustment Date following the delivery of such financial statements and certificate or evidence of covenant compliance, as applicable. Notwithstanding the foregoing, at such time as the Borrower or GTA obtains an investment-grade senior debt rating by Moody's and S&P (the "Dual Rating") and for so long as the Borrower or GTA retains such Dual Rating, the Applicable Margin shall be determined by reference to the lower of Moody's or S&P's ratings thereof in accordance with the following pricing matrix: Senior Debt Rating Applicable Margin Per Annum ------------------ --------------------------- BBB/Baa2 or higher 1.25% BBB-/Baa3 1.35% ; provided, that, in the event the Borrower or GTA obtains an investment-grade senior debt rating by either Moody's (Baa3 or higher) or S&P (BBB- or higher) (the "Senior Rating"), and provided the rating of the other rating agency is not less than the grade immediately below investment grade (i.e., Ba1 if Moody's and BB+ if S&P) (the "Junior Rating" and collectively with the Senior Rating, the "Combined Rating")) and for so long as the Borrower or GTA retains such Combined Rating, the Applicable Margin shall be 1.50% per annum. In the event the Borrower or GTA, as applicable, loses (i) the Dual Rating or (ii) the Senior Rating or the Junior Rating, as applicable, the Applicable Margin shall thereafter be determined by reference to the Leverage Ratio as provided above until such time as the Borrower or GTA obtains a Dual Rating or a Combined Rating. (c) Default Rate. Upon the occurrence and during the continuance of an Event of Default, (i) the Borrower shall no longer have the option to request or Convert to Eurodollar Loans, (ii) all outstanding Eurodollar Loans may at the option of the Administrative Agent and shall at the direction of the Required Lenders bear interest at a rate per annum which shall be two percent (2%) in excess of the rate then applicable to Eurodollar Loans, as applicable, until the end of the applicable Interest Period and thereafter at a rate equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans, and (iii) all outstanding Base Rate Loans shall bear interest at a rate per annum equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans. Interest shall continue to accrue on the Notes after the filing by or against the Borrower of any petition seeking any relief in bankruptcy or under any act or law pertaining to insolvency or debtor relief, whether state, federal or foreign. 10 (d) Interest Payment and Computation. Interest on each Base Rate Loan shall be payable in arrears on the last Business Day of each month, commencing April 30, 1999, and on the Termination Date. Interest on each Eurodollar Loan shall be payable in arrears on the last day of each applicable Interest Period and on the Termination Date. All interest rates, fees and commissions provided under this Agreement shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed. (e) Maximum Rate. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest under this Agreement or under any of the Notes charged or collected pursuant to the terms of this Agreement or pursuant to any of the Notes exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Lenders have charged or received interest under this Agreement in excess of the highest rate permissible under Applicable Law, the rate in effect under this Agreement shall automatically be reduced to the maximum rate permitted by Applicable Law and the Lenders shall at the Administrative Agent's option promptly refund to the Borrower any interest received by Lenders in excess of the maximum rate permitted by Applicable Law or shall apply such excess to the principal balance of the Obligations if permitted by Applicable Law (in either event, the Administrative Agent shall advise Borrower in writing promptly of its decision). It is the intent of this Agreement that the Borrower not pay or contract to pay, and that neither the Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under Applicable Law. SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans. Provided that no Event of Default has occurred and is then continuing, the Borrower shall have the option to (a) Convert at any time all or any portion of its outstanding Base Rate Loans in a principal amount equal to $500,000 or any whole multiple of $100,000 in excess thereof into one or more Eurodollar Loans, and (b) upon the expiration of any Interest Period, (i) Convert all or any part of its outstanding Eurodollar Loans in a principal amount equal to $500,000 or a whole multiple of $100,000 in excess thereof into Base Rate Loans, or (ii) continue such Eurodollar Loans as Eurodollar Loans. Whenever the Borrower desires to Convert or continue Loans as provided immediately above, the Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached as Exhibit D (a "Notice of Conversion/Continuation") not later than 11:00 a.m. (Charlotte time) three (3) Business Days before the day on which a proposed Conversion or continuation of such Loan is to be effective specifying (A) the Loans to be Converted or continued, and, in the case of any Eurodollar Loan to be Converted or continued, the last day of the Interest Period therefor, (B) the effective date of such Conversion or continuation (which shall be a Business Day), and (C) the principal amount of such Loans to be Converted or continued. The Administrative Agent shall promptly notify the Lenders of such Notice of Conversion/Continuation. SECTION 3.3 Unused Fee. Commencing on the Closing Date, the Borrower shall pay to the Administrative Agent, for the account of the Lenders, a non-refundable unused fee at a rate per annum equal to 0.20% on the average daily unused portion of the Aggregate Commitment. The unused fee shall be payable in arrears on the last Business Day of each calendar quarter during the term of this Agreement commencing June 30, 1999, and on the Termination Date. Such unused fee shall be distributed by the Administrative Agent to the Lenders pro rata in accordance with the Lenders' respective Commitment Percentages. 11 SECTION 3.4 Payment. (a) Manner of Payment. Each payment by the Borrower on account of the principal of or interest on the Loans or of any fee, commission or other amounts payable to the Lenders under this Agreement or any Note shall be made not later than 1:00 p.m. (Charlotte time) on the date specified for payment under this Agreement to the Administrative Agent at the Administrative Agent's Office for the account of the Lenders (other than as set forth below) pro rata in accordance with their respective Commitment Percentages, in Dollars, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 2:00 p.m. (Charlotte time) on such day shall be deemed a payment on such date for the purposes of Section 11.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on the next succeeding Business Day for all purposes. On the Business Day that each such payment is deemed made, the Administrative Agent shall distribute to each Lender at its address for notices set forth in this Agreement its pro rata share of such payment in accordance with this Section 3.4 such Lender's Commitment Percentage and shall wire advice of the amount of such credit to each Lender; provided that if the Administrative Agent fails to distribute such funds on the date on which any payment is deemed made, the Administrative Agent shall pay interest thereon at the Federal Funds Rate from the date such payment is received until the date such funds are distributed by the Administrative Agent. Each payment to the Administrative Agent of the Administrative Agent's fees or the expenses of the Administrative Agent shall be made for the account of the Administrative Agent. Any amount payable to any Lender under Sections 3.7, 3.8, 3.12 or 13.2 shall be paid to the Administrative Agent for the account of the applicable Lender. (b) Crediting of Payments and Proceeds. In the event that the Borrower shall fail to pay any of the Obligations when due and the Obligations have been accelerated pursuant to Section 11.2, all payments received by the Lenders upon the Notes and the other Obligations and all net proceeds from the enforcement of the Obligations shall be applied first to all expenses then due and payable by the Borrower under this Agreement, then to all indemnity obligations then due and payable by the Borrower under this Agreement, then to all Administrative Agent's fees then due and payable by Borrower under this Agreement, then to all commitment and other fees and commissions then due and payable by Borrower under this Agreement, then to accrued and unpaid interest on the Notes, and any termination payments due from Borrower in respect of a Hedging Agreement with any Lender (pro rata in accordance with all such amounts due), and then to the principal amount of the Notes, in that order. SECTION 3.5 Right of Set-off; Adjustments. (a) Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) 12 at any time held and other indebtedness at any time owing by such Lender (or any of its Affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. (b) If any Lender (a "Benefited Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such Benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this Section 3.5 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. SECTION 3.6 Nature of Obligations of Lenders Regarding Loans; Assumption by the Administrative Agent. The obligations of the Lenders under this Agreement to make the Loans are several and are not joint or joint and several. Unless the Administrative Agent shall have received notice from a Lender prior to a proposed borrowing date that such Lender will not make available to the Administrative Agent such Lender's ratable portion of the amount to be borrowed on such date (which notice shall not release such Lender of its obligations under this Agreement), the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the proposed borrowing date in accordance with Section 2.2(b) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If such amount is made available to the Administrative Agent on a date after such borrowing date, such Lender shall pay to the Administrative Agent on demand an amount, until paid, equal to the product of (a) the amount of such Lender's Commitment Percentage of such borrowing, times (b) the daily average Federal Funds Rate during such period as determined by the Administrative Agent, times (c) a fraction the numerator of which is the number of days that elapse from and including such borrowing date to the date on which such Lender's Commitment Percentage of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent with respect to any amounts owing under this Section 3.6 shall be conclusive, absent manifest error. If such Lender's Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three (3) Business Days of such borrowing date, the Administrative Agent shall be entitled to recover such amount made available by the Administrative Agent with interest thereon at the Adjusted Eurodollar Rate, on demand, from the Borrower. The failure of any Lender (a "Defaulting Lender") to make its Commitment Percentage of any Loan available shall not relieve it or any other Lender of its obligation, if any, under this Agreement to make its Commitment Percentage of such Loan available to Borrower on such borrowing date, but no Lender shall be responsible for the failure of any other Lender to make its Commitment Percentage of such Loan available on the borrowing date. 13 SECTION 3.7 Indemnity. The Borrower hereby indemnifies each of the Lenders against any reasonable and actually incurred loss or expense which arises or is directly attributable to each Lender's obtaining, liquidating or employing deposits or other funds acquired to effect, fund or maintain any Eurodollar Loan (a) as a consequence of any failure by the Borrower to make any payment when due of any amount due under this Agreement in connection with a Eurodollar Loan, (b) due to any failure of the Borrower to borrow on a date specified therefor in a Notice of Borrowing, or (c) due to any payment or prepayment of any Eurodollar Loan on a date other than the date specified for such payment in the applicable Notice of Repayment; provided, however, the Borrower shall have no such obligation to any Lender who is a Defaulting Lender. The amount of such reasonable and actually incurred loss or expense shall be determined, in the applicable Lender's sole reasonable discretion, based upon the condition that such Lender funded its Commitment Percentage of the Eurodollar Loans in the London interbank market and using any reasonable attribution or averaging methods which such Lender deems appropriate and practical. A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error. SECTION 3.8 Increased Cost and Reduced Return. (a) If, after the date of this Agreement, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency; excepting, however, any such change occasioned by such Lender's default or non-compliance with such applicable rules: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Loans, its Note, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); 14 (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender under this Agreement; or (iii) shall impose on such Lender (or its Applicable Lending Office) or the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Loans, then the Borrower shall pay to such Lender on demand (and a full written explanation for the increase) such amount or amounts solely applicable to its Loan or in relationship of its Loan to other loans of such Lender as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 3.8, the Borrower may, in its sole discretion, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender to make or continue Eurodollar Loans until the event or condition giving rise to such request ceases to be in effect; provided that such suspension shall not affect the right of such Lender to receive the compensation so requested, if applicable, subject to the foregoing conditions and caveats. (b) If, after the date of this Agreement, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations under this Agreement to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Administrative Agent in writing of any event of which it has knowledge, occurring after the date of this Agreement, which will entitle such Lender to compensation pursuant to this Section 3.8 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 3.8 shall promptly furnish to the Borrower and the Administrative Agent a written statement setting forth the additional amount or amounts to be paid to it under this Agreement which (subject to the terms of this Agreement) shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 15 SECTION 3.9 Limitation on Types of Loans. If on or prior to the first day of any Interest Period the Administrative Agent reasonably determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period then the Administrative Agent shall give the Borrower prompt written notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans or continue Eurodollar Loans, and the Borrower shall, at its election, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, prepay such Eurodollar Loans, or Convert such Eurodollar Loans into Base Rate Loans, or prepay the Obligations in full and terminate this Agreement. SECTION 3.10 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans under this Agreement, then such Lender shall promptly notify the Borrower thereof in writing and such Lender's obligation to make or continue Eurodollar Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 3.11 shall be applicable). SECTION 3.11 Treatment of Affected Loans. If the obligation of any Lender to make or continue Eurodollar Loan shall be suspended pursuant to Section 3.9 or 3.10 of this Agreement and unless such Eurodollar Loans are paid, until such Lender gives prior written notice to the Borrower as provided below that the circumstances specified in Section 3.9 or 3.10 of this Agreement no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted into Base Rate Loans, all payments and prepayments of principal that would otherwise be applied to the Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or continued by such Lender as Eurodollar Loans shall be made or continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives written notice to the Borrower (with a copy to the Administrative Agent) that the circumstances specified in Section 3.9 or 3.10 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) such Lender's Base Rate Loans may be Converted to Eurodollar Loans. SECTION 3.12 Compensation. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable, good faith opinion of such Lender) to compensate it for any reasonable and actually incurred loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: 16 (a) any payment, prepayment, or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 11.2) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article V to be satisfied) to borrow or prepay a Eurodollar Loan on the date for such borrowing or prepayment specified in the relevant Notice of Borrowing or Notice of Repayment under this Agreement. SECTION 3.13 Taxes. (a) Any and all payments by the Borrower to or for the account of any Lender or the Administrative Agent under this Agreement or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Administrative Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or the Administrative Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.13) such Lender or the Administrative Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 13.1, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement by the Borrower or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.13) properly paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. 17 (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages of this Agreement and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Administrative Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying to the Administrative Agent and the Borrower that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Administrative Agent with the appropriate form pursuant to Section 3.13(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 3.13(a) or 3.13(b) with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required under this Agreement, the Borrower shall take such reasonable steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 3.13, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower arising in connection with this Agreement, the agreements and obligations of the Borrower contained in this Section 3.13 shall survive the termination of the Commitments and the payment in full of the Notes. SECTION 3.14 Senior Debt. The Obligations of the Borrower under this Agreement and the obligations and indebtedness of the Borrower under the Amended and Restated Credit Agreement constitute senior Debt and shall be pari passu subject only to the restrictions on prepayment provided for in Section 2.3(d) of the Amended and Restated Credit Agreement. 18 ARTICLE IV GUARANTY SECTION 4.1 Guaranty of Obligations of Guarantors. Each Guarantor hereby jointly and severally unconditionally guaranties to the Administrative Agent for the ratable benefit of the Administrative Agent and the Lenders, and their permissible respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of all Obligations of the Borrower, whether primary or secondary (whether by way of endorsement or otherwise), whether now existing or hereafter arising, whether or not from time to time reduced or extinguished (except by payment thereof) or hereafter increased or incurred, whether or not recovery may be or hereafter become barred by the statute of limitations, whether enforceable or unenforceable as against the Borrower, whether or not discharged, stayed or otherwise affected by any bankruptcy, insolvency or other similar law or proceeding, whether created directly with the Administrative Agent or any Lender or acquired by the Administrative Agent or any Lender through assignment, endorsement or otherwise as permitted under this Agreement, whether matured or unmatured, whether joint or several, as and when the same become due and payable (whether at maturity or earlier, by reason of acceleration, mandatory repayment or otherwise), in accordance with the terms of any such instruments evidencing any such obligations, including all renewals, extensions or modifications thereof (all Obligations of the Borrower to the Administrative Agent or any Lender, including all of the foregoing, being hereinafter collectively referred to as the "Guaranteed Obligations"). SECTION 4.2 Nature of Guaranty. Each Guarantor agrees that this Guaranty is a continuing, unconditional guaranty of payment and performance and not of collection, and that its obligations under this Agreement shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement or any other Loan Document or any other agreement, document or instrument to which the Borrower is or may become a party; (b) the absence of any action to enforce this Agreement or any other Loan Document or the waiver or consent by the Administrative Agent or any Lender with respect to any of the provisions of this Agreement or any other Loan Document; (c) the existence, value or condition of, or failure to perfect its Lien against, any security for or other guaranty of the Guaranteed Obligations or any action, or the absence of any action, by the Administrative Agent or any Lender in respect of such security or guaranty (including, without limitation, the release of any such security or guaranty); or (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; 19 it being agreed by each Guarantor that its obligations under this Guaranty shall not be discharged until the final and indefeasible payment and performance, in full, of the Guaranteed Obligations and the termination of the Aggregate Commitment. Each Guarantor expressly waives all rights it may now or in the future have under any statute (including, without limitation, North Carolina General Statutes Section 26-7, et seq. or similar law), or at law or in equity, or otherwise, to compel the Administrative Agent or any Lender to proceed in respect of the Guaranteed Obligations against the Borrower or any other party or against any security for or other guaranty of the payment and performance of the Guaranteed Obligations before proceeding against, or as a condition to proceeding against, such Guarantor. Each Guarantor further expressly waives and agrees not to assert or take advantage of any defense based upon the failure of the Administrative Agent or any Lender to commence an action in respect of the Guaranteed Obligations against the Borrower, any Guarantor or any other party or any security for the payment and performance of the Guaranteed Obligations. Each Guarantor agrees that any notice or directive given at any time to the Administrative Agent or any Lender which is inconsistent with the waivers in the preceding two sentences shall be null and void and may be ignored by the Administrative Agent or Lender, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the Administrative Agent and the Required Lenders have specifically agreed otherwise in writing. The foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and, but for this Guaranty and such waivers, the Administrative Agent and Lenders would decline to enter into this Agreement. SECTION 4.3 Demand by the Administrative Agent. In addition to the terms set forth in Section 4.2, and in no manner imposing any limitation on such terms, if all or any portion of the then outstanding Guaranteed Obligations under this Agreement are declared to be immediately due and payable in accordance with the terms of this Agreement, then the Guarantors shall, upon demand in writing therefor by the Administrative Agent to the Guarantors, pay all or such portion of the outstanding Guaranteed Obligations then declared due and payable. Payment by the Guarantors shall be made to the Administrative Agent, to be credited and applied upon the Guaranteed Obligations, in immediately available federal funds to an account designated by the Administrative Agent or at the address referenced in this Agreement for the giving of notice to the Administrative Agent or at any other address that may be specified in writing from time to time by the Administrative Agent. SECTION 4.4 Waivers. In addition to the waivers contained in Section 4.2, each Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by such Guarantor of its obligations under, or the enforcement by the Administrative Agent or the Lenders of, this Guaranty. Each Guarantor further hereby waives diligence, presentment, demand, protest and notice of whatever kind or nature with respect to any of the Guaranteed Obligations and waives the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Each Guarantor represents, warrants and agrees that its obligations under this Guaranty are not and shall not be subject to any counterclaims, offsets or defenses of any kind against the Administrative Agent, the Lenders or the Borrower whether now existing or which may arise in the future. 20 SECTION 4.5 Benefits of Guaranty. The provisions of this Guaranty are for the benefit of the Administrative Agent and the Lenders and their respective successors, transferees, endorsees and assigns, and nothing in this Agreement contained shall impair, as between the Borrower, the Administrative Agent and the Lenders, the obligations of the Borrower under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, endorsed or assigned by the Administrative Agent or any Lender to any Person or Persons, any reference to any "Administrative Agent" or "Lenders" in this Agreement shall be deemed to refer equally to such Person or Persons. SECTION 4.6 Modification of Loan Documents etc. If the Administrative Agent or the Lenders shall at any time or from time to time, with or without the consent of, or notice to, the Guarantors: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, in equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; (d) extend or waive the time for performance by the Guarantors, the Borrower or any other Person of, or compliance with, any term, covenant or agreement (other than this Guaranty) on its part to be performed or observed under a Loan Document, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold security or collateral for the payment of the Guaranteed Obligations or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which the Administrative Agent or the Lenders have been granted a Lien, to secure any Debt of any Guarantor or the Borrower to the Administrative Agent or the Lenders; (f) release anyone who may be liable in any manner for the payment of any amounts owed by the Guarantors or the Borrower to the Administrative Agent or any Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of the Guarantors or the Borrower are subordinated to the claims of the Administrative Agent or any Lender; or (h) apply any sums by whomever paid or however realized to any amounts owing by the Guarantors or the Borrower to the Administrative Agent or any Lender in such manner as the Administrative Agent or any Lender shall determine in its discretion; 21 then neither the Administrative Agent nor any Lender shall incur any liability to the Guarantors as a result thereof, and no such action shall impair or release the obligations of the Guarantors under this Guaranty. SECTION 4.7 Reinstatement. Each Guarantor agrees that, if any payment made by the Borrower or any other Person applied to the Obligations is at any time annulled, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid by the Administrative Agent or Lender to the Borrower, their estate, trustee, receiver or any other party, including, without limitation, such Guarantor, under any Applicable Law or equitable cause, then, to the extent of such payment or repayment, such Guarantor's liability under this Agreement shall be and remain in full force and effect, as fully as if such payment had never been made, and, if prior thereto, this Guaranty shall have been canceled or surrendered, this Guaranty shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of such Guarantor in respect of the amount of such payment. SECTION 4.8 Waiver of Subrogation and Contribution. Each Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Borrower that arise from the existence or performance of such Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of the Administrative Agent or the Lenders against the Borrower security or collateral which the Administrative Agent or the Lenders now have or may hereafter acquire, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made under this Agreement or otherwise, including without limitation, the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. SECTION 4.9 Remedies. Upon the occurrence of any Event of Default, the Administrative Agent may enforce against any Guarantor its obligations and liabilities under this Agreement and exercise such other rights and remedies as may be available to the Administrative Agent under this Agreement, under the Loan Documents or Applicable Law. SECTION 4.10 Limit of Liability. The obligations of each Guarantor under this Agreement shall be limited to an aggregate amount equal to the largest amount that would not render its obligations under this Agreement subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law. ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING SECTION 5.1 Closing. The closing shall take place at the offices of Kennedy Covington Lobdell & Hickman, L.L.P. in Charlotte, North Carolina at 10:00 a.m. on March 31, 1999 or at such other place and on such other date as the parties hereto shall mutually agree. 22 SECTION 5.2 Conditions to Closing and Initial Loan. The obligation of the Lenders to close this Agreement and to make the initial Loan is subject to the satisfaction of each of the following conditions: (a) Executed Loan Documents. This Agreement and the Notes, in form and substance satisfactory to the Administrative Agent and each Lender shall have been duly authorized, executed and delivered by the Borrower and each other Credit Party, as applicable, shall be in full force and effect and no Default or Event of Default shall exist thereunder, and the Borrower and each other Credit Party, as applicable, shall have delivered original counterparts thereof to the Administrative Agent. (b) Closing Certificates; etc. (i) Certificate of GTA GP. The Administrative Agent shall have received a certificate from the chief executive officer or chief financial officer of GTA GP, the managing general partner of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, to the effect that all representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true, correct and complete to the best knowledge of such Person; that to the best knowledge of such Person none of the Credit Parties is in violation of any of the covenants contained in this Agreement and the other Loan Documents; that, after giving effect to the transactions contemplated by this Agreement, no Default or Event of Default has occurred and is continuing; and that to the best knowledge of such Person the Borrower has satisfied each of the closing conditions. (ii) Certificate of Secretary of the General Partner. The Administrative Agent shall have received a certificate of the secretary or assistant secretary of GTA GP, in its capacity as the Managing General Partner of the Borrower certifying on behalf of the Borrower that attached thereto is a true and complete copy of the Certificate of Limited Partnership of the Borrower and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of formation; that attached thereto is the Agreement of Limited Partnership of the Borrower and all amendments thereto; that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of GTA GP authorizing the execution, delivery and performance of the Loan Documents to which the Borrower is a party; that there has been no change in any of the items delivered previously to the Administrative Agent pursuant to Articles V and VI of the Amended and Restated Credit Agreement and that the Lenders may rely on such prior deliveries in making any Loan under this Agreement; and as to the incumbency and genuineness of the signature of each officer of GTA GP executing Loan Documents to which the Borrower is a party. 23 (iii) Certificate of Secretary of each Guarantor. The Administrative Agent shall have received a certificate of the secretary or assistant secretary of each Guarantor certifying that attached thereto is a true and complete copy of the articles of incorporation or articles of organization, as applicable of such Guarantor and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation; that attached thereto is a true and complete copy of the bylaws or operating agreement, as applicable of such Guarantor as in effect on the date of such certification; that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Guarantor or consents duly adopted by the members of such limited liability company Guarantor, as applicable authorizing the borrowings contemplated under this Agreement and the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party; that there has been no change in any of the items delivered previously to the Administrative Agent pursuant to Articles V and VI of the Amended and Restated Credit Agreement and that the Lenders may rely upon such prior deliveries in making any Loan under this Agreement; and as to the incumbency and genuineness of the signature of each officer of such Guarantor executing Loan Documents to which it is a party. (iv) Pool Valuation Certificate. The Administrative Agent shall have received a Pool Valuation Certificate properly completed and executed by the Borrower, setting forth the Pool Value, the amount of which shall be equal to or greater than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the outstanding Obligations). (v) Opinions of Counsel. The Administrative Agent shall have received favorable opinions of counsel to the Credit Parties addressed to the Administrative Agent and the Lenders with respect to the Credit Parties, the Loan Documents and such other matters as the Lenders shall reasonably request. (c) Consents; Defaults. (i) Governmental and Third Party Approvals. All necessary approvals, authorizations and consents, if any be required, of any Person and of all Governmental Authorities and courts having jurisdiction with respect to the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained. (ii) No Injunction, Etc. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby, or which, in the Administrative Agent's reasonable discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement and such other Loan Documents. 24 (iii) No Event of Default. No Default or Event of Default shall have occurred and be continuing. (d) Payment of Fees. There shall have been paid by the Borrower to the Administrative Agent and the Lenders the fees set forth or referenced in Section 3.3 and any other accrued and unpaid fees or commissions due under this Agreement (including, without limitation, legal fees and expenses), and to any other Person such amount as may be due thereto in connection with the transactions contemplated hereby, including all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of any of the Loan Documents. (e) Miscellaneous. (i) Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing from the Borrower and identification of the account or accounts into which the proceeds of such Loans are to be disbursed. (ii) Proceedings and Documents. All opinions, certificates and other instruments and all proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Lenders. The Lenders shall have received copies of all other instruments and other evidence as the Lenders may reasonably request, in form and substance reasonably satisfactory to the Lenders, with respect to the transactions contemplated by this Agreement and the taking of all actions in connection therewith. (iii) Existing Facility. The Existing Facility shall be repaid in full and terminated. (iv) Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement shall have closed. (v) Due Diligence and Other Documents. The Borrower shall have delivered to the Administrative Agent such other documents, certificates and opinions as the Administrative Agent reasonably requests, certified by a secretary or assistant secretary of GTA GP, in its capacity as the Borrower's managing general partner as a true and correct copy thereof. SECTION 5.3 Conditions to All Loans. The obligation of the Lenders to make any Loan is subject to the satisfaction of the following conditions precedent on the relevant borrowing date: (a) Unavailability Under Amended and Restated Credit Agreement. All amounts available to the Borrower under the Amended and Restated Credit Agreement shall be fully drawn. 25 (b) Continuation of Representations and Warranties. The representations and warranties contained in Article VI shall be true and correct in all material respects, and shall be deemed to be remade, on and as of such borrowing date with the same effect as if made on and as of such date (except for those which expressly relate to an earlier date). (c) No Existing Default. No Default or Event of Default shall have occurred and be continuing under this Agreement on the borrowing date with respect to such Loan or after giving effect to the Loans to be made on such date. (d) Officer's Compliance Certificate; Additional Documents. The Administrative Agent shall have received the current Officer's Compliance Certificate and each additional document, instrument, legal opinion or other item of information reasonably requested by it. (e) Availability. After giving effect to the requested Loan, the outstanding Loans will not exceed the amount available pursuant to Section 2.1. (f) Pool Valuation Certificate. The Administrative Agent shall have received a Pool Valuation Certificate properly completed and executed by the Borrower, setting forth the Pool Value, the amount of which shall be equal to or greater than 1.75 times the aggregate amount of all unsecured Debt of the Credit Parties (including the amount of all Obligations outstanding after giving effect to the requested Loan). ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1 Reaffirmation of Representations and Warranties. The representations and warranties contained in Article VI of the Amended and Restated Credit Agreement are true and correct in all material respects and are incorporated herein by this reference and deemed to be remade, on and as of the date of this Agreement with the same effect as if made on and as of such date (except for those which expressly relate to an earlier date) and set forth herein in full. SECTION 6.2 No Material Adverse Change. Since the date of the Amended and Restated Credit Agreement there has been no material adverse change in the properties, business, operations, prospects or condition (financial or otherwise) of the Credit Parties, and no event has occurred or condition arisen that could reasonably be expected to have a Material Adverse Effect. 26 ARTICLE VII FINANCIAL INFORMATION AND NOTICES Until all the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.11 of this Agreement, the Credit Parties will furnish or cause to be furnished to the Lenders at their respective addresses as set forth on Schedule 1, or such other office as may be designated by the Lenders from time to time all of the financial statements and projections required to be delivered pursuant to the terms of Article VII of the Amended and Restated Credit Agreement. ARTICLE VIII AFFIRMATIVE COVENANTS Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner provided for in Section 13.11, each Credit Party will, and will cause each of its Subsidiaries to: SECTION 8.1 Compliance with Amended and Restated Credit Agreement. Comply in all respects in a timely manner with all of the affirmative covenants set forth in Section 3.14 and Article VIII of the Amended and Restated Credit Agreement. SECTION 8.2 Supplemental Guarantors. Concurrently with the creation or acquisition of any Subsidiary (a) cause it to execute and deliver to the Administrative Agent a supplement to the Guaranty substantially in the form of Exhibit G hereto, and (b) cause to be delivered to the Administrative Agent such other documents as the Administrative Agent or Required Lenders shall reasonably request in connection therewith, including, without limitation, officers' certificates, financial statements, opinions of counsel, resolutions, charter documents, certificates of existence and authority to do business and any other closing certificates and documents described in Section 5.2. ARTICLE IX FINANCIAL COVENANTS Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.11 of this Agreement, GTA and the other Credit Parties (on a Consolidated basis) will comply in all respects in a timely manner with all of the financial covenants set forth in Article IX of the Amended and Restated Credit Agreement. 27 ARTICLE X NEGATIVE COVENANTS Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.11 of this Agreement, the Credit Parties will comply in all respects in a timely manner with all of the negative covenants set forth in Article X of the Amended and Restated Credit Agreement. ARTICLE XI DEFAULT AND REMEDIES SECTION 11.1 Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority or otherwise: (a) Default in Payment of Principal of Loans. The Borrower shall default in any payment of principal of any Loan or Note when and as due (whether at maturity, by reason of acceleration or otherwise). (b) Other Payment Default. The Borrower shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on any Loan or Note or the payment of any other Obligation, and such default shall continue unremedied for five (5) Business Days. (c) Misrepresentation. Any representation or warranty made or deemed to be made by any Credit Party under this Agreement, any Loan Document or any amendment hereto or thereto, shall at any time prove to have been incorrect or misleading in any material respect when made or deemed made. (d) Default in Performance of Certain Covenants. Any Credit Party shall default in the performance or observance of any covenant or agreement contained in Article VIII or IX of this Agreement. (e) Default in Performance of Other Covenants and Conditions. Any Credit Party shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for otherwise in this Section 11.1) or any other Loan Document and such default shall continue for a period of thirty (30) days after written notice thereof has been given to such Credit Party by the Administrative Agent; or if such default cannot reasonably be cured within such period, such Credit Party does not within such thirty (30)-day period commence such act or acts as shall be necessary to remedy the default and shall not cause such default to be cured within a reasonable time, not to exceed, in any event, one hundred twenty (120) days. 28 (f) Cross-Default. Any Event of Default shall exist under the Amended and Restated Credit Agreement. (g) Termination of Commitments under Amended and Restated Credit Agreement. The commitments of the lenders under the Amended and Restated Credit Agreement shall be terminated for any reason. SECTION 11.2 Remedies. Upon the occurrence of an Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower: (a) Acceleration; Termination of Facilities. Declare the principal of and interest on the Loans and the Notes at the time outstanding, and all other amounts owed to the Lenders and to the Administrative Agent under this Agreement or any of the other Loan Documents and all other Obligations, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the Credit Facility and any right of the Borrower to request borrowings hereunder; provided, that upon the occurrence of an Event of Default specified in Section 11.1(l) or (m) of the Amended and Restated Credit Agreement, the Credit Facility shall be automatically terminated and all Obligations shall automatically become due and payable. (b) Rights of Collection. Exercise on behalf of the Lenders all of its other rights and remedies under this Agreement (including, without limitation, the Guaranty), the other Loan Documents and Applicable Law, in order to satisfy all of the Borrower's Obligations. SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration of the rights and remedies of the Administrative Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Administrative Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given under this Agreement or under the Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Administrative Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Borrower, the Administrative Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default. 29 ARTICLE XII THE ADMINISTRATIVE AGENT SECTION 12.1 Appointment, Powers, and Immunities. (a) Each Lender hereby irrevocably appoints and authorizes NationsBank to act as its Administrative Agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically and respectively delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. (b) The Administrative Agent shall administer the Credit Facility in the same manner as if the entire Aggregate Commitment were held by the Administrative Agent in its own portfolio. The Administrative Agent shall forward to the Lenders all documents received by such Administrative Agent from any Credit Party pursuant to the terms of this Agreement, unless such Credit Party is obligated under this Agreement to make delivery of such documents to the Lenders. (c) The Administrative Agent (which term as used in this sentence and in Section 12.5 and the first sentence of Section 12.6 shall include its Affiliates and its own and its Affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations under this Agreement; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct or breach of an express agreement made by such Administrative Agent to any other Lenders contained herein. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. SECTION 12.2 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) reasonably believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Credit Party), independent accountants, and other experts selected by such Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes of this Agreement unless and until the Administrative Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 13.10. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that Administrative Agent shall not be required to take any action that exposes such Administrative Agent to personal liability or that is contrary to any Loan Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 30 SECTION 12.3 Defaults. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless such Administrative Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that any Lender receives such a notice of the occurrence of a Default or Event of Default, such Lender shall give prompt notice thereof to the Administrative Agent, the other Lenders and the Borrower. The Administrative Agent shall (subject to Section 12.2 of this Agreement) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. SECTION 12.4 Rights as Lender. With respect to its Commitment and the Loans made by it, the Administrative Agent (and any successor acting as Administrative Agent) in its capacity as a Lender under this Agreement shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or Affiliates as if it were not acting as Administrative Agent, and the Administrative Agent (and any successor acting as Agent) and its Affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. SECTION 12.5 Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 3.7, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Administrative Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Administrative Agent under any Loan Document; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified or from the breach of an express agreement or made by the Administrative Agent to any Lenders contained herein. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 13.2, to the extent that the Administrative Agent is not promptly reimbursed for such reasonable and actually incurred costs and expenses by the Borrower. The agreements contained in this Section shall survive payment in full of the Loans and all other amounts payable under this Agreement. 31 SECTION 12.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Agreement and to make Loans hereunder and to issue or participate in Letters of Credit hereunder and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent under this Agreement, the Administrative Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or Affiliates that may come into the possession of the Administrative Agent or any of its Affiliates. SECTION 12.7 Resignation; Removal of Agents; Successor Agents. (a) Resignation of Agent. Subject to the appointment and acceptance of a successor as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, which successor shall be an Eligible Assignee having total assets of at least $25,000,000,000. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the Administrative Agent's giving of notice of resignation, then the Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which successor shall be an Eligible Assignee having total assets of at least $25,000,000,000. (b) Removal of Administrative Agent. The Lenders may remove the Administrative Agent hereunder and appoint a successor Administrative Agent upon not less than thirty (30) days' prior written notice signed by Lenders whose Commitment Percentages equal sixty six and two thirds percent (66.67%) of the Aggregate Commitment exclusive of the Administrative Agent's Commitment, if the Administrative Agent is grossly negligent or is guilty of willful misconduct in the performance of its duties hereunder, as determined in the reasonable discretion of the Lenders signing the foregoing written notice. 32 (c) Successor Agents. Upon the acceptance of any appointment as Administrative Agent under this Agreement by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Administrative Agent upon written notice thereof to Borrower, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement excepting with respect to its willful misconduct or gross negligence occurring prior to its discharge. After any retiring Administrative Agent's resignation or removal under this Agreement as Administrative Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. ARTICLE XIII MISCELLANEOUS SECTION 13.1 Notices. (a) Method of Communication. Except as otherwise provided in this Agreement, all notices and communications under this Agreement shall be in writing, or by telephone subsequently confirmed in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service, and (iii) on the third Business Day following the date sent by certified mail, return receipt requested. A telephonic notice to the Administrative Agent as understood by the Administrative Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. (b) Addresses for Notices. Notices to any party shall be sent to it at the following addresses, or any other address as to which all the other parties are notified in writing. If to the Borrower: Golf Trust of America, L.P. c/o GTA 14 North Adgers Wharf Charleston, South Carolina 29401 Attention: W. Bradley Blair, II and Scott D. Peters Telephone No.: 803/723-4653 Telecopy No.: 803/723-0479 With copies to: O'Melveny & Myers LLP 275 Battery Street, 26th Floor San Francisco, California 94105 Attention: Peter T. Healy, Esq. Telephone No.: (415) 984-8833 Telecopy No.: (415) 984-8701 33 If to the Guarantors: Golf Trust of America, Inc. c/o GTA 14 North Adgers Wharf Charleston, South Carolina 29401 Attention: W. Bradley Blair, II and Scott D. Peters Telephone No.: 843/723-4653 Telecopy No.: 843/723-0479 If to NationsBank as NationsBank, N.A. Administrative Agent Commercial Banking or as Issuing Lender: 2501 Oak Street, 2nd Floor Myrtle Beach, South Carolina 29577-0807 Attention: Dale Zeglin Telephone No.: (843) 946-3259 Telecopy No.: (843) 946-3211 If to any Lender: To the Address set forth on Schedule 1 hereto (c) Administrative Agent's Office. The Administrative Agent hereby designates its office located at the address set forth above, or any subsequent office which shall have been specified for such purpose by written notice to the Borrower and Lenders, as the Administrative Agent's Office referred to in this Agreement, to which payments due are to be made and at which Loans will be disbursed. SECTION 13.2 Expenses; Indemnification. (a) The Borrower agrees to pay on demand all reasonably and actually incurred costs and expenses of the Administrative Agent, NationsBanc Montgomery Securities LLC and the Lenders in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Agreement, the other Loan Documents, and the other documents to be delivered under this Agreement, including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent, NationsBanc Montgomery Securities LLC and the Lenders (including the cost of internal counsel) with respect thereto and with respect to advising the Administrative Agent or any Lender as to their rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all reasonably and actually incurred costs and expenses of the Administrative Agent and the Lenders, if any (including, without limitation, reasonable and actually incurred attorneys' fees and expenses and the reasonably and actually incurred cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered under this Agreement. (b) The Borrower agrees to indemnify and hold harmless the Administrative Agent and each Lender and each of their Affiliates and their respective officers, directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable and actually incurred attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated in this Agreement or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 13.2 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Credit Party, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower agrees not to assert any claim against the Administrative Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Loan Documents, any of the transactions contemplated in this Agreement or the actual or proposed use of the proceeds of the Loans. 34 (c) Without prejudice to the survival of any other agreement of the Borrower under this Agreement, the agreements and obligations of the Borrower contained in this Section 13.2 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. SECTION 13.3 Set-off. In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon and after the occurrence of any Event of Default and during the continuance thereof, the Lenders and any assignee or participant of a Lender in accordance with Section 13.10 are hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, time or demand, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Lenders, or any such assignee or participant to or for the credit or the account of the Borrower against and on account of the Obligations irrespective of whether or not (a) the Lenders shall have made any demand under this Agreement or any of the other Loan Documents or (b) the Administrative Agent shall have declared any or all of the Obligations to be due and payable as permitted by Section 11.2 and although such Obligations shall be contingent or unmatured. SECTION 13.4 Governing Law. This Agreement, the Notes and the other Loan Documents, unless otherwise expressly set forth therein, shall be governed by, construed and enforced in accordance with the laws of the State of North Carolina, without reference to the conflicts or choice of law principles thereof. SECTION 13.5 Consent to Jurisdiction. Each Credit Party hereby irrevocably consents to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement, the Notes and the other Loan Documents, any rights or obligations under this Agreement or thereunder, or the performance of such rights and obligations. Each Credit Party hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by either the Administrative Agent or any Lender in connection with this Agreement, the Notes or the other Loan Documents, any rights or obligations under this Agreement or thereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner specified in Section 13.1. Nothing in this Section 13.5 shall affect the right of either the Administrative Agent or any Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of either the Administrative Agent or any Lender to bring any action or proceeding against any Credit Party or its properties in the courts of any other jurisdictions. 35 SECTION 13.6 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW, THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. SECTION 13.7 Reversal of Payments. To the extent the Borrower makes a payment or payments to the Administrative Agent for the ratable benefit of the Lenders which payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds repaid, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been received by the Administrative Agent. SECTION 13.8 Injunctive Relief; Punitive Damages. (a) Each Credit Party recognizes that, in the event the Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to the Lenders. Therefore, each Credit Party agrees that the Lenders, at the Lenders' option, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. (b) The Administrative Agent, the Lenders and each Credit Party hereby agree that no such Person shall have a remedy of punitive or exemplary damages against any other party to a Loan Document and each such Person hereby waives any right or claim to punitive or exemplary damages that they may now have or may arise in the future in connection with any judicial proceeding, dispute, claim or controversy arising out of, connected with or relating to the Notes or any other Loan Documents ("Disputes"), whether such Dispute is resolved through arbitration or judicially. 36 SECTION 13.9 Accounting Matters. All financial and accounting calculations, measurements and computations made for any purpose relating to this Agreement, including, without limitation, all computations utilized by any Credit Party to determine compliance with any covenant contained in this Agreement, shall, except as otherwise expressly contemplated hereby or unless there is an express written direction by the Administrative Agent to the contrary agreed to by the Borrower, be performed in accordance with GAAP as in effect on the Closing Date. In the event that changes in GAAP shall be mandated by the Financial Accounting Standards Board, or any similar accounting body of comparable standing, or shall be recommended by the Borrower's certified public accountants, to the extent that such changes would modify such accounting terms or the interpretation or computation thereof, such changes shall be followed in defining such accounting terms only from and after the date the Borrower and the Lenders shall have amended this Agreement to the extent necessary to reflect any such changes in the financial covenants and other terms and conditions of this Agreement. SECTION 13.10 Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; (iv) the parties to such assignment shall execute and deliver to the Administrative Agent for its acceptance an Assignment and Acceptance in the form of Exhibit F hereto, together with any Note subject to such assignment and, except in cases of assignment to a Lender or an Affiliate of a Lender a processing fee of $3,500; and (v) Borrower shall receive prior written notice thereof. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender under this Agreement and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement excepting with respect to any gross negligence or willful misconduct on the part of such assigning Lender prior to the date of such assignment. Upon the consummation of any assignment pursuant to this Section, the assignor, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 3.13. 37 (b) The Administrative Agent shall maintain at its address referred to in Section 13.1 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender under this Agreement for all purposes of this Agreement. The Register shall be available for inspection by the Borrower (or any of its Administrative Agents or advisors) or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt written notice thereof to the parties thereto and to the Borrower. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans), any such partial participation shall be in an amount at least equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof; provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article III and the right of set-off contained in Section 3.5, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note or increasing the Aggregate Commitment. (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations under this Agreement. (f) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). 38 SECTION 13.11 Amendments and Waivers. Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if Article XII or the rights or duties of the Administrative Agent is affected thereby, by the Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Lenders (other than Defaulting Lenders), (i) increase the Commitments of the Lenders, (ii) extend the time of the obligation of the Lenders to make Loans, (iii) reduce the principal of or rate of interest on any Loan or any fees or other amounts payable under this Agreement, (iv) postpone any date fixed for the payment of any scheduled installment of principal of or interest on any Loan or any fees or other amounts payable hereunder or for termination of any Commitment, (v) change the percentage of the Commitments or of the unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders, the Administrative Agent or any of them to take any action under this Section or any other provision of this Agreement, (vi) release any Guarantor, (vii) modify any provision of Article IX, (viii) modify the provisions of Section 10.1 of the Amended and Restated Credit Agreement or (ix) modify the provisions of Section 10.3 of the Amended and Restated Credit Agreement, this Section 13.11, the definition of Required Lenders or any provision of any Loan Document which, by its terms, requires the consent, approval or satisfaction of all Lenders or each Lender, without the prior written consent of each Lender. SECTION 13.12 Performance of Duties. Each Credit Party's obligations under this Agreement and each of the Loan Documents shall be performed by such Credit Party at its sole cost and expense. SECTION 13.13 All Powers Coupled with Interest. All powers of attorney and other authorizations granted to the Lenders, the Administrative Agent and any Persons designated by the Administrative Agent or any Lender pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied or the Credit Facility has not been terminated. SECTION 13.14 Survival of Indemnities. Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the Lenders are entitled under the provisions of this Article XIII and any other provision of this Agreement and the Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the Lenders against events arising after such termination as well as before. SECTION 13.15 Titles and Captions. Titles and captions of Articles, Sections and subsections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. SECTION 13.16 Severability of Provisions. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions of this Agreement or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. 39 SECTION 13.17 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement. SECTION 13.18 Term of Agreement. This Agreement shall remain in effect from the Closing Date through and including the date upon which all Obligations shall have been indefeasibly and irrevocably paid and satisfied in full. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination. 40 [Credit Agreement] [Credit Agreement] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, all as of the day and year first written above. [CORPORATE SEAL] GOLF TRUST OF AMERICA, L.P., a Delaware limited partnership By: GTA, GP, Inc., a Maryland corporation, its general partner By:______________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] GOLF TRUST OF AMERICA, INC., a Maryland corporation By:______________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] GTA GP, INC., a Maryland corporation By:______________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] GTA LP, INC., a Maryland corporation By:______________________________________ W. Bradley Blair, II Its Chief Executive Officer and President [CORPORATE SEAL] SANDPIPER GTA DEVELOPMENT, INC. By:_________________________________ Name: __________________________ Title:__________________________ [CORPORATE SEAL] SANDPIPER-GOLF TRUST, LLC By: Golf Trust of America, L.P., its sole member By: GTA, GP, Inc., its general partner By:_________________________________ Name: __________________________ Title:__________________________ NATIONSBANK, N.A., as Administrative Agent and Lender By:_________________________________ Name: __________________________ Title:__________________________ SCHEDULE 1: LENDERS AND COMMITMENTS COMMITMENT AND COMMITMENT LENDER PERCENTAGE NationsBank N.A. $25,000,000 2501 Oak Street, 2nd Floor 100% Myrtle Beach, South Carolina 29577-0807 Attention: Dale Zeglin Telephone No.: (803) 946-3259 Telecopy No.: (803) 946-3211 EXHIBIT A to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF NOTE $25,000,000 March __, 1999 FOR VALUE RECEIVED, the undersigned, GOLF TRUST OF AMERICA, L.P., a Delaware limited partnership (the "Borrower"), hereby promises to pay to the order of NATIONSBANK, N.A. (the "Bank"), at the times, at the place and in the manner provided in the Credit Agreement hereinafter referred to, the principal sum of up to Twenty Five Million Dollars ($25,000,000), or, if less, the aggregate unpaid principal amount of all Loans disbursed by the Bank under the Credit Agreement referred to below, together with interest at the rates as in effect from time to time with respect to each portion of the principal amount hereof, determined and payable as provided in Article III of the Credit Agreement. Capitalized terms not otherwise defined herein shall have the meaning assigned thereto in the Credit Agreement. This Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement dated as of March 31, 1999 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among the Borrower, the Guarantors party thereto, the lenders (including the Bank) who are or may become party thereto (collectively, the "Lenders") and NationsBank, N.A., as Administrative Agent for the Lenders. The Credit Agreement contains, among other things, provisions for the time, place and manner of payment of this Note, the determination of the interest rate borne by and fees payable in respect of this Note, acceleration of the payment of this Note upon the happening of certain stated events and the mandatory repayment of this Note under certain circumstances. The Borrower agrees to pay on demand, in accordance with the terms of the Credit Agreement, all costs of collection, including reasonable attorneys' fees, if any part of this Note, principal or interest, is collected after maturity with the aid of an attorney. Presentment for payment, notice of dishonor, protest and notice of protest are hereby waived. THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA. The Debt evidenced by this Note is senior in right of payment to all Subordinated Debt referred to in the Credit Agreement. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under seal by a duly authorized officer of its General Partner, all as of the day and year first above written. GOLF TRUST OF AMERICA, L.P. [CORPORATE SEAL] By: GTA GP, Inc., its General Partner By: ____________________________ W. Bradley Blair, II Chief Executive Officer and President EXHIBIT B to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF NOTICE OF BORROWING NationsBank, N.A., as Administrative Agent Commercial Banking 2501 Oak Street, 2nd Floor Myrtle Beach, South Carolina 29577-0807 Attention: Dale C. Zeglin Ladies and Gentlemen: This irrevocable Notice of Borrowing is delivered to you by Golf Trust of America, L.P. (the "Borrower") under Section 2.2(a) of the Credit Agreement, dated as of March 31, 1999 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among the Borrower, the Guarantors party thereto, the lenders who are or may become party thereto (collectively, the "Lenders") and NationsBank, N.A., as Administrative Agent for the Lenders. 1. The Borrower hereby requests that the Lenders make a [Eurodollar] [Base Rate] Loan in the aggregate principal amount of ___________________ (the "Loan").(1) 2. The Borrower hereby requests that the Loan be made on the following Business Day: _____________________.(2) 3. $________________ of the Loan shall be used to finance the purchase of golf courses and $________________ of the Loan proceeds shall be used for working capital and general corporate requirements. - -------- 1 Complete with an amount in compliance with Section 2.2(a) of the Credit Agreement. 2 This date should be no earlier than two (2) Business Days after delivery of this Notice for a Base Rate Loan and no earlier than three (3) Business Days after delivery of this Notice for a Eurodollar Loan. 4. The principal amount of all Loans outstanding as of the date hereof (including the requested Loan) does not exceed the maximum amount permitted to be outstanding pursuant to the terms of the Credit Agreement. 5. All of the conditions applicable to the Loan requested herein as set forth in the Credit Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Loan. 6. All capitalized undefined terms used herein have the meanings assigned thereto in the Credit Agreement. IN WITNESS WHEREOF, the undersigned has executed this Notice of Borrowing this ____ day of ______________, ______. GOLF TRUST OF AMERICA, L.P. By: GTA GP, Inc., its General Partner By: ___________________________ W. Bradley Blair, II Chief Executive Officer and President EXHIBIT C to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF NOTICE OF REPAYMENT NationsBank, N.A., as Administrative Agent Commercial Banking 2501 Oak Street, 2nd Floor Myrtle Beach, South Carolina 29577-0807 Attention: Dale C. Zeglin Ladies and Gentlemen: This irrevocable Notice of Repayment is delivered to you by Golf Trust of America, L.P. (the "Borrower"), under Section 2.3(c) of the Credit Agreement, dated as of March 31, 1999 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among the Borrower, the Guarantors party thereto, the lenders who are or may become party thereto (collectively, the "Lenders") and NationsBank, N.A., as Administrative Agent for the Lenders (the "Administrative Agent"). 1. The Borrower hereby provides notice to the Administrative Agent that the Borrower shall repay the Loans in the following amount: - ------------------. 2. Such Loan(s) to be repaid are [Base Rate] [Eurodollar] Loan(s). 3. The Borrower shall repay such Loan(s) on the following Business Day: _______________.(1) 4. All capitalized undefined terms used herein have the meanings assigned thereto in the Credit Agreement. - ---------- 1 This date should be no earlier than three (3) Business Days after the delivery of this Notice. IN WITNESS WHEREOF, the undersigned has executed this Notice of Prepayment this ____ day of , . GOLF TRUST OF AMERICA, L.P. By: GTA GP, Inc., its General Partner By: ____________________________ W. Bradley Blair, II Chief Executive Officer and President EXHIBIT D to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF NOTICE OF CONVERSION/CONTINUATION NationsBank, N.A., as Agent Commercial Banking 2501 Oak Street, 2nd Floor Myrtle Beach, South Carolina 29577-0807 Attention: Dale C. Zeglin Ladies and Gentlemen: This irrevocable Notice of Conversion/Continuation (the "Notice") is delivered to you by Golf Trust of America, L.P. (the "Borrower") under Section 3.2 of the Credit Agreement, dated as of March 31, 1999 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among the Borrower, the Guarantors party thereto, the lenders referred to therein (collectively, the "Lenders") and NationsBank, N.A., as Administrative Agent for the Lenders. 1. This Notice of Conversion/Continuation is submitted for the purpose of: (Complete applicable information.) (a) [Converting] [continuing] a ___________ Loan [into] [as] a ____________ Loan.1 (b) The aggregate outstanding principal balance of such Loan is $_______________. - ---------- 1 Delete the bracketed language and insert "Base Rate", or "Eurodollar", as applicable, in each blank. (c) The last day of the current Interest Period for such Loan is ___________.2 (d) The principal amount of such Loan to be [converted] [continued] is $_______________.3 (e) The requested effective date of the [conversion] [continuation] of such Loan is _______________.4 2. No Default or Event of Default exists, and none will exist upon the conversion or continuation of the Loan requested herein. 3. All capitalized undefined terms used herein have the meanings assigned thereto in the Credit Agreement. IN WITNESS WHEREOF, the undersigned has executed this Notice of Conversion/Continuation this ____ day of , . GOLF TRUST OF AMERICA, L.P. By: GTA GP, Inc., its General Partner By: _________________________ W. Bradley Blair, II Chief Executive Officer and President - ---------- 2 Insert applicable date for any Eurodollar Loan being converted or continued 3 Complete with an amount in compliance with Section 3.2 of the Credit Agreement 4 This date should be at least three (3) Business Days after the delivery of this Notice. EXHIBIT E to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF OFFICER'S COMPLIANCE CERTIFICATE The undersigned, on behalf of GOLF TRUST OF AMERICA, L.P., a Delaware limited partnership (the "Borrower"), and GOLF TRUST OF AMERICA, INC., a Maryland corporation, GTA GP, INC., a Maryland corporation, GTA LP, INC., a Maryland corporation, SANDPIPER GTA DEVELOPMENT, INC., a California corporation and SANDPIPER-GOLF TRUST, LLC, a Delaware limited liability company (each a "Guarantor" and, together with the Borrower, the "Credit Parties"), hereby certify to the Administrative Agent and Lenders as follows: 1. This Officer's Compliance Certificate is delivered to you pursuant to Article VII of the Credit Agreement, dated as of March 31, 1999 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among the Borrower, the Guarantors, the lenders who are or may become party thereto (collectively, the "Lenders"), and NATIONSBANK, N.A., as the Administrative Agent for the Lenders. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement. 2. Each of the undersigned has reviewed the financial statements of the Credit Parties dated as of , 199 and for the fiscal quarter then ended (the "Reference Date") and such statements fairly present the financial condition of the Credit Parties as of the dates indicated and the results of its operations and cash flows for the period indicated. 3. Each of the undersigned has reviewed the terms of the Credit Agreement, the Notes and the related Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and the condition of the Credit Parties during the accounting period covered by the financial statements referred to in Paragraph 2 above. Such review has not disclosed the existence during or at the end of such accounting period of any condition or event that constitutes a Default or an Event of Default, nor does any of the undersigned have any knowledge of the existence of any such condition or event as at the date of this Certificate. 4. The Applicable Margin is ____% as shown on Schedule 1. 5. The Credit Parties are in compliance with the covenants contained in Article IX of the Credit Agreement as shown on Schedule 1 and the Credit Parties are in compliance with the other covenants and restrictions contained in Articles VIII and X of the Credit Agreement. 6. The Gross Golf Revenues of each Eligible Property for the two-quarter period ending on the Reference Date are at least 85% of the Gross Golf Revenues of such Eligible Property for the same two-quarter period during the immediately preceding year, as shown on Schedule 2. 7. No operator of any Eligible Property is more than thirty (30) days delinquent in its required payments to the Borrower under the related Participating Lease or any other relevant agreement between such operator and the Borrower. 8. The aggregate outstanding amount of loans permitted under Section 10.4(e) of the Amended and restated Credit Agreement plus other funds of Borrower utilized at any one time for the construction of improvements to golf course properties as permitted under Section 10.11 of the Amended and Restated Credit Agreement, exclusive of funds used to construct the renovations and improvements to the Sandpiper Golf Course, is $_______________, which amount does not exceed 10% of Total Assets. WITNESS the following signatures as of __________________, 1999. GOLF TRUST OF AMERICA, L.P. By: GTA, GP, Inc., its general partner By: ______________________________________ W. Bradley Blair, II Chief Executive Officer and President GOLF TRUST OF AMERICA, INC. By: ______________________________________ W. Bradley Blair, II Chief Executive Officer and President GTA GP, INC. By: ______________________________________ W. Bradley Blair, II Chief Executive Officer and President GTA LP, INC. By: ______________________________________ W. Bradley Blair, II Chief Executive Officer and President SANDPIPER GTA DEVELOPMENT, INC. By:_______________________________________ Name:__________________________________ Title: ________________________________ SANDPIPER-GOLF TRUST, LLC By: Golf Trust of America, L.P., its sole member By: GTA, GP, Inc., its general partner By:_______________________________________ Name:__________________________________ Title: ________________________________ Schedule 1 To Officer's Compliance Certificate DETERMINATION OF APPLICABLE MARGIN Senior Debt Rating 1. Moody's Rating: ___________ 2. S&P Rating: ___________ 3. Lower of S&P and Moody's: ___________ If line 3 is BBB/Baa2 or higher, Applicable Margin = 1.25% If line 3 is BBB-/Baa3, Applicable Margin = 1.35% If line 3 is below BBB-/Baa3, or if rating exists, Applicable Margin shall be determined by reference to the Leverage Ratio as of each fiscal quarter end, as follows: Leverage Ratio Applicable Margin Per Annum -------------- --------------------------- Greater than or equal to 2.00% .50 to 1.00 Greater than or equal to .375 to 1.75% 1.00 but less than .50 to 1.00 Less than .375 to 1.00 1.50% Schedule 2 to Officer's Compliance Certificate DETERMINATION OF COMPLIANCE WITH FINANCIAL COVENANTS A. Minimum Tangible Net Worth 1. The sum of the following as of the immediately preceding fiscal quarter end: a. $250,000,000 $250,000,000 b. plus 80% of aggregate net cash proceeds from the issuance of or offering of capital stock after the Closing Date of the Amended and Restated Credit Agreement $_________________ c. Minimum Tangible Net Worth (add lines 1.a and 1.b) $_________________ 2. Actual Tangible Net Worth as of such date $_________________ B. Leverage Ratio 1. Total Liabilities as of the immediately preceding fiscal quarter end $_________________ 2. Total Assets as of the immediately preceding fiscal quarter end $_________________ 3. Ratio of Total Liabilities to Total Assets (divide line 1 by line 2) ________________ 4. Maximum Permitted Ratio 0.55 to 1.00 C. Minimum Interest Coverage Ratio 1. EBITDA for the immediately preceding quarter $_________________ 2. Interest Expense for such quarter $_________________ 3. Interest Coverage Ratio (divide line 1 by line 2) _____________ 4. Minimum Interest Coverage Ratio 2.50 to 1.00 D. Minimum Debt Service Coverage Ratio 1. EBITDA for the immediately preceding quarter $_________________ 2. Debt Service for such quarter a. Interest Expense for such quarter $_________________ b. plus, principal payments of Debt for such quarter $_________________ c. Debt Service (add lines 2.a and 2.b) $_________________ 3. Debt Service Coverage Ratio (divide line 1 by line 2.c) ____________ 4. Minimum Debt Service Coverage Ratio 2.00 to 1.00 E. Minimum Fixed Charge Coverage Ratio 1. EBITDA for the immediately preceding quarter $_________________ 2. Fixed Charges for such quarter $_________________ 3. Fixed Charge Coverage Ratio (divide line 1 by line 2) ____________ 4. Minimum Fixed Charge Coverage Ratio 1.50 to 1.00 Schedule 3 To Officer's Compliance Certificate DETERMINATION OF COMPLIANCE WITH GROSS GOLF REVENUE STANDARD Gross Golf Revenues for Gross Golf Revenues for Eligible Property Current 2-Quarter Period Period From Prior Year % Change ----------------- ------------------------ ---------------------- -------- EXHIBIT F to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF ASSIGNMENT AND ACCEPTANCE --------------------------------- Reference is made to the Credit Agreement dated as of March 31, 1999 (as amended, restated or otherwise modified, the "Credit Agreement") among Golf Trust of America, L.P., a Delaware limited partnership (the "Borrower"), the Guarantors party thereto, the Lenders (as defined in the Credit Agreement) and NationsBank, N.A., as Administrative Agent for the Lenders (the "Administrative Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations of Assignor under the Credit Agreement and the other Loan Documents. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Loans owing to the Assignee will be as set forth on Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note held by the Assignor and requests that the Administrative Agent exchange such Note for new Notes payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Commitment retained by the Assignor, if any, as specified on Schedule 1. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Article VII thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under Section 3.13 of the Credit Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Administrative Agent, unless otherwise specified on Schedule 1. 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE Percentage interest assigned: % Assignee's Commitment: $_____________________ Aggregate outstanding principal amount of Loans assigned: $_____________________ Principal amount of Note payable to Assignee: $_____________________ Principal amount of Note payable to Assignor: $_____________________ Effective Date (if other than date of acceptance by Agent): ______________________, _________(1) [NAME OF ASSIGNOR], as Assignor By: _____________________ Title:___________________ Dated:__________________ , 19 ___ [NAME OF ASSIGNEE], as Assignee By: _____________________ Title:___________________ Domestic Lending Office: _______________ Eurodollar Lending Office: _____________ Accepted and Approved this ___ day of _____________, __________ NATIONSBANK ,N.A., as Administrative Agent By: _____________________ Title:___________________ - ---------- 1 This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Administrative Agent. EXHIBIT G to Credit Agreement Dated as of March 31, 1999 by and among Golf Trust of America, L.P., as Borrower, the Guarantors party thereto, the Lenders party thereto, and NationsBank, N.A., as Administrative Agent for the Lenders FORM OF GUARANTY SUPPLEMENT GUARANTY SUPPLEMENT, dated as of __________, (the "Supplement"), made by [INSERT NAME OF NEW GUARANTOR], a ____________________ (the "New Guarantor"), in favor of NATIONSBANK, N.A., as Administrative Agent under the Credit Agreement (as defined below) for the ratable benefit of themselves and the Lenders. 1. Reference is hereby made to the Guaranty (as amended, restated, or otherwise modified, the "Guaranty") set forth in Article IV of the Credit Agreement (as amended, restated or otherwise modified, the "Credit Agreement") dated as of March 31, 1999, between Golf Trust of America, L.P., the Guarantors party thereto, in favor of the Administrative Agent, on behalf of the Lenders. This Supplement supplements the Guaranty, forms a part thereof and is subject to the terms thereof. Capitalized terms used and not defined herein shall have the meanings given thereto or referenced in the Credit Agreement. 2. The New Guarantor hereby agrees to unconditionally guarantee to the Administrative Agent for the ratable benefit of itself, the Lenders and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of all Guaranteed Obligations to the same extent and upon the same terms and conditions as are contained in the Guaranty. 3. The New Guarantor hereby agrees that it is a party to the Credit Agreement and the Guaranty as if a signatory thereto on the Closing Date of the Credit Agreement, and the New Guarantor shall comply with all of the terms, covenants, conditions and agreements and hereby makes each representation and warranty, in each case set forth therein. The New Guarantor agrees that the "Guaranty" as used therein or in any other Loan Documents shall mean the Guaranty as supplemented hereby. 4. The New Guarantor hereby acknowledges it has received a copy of the Credit Agreement and that it has read and understands the terms thereof. IN WITNESS WHEREOF, the undersigned hereby causes this Supplement to be executed and delivered as of the date first above written. [CORPORATE SEAL] [INSERT NAME OF NEW GUARANTOR] By: _____________________ Title:___________________ Name: ___________________ EX-10.15 7 EXHIBIT 10.15 EXHIBIT B FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT (W. Bradley Blair, II) November 7, 1999 THIS FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is dated as of November 7, 1999, between Golf Trust of America, Inc., a Maryland corporation, having its principal place of business at 14 North Adger's Wharf, Charleston, South Carolina 29401 (the "Company"), and W. Bradley Blair, II, an individual residing at the address set forth below his name on the signature page hereof (the "Executive"). COMPANY AND EXECUTIVE ENTER THIS AGREEMENT on the basis of the following facts, understandings and intentions: A. the Executive has been an executive of the Company employed under that certain Employment Agreement dated as of February 7, 1997 (the "Original Agreement"), which employment commenced on the date of the closing of the Company's initial public offering, February 12, 1997 (the "Commencement Date"); B. the Executive desires to remain in the employ of the Company; C. the Company values Executive's knowledge and familiarity with the business of the Company and desires to assure itself of the continued services of Executive; and D. Company and Executive desire to amend and restate the Original Agreement as set forth below. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Company and Executive agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The employment of the Executive by the Company as provided in Section 1 above will commence on the date set forth above (the "Commencement Date"), and will terminate on February 7, 2004 (such term being the "Original Term"), unless earlier terminated pursuant to the provisions of Section 5 of this Agreement. On the final day of the Original Term and on each one (1) year anniversary thereafter (each an "Extension Date"), the term of this Agreement shall be extended automatically to commence on the Extension Date and terminate on the three (3) year anniversary of the Extension Date (each such period being a "Renewal Term"), unless written notice that this Agreement will not be so extended is given by either party to the other at least three (3) years prior to the Extension Date. The Original Term and any Renewal Terms, in their full duration, are herein individually referred to as "Employment Terms," and the period of the Executive's employment under this Agreement consisting of the Original Term and all Renewal Terms, except as may be terminated early pursuant to Section 5, is herein referred to as the "Employment Period." 3. Position. (a) Title and Position. During the Employment Period, the Executive shall be employed as an executive officer of the Company with the title of President and Chief Executive Officer or in such other executive position as the Board of Directors of the Company (the "Board") may from time to time determine with the consent of the Executive. In addition, for so long as the Executive is an employee of the Company and is elected by the Company's shareholders, the Executive hereby agrees to serve as a member of the Board. The Executive understands that his position as a member of the Board is subject to the nomination by the Company; provided that the Executive shall be a member of the Board with a three (3) year term prior to the time the Company consummates any public offering of securities and the Company agrees to use permissible commercially reasonable efforts (subject to the exercise of its fiduciary duties) to cause the nomination and election of the Executive to the Board following any such public offering, subject to the terms and conditions of this Agreement. In the performance of his duties as an officer, the Executive shall be subject to the direction of the Board, and shall not be required to take direction from or report to any other person. Executive's duties and authority shall be commensurate with his title and position with the Company. (b) Place of Employment. During the term of this Agreement, the Executive shall perform the services required by this Agreement at the Company's place of business in Charleston, South Carolina; provided, however, that the Company may require the Executive to travel to other locations on the Company's business. (c) Duties. The Executive shall devote commercially reasonable efforts and substantially full working time and attention to the promotion and advancement of the Company and its welfare. The Executive shall serve the Company faithfully and to the best of his ability, and shall perform such services and duties in connection with the business, affairs and operations of the Company as may be assigned or delegated to him from time to time by or under, and in accordance with, the authority and direction of the Board. The Company shall retain the right to direct and control the means and methods by which the Executive performs the above services. (d) Other Activities. Except with the prior written approval of the Board (which the Board may grant or withhold in its sole and absolute discretion) and except as may be set forth in Section 9 of this Agreement, the Executive, during the Employment Period, will not (i) accept any other employment, or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in a competing position to, that of the Company or any of its affiliates. Notwithstanding the foregoing, the Company agrees that the Executive (or affiliates of the Executive) shall be permitted (i) to undertake the activities set forth in Section 9, and (ii) to make any other passive personal investment that is not in a business activity competitive with the Company. 4. Compensation and Related Matters. (a) Base Salary. The Company shall pay the Executive a base salary at a rate of Two Hundred Fifty Thousand Dollars ($250,000) per year during the first full calendar year of the Original Term. The Executive's base salary for each succeeding year shall, at a minimum, be increased over the prior year by a factor measured by the increase, if any, in the Consumer Price Index for Wage Earners and Clerical Workers (as published by the Bureau of Labor Statistics). The base salary may further be increased, but not decreased, in succeeding years by an amount determined by the Compensation Committee of the Board. All salary shall be paid according to the standard payroll practices of the Company (regarding, e.g., timing of payments, standard employee deductions, income tax withholdings, social security deductions, and etc.) as in place from time to time. 2 (b) Business and Professional Expenses. The Company shall reimburse the Executive for (i) personal expenditures incurred by the Executive in connection with the conduct of the Company's business including, without limitation, a prospectively paid automobile allowance, and (ii) reasonable expenditures incurred by the Executive in connection with maintaining his professional standing including, without limitation, bar association dues and fees and continuing legal education expenses, in every case upon presentation of sufficient evidence of such expenditures as may be required by the Company's policies as in place from time to time. (c) Benefit Plan Eligibility. During the Employment Period, the Executive shall be entitled to participate in any benefit plans that are made generally available to executive officers of the Company from time to time, including, without limitation, any deferred compensation, health, dental, life insurance, long-term disability insurance, retirement, pension or 401(k) savings plan. Nothing in this Section 4(c) is intended, or shall be construed, to require the Company to institute or to continue any, or any particular, plan or benefit. (d) Performance Bonus. The Compensation Committee of the Board may establish and administer a performance bonus program for the Executive to provide for payment of a (cash and/or non-cash consideration) bonus to the Executive upon the achievement of certain performance objectives to be established by the Compensation Committee for the Executive. If such a program is established, the Compensation Committee of the Board shall monitor, review and modify the program from time to time as necessary to reflect the Executive's contributions to the Company. (e) Stock Incentive Plan. The Compensation Committee of the Board shall establish and administer one or more stock-based incentive plans in which the Executive shall be eligible to participate according to their terms; provided, however, that the Board of Directors shall approve, prior to the completion of the Company's initial public offering, a grant of options to the Executive to purchase up to one hundred fifty thousand (150,000) shares of the Company's common stock, which options shall become exercisable in three (3) equal installments commencing upon the first anniversary of the date of grant and each of the two (2) years thereafter, and shall be exercisable for ten (10) years from the date of grant at the fair market value of the common stock on the date of grant. (f) Fringe Benefits. The Executive will be entitled to fringe benefits as may be determined or granted from time-to-time under the authority of the Board; provided, however, that the Company shall provide the fringe benefits authorized by the Board on April 25, 1997 (which resolution is attached to this Agreement as Exhibit A) and shall not reduce or modify those benefits in a manner adverse to the Executive without the written consent of the Executive. 3 (g) Vacation and Holidays. The Executive shall be entitled to four (4) weeks (twenty (20) business days) of paid vacation time in each calendar year on a pro-rated basis. The Executive shall be entitled to all paid Company holidays. (h) Directors and Officers Insurance and Indemnification. The Company shall maintain insurance to insure the Executive against any claim arising out of an alleged wrongful act by the Executive while acting as a director or officer of the Company. The Company shall further indemnify and exculpate from money damages the Executive to the fullest extent permitted under applicable law. (i) Performance Reviews. At the end of each fiscal year, the Board or the Compensation Committee thereof will review the Executive's job performance and will provide the Executive a written review of the Executive's job performance during the prior year and implement any Board authorized revisions to the Executive's position, compensation and duties at the Company; provided, however, that the provisions set forth in this Agreement with respect to the Executive's compensation, and other terms and conditions of the Executive's employment at the Company shall not be modified by the Board in a manner which would result in less favorable or less beneficial terms or conditions thereof being imposed on the Executive without the Executive's full concurrence and consent. 5. Termination. The Executive's employment hereunder shall be, or may be, as the case may be, terminated under the following circumstances: (a) Death. The Executive's employment under this Agreement shall terminate upon his death. (b) Disability. The Executive's employment under this Agreement shall terminate upon the Executive's physical or mental disability or infirmity which, in the opinion of a competent physician selected by the Board, renders the Executive unable to perform his duties under this Agreement for more than one hundred twenty (120) days during any one hundred eighty (180) day period. (c) Employment-At-Will; Termination by Company for Any Reason. The Executive's employment hereunder is "at will" and may be terminated by the Company at any time with or without Good Reason (as defined in Section 7(c) below), by a majority vote of all of the members of the Board of Directors upon written Notice of Termination (as defined below) to Executive, subject only to the severance provisions specifically set forth in Section 7 below. (d) Voluntary Resignation. The Executive may voluntarily resign his position and terminate his employment with the Company at any time by delivery of a written notice of resignation to the Company (the "Notice of Resignation"). The Notice of Resignation shall set forth the date such resignation shall become effective (the "Date of Resignation"), which date shall in any event, be at least ten (10) days and no more than thirty (30) days from the date the Notice of Resignation is delivered to the Company. The Notice of Resignation shall be sufficient notice under Section 2 above to prevent the automatic extension of this Agreement, if timely given according to the terms of Section 2. 4 (e) Notice. Any termination of the Executive's employment by the Company shall be communicated by written Notice of Termination to the Executive. For purposes of this Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. The Notice of Termination shall be sufficient notice under Section 2 above to prevent the automatic extension of this Agreement, if timely given according to the terms of Section 2. (f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death; (ii) if the Executive's employment is terminated by reason of his disability, the date of the opinion of the physician referred to in Section 5(b), above; (iii) if the Executive's employment is terminated by the Company for Good Reason or without Good Reason by the Company pursuant to Section 5(c) above, the date specified in the Notice of Termination; and (iv) if the Executive voluntarily resigns pursuant to Section 5(d) above, the Date of Resignation set forth in the Notice of Resignation. 6. Obligations Upon Termination. (a) Return of Property. The Executive hereby acknowledges and agrees that all personal property and equipment furnished to or prepared by the Executive in the course of or incident to his employment belongs to the Company and shall be promptly returned to the Company upon termination of the Employment Period. (b) Complete Resignation. Upon the expiration of the Employment Period or any termination of employment under Section 5 above, the Executive shall be deemed to have resigned from all offices and directorships then held with the Company or any of its subsidiaries. (c) Survival of Representations, Warranties, Covenants and Other Provisions. The representations and warranties contained in this Agreement and the parties' obligations under this Section 6 and Sections 7 through 9 and 16 through 18, inclusively, shall survive termination of the Employment Period and the expiration of this Agreement. (d) Release. In exchange for the Company entering into this Agreement, the Executive agrees that, at the time of his resignation or termination from the Company, he will resign from the Board and will execute a release acceptable to the Company of all liability of the Company and its officers, shareholders, employees and directors to the Executive in connection with or arising out of his employment with the Company, except with respect to (i) any then-vested rights under any of the Company's stock incentive plans or in connection with other stock-based compensation; (ii) any deferred compensation held in trust under the Company's Deferred Compensation Plan; (iii) any Severance Payments or benefits which may be payable to him under Section 7 or other provisions of this Agreement; and (iv) any continuation of health or other benefit plans in accordance with this Agreement or as may be required by law. 5 7. Compensation Upon Termination. The Executive shall be entitled to the following post-termination payments: (a) Death. If the Executive's employment is terminated by reason of death pursuant to Section 5(a), the Company shall pay the Executive his base salary payable under Section 4(a) as in effect on the Date of Termination plus the greater of (1) the average value of the cash and non-cash consideration received by Executive as a performance bonus in years 1997, 1998 and 1999 or (2) the value of the then-most-recent calendar year's annual cash and non-cash consideration received by Executive as a performance bonus (the "Severance Payments"), paid in semi-monthly installments for the greater of (i) three (3) years following the Date of Termination, or (ii) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (i) and (ii), the Executive, his estate and dependents shall continue to participate, at their option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at their own expense, the Executive's dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. (b) Disability. If the Executive's employment is terminated by reason of disability pursuant to Section 5(b), the Executive shall receive Severance Payments for the greater of (i) three (3) years following the Date of Termination, or (ii) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above; provided, however, that Severance Payments otherwise payable to the Executive under this Section 7(b) shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such Severance Payment under any disability benefit plan of the Company. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (i) and (ii), the Executive shall continue to participate, at his option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. 6 (c) Termination by Company. (i) For Good Reason. If the Executive's employment is terminated by the Company pursuant to Section 5(c) for Good Reason (as defined below), the Company shall pay the Executive his base salary and any bonus due and payable pursuant to Section 4(d) through the Date of Termination. In addition, the Executive shall be entitled to retain such stock-based compensation (including, without limitation, shares of restricted stock and/or options to purchase securities of the Company granted or sold to the Executive pursuant to the terms and conditions of any of the Company's stock incentive plans or otherwise) as has vested as of the Date of Termination. At the Executive's own expense, the Executive and his dependents shall also be entitled to any continuation of health insurance coverage rights required by any applicable law. (ii) Without Good Reason. If the Executive's employment is terminated by the Company pursuant to Section 5(c) without any Good Reason, the Company shall pay the Executive the Severance Payment for the greater of (A) three (3) years following the Date of Termination, or (B) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (A) and (B), the Executive shall continue to participate, at his option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. (iii) "Good Reason" means a finding by the Board that (A) the Executive materially breached any of the material terms of this Agreement; or (B) the Executive acted with gross negligence, willful misconduct or fraudulently in the performance of his duties hereunder. (d) Voluntary Resignation. (i) For Good Cause. If the Executive terminates his employment with the Company pursuant to Section 5(d) for Good Cause (as defined below), the Company shall pay the Executive the Severance Payment for the greater of (A) three (3) years following the Date of Termination, or (B) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (A) and (B), the Executive shall continue to participate, at his option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. 7 (ii) Without Good Cause. If the Executive terminates his employment with the Company pursuant to Section 5(g) without Good Cause, the Company shall have no obligation to compensate the Executive following the Date of Resignation. However, the Executive shall be entitled to retain such stock-based compensation (including, without limitation, shares of restricted stock and/or options to purchase securities of the Company granted or sold to the Executive pursuant to the terms and conditions of any of the Company's stock incentive plans or otherwise) as has vested as of the Date of Termination. In any event, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. (iii) "Good Cause" means the occurrence, without the express written consent of the Executive, of any of the following events, unless such event is substantially corrected within ninety (90) days following written notification by Executive to the Company that he intends to terminate his employment under this Agreement because of such event: (A) any reduction or diminution in the compensation, benefits or responsibilities of the Executive without his written consent; (B) any material breach or material default by the Company under any material provision of this Agreement; (C) any relocation of the Company's principal place of business from Charleston County, South Carolina; or (D) any Change in Control (as defined below). (iv) "Change in Control" means the occurrence of any of the following events after the effective date of the first initial public offering of the Company's common stock: (A) the Board adopts a plan relating to the liquidation or dissolution or merger of the Company; (B) a Person (as defined below) directly or indirectly becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934) of more than twenty-five percent (25%) of the total voting power of the total outstanding voting securities of the Company on a fully diluted basis; provided, however, that beneficial ownership of partnership units in Golf Trust of America, L.P. shall not be considered beneficial ownership of voting securities of the Company; 8 (C) a Person directly or indirectly acquires or agrees to acquire all or substantially all of the assets and business of the Company; (D) for any reason during any period of two (2) consecutive years (not including any period prior to the date of this Agreement) a majority of the Board is constituted by individuals other than (1) individuals who were directors immediately prior to the beginning of such period, and (2) new directors whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors immediately prior to the beginning of the period or whose election or nomination for election was previously so approved. (v) For purposes of this Section 7(d), "Person" means any natural person, corporation, or any other entity; provided, however, that the term "Person" shall not include any shareholder or employee of the company on the date immediately prior to the initial public offering of the Company's common stock or any estate or member of the immediate family of such a shareholder or employee. (e) Any Severance Payments made pursuant to this Section 7 shall be payable in equal semi-monthly installments over the required duration set forth herein. (f) If, in spite of the provisions above entitling the Executive to benefits under any benefit plan, such benefits are not payable or provideable under any such plan to the Executive, or to the Executive's dependents, beneficiaries or estate, because the Executive is no longer deemed to be an employee of the Company, then the Company shall independently pay or provide for payment of such benefits for the remainder of the Employment Term. (g) The continuing obligation of the Company to make any Severance Payment to the Executive is expressly conditioned upon the Executive complying and continuing to comply with his obligations and covenants under Sections 6, 8 and 9 of this Agreement following termination of his employment with the Company. (h) In the event that any payment by or on behalf of the Company or Golf Trust of America, L.P. to Executive (whether or not such payment is required under this Agreement) qualifies as an "excess parachute payment" under Section 280G or Section 4999 of the Internal Revenue Code of 1986, as amended (the "Tax Code"), the Company shall make additional payments in cash to Executive (so called "gross-up payments") so that the Executive is put in the same after-tax position as he would have been in had no excise tax been imposed by Section 4999 of the Tax Code (or any successor or similar provision). 8. Covenant of Confidentiality. In addition to the agreements set forth in Section 6, the Executive hereby agrees that the Executive will not, during the Employment Period or for one (1) year thereafter directly or indirectly disclose or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, any Confidential Information. As used in this Agreement, "Confidential Information" means: non-public information disclosed to the Executive or known by the Executive as a consequence of or through his relationship with the Company, about the Company's subsidiaries, affiliates and partners thereof, owners, customers, employees, business methods, public relations methods, organization, procedures or finances, including, without limitation, information of or relating to properties that the Company or any of its affiliates, subsidiaries or partners thereof owns or may be considering acquiring an interest in; provided, however, that the Executive shall not be obligated to treat as confidential, or return to the Company copies of, any Confidential Information that (i) was publicly known at the time of disclosure to the Executive, (ii) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to the Company by any person or entity, or (iii) the Executive is required by law to disclose to a third party. 9. Covenant Not to Compete. (a) The Executive agrees that during the Employment Period he will devote substantially his full working time to the business of the Company and will not engage in any competitive business. Subject to such full-time requirement and the other restrictions set forth in this Section 9 and Section 3(d) above, the Executive shall be permitted to continue his existing business investments and activities and may pursue additional business investments. Without limiting the foregoing, the Executive specifically covenants that during and after his employment with the company he shall not: (i) compete directly with the Company in a business similar to that of the Company; (ii) compete directly or indirectly with the Company, its subsidiaries and/or partners thereof with respect to any acquisition or development of any real estate project undertaken or being considered by the Company, its subsidiaries and/or partners thereof at the end of Executive's Employment Period; (iii) lend or allow his name or reputation to be used by or in connection with any business competitive with the Company, its subsidiaries and/or partners thereof; or (iv) intentionally interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company, its subsidiaries and/or partners thereof, and any lessee, tenant, supplier, contractor, lender, employee or governmental agency or authority. (b) Notwithstanding anything to the contrary in this Section 9 or elsewhere in this Agreement, the Executive shall be permitted, at his option, to invest in residential real estate developments and resort operations in which Larry D. Young or his affiliates now or hereafter participate. (c) The provisions of this Section 9 shall survive for one (1) year and no longer following the termination of the Employment Period regardless of whether such termination is for Good Cause or without Good Reason or otherwise; provided, however, that if the Executive resigns or is terminated during the twelve months following a Change in Control (as defined in Section 7(d)) then the provisions of this Section 9 shall not survive the Executive's resignation or termination. 10 10. Injunctive Relief and Enforcement. In the event of breach by the Executive of the terms of Sections 6, 8 or 9, the Company shall be entitled to institute legal proceedings to enforce the specific performance of this Agreement by the Executive and to enjoin the Executive from any further violation of Sections 6, 8 or 9 and to exercise such remedies cumulatively or in conjunction with all other rights and remedies provided by law and not otherwise limited by this Agreement. The Executive acknowledges, however, that the remedies at law for any breach by him of the provisions of Sections 6, 8 or 9 may be inadequate. In addition, in the event the agreements set forth in Sections 6, 8 or 9 shall be determined by any court of competent jurisdiction to be unenforceable by reason of extending for too great a period of time or over too great a geographical area or by reason of being too extensive in any other respect, each such agreement shall be interpreted to extend over the maximum period of time for which it may be enforceable and to the maximum extent in all other respects as to which it may be enforceable, and enforced as so interpreted, all as determined by such court in such action. 11. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, when transmitted by telecopy with receipt confirmed, or one day after delivery to an overnight air courier guaranteeing next day delivery, addressed as follows: If to the Executive: W. Bradley Blair, II 3554 Bohicket Road Johns Island, South Carolina 29455 If to the Company: Golf Trust of America, Inc. 14 North Adger's Wharf Charleston, South Carolina 29401 telecopy: (843) 723-0479 With a copy to: Peter T. Healy, Esq. O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street, Suite 2600 San Francisco, California 94111-3305 telecopy: (415) 984-8701 or to such other address as either party may furnish to the other from time to time in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect; provided, however, that if any one or more of the terms contained in Sections 6, 8 or 9 hereto shall for any reason be held to be excessively broad with regard to time, duration, geographic scope or activity, that term shall not be deleted but shall be reformed and constructed in a manner to enable it to be enforced to the extent compatible with applicable law. 11 13. Assignment. This Agreement may not be assigned by the Executive, but may be assigned by the Company to any successor to its business and will inure to the benefit and be binding upon any such successor. 14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 16. Choice of Law and Consent to Jurisdiction. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of South Carolina (without reference to the choice of law provisions of the State of South Carolina), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. All judicial proceedings in connection with this Agreement may be brought in any state or federal court of competent jurisdiction in Charlotte City, South Carolina, and each party hereby accepts the non-exclusive jurisdiction and venue of such courts. 17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S) THAT SUCH PAYMENTS WERE DUE. 18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. 12 19. Entire Agreement. This Agreement contains the entire agreement and understanding between the Company and the Executive with respect to the employment of the Executive by the Company as contemplated hereby and no representations promises agreements or understandings written or oral, not herein contained or referenced shall be of any force or effect. This Agreement shall not be changed unless in writing and signed by both the Executive and the Board of Directors of the Company. 20. Executive's Acknowledgment. The Executive acknowledges (a) that he has had the opportunity to consult with independent counsel of his own choice concerning this Agreement, and (b) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date and year first written above. "COMPANY" GOLF TRUST OF AMERICA, INC., a Maryland corporation By:_______________________________ Scott D. Peters Senior Vice President "EXECUTIVE" __________________________________ W. Bradley Blair, II Residing at: 3554 Bohicket Road Johns Island, South Carolina 29455 13 EXHIBIT A Board Minutes of April 25, 1997 14. Compensation Committee Matters Mr. Chapman, Chairman of the Compensation Committee, led a discussion of compensation matters. a. Approval of Benefit Plans After discussion, upon motion duly made, seconded and unanimously carried, the following recitals and resolutions were adopted by the Board: WHEREAS, the employment agreements between the Company and W. Bradley Blair, II, David J. Dick and Scott D. Peters (collectively the "Executives") contemplate but do not require that the Company will establish certain benefit plans for its Executives; WHEREAS, this Board of Directors deems it advisable and in the best interest of the Company and its shareholders to make certain benefit plans available to the Executives; and WHEREAS, this Board of Directors deems it appropriate to direct the provision of certain employee benefits and the adoption of certain benefit plans; NOW, THEREFORE, BE IT RESOLVED, that the Company shall offer the following benefits to each of the Executives: 1. Financial planning, tax compliance assistance and related services (to be provided initially by the Company's accountant, and thereafter by such provider as the President shall select); 2. Accidental death and dismemberment insurance plan; 3. Long-term disability insurance (at 50% of employee's salary); 4. Payment of, or reimbursement for, professional association dues, professional licensing fees, continuing education tuition and associated expenses. RESOLVED FURTHER, that the Company shall provide the following benefits to each of the Executives with the frequency or in the amounts indicated: 1. Full health exam and medical testing available on the following basis: Blair: Annually Dick: Bi-Annually Peters: Bi-Annually 14 2. Automobile allowances in the following amounts or, at the Compensation Committee's option and on such terms and conditions as the Compensation Committee shall specify, use of Company automobiles: Blair: $1000/month Dick: $800/month Peters: $600/month RESOLVED FURTHER, that the enumeration of benefits in these resolutions is non-exclusive and shall not be construed to limit the availability of other benefits for which the Executives or any of them are otherwise eligible. RESOLVED FURTHER, that W. Bradley Blair, II and such other officers as he may from time to time designate be, and hereby are, authorized and empowered on behalf of and by the Company and in its name to enter into contracts with providers of the above benefit packages as each shall deem advisable to accomplish the purposes of these resolutions. RESOLVED FURTHER, that each of the officers of this Company be, and hereby is, authorized and empowered on behalf of this Company and in its name to execute any applications, certificates, agreements, or any other instruments or documents or amendments or supplements thereto, or to do and to cause to be done any and all other acts and things as such officers may in their discretion deem necessary or appropriate to carry out the purposes of each of the foregoing resolutions, the execution and delivery of such documents and the taking of such actions to be conclusive evidence of the necessity or appropriateness thereof. RESOLVED FURTHER, that any and all actions heretofore or hereafter taken by any appropriate officer or authorized representative of this Company within the terms or intent of any of the foregoing resolutions be, and hereby are, ratified and confirmed as the act and deed of this Company. 15 EX-10.16 8 EXHIBIT 10.16 EXHIBIT C SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (Scott D. Peters) November 7, 1999 THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is dated as of November 7, 1999, between Golf Trust of America, Inc., a Maryland corporation, having its principal place of business at 14 North Adger's Wharf, Charleston, South Carolina 29401 (the "Company"), and Scott D. Peters, an individual residing at the address set forth below his name on the signature page hereof (the "Executive"). COMPANY AND EXECUTIVE ENTER THIS AGREEMENT on the basis of the following facts, understandings and intentions: A. the Executive has been an executive of the Company employed under that certain Employment Agreement dated as of February 7, 1997 and amended and restated as of July 25, 1997 (the "Original Agreement"), which employment commenced on the date of the closing of the Company's initial public offering, February 12, 1997 (the "Commencement Date"); B. the Executive desires to remain in the employ of the Company; C. the Company values Executive's knowledge and familiarity with the business of the Company and desires to assure itself of the continued services of Executive; and D. Company and Executive desire to amend and restate the Original Agreement as set forth below. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Company and Executive agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The employment of the Executive by the Company as provided in Section 1 above will commence on the Commencement Date, and will terminate on February 7, 2003 (such term being the "Original Term"), unless earlier terminated pursuant to the provisions of Section 5 of this Agreement. On the final day of the Original Term and on each one (1) year anniversary thereafter (each an "Extension Date"), the term of this Agreement shall be extended automatically to commence on the Extension Date and terminate on the two (2) year anniversary of the Extension Date (each such period being a "Renewal Term"), unless written notice that this Agreement will not be so extended is given by either party to the other at least two (2) years prior to the Extension Date. The Original Term and any Renewal Terms, in their full duration, are herein individually referred to as "Employment Terms," and the period of the Executive's employment under this Agreement consisting of the Original Term and all Renewal Terms, except as may be terminated early pursuant to Section 5, is herein referred to as the "Employment Period." 3. Position. (a) Title and Position. During the Employment Period, the Executive shall be employed as an executive officer of the Company with the title of Senior Vice President and Chief Financial Officer or in such other executive position as the Board of Directors of the Company (the "Board") may from time to time determine with the consent of the Executive. In the performance of his duties as an officer, the Executive shall be subject to the direction of the Board and the President and shall not be required to take direction from or report to any other person unless otherwise directed by the Board or the President. The Executive's duties and authority shall be commensurate with his title and position with the Company. (b) Place of Employment. During the term of this Agreement, the Executive shall perform the services required by this Agreement at the Company's place of business in Charleston, South Carolina; provided, however, that the Company may require the Executive to travel to other locations on the Company's business. (c) Duties. The Executive shall devote commercially reasonable efforts and substantially full working time and attention to the promotion and advancement of the Company and its welfare. The Executive shall serve the Company faithfully and to the best of his ability, and shall perform such services and duties in connection with the business, affairs and operations of the Company as may be assigned or delegated to him from time to time by or under, and in accordance with, the authority and direction of the Board. The Company shall retain the right to direct and control the means and methods by which the Executive performs the above services. (d) Other Activities. Except with the prior written approval of the Board (which the Board may grant or withhold in its sole and absolute discretion) and except as may be set forth in Section 9 of this Agreement, the Executive, during the Employment Period, will not (i) accept any other employment, or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in a competing position to, that of the Company or any of its affiliates. Notwithstanding the foregoing, the Company agrees that the Executive (or affiliates of the Executive) shall be permitted (i) to undertake the activities set forth in Section 9, and (ii) to make any other passive personal investment that is not in a business activity competitive with the Company. 4. Compensation and Related Matters. (a) Base Salary. Prior to July 1, 1997, the Company shall pay the Executive a base salary at a rate of one hundred twenty-five thousand dollars ($125,000) per year. Beginning July 1, 1997, the Company shall pay the Executive a base salary at a rate of one hundred fifty thousand dollars ($150,000) per year through the end of the first calendar year of the Original Term. The Executive's base salary for each succeeding calendar year shall, at a minimum, be increased over the salary in effect at the end of the immediately preceding year by a factor measured by the increase, if any, in the Consumer Price Index for Wage Earners and Clerical Workers (as published by the Bureau of Labor Statistics). The base salary may further be increased, but not decreased, in succeeding years by an amount determined by the Compensation Committee of the Board. All salary shall be paid according to the standard payroll practices of the Company (regarding, e.g., timing of payments, standard employee deductions, income tax withholdings, social security deductions, and etc.) as in place from time to time. 2 (b) Business Expenses. The Company shall reimburse the Executive for personal expenditures incurred in connection with the conduct of the Company's business upon presentation of sufficient evidence of such expenditures as may be required by the Company's policies as in place from time to time. (c) Benefit Plan Eligibility. During the Employment Period, the Executive shall be entitled to participate in any benefit plans that are made generally available to executive officers of the Company from time to time, including, without limitation, any deferred compensation, health, dental, life insurance, long-term disability insurance, retirement, pension or 401(k) savings plan. Nothing in this Section 4(c) is intended, or shall be construed, to require the Company to institute or to continue any, or any particular, plan or benefit. (d) Performance Bonus. The Compensation Committee of the Board may establish and administer a performance bonus program for the Executive to provide for payment of a (cash and/or non-cash consideration) bonus to the Executive upon the achievement of certain performance objectives to be established by the Compensation Committee for the Executive. If such a program is established, the Compensation Committee of the Board shall monitor, review and modify the program from time to time as necessary to reflect the Executive's contributions to the Company. (e) Stock Incentive Plan. The Compensation Committee of the Board shall establish and administer one or more stock-based incentive plans in which the Executive shall be eligible to participate according to their terms; provided, however, that the Board of Directors shall approve, prior to the completion of the Company's initial public offering, a grant of options to the Executive to purchase up to forty thousand (40,000) shares of the Company's common stock, which options shall vest in three (3) equal installments commencing upon the first anniversary of the date of grant and each of the two (2) years thereafter, and shall be exercisable for ten (10) years from the date of grant at the fair market value of the common stock on the date of grant. (f) Fringe Benefits. The Executive will be entitled to fringe benefits as may be determined or granted from time-to-time by the Board or by the President acting under the authority of the Board; provided, however, that the Company shall provide the fringe benefits authorized by the Board on April 25, 1997 (which resolution is attached to this Agreement as Exhibit A) and shall not reduce or modify those benefits in a manner adverse to the Executive without the written consent of the Executive. (g) Vacation and Holidays. The Executive shall be entitled to four (4) weeks (twenty (20) business days) of paid vacation time in each calendar year on a pro-rated basis. The Executive shall be entitled to all paid Company holidays. (h) Directors and Officers Insurance and Indemnification. The Company shall maintain insurance to insure the Executive against any claim arising out of an alleged wrongful act by the Executive while acting as a director or officer of the Company. The Company shall further indemnify and exculpate from money damages the Executive to the fullest extent permitted under applicable law. 3 (i) Performance Reviews. At the end of each fiscal year, the Board or the Compensation Committee thereof will review the Executive's job performance and will provide the Executive a written review of the Executive's job performance during the prior year and implement any Board authorized revisions to the Executive's position, compensation and duties at the Company; provided, however, that the provisions set forth in this Agreement with respect to the Executive's compensation, and other terms and conditions of the Executive's employment at the Company shall not be modified by the Board in a manner which would result in less favorable or less beneficial terms or conditions thereof being imposed on the Executive without the Executive's full concurrence and consent. (j) Moving and Temporary Living Expenses. The Company shall reimburse the Executive for reasonable personal expenditures incurred in connection with the move of his household goods from Los Angeles, California to Charleston, South Carolina, including two trips by the Executive's wife to visit Charleston for relocation purposes, upon presentation of sufficient evidence of such expenditures as may reasonably be required by the Company. Employee will be paid an additional allowance of One Thousand Five Hundred Dollars ($1500.00) per month for temporary living expenses from the Commencement Date through the earlier of (i) June 30, 1997 or (ii) the date on which Executive acquires permanent housing in the Charleston, South Carolina area. 5. Termination. The Executive's employment hereunder shall be, or may be, as the case may be, terminated under the following circumstances: (a) Death. The Executive's employment under this Agreement shall terminate upon his death. (b) Disability. The Executive's employment under this Agreement shall terminate upon the Executive's physical or mental disability or infirmity which, in the opinion of a competent physician selected by the Board, renders the Executive unable to perform his duties under this Agreement for more than one hundred twenty (120) days during any one hundred eighty (180) day period. (c) Employment-At-Will; Termination by Company for Any Reason. The Executive's employment hereunder is "at will" and may be terminated by the Company at any time with or without Good Reason (as defined in Section 7(c) below), by the President or a majority vote of all of the members of the Board of Directors upon written Notice of Termination (as defined below) to Employee, subject only to the severance provisions specifically set forth in Section 7 below. (d) Voluntary Resignation. The Executive may voluntarily resign his position and terminate his employment with the Company at any time by delivery of a written notice of resignation to the Company (the "Notice of Resignation"). The Notice of Resignation shall set forth the date such resignation shall become effective (the "Date of Resignation"), which date shall in any event, be at least ten (10) days and no more than thirty (30) days from the date the Notice of Resignation is delivered to the Company. The Notice of Resignation shall be sufficient notice under Section 2 above to prevent the automatic extension of this Agreement, if timely given according to the terms of Section 2. 4 (e) Notice. Any termination of the Executive's employment by the Company shall be communicated by written Notice of Termination to the Executive. For purposes of this Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. The Notice of Termination shall be sufficient notice under Section 2 above to prevent the automatic extension of this Agreement, if timely given according to the terms of Section 2. (f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death; (ii) if the Executive's employment is terminated by reason of his disability, the date of the opinion of the physician referred to in Section 5(b), above; (iii) if the Executive's employment is terminated by the Company for Good Reason or without Good Reason by the Company pursuant to Section 5(c) above, the date specified in the Notice of Termination; and (iv) if the Executive voluntarily resigns pursuant to Section 5(d) above, the Date of Resignation set forth in the Notice of Resignation. 6. Obligations Upon Termination. (a) Return of Property. The Executive hereby acknowledges and agrees that all personal property and equipment furnished to or prepared by the Executive in the course of or incident to his employment belongs to the Company and shall be promptly returned to the Company upon termination of the Employment Period. (b) Complete Resignation. Upon the expiration of the Employment Period or any termination of employment under Section 5 above, the Executive shall be deemed to have resigned from all offices and directorships then held with the Company or any of its subsidiaries. (c) Survival of Representations, Warranties, Covenants and Other Provisions. The representations and warranties contained in this Agreement and the parties' obligations under this Section 6 and Sections 7 through 9 and 16 through 18, inclusively, shall survive termination of the Employment Period and the expiration of this Agreement. (d) Release. In exchange for the Company entering into this Agreement, the Executive agrees that, at the time of his resignation or termination from the Company, he will resign from the Board and will execute a release acceptable to the Company of all liability of the Company and its officers, shareholders, employees and directors to the Executive in connection with or arising out of his employment with the Company, except with respect to (i) any then-vested rights under any of the Company's stock incentive plans or in connection with other stock-based compensation; (ii) any deferred compensation held in trust under the Company's Deferred Compensation Plan; (iii) any Severance Payments or benefits which may be payable to him under Section 7 or other provisions of this Agreement; and (iv) any continuation of health or other benefit plans in accordance with this Agreement or as may be required by law. 5 7. Compensation Upon Termination. The Executive shall be entitled to the following post-termination payments and no others: (a) Death. If the Executive's employment is terminated by reason of death pursuant to Section 5(a), the Company shall pay the Executive his base salary payable under Section 4(a) as in effect on the Date of Termination plus the greater of (1) the average value of the cash and non-cash consideration received by Executive as a performance bonus in years 1997, 1998 and 1999 or (2) the value of the most recent year's annual cash and non-cash consideration received by Executive as a performance bonus (the "Severance Payments"), paid in semi-monthly installments for the greater of (i) three (3) years following the Date of Termination, or (ii) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (i) and (ii), the Executive, his estate and dependents shall continue to participate, at their option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at their own expense, the Executive's dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. (b) Disability. If the Executive's employment is terminated by reason of disability pursuant to Section 5(b), the Executive shall receive Severance Payments paid in semi-monthly installments for the greater of (i) three (3) years following the Date of Termination, or (ii) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above; provided, however, that Severance Payments otherwise payable to the Executive under this Section 7(b) shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such Severance Payment under any disability benefit plan of the Company. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (i) and (ii), the Executive shall continue to participate, at his option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. 6 (c) Termination by Company. (i) For Good Reason. If the Executive's employment is terminated by the Company pursuant to Section 5(c) for Good Reason (as defined below), the Company shall pay the Executive his base salary and any bonus due and payable pursuant to Section 4(d) through the Date of Termination. In addition, the Executive shall be entitled to retain such stock-based compensation (including, without limitation, shares of restricted stock and/or options to purchase securities of the Company granted or sold to the Executive pursuant to the terms and conditions of any of the Company's stock incentive plans or otherwise) as has vested as of the Date of Termination. At the Executive's own expense, the Executive and his dependents shall also be entitled to any continuation of health insurance coverage rights required by any applicable law. (ii) Without Good Reason. If the Executive's employment is terminated by the Company pursuant to Section 5(c) without any Good Reason, the Company shall pay to the Executive the Severance Payments in semi-monthly installments for the greater of (A) three (3) years following the Date of Termination, or (B) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (A) and (B), the Executive shall continue to participate, at his option, in all benefit plans described in Section 4(c) and shall continue to receive all fringe benefits described in Section 4(f) in each case substantially comparable to those in effect on the day before the Date of Termination. Thereafter, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. (iii) "Good Reason" means a finding by the Board that (A) the Executive materially breached any of the material terms of this Agreement; or (B) the Executive acted with gross negligence, willful misconduct or fraudulently in the performance of his duties hereunder. (d) Voluntary Resignation. (i) For Good Cause. If the Executive terminates his employment with the Company pursuant to Section 5(d) for Good Cause (as defined below), the Company shall pay the Executive the Severance Payments in semi-monthly installments for the greater of (A) three (3) years following the Date of Termination, or (B) the time period beginning on the Date of Termination and ending on the final day of the final Employment Term determined according to Section 2, above.. In addition, immediately prior to the Date of Termination the vesting of all stock-related compensation previously granted to the Executive shall be accelerated such that none of such compensation is subject to forfeiture and such that any stock options or similar rights previously granted to the Executive shall become immediately vested and exercisable; provided, however, that all stock-related compensation shall be subject to the plan under which it was granted, if any, as such plan may be amended from time to time in accordance with its terms. In addition, during the greater of the time periods in the preceding clauses (A) and (B), the Executive shall continue to participate, at his option, in all benefit plans described in Section 4(c) and pursuant thereto shall receive benefits substantially comparable to those in effect on the day before the Date of Resignation. Thereafter, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. 7 (ii) Without Good Cause. If the Executive terminates his employment with the Company pursuant to Section 5(g) without Good Cause, the Company shall have no obligation to compensate the Executive following the Date of Resignation. However, the Executive shall be entitled to retain such stock-based compensation (including, without limitation, shares of restricted stock and/or options to purchase securities of the Company granted or sold to the Executive pursuant to the terms and conditions of any of the Company's stock incentive plans or otherwise) as has vested as of the Date of Termination. In any event, at the Executive's own expense, the Executive and his dependents shall be entitled to any continuation of health insurance coverage rights required by any applicable law. (iii) "Good Cause" means the occurrence, without the express written consent of the Executive, of any of the following events, unless such event is substantially corrected within ninety (90) days following written notification by Executive to the Company that he intends to terminate his employment under this Agreement because of such event: (A) any reduction or diminution in the compensation, benefits or responsibilities of the Executive; (B) any material breach or material default by the Company under any material provision of this Agreement; (C) any relocation of the Company's principal place of business from Charleston County, South Carolina; or (D) any Change in Control (as defined below). (iv) "Change in Control" means the occurrence of any of the following events after the effective date of the first initial public offering of the Company's common stock: (A) the Board adopts a plan relating to the liquidation or dissolution or merger of the Company; (B) a Person (as defined below) directly or indirectly becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934) of more than twenty-five percent (25%) of the total voting power of the total outstanding voting securities of the Company on a fully diluted basis; provided, however, that beneficial ownership of partnership units in Golf Trust of America, L.P. shall not be considered beneficial ownership of voting securities of the Company; 8 (C) a Person directly or indirectly acquires or agrees to acquire all or substantially all of the assets and business of the Company; (D) for any reason during any period of two (2) consecutive years (not including any period prior to the date of this Agreement) a majority of the Board is constituted by individuals other than (1) individuals who were directors immediately prior to the beginning of such period, and (2) new directors whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors immediately prior to the beginning of the period or whose election or nomination for election was previously so approved. (v) For purposes of this Section 7(d), "Person" means any natural person, corporation, or any other entity; provided, however, that the term "Person" shall not include any shareholder or employee of the company on the date immediately prior to the initial public offering of the Company's common stock or any estate or member of the immediate family of such a shareholder or employee. (e) In the event of any termination pursuant to Section 5, the Executive shall be entitled to retain any and all options to purchase securities of the Company granted to the Executive pursuant to the terms and conditions of any of the Company's stock incentive plans or otherwise that have vested as of the date of such termination. (f) Any Severance Payments made pursuant to this Section 7 shall be payable in equal semi-monthly installments over the required duration set forth herein. (g) If, in spite of the provisions above entitling the Executive to benefits under any benefit plan, such benefits are not payable or provideable under any such plan to the Executive, or to the Executive's dependents, beneficiaries or estate, because the Executive is no longer deemed to be an employee of the Company, then the Company shall independently pay or provide for payment of such benefits for the remainder of the Employment Term. (h) The continuing obligation of the Company to make any Severance Payment to the Executive is expressly conditioned upon the Executive complying and continuing to comply with his obligations and covenants under Sections 6, 8 and 9 of this Agreement following termination of his employment with the Company. (i) In the event that any payment by or on behalf of the Company or Golf Trust of America, L.P. to Executive (whether or not such payment is required under this Agreement) qualifies as an "excess parachute payment" under Section 280G or Section 4999 of the Internal Revenue Code of 1986, as amended (the "Tax Code"), the Company shall make additional payments in cash to Executive (so called "gross-up payments") so that the Executive is put in the same after-tax position as he would have been in had no excise tax been imposed by Section 4999 of the Tax Code (or any successor or similar provision). 9 8. Covenant of Confidentiality. In addition to the agreements set forth in Section 6, the Executive hereby agrees that the Executive will not, during the Employment Period or for one (1) year thereafter directly or indirectly disclose or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, any Confidential Information. As used in this Agreement, "Confidential Information" means: non-public information disclosed to the Executive or known by the Executive as a consequence of or through his relationship with the Company, about the Company's subsidiaries, affiliates and partners thereof, owners, customers, employees, business methods, public relations methods, organization, procedures or finances, including, without limitation, information of or relating to properties that the Company or any of its affiliates, subsidiaries or partners thereof owns or may be considering acquiring an interest in; provided, however, that the Executive shall not be obligated to treat as confidential, or return to the Company copies of, any Confidential Information that (i) was publicly known at the time of disclosure to the Executive, (ii) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to the Company by any person or entity, or (iii) the Executive is required by law to disclose to a third party. 9. Covenant Not to Compete. (a) The Executive agrees that during the Employment Period he will devote substantially his full working time to the business of the Company and will not engage in any competitive business. Subject to such full-time requirement and the other restrictions set forth in this Section 9 and Section 3(d) above, the Executive shall be permitted to continue his existing business investments and activities and may pursue additional business investments. Without limiting the foregoing, the Executive specifically covenants that during and after his employment with the company he shall not: (i) compete directly with the Company in a business similar to that of the Company; (ii) compete directly or indirectly with the Company, its subsidiaries and/or partners thereof with respect to any acquisition or development of any real estate project undertaken or being considered by the Company, its subsidiaries and/or partners thereof at the end of Executive's Employment Period; (iii) lend or allow his name or reputation to be used by or in connection with any business competitive with the Company, its subsidiaries and/or partners thereof; or (iv) intentionally interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company, its subsidiaries and/or partners thereof, and any lessee, tenant, supplier, contractor, lender, employee or governmental agency or authority. (b) The provisions of this Section 9 shall survive for one year and no longer following the termination of the Employment Period regardless of whether such termination is for Good Cause or without Good Reason or otherwise; provided, however, that if the Executive resigns or is terminated during the twelve months following a Change in Control (as defined in Section 7(d)) then the provisions of this Section 9 shall not survive the Executive's resignation or termination. 10 10. Injunctive Relief and Enforcement. In the event of breach by the Executive of the terms of Sections 6, 8 or 9, the Company shall be entitled to institute legal proceedings to enforce the specific performance of this Agreement by the Executive and to enjoin the Executive from any further violation of Sections 6, 8 or 9 and to exercise such remedies cumulatively or in conjunction with all other rights and remedies provided by law and not otherwise limited by this Agreement. The Executive acknowledges, however, that the remedies at law for any breach by him of the provisions of Sections 6, 8 or 9 may be inadequate. In addition, in the event the agreements set forth in Sections 6, 8 or 9 shall be determined by any court of competent jurisdiction to be unenforceable by reason of extending for too great a period of time or over too great a geographical area or by reason of being too extensive in any other respect, each such agreement shall be interpreted to extend over the maximum period of time for which it may be enforceable and to the maximum extent in all other respects as to which it may be enforceable, and enforced as so interpreted, all as determined by such court in such action. 11. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, when transmitted by telecopy with receipt confirmed, or one day after delivery to an overnight air courier guaranteeing next day delivery, addressed as follows: If to the Executive: Scott D. Peters 2758 Christ Church Court Mt. Pleasant, South Carolina 29464 telecopy: (843) 971-7487 If to the Company: Golf Trust of America, Inc. 14 North Adger's Wharf Charleston, South Carolina 29401 telecopy: (843) 723-0479 With a copy to: O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street, Suite 2600 San Francisco, California 94111-3305 Attention: Peter T. Healy, Esq. telecopy: (415) 984-8701 or to such other address as any such party may furnish to the others from time to time in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11 12. Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect; provided, however, that if any one or more of the terms contained in Sections 6, 8 or 9 hereto shall for any reason be held to be excessively broad with regard to time, duration, geographic scope or activity, that term shall not be deleted but shall be reformed and constructed in a manner to enable it to be enforced to the extent compatible with applicable law. 13. Assignment. This Agreement may not be assigned by the Executive, but may be assigned by the Company to any successor to its business and will inure to the benefit and be binding upon any such successor. 14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 16. Choice of Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of South Carolina (without reference to the choice of law provisions of the State of South Carolina), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. 17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S) THAT SUCH PAYMENTS WERE DUE. 18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. 12 19. Entire Agreement. This Agreement contains the entire agreement and understanding between the Company and the Executive with respect to the employment of the Executive by the Company as contemplated hereby and no representations promises agreements or understandings written or oral, not herein contained shall be of any force or effect. This Agreement shall not be changed unless in writing and signed by both the Executive and the Board of Directors of the Company. 20. Executive's Acknowledgment. The Executive acknowledges (a) that he has had the opportunity to consult with independent counsel of his own choice concerning this Agreement, and (b) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date and year first written above. "COMPANY" GOLF TRUST OF AMERICA, INC., a Maryland corporation By:______________________________________ W. Bradley Blair, II President and Chief Executive Officer "EXECUTIVE" _________________________________________ SCOTT D. PETERS Residing at: ____________________________________ ____________________________________ ____________________________________ 13 EXHIBIT A Board Minutes of April 25, 1997 14. Compensation Committee Matters Mr. Chapman, Chairman of the Compensation Committee, led a discussion of compensation matters. a. Approval of Benefit Plans After discussion, upon motion duly made, seconded and unanimously carried, the following recitals and resolutions were adopted by the Board: WHEREAS, the employment agreements between the Company and W. Bradley Blair, II, David J. Dick and Scott D. Peters (collectively the "Executives") contemplate but do not require that the Company will establish certain benefit plans for its Executives; WHEREAS, this Board of Directors deems it advisable and in the best interest of the Company and its shareholders to make certain benefit plans available to the Executives; and WHEREAS, this Board of Directors deems it appropriate to direct the provision of certain employee benefits and the adoption of certain benefit plans; NOW, THEREFORE, BE IT RESOLVED, that the Company shall offer the following benefits to each of the Executives: 1. Financial planning, tax compliance assistance and related services (to be provided initially by the Company's accountant, and thereafter by such provider as the President shall select); 2. Accidental death and dismemberment insurance plan; 3. Long-term disability insurance (at 50% of employee's salary); 4. Payment of, or reimbursement for, professional association dues, professional licensing fees, continuing education tuition and associated expenses. RESOLVED FURTHER, that the Company shall provide the following benefits to each of the Executives with the frequency or in the amounts indicated: 1. Full health exam and medical testing available on the following basis: Blair: Annually Dick: Bi-Annually Peters: Bi-Annually 14 2. Automobile allowances in the following amounts or, at the Compensation Committee's option and on such terms and conditions as the Compensation Committee shall specify, use of Company automobiles: Blair: $1000/month Dick: $800/month Peters: $600/month RESOLVED FURTHER, that the enumeration of benefits in these resolutions is non-exclusive and shall not be construed to limit the availability of other benefits for which the Executives or any of them are otherwise eligible. RESOLVED FURTHER, that W. Bradley Blair, II and such other officers as he may from time to time designate be, and hereby are, authorized and empowered on behalf of and by the Company and in its name to enter into contracts with providers of the above benefit packages as each shall deem advisable to accomplish the purposes of these resolutions. RESOLVED FURTHER, that each of the officers of this Company be, and hereby is, authorized and empowered on behalf of this Company and in its name to execute any applications, certificates, agreements, or any other instruments or documents or amendments or supplements thereto, or to do and to cause to be done any and all other acts and things as such officers may in their discretion deem necessary or appropriate to carry out the purposes of each of the foregoing resolutions, the execution and delivery of such documents and the taking of such actions to be conclusive evidence of the necessity or appropriateness thereof. RESOLVED FURTHER, that any and all actions heretofore or hereafter taken by any appropriate officer or authorized representative of this Company within the terms or intent of any of the foregoing resolutions be, and hereby are, ratified and confirmed as the act and deed of this Company. 15 EX-12.1 9 EXHIBIT 12.1 EXHIBIT 12.1 GOLF TRUST OF AMERICA, INC. CALCULATION OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS DECEMBER 31, 1999
Period from February 12 Year ended Year ended though December 31, December 31, December 31, ------------ ------------ ------------ 1999 1998 1997 ---- ---- ---- Pre-tax Income before Minority Interest 18,257 17,736 11,767 Fixed charges Interest expense 15,603 9,673 1,879 Loan Cost Amortization 958 588 280 ------- ------- ------- Total fixed charges before preferred stock dividends 16,561 10,261 2,159 Preferred stock dividends 1,382 Total fixed charges 17,943 10,261 2,159 Earnings available for fixed charges: Earnings 18,257 17,736 11,767 Add: Fixed charges before preferred stock dividends 16,561 10,261 2,159 ------- ------- ------- Total earnings available for fixed charges 34,818 27,997 13,926 ======= ======= ======= Ratio of earnings to fixed charges (1) 1.94 2.73 6.45
(1) The ratio of earnings to fixed charges has been computed based on the Company's continuing operations by dividing total earnings available for fixed charges, excluding preferred stock dividends, by total fixed charges. Fixed charges consist of interest expense and preferred stock dividends. F-1 EX-21.1 10 EXHIBIT 21.1 EXHIBIT 21.1 GOLF TRUST OF AMERICA, INC. LIST OF SUBSIDIARIES MARCH 20, 2000 GTA GP, Inc., a Maryland corporation GTA LP, Inc., a Maryland corporation Golf Trust of America, L.P., a Delaware limited partnership in which GTA GP, Inc. is the sole general partner. Sandpiper-Golf Trust, LLC, a California limited liability company GTA Tierra Del Sol, LLC, a New Mexico limited liability company GTA Osage, LLC, a Michigan limited liability company Sandpiper GTA Development, Inc. (dissolved effective 12/31/99) F-2 EX-23.1 11 EXHIBIT 23.1 GOLF TRUST OF AMERICA, INC. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements No. 333-46657 and No. 333-46659 on Form S-8 and Registration Statement No. 333-56251 on Form S-3 of our reports dated February 4, 2000, appearing in this Annual Report on Form 10-K of Golf Trust of America, Inc. for the year ended December 31, 1999. BDO Seidman, LLP Charlotte, North Carolina March 27, 2000 EX-27.1 12 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF GOLF TRUST OF AMERICA, INC. AND SUBSIDIARIES AS OF 12/31/99, THE RELATED CONSOLIDATED STATEMENTS OF INCOME, STOCKHOLDERS EQUITY AND CASH FLOWS FOR THE FISCAL YEAR ENDED 12/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 3,905 0 102,305 0 0 0 370,703 43,001 433,912 10,796 223,085 0 20,000 78 179,953 433,912 0 55,777 0 23,397 (1,480) 0 15,603 18,257 0 11,231 0 0 0 9,848 1.28 1.27 As a REIT we do have a classified Balance Sheet Interest Income Net Income after Minority Interest and Preferred Dividend Net Income after Minority Interest
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