Item 1 of this quarterly report.
The increase in our provision for liquidation costs is primarily due to the prolonged timeline to complete our plan of liquidation.
January 1, 2005 to December 31, 2005
Net Assets in Liquidation decreased by $1,263,000 during the period from January 1, 2005 to December 31, 2005. Operating loss, including the net loss from our properties, primarily the Resort, including interest expense on corporate and property specific debt, was $562,000. We did not close on the sale of any properties in 2005; therefore, we did not have any realized losses from the sale of assets. The estimated fair value on the remaining properties held for sale decreased $2,421,000 which represented the write-down on the Resort at December 31, 2005. Approximately $4,914,000 in accrued preferred dividends were reversed pursuant to a letter agreement executed with our preferred shareholder on April 12, 2006 as described above under the caption “Status of the Sale of the Resort.” The reserve for estimated liquidation
costs and projected capital expenditures increased approximately $3,090,000 due to the increase in the time period that we anticipate will be needed to wind down the business and the associated costs assuming that our financial advisor is successful in completing an exit transaction in the second quarter of 2006.
On March 30, 2005, we extended the term of the amended employment agreement of Scott D. Peters, our chief financial officer, from March 31, 2005 to March 31, 2006. In connection with the amendment of our employment agreement with Mr. Peters, Mr. Peters agreed to assign to us 55,625 shares of our common stock that were pledged to us by Mr. Peters pursuant to his February 26, 2001 non-recourse Master Promissory Note. In exchange for the assignment of those 55,625 shares, we agreed to forgive approximately $461,000 that Mr. Peters owed to us pursuant to that Master Promissory Note. This resulted in a change in net assets in liquidation of approximately $104,000 due to the cancellation of this note receivable from Mr. Peters in favor of us. This note was carried at $99,000 when it was cancelled on March 30, 2005. This note was cancelled in exchange for the assignment to us of 55,625 shares of our common stock. These shares were valued at approximately $104,000 based on the ten-day trailing closing stock price on March 30, 2005 and cancelled as of that date.
Liquidity and Capital Resources
Our only source of cash flow is a distribution of net operating income from the one remaining golf property that we own and manage and cash flow from the operations of the Resort, if any. We discuss the Resort’s cash position below. As a result of our need for liquidity, on March 18, 2004 we entered into a loan agreement and related mortgage with Textron Financial Corporation, or Textron, for a revolving line of credit. On August 4, 2005, we executed loan documents with Textron to amend the terms of the existing revolving loan. Pursuant to this amendment, the maximum permissible outstanding loan amount was increased from $2,100,000 to $4,200,000. The interest rate pursuant to the amended Textron loan documents continues to be the prime rate plus 1.75% per annum, paid monthly. The amendment extended the term of the loan from March 18, 2006 to March 18, 2009. This loan is collateralized by a security interest in our golf courses collectively known as Stonehenge. The loan requires that the operations at Stonehenge for the immediately preceding twelve month period must be sufficient to meet a monthly debt service coverage ratio, as defined in the mortgage, of at least 1.20. At December 31, 2006, we were in compliance with the debt service coverage ratio covenant and we currently expect to be in compliance going forward.
Subject to certain conditions, a buyer of Stonehenge may assume this loan pursuant to the loan assumption provisions in the amendment. We paid a one-time commitment fee to Textron of $42,000, which represents 2% of the new funds approved to obtain the increase in this credit line. In addition, we will pay to Textron a fee of 0.25% per annum of the unused balance of the available line. As of the date of this report, we have drawn down a total of $4,100,000 on the line of credit. Subject to our satisfaction of the applicable terms, conditions and covenants of this loan, there is $100,000 available that could be drawn under this loan.
As of December 31, 2006, the Resort has a working capital deficit of approximately $10,607,000. This working capital deficit resulted primarily from the reclassification of the Westin termination fee and the Troon supplemental fee from long term to short term obligations. The reclassified termination and supplemental fees are approximately $5,594,000 and $800,000, respectively, as of December 31, 2006. See further discussion in Note 10 to the Consolidated Financial Statements referred to in Item 8 of this annual report on Form 10-K. Before this reclassification, the Resort had a working deficit of approximately $4,213,000. The Resort’s member deficit at December 31, 2006 is $11,403,000. The Resort reported a net loss of approximately $4,861,000 for the year ended December 31, 2006. The Resort continues to experience seasonal fluctuations in its net working capital position due to the seasonality of the golf industry in Florida. This seasonality impacts our liquidity. In particular, there is generally more available cash during the winter months, specifically in the first quarter. Cash generally becomes very limited in the
late summer months. Revenues generally decline at the Resort during the summer months because the hot Florida weather makes the Resort less appealing for group golf outings and vacation destination golfers. Additionally, unusual weather patterns, such as the hurricanes experienced in Florida in 2004 and those that affected the southeast coast in 2005, negatively impacted revenues for the Resort in the late summer-early fall season of 2005 and 2006 as groups and guests were hesitant to book reservations on the southeast coast during the hurricane season. Weather-related concerns may continue to negatively impact reservations in comparable periods (July through September) of subsequent years. The Resort uses seasonal pricing (peak, shoulder and off-peak) to maximize revenues. Generally, the Resort’s only source of cash is from its operations, if any. While certain steps have been taken in an effort to improve the long-term financial performance of the Resort since we assumed title to the Resort on July 15, 2004, as discussed in further detail below under the caption “GTA-IB, LLC-Results of operations for the years ended December 31, 2006, 2005 and 2004,” current Resort cash flow projections for 2007 indicate that although the Resort may be in a breakeven cash situation by year-end, a shortfall is anticipated by late summer to early fall 2007. This shortfall is expected primarily due to certain obligations that the Resort must pay in August 2007, including obligations of approximately $1,060,000 for the quarterly rental pool distribution and approximately $412,000 for the rental pool refurbishment payment. Therefore, a cash infusion of up to approximately $1,000,000 in the aggregate may be necessary to fund the short-fall. Further, now that the Westin Management Agreement is terminated, we have begun the capital improvement project of upgrading the technological infrastructure of the Resort and replacing certain components which are proprietary to Westin. Our projections indicate that the replacement of these components could require us to make an investment in the range of $1.0 to $2.0 million. We continue to work diligently with the Resort’s management team to identify opportunities to continue to strengthen the cash flow situation at the Resort. Further, we continue to seek a buyer for the Resort. We made intercompany advances to the Resort to support working capital needs in the amounts of $2,000,000, $400,000, $650,000 and $600,000 in July 2004, September 2005, November 2005 and October 2006, respectively. We made an additional intercompany advance to the Resort of $120,000 in February 2007. Further, we funded approximately $203,000 and $33,000 for the beginning phase of the technological infrastructure capital investment in October 2006 and November 2006, respectively. The $120,000 advance and the $33,000 in capital funding was repaid in March 2007. In the event that we must advance additional capital to fund operations at the Resort or our other operations, we may experience severe liquidity problems.
In the event that we are unable to sell our remaining assets as contemplated, we may be unable to pay our obligations as they become due. In addition, our ability to pay our obligations as they become due would be compromised if our chief executive officer requires payment of outstanding performance milestone payments owed by us to him before we are able to realize net cash proceeds from asset sales sufficient to repay him. As of December 31, 2006, we owed our two most senior executive officers a total of approximately $1,754,000 in milestone payments and accrued interest on such milestone payments. We also owed approximately $3,101,000 in legal fees which are included in our estimate of the costs to be incurred prior to our liquidation. We expect to incur additional fees and costs in connection with closing the sales of our two remaining assets. Our ability to pay our obligations as they become due will depend on cash flow from the Resort, and forbearance by our senior executive officers and our counsel with respect to sums that we owe to them. In the event that we experience lower revenues, or higher costs, with respect to the Resort, we may need to seek to find alternative funding in order to pay our obligations. Further, should our senior executive officers or our counsel require payment of funds owed to them, we may need to find alternative funding in order to pay our obligations. This funding, if available, may not be offered on reasonable terms.
We are currently negotiating the terms of a three year non-revolving credit facility with a Tampa community bank for approximately $1,200,000. The proceeds of which would be used to finance renovations at the Resort restaurants, information technology infrastructure upgrades and other property
improvements at the Resort and to cover short-term working capital shortfalls. The three condominium units that we own at the Resort will serve as collateral for this loan. We are also seeking to obtain a revolving accounts receivable line of credit for at least $500,000. However, there can be no assurance that the Company will enter into this loan facility or that we will be able to obtain an accounts receivable credit line.
We could realize liquidity through our interest in the proceeds from the sale of Parcel F. The anticipated timeline to realize the proceeds from our interest in the sale proceeds of Parcel F is currently dependent on the decision of the Second District Court of Appeals as to whether or not the Court will rehear the plaintiffs’ claims in the Land Use Lawsuits and the Parcel F purchaser’s commitment to close. (See detailed discussion of the Land Use Lawsuits in Part I, Item 3 of this annual report on Form 10-K.) If the Court rejects the plaintiffs’ request to rehear their claims, then the buyer of Parcel F must close on the purchase of Parcel F within sixty days or GHR will seek a new buyer. In that event, the fair value of our interest in Parcel F could potentially be adjusted based on any increase or decrease in the Parcel F sales price in any subsequent agreement with a new buyer for the purchase of Parcel F. We do not currently believe that the sales price to a new buyer would be lower than the sales price in the sale agreement with the current contracted buyer.
See discussion of our obligations to the holder of our preferred stock in Note 11 to the Consolidated Financial Statements referred to in Item 8 of this annual report on Form 10-K.
Years ended December 31, 2006 and 2005
Cash flow used in operating activities for the year ended December 31, 2006 was $2,759,000, compared to cash flow used in operating activities for the year ended December 31, 2005 of $1,519,000. The primary components of the cash fluctuations in operating activities were liquidation liability payments and adjustments and working capital changes. The increase in the cash flow used in operating activities for the year ended December 31, 2006 was primarily due to less favorable operating results of the Resort for the year ended December 31, 2006 compared to the prior year ended December 31, 2005. This increase was offset to some degree by a decrease in liquidation liability payments year over year primarily due primarily to a decrease in payments made for legal and other professional fees incurred in connection with our plan of liquidation.
We made $454,000 in capital expenditures at the Resort and $92,000 at the other golf courses that we owned and managed during the year ended December 31, 2006, as compared to $695,000 at the Resort and $111,000 at the other golf courses in the year ended December 31, 2005. In addition, our investing activities in 2006 provided $1,037,000 from the sale of one of our golf courses and we collected $3,067,000 in repayments on outstanding notes receivable.
Payments on capital leases at the Resort were approximately $321,000 and $331,000 for the years ended December 31, 2006 and 2005, respectively. Payments under the Resort refurbishment obligation were $1,076,000 and $722,000 for the years ended December 31, 2006 and 2005, respectively.
Years ended December 31, 2005 and 2004
Cash flow used in operating activities for the year ended December 31, 2005 was $1,519,000, compared to cash flow used in operating activities for the year ended December 31, 2004 of $4,720,000. The primary components of the cash fluctuations in operating activities were liquidation liability payments and adjustments and working capital changes. The decrease in the cash flow used in operating activities for the year ended December 31, 2005 was primarily due to an improvement in the operating results of the Resort for the year ended December 31, 2005 compared to July 16, 2004 to December 31, 2004, the portion of 2004 during which we owned the Resort. Liquidation liability payments also decreased year over year primarily due to the non-recurring closing costs that were paid related to the Settlement Agreement
to assume ownership of the Resort in July 2004, a decrease in the insurance premium payments made related to the renewal of our directors and officers insurance policy, offset by an increase in payments made for legal and other professional fees incurred in connection with our plan of liquidation.
We made $695,000 in capital expenditures at the Resort and $111,000 at the other golf courses that we owned and managed during the year ended December 31, 2005, as compared to $439,000 at the Resort and $33,000 at the other golf courses in the year ended December 31, 2004. In addition, our investing activities in 2005 provided $281,000 in cash from payment of a note receivable originally taken in connection with the termination of participating leases. In the year ended December 31, 2004, we received $3,984,000 in cash flow from the sale of two golf courses (one sold in August and one sold in September). We also acquired $1,764,000 in cash when we acquired the Resort in July 2004.
During the year ended December 31, 2005, we drew $2,000,000 against our revolving line of credit compared to draws of $2,100,000 in the year ended December 31, 2004. The funds drawn against the line of credit were used for working capital needs in both 2005 and 2004 and, in 2004, the funds were also used to pay closing costs related to the executed Settlement Agreement in July 2004. In 2004, we also received $2,000,000 in proceeds from a note payable to Elk Funding, LLC which was used as a cash infusion for the Resort for its immediate working capital needs at the time that we took title to the Resort. Subsequently, we repaid $1,300,000 (less a discount of $122,000) plus accrued interest of this $2,000,000 note payable from the sales proceeds of certain golf course assets. Payments on capital leases at the Resort were approximately $331,000 and $160,000 for the years ended December 31, 2005 and 2004, respectively. Additionally, in 2005, we made payments under the Resort refurbishment obligation of $722,000.
Off Balance Sheet Arrangements
As of December 31, 2006, we have no unconsolidated subsidiaries.
We do not have any relationships with unconsolidated entities or unconsolidated financial partnerships of the type often referred to as structured finance or special purpose entities, i.e., unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities (except potentially in connection with the Resort, as discussed previously). Accordingly, we believe we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.
Contractual Obligations, Contingent Liabilities and Commitments
The following table summarizes our contractual obligations at December 31, 2006, and the effect such obligations are expected to have on our liquidity and cash flow (or upon our successors in interest under the applicable contracts, if the contracts are not terminated) in future periods:
(1) The series A Preferred stock is reflected in the “Less than 1 year” column of this table above due to the fact that this obligation is expected to be paid upon the sale of the Resort. See further discussion below under the caption “Series A Preferred Stock.”.
Each type of contractual obligation listed in the table is discussed in more detail below. Interest is reflected, as applicable, in the commitments and obligations listed above.
Employment Agreements. Under the existing amended and restated employment agreements, performance milestone payments aggregating approximately $2,526,000 were paid to our executives upon our repayment of our obligations under our secured credit facility led by Bank of America, N.A. Pursuant to the fourth amended and restated employment agreement of Mr. Peters, our chief financial officer, which became effective August 29, 2003, the performance milestone bonus amount, remaining to be paid is $82,615, plus accrued interest, to Mr. Peters. Commencing October 1, 2003, interest began accruing on the unpaid portion of Mr. Peters’ remaining earned milestone payment at 5% per annum. Such payments will be made in due course; no outstanding conditions to this payment exist. We also owe Mr. Blair $1,233,907 in milestone payments plus accrued interest. The accrued interest and estimated employer taxes on these milestones totals approximately $443,000 as of December 31, 2006. In addition, we have severance obligations to other employees aggregating approximately $435,000 which have been provided for in the liquidation accruals.
Textron Revolving Line of Credit. On March 18, 2004, we entered into a loan agreement and related mortgage with Textron Financial for a revolving line of credit. On August 4, 2005, we executed loan documents with Textron to amend our existing revolving loan with Textron. Pursuant to this amendment, the maximum permissible outstanding loan amount was increased from $2,100,000 to $4,200,000, and the term of the loan was extended from March 18, 2006 until March 18, 2009. This loan is collateralized by a security interest in our golf courses collectively known as Stonehenge. In certain instances, the loan may be assumed by a buyer of Stonehenge pursuant to assumption provisions in this loan amendment. The interest rate under the revolving loan is prime rate (8.25% at December 31, 2006) plus 1.75% per annum, paid monthly.
Operating and Capital Lease Agreements. In the normal course of operating the golf courses that we manage and in the Resort operations, we and/or our subsidiaries have entered into operating lease agreements to lease golf course maintenance equipment, golf course vehicles, golf carts, and office equipment at the managed courses. The terms of these leases range from twelve to sixty months.
Advertising, service, equipment maintenance and other contracts and software license and support agreements at the managed courses. In the normal course of operating Stonehenge, we have entered into contracts for services such as advertising, waste management, equipment maintenance and software support. The terms of these contracts range from 12 to 24 months and in certain cases include annual renewal options.
Lease agreements for GTA corporate office. This represents the office space lease for our corporate office.
Master Lease Agreement. Our indirect subsidiary, GTA-IB, LLC, is contractually obligated to reimburse the owners of condominium units at the Resort who participate in the Rental Pool for 50% of the refurbishment costs invested in the Rental Pool units by the owners. In addition to the cost reimbursements, GTA-IB, LLC has agreed to pay the owners interest on the balance at 5% through 2009. In addition, GTA-IB agreed to provide refurbishment reimbursement for units placed into the rental pool during 2005 at a level of 25% of the applicable condominium owner’s investment in the refurbishment. We refer to this program as Phase 5. Interest on the Phase 5 liability is accrued at a rate of 2.5% per annum and paid quarterly. Principal payments for Phase 5 begin in the first quarter of 2008 and will be paid quarterly through the fourth quarter of 2012. The interest is included in the amounts in the table above.
Management Agreements with Westin and Troon. We entered into the management agreement with Westin on July 15, 2004, to manage the Resort for a fee of 2.2% of gross revenues. Contemporaneously with the signing of that agreement, Westin entered into a management contract with Troon to manage the golf facilities of the Resort for a fee of 2% of gross golf revenue. These management fees are paid by the Resort. The agreements also provide for the opportunity to earn supplemental fees based on financial performance. The Westin management agreement was terminated by mutual agreement effective October 31, 2006. On February 22, 2007, we sent Troon Golf LLC, or Troon, a notice of termination in regards to the Facilities Management Agreement pursuant to which Troon manages the golf operations at the Resort. We and Troon are in the process of negotiating the terms and conditions of the termination which we expect to be effective upon the conclusion of our negotiations and the execution of a termination agreement. We intend to manage the golf operations internally following the termination of the Troon management agreement.
Westin Termination Fee. Pursuant to the terms of the Termination Agreement, the Westin termination fee of approximately $5,594,000 is due at the earlier of the date of a sale of the Resort or March 31, 2008. This amount is included in the “Less than 1 year” column due to the fact that we are currently seeking a buyer for the Resort, although as of March 26, 2007, no binding contract for the sale of the Resort has been executed.
Troon Supplemental Fee. The facility management agreement that Westin executed with Troon effective July 15, 2004, and we assumed on October 31, 2006, provides that we shall pay to Troon, subject to the terms and conditions set-forth in that agreement, a supplemental fee of $800,000 which is due upon either the expiration of the contract on July 15, 2009 or its early termination. See further discussion regarding the current status of the Troon agreement in the note above captioned “Management Agreements with Westin and Troon.”
Service Agreements and Other. In the normal course of operating the Resort, we are a party to multiple agreements with miscellaneous service providers for, among other services, waste removal, uniform cleaning and replacement, armored car services, indoors plant maintenance and pest control. These services and contracts are individually immaterial and, therefore, are included in the aggregate.
Commitments
Series A Cumulative Convertible Redeemable Preferred Stock. For a detailed discussion of our obligations to the holder of our preferred stock see the following sections of this annual report on Form 10-K, (i) Note 11 to the Consolidated Financial Statements referred to in Item 8, (ii) Part I, Item 1 under the caption “Significant Events since the filing of our last Quarterly Report,” and (iii) Part I, Item 1A
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not entered into any transactions using derivative financial instruments. We are subject to market risk associated with changes in interest rates applicable to the revolving line of credit that we obtained on March 18, 2004, and amended on August 4, 2005. At March 26, 2007, the total outstanding debt subject to interest rate exposure is $4,100,000. A 25 basis point movement in the interest rate on the floating rate debt would result in an approximate $10,250 annualized increase or decrease in interest expense and cash flows (see Note 8 to our Consolidated Financial Statements for additional debt information). For the year ended December 31, 2006, a 25 basis point movement would have resulted in a $12,000 annualized increase or decrease in interest expense and cash flows. We have not entered into any transactions using foreign currency or derivative commodity instruments; therefore, we do not face any foreign currency exchange rate risk or commodity price risk.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X are included in this annual report commencing on page 73.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, our Chief Financial Officer (until his resignation effective February 7, 2007) and our Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management assesses the costs and benefits of such controls and procedures based upon the prevailing facts and circumstances, including management’s reasonable judgment of such facts. As we neither controlled nor managed the Resort prior to July 16, 2004, our disclosure controls and procedures with respect to the manager and the Resort were necessarily more limited than those we maintained with respect to our own corporate operations. At the close of business on July 15, 2004, we took title to the Resort; however, despite the fact that our Management Agreement with Westin provides us with heightened control and access to information, prior to the termination of the Management Agreement on October 31, 2006, we did not directly assemble the financial information for the Resort although we have taken steps that we deem to be reasonable under the circumstances to seek to verify such financial information. Consequently, until the termination of the Management Agreement on October 31, 2006, our disclosure controls and procedures with respect to the Resort, while strengthened as a relative matter, remained necessarily more limited than those we maintained with respect to our own corporate operations. Since taking title to the Resort and most recently, assuming the management of the Resort, we have focused upon integrating operations at the Resort into our disclosure controls and procedures and internal control procedures. In particular, those controls and procedures have been updated to account for the challenges presented by the increased size and scope of our operations now that we own the Resort. Effective January 1, 2007, we implemented a new general ledger accounting software package, or GL software, at the Resort to replace the former GL software of which the majority of the financial reports were proprietary to Westin. Our new GL software, known as Aptech, was used at the
Resort prior to July 15, 2004 when Westin required that the Resort adopt their GL software so the accounting staff is familiar with the process and procedures in operating the new GL software. We do not currently believe that the change in the GL software will materially change our controls over financial reporting or our disclosure controls and procedures.
The integration of a business much larger in size and scope of operations increases the risk that conditions may have been introduced that we did not anticipate in our design of our systems of control. Any pre-existing deficiencies in the predecessor owner’s financial systems, processes and related internal controls increase the risk that the historical unaudited financial statements of the Resort’s operations and cash flows which the predecessor owner has provided to us may not be accurate. We have of necessity placed a certain amount reliance on the historical financial information and reports of the Resort’s predecessor owner for the periods prior to July 16, 2004 and continued to rely on the information provided by Westin as manager of the Resort until October 31, 2006.
As of December 31, 2006, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Subject to the limitations mentioned above, our chief executive officer and our principal accounting officer concluded that as of December 31, 2006, our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act reports.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
See earlier discussion of the matters below under the caption “Significant Events since the filing of our last Quarterly Report,” in Part I, Item I of this Annual Report on Form 10-K.
Termination of Westin Management Agreement
On July 15, 2004, GTA-IB, LLC (the “owner”) entered into a Management Agreement (the “Management Agreement”) with Westin Hotel Management L.P., successor in interest to Westin Management Company South (“Westin”). The Management Agreement provided, among other things, that Westin would manage the Resort. By mutual agreement, on September 28, 2006, we, the owner, and Westin, as guarantor, entered into a Termination and Release Agreement (the “Termination Agreement”), pursuant to which the owner and Westin agreed to terminate the Management Agreement as of October 31, 2006 (the “Termination Date”). In addition to the termination of the Management Agreement, the Termination Agreement provides that (i) on or prior to October 3, 2006, the owner shall deposit $600,000 in the Resort’s operating account (which we did) to be used in part to pay to Westin certain fees and charges accrued under the Management Agreement and which are expected to approximate this amount; (ii) on or prior to the earlier of March 31, 2008, or sale of the Resort by the owner, the owner will pay to Westin the termination fee provided under Section 4.4.2 of the Management Agreement calculated as of the Termination Date, estimated at $5,600,000; and (iii) Westin shall permit the owner to continue to access Westin’s “SAP” accounting system (which they have) for the operation of the Resort for a period of three months after the Termination Date for a total charge of $6,000. The owner plans to independently manage the Resort as of the Termination Date and no longer use the Westin brand or their reservation system.
The foregoing summary of the material terms of the terminated Management Agreement does not purport to be complete and is qualified in its entirety by reference to the Management Agreement, which
is filed as Exhibit 10.4 to our Current Report on Form 8-K filed on July 29, 2004, and the Termination Agreement, which is filed as Exhibit 10.39 to our Current Report on Form 8-K filed on October 3, 2006.
Amendment of Scott Peters’ Employment Agreement
On September 29, 2006, we executed a letter (the “Letter Amendment”) with Scott D. Peters, our Chief Financial Officer and Secretary, extending the fixed Date of Termination of the Modified Schedule of Mr. Peter’s employment pursuant to the Fourth Amended and Restated Employment Agreement between Mr. Peters and us (the “Employment Agreement”) from September 30, 2006 to April 30, 2007. As a result of the Letter Agreement, Mr. Peter’s employment will be terminated at April 30, 2007, unless earlier terminated by us or by Mr. Peters for Good Cause (as defined in the Employment Agreement) as applicable. The Employment Agreement remains in full force and effect, except as expressly modified or amended by the Letter Amendment.
The Letter Agreement also provides that we shall pay to Mr. Peters the remaining $82,615 balance of the performance milestone described in Section 4.A.(a) of the Employment Agreement, plus accrued interest, no later than April 30, 2007 or the earlier termination of his employment pursuant to Section 5.A. of the Employment Agreement.
A copy of the Letter Amendment is included as Exhibit 10.33.3 to our Current Report on Form 8-K, filed on October 2, 2006, and is incorporated herein by reference. The foregoing description of the Letter Amendment is qualified in its entirety by the contents of the Letter Amendment.
Nomination of Messrs. Loeb and Toor
On October 9, 2006, we issued a press release announcing that on October 5, 2006, that we had entered into a Letter Agreement (‘the “Letter Agreement”) with Jan H. Loeb and Nauman S. Toor (collectively, the “Director Candidates”) under which, among other things, we agreed (i) to increase the number of members of our board of directors to seven, consisting of three Class I directors, the term of which expires at the 2006 Annual Meeting, two Class II directors, the term of which expires at the 2008 Annual Meeting and two Class III directors, the term of which expires at the 2007 Annual Meeting; (ii) to include (and recommend the candidacy of) Mr. Loeb in the board of directors’ slate of three nominees for potential election as Class I directors at the 2006 Annual Meeting and provide Mr. Loeb with substantially the same assistance that we provide the other board candidates, with respect to such election, and (iii) to nominate (and recommend the candidacy of) Mr. Toor as the only candidate for potential election as an additional Class III director of our company at the 2006 Annual Meeting to fill the vacancy created by the increase in the number of Class III directors from one to two (and to serve for a term expiring at the 2007 Annual Meeting) and, for purposes of our proxy solicitation, provide Mr. Toor with substantially the same assistance that we provide the other board candidates.
Pursuant to the terms of the Letter Agreement, the Board Candidates shall not, and each will not authorize or knowingly permit his affiliates and associates to, (i) solicit proxies or engage in a proxy contest with respect to the election of directors or any other proposal to be considered at the 2006 Annual Meeting on November 17, 2006 or present any proposal for consideration at such annual meeting of stockholders, or (ii) encourage any other person or entity to solicit proxies or engage in a proxy contest with respect to the election of directors or any other proposal to be considered at the 2006 Annual Meeting or present any other proposal for consideration at the 2006 Annual Meeting. In the Letter Agreement, Mr. Loeb also withdrew in its entirety his letter dated August 23, 2006 which provided notice to the Company of Mr. Loeb’s intention to nominate Messrs. Loeb and Toor for election as directors at the 2006 Annual Meeting (in lieu of Messrs. Ream and Wax) and to introduce at the 2006 Annual Meeting certain other matters pertaining to declassifying our board of directors. The Board Candidates also agreed in the Letter Agreement that they and their affiliates would immediately cease all efforts, direct or indirect, in
furtherance of Mr. Loeb’s proposals and any related solicitation, and any other action to obtain or influence control of us, and shall not vote, deliver or otherwise use any proxies heretofore obtained in connection with Mr. Loeb’s proposals.
In addition, the Board Candidates each acknowledged in the Letter Agreement that our stockholders have previously approved and adopted the Plan of Liquidation, and that our board of directors intends to conduct our company’s operations in a manner consistent with the Plan of Liquidation, unless or until our board of directors and its stockholders approve otherwise. The Board Candidates also agreed to act in a manner consistent with and in furtherance of the Plan of Liquidation as approved by our stockholders, unless or until our board of directors and its stockholders approve otherwise. The Letter Agreement provides that despite the restrictions described above, any of our directors may propose to our board of directors for its preliminary consideration (subject to approval by the our stockholders) a modification to the Plan of Liquidation.
Amendment of Parcel F Defense and Escrow Agreement
On December 28, 2006, we together with GTA, LP and GTA-IB entered into a First Amendment to Defense and Escrow Agreement (the “Amendment”) with GHR and the Escrow Agent. The Amendment, among other things, amends the distributions from a sale of Parcel F under the Defense and Escrow Agreement to reduce the distributions to us by $710,000. The Amendment also provides that, in the event that the purchaser of Parcel F (“Parcel F, LLC”) receives a return of its earnest money deposit pursuant to an Amended and Restated Agreement for the Sale and Purchase of Real Property - Parcel F between GHR and Parcel F, LLC, dated June 29, 2004 (as amended), the GHR shall receive an offsetting payment of the lesser of $200,000, or the amount of earnest money returned to Parcel F, LLC. The Defense and Escrow Agreement was included as Exhibit 10.2 to our Current Report on Form 8-K which was filed on July 29, 2004.
In connection with the execution of the Amendment, that we and Elk Funding entered into the Loan Satisfaction Agreement which provided, among other things, that when GHR receives $710,000 (which occurred on or about December 28, 2006) pursuant to the terms of the Amendment (i) our obligations to Elk Funding under Note A shall be deemed to be paid in full and satisfied, (ii) the loan documents between the us and Elk Funding shall be deemed terminated and neither party shall have further obligations under such documents and (iii) the Assignment of Defense and Escrow Agreement and the security interest created by such agreement shall be deemed terminated. As further consideration for the satisfaction of Note A, we consented to the extension of the closing deadline pursuant to the Second Amendment to the Amended and Restated Agreement for Sale and Purchase of Real Property-Parcel F between GHR and Parcel F, LLC. Elk Funding also consented to the Amendment as part of the Loan Satisfaction Agreement. Note A, made in the principal amount of $700,000, was secured by the Assignment of Defense and Escrow Agreement between us and Elk Funding. Note A, Note B (which was previously repaid by us) and the loan agreement relating to both notes were included as Exhibit 10.7 to our Current Report Form 8-K which was filed on July 29, 2004.
The Amendment and the Loan Satisfaction Agreement were included as Exhibit 10.24.2 and Exhibit 10.29.2 , respectively, to our Current Report on Form 8-K filed on January 4, 2007. The description of the Amendment and the Loan Satisfaction Agreement are qualified in their entirety by the contents thereof.
On December 28, 2006, Note A was deemed satisfied, the obligations of the parties under the related loan documents were deemed terminated, and the Assignment of Defense and Escrow Agreement and the security interest created by such agreement were deemed terminated.
Further, on December 28, 2006, GHR and Parcel F, LLC, the purchaser of Parcel F, entered into the Second Amendment to the Amended and Restated Agreement for the Sale and Purchase of Real
Property-Parcel F between GHR and Parcel F, LLC, to which we are not a party, but such amendment eliminated seller financing and certain reductions from the purchase price related to the number of permitted condominium units to be built on Parcel F and resulted in a write-up of the estimated fair value of our interest in Parcel F of approximately $1,410,000 to $2,900,000. Parcel F, LLC has sixty days from the final appeal court decision on the Land Use Lawsuits (see related discussion in second bullet below) to close on the purchase of Parcel F or Parcel F will be marketed to potential new buyers. If that were to occur, the terms of Amended Defense and Escrow Agreement and the Parcel F Development Agreement would continue to be applicable to the purchase contract of any new buyer of Parcel F. Upon the closing of the sale of Parcel F, we currently expect to receive proceeds of approximately $2,900,000.
Resignation of Director and Chief Financial Officer
On February 4, 2007, Scott D. Peters notified us that, due to personal reasons related to his obligations and commitments to another employer, he is resigning as our Chief Financial Officer, Senior Vice President, Secretary and Director effective February 5, 2007. Consequently, Mr. Peters’ existing employment agreement, which was due to expire by its terms on April 30, 2007, was terminated effective February 5, 2007. Mr. Peters’ remaining milestone payment, pursuant to his existing employment agreement, of approximately $83,000, plus accrued interest, remains due and payable by us to him. Mr. Peters has been our Chief Financial Officer since 1997 and has served as a director since late 1999. At this time, our Board will not fill the Board seat that Mr. Peters is vacating.
On February 6, 2007, our Controller, Tracy S. Clifford, age 38, was appointed Principal Accounting Officer. Ms. Clifford is a certified public accountant and holds a masters degree in business administration from Georgia State University. Ms. Clifford has served as our Controller since October 1999. At this time, there were no changes to Ms. Clifford’s compensation as a result of this appointment.
The two most recent events above are also briefly described under the heading “Significant Events since the filing of our last Quarterly Report in Item 1 and each will also be described in detail in Part II, Item 5 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We are managed by a board of directors composed of seven members. At our annual meeting on November 17, 2006, we added two new independent directors to the three directors, who at all times have comprised a majority of the board, are independent of our management and receive no compensation, directly or indirectly, from our company other than for their services as directors. We refer to these five persons as our independent directors. The board also includes W. Bradley Blair II, who is our Chief Executive Officer and President, and, until his resignation effective February 5, 2007, Scott D. Peters, who was our Chief Financial Officer, Senior Vice President and Secretary. Subject to severance/milestone compensation rights under their amended employment agreements, officers serve at the pleasure of the board of directors.
In 2006, the board met twenty-three times; our audit committee met seven times; our compensation committee met two times; our nominating committee met one time; and our independent committee met one time. Each of the directors either attended or participated by telephone in at least 75% of the total number of meetings of the board of directors and of the committees of the board of which he was a member.
Set forth below is information about our directors and executive officers:
(1) Nominating committee member
(2) Audit committee member
(3) Compensation committee member
(4) Mr. Peters resigned all positions effective February 5, 2007. At this time, our Board will not fill the Board seat that Mr. Peters vacated. Ms. Clifford was appoint Principal Accounting Officer on February 6, 2007 and Secretary on February 20, 2007.
Biographical Information
W. Bradley Blair, II is our Chief Executive Officer, President, and Chairman of our board of directors. He has been our Chief Executive Officer, President and Chairman since our initial public offering in 1997. Mr. Blair has served as a member of the Board of Directors of NNN Healthcare/Office REIT, Inc. since September 2006. From 1993 until our initial public offering in February 1997, Mr. Blair served as Executive Vice President, Chief Operating Officer and General Counsel for The Legends Group, a golf
course developer and owner. As an officer of The Legends Group, Mr. Blair was responsible for all aspects of operations, including acquisitions, development and marketing. From 1978 to 1993, Mr. Blair was the managing partner at Blair Conaway Bograd & Martin, P.A., a law firm specializing in real estate, finance, taxation and acquisitions. Mr. Blair earned a Bachelor of Science degree in Business from Indiana University and a Juris Doctorate degree from the University of North Carolina at Chapel Hill Law School.
Scott D. Peters is our Chief Financial Officer, Senior Vice President and Secretary. He has been one of our officers since our initial public offering in 1997. Mr. Peters has been one of our directors since late 1999. In September 2004, Mr. Peters accepted a position as the Executive Vice President, Chief Financial Officer and a member of the board of managers at Triple Net Properties in Santa Ana, California. Mr. Peters has also served as President and Chief Executive Officer of G REIT, Inc. since December 2005, having served as that company’s Executive Vice President and Chief Financial Officer since September 2004, and he has served as Chief Executive Officer and Chairman of the Board of NNN Healthcare/Office REIT, Inc. since September 2006. From 1992 through 1996, Mr. Peters was the Senior Vice President and Chief Financial Officer of Pacific Holding Company/LSR in Los Angeles, developer of a master-planned residential community and country club, from September 1992 to June 1996, and Senior Vice President and Chief Financial Officer of Castle & Cooke Properties, Inc., a real estate development subsidiary of Dole Food Company, from February 1988 to August 1992. Mr. Peters received a Bachelor of Arts degree in Accounting and Finance from Kent State University.
Tracy S. Clifford was appointed our Principal Accounting Officer and Secretary upon the resignation of Scott D. Peters, our Senior Vice President, Secretary and Chief Financial Officer, on February 5, 2007. Ms. Clifford has been our Controller since September 1999. Prior to her employment with us in September 1999, Ms. Clifford was the Accounting Manager for United Healthcare of Georgia, Inc. from May 1995 through February 1999 and Finance Director from March 1999 until September 1999. From June 1993 through April 1995, Mrs. Clifford was employed by North Broward Hospital District in Fort Lauderdale, Florida initially as Senior Accountant (June 1993 through January 1994) and subsequently as Accounting Manager (February 1994 through April 1995). Ms. Clifford is a Certified Public Accountant and worked as an auditor with Deloitte & Touch in Miami, Florida from 1991 to 1993. She received a Bachelor of Science Degree in Accounting from the College of Charleston and a Masters Degree in Business Administration from Georgia State University.
Raymond V. Jones is an independent director under the rules of the American Stock Exchange. From 1984 to 1994 he was Managing Partner of Summit Properties Limited Partnership before it went public in 1994. From 1994 until retiring in March 1998, Mr. Jones was the Executive Vice President of Summit Properties Inc. Summit was a publicly traded REIT listed on the New York Stock Exchange and was one of the largest developers and operators of luxury garden multifamily apartment communities in the Southeastern United States. While at Summit, Mr. Jones oversaw the development of 26 communities comprising nearly 6,500 apartment homes in Georgia, North Carolina, South Carolina and Ohio. Prior to 1984, Mr. Jones served as General Operations Manager for both the Charlotte and Houston divisions of Ryan Homes, Inc. Mr. Jones earned a Bachelor of Arts degree in Political Science from George Washington University.
Fred W. Reams is an independent director under the rules of the American Stock Exchange. From 1981 until his retirement on March 31, 2004, Mr. Reams served as the Chairman or President and Chief Investment Officer of Reams Asset Management Company, LLC, an independent private investment firm which he co-founded. From 1967 to 1981, Mr. Reams was employed in various investment management positions with the First National Bank of Michigan, Irwin Management Company, and Cummins, Inc. In addition, Mr. Reams served as President of the board of directors of the Otter Creek Golf Course from 1981 through 2003. Mr. Reams holds a Bachelor of Arts degree and a Master of Arts degree in Economics from Western Michigan University.
Edward L. Wax is an independent director under the rules of the American Stock Exchange. Mr. Wax is currently Chairman Emeritus of Saatchi & Saatchi, a worldwide advertising and ideas company. From 1992 until his appointment to his current position in 1997, Mr. Wax served as Chairman and Chief Executive Officer of Saatchi & Saatchi. Mr. Wax had been responsible at Saatchi for the operations of 143 offices in 87 countries. Mr. Wax’s employment by Saatchi & Saatchi began in 1982. Mr. Wax was formerly Chairman of The American Association of Advertising Agencies as well as a director of both the Ad Council and the Advertising Educational Foundation. Mr. Wax also serves on the board of directors of Dollar Thrifty Automotive Group. Mr. Wax holds a Bachelor of Science degree in Chemical Engineering from Northeastern University and a Masters in Business Administration degree from the Wharton Graduate School of Business.
Jan H. Loeb is an independent director under the rules of the American Stock Exchange. Mr. Loeb, the largest stockholder of GTA, is currently a portfolio manager for Amtrust Capital Management, Inc., a position he has held since February 2005. From February 2004 through January 2005, Mr. Loeb was a portfolio manager for Chesapeake Partners. From January 2002 through December 2004, Mr. Loeb was a Managing Director of Jefferies & Company, Inc., an investment banking firm which is based in New York City. From 1994 through 2001, Mr. Loeb was a Managing Director of Dresdner Kleinwort and Wasserstein, Inc., an investment banking firm based in New York City which was formerly known as Wasserstein Perella & Co., Inc. Mr. Loeb also serves on the board of directors of American Pacific Corporation, a chemical and aerospace corporation and serves on the boards of numerous charitable organizations. Mr. Loeb holds a B.B.A. degree from Bernard M. Baruch College.
Nauman S. Toor is an independent director under the rules of the Amex. Mr. Toor has served as a Managing Director of Jefferies & Company, Inc., an investment banking firm which is based in New York City, since April 2001. As of December 31, 2006, 2007, Mr. Toor recently left Jefferies to form his own registered investment advisory firm. Mr. Toor started his career in investment banking with Kidder Peabody & Company in New York in 1990 and joined Jefferies & Company, Inc.’s investment banking group in 1994. Mr. Toor holds a Bachelor of Arts degree in economics from Ohio Wesleyan University and a Masters in Business Administration from Harvard Business School.
Committees
Audit Committee. The board of directors has established an audit committee to oversee our financial reporting process on behalf of the board of directors. Mr. Jones is the chairman of our audit committee. Our audit committee consists of Messrs. Wax, Reams, Jones, Toor and Loeb each of whom is independent under the rules of the American Stock Exchange (“Amex”). Each member of our audit committee also meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act of 1934, as amended. None of the members of our audit committee has participated in the preparation of our financial statements or those of our subsidiaries during the past three years, and all are able to read and understand fundamental financial statements. Our audit committee’s role is to select the independent public accountants, to review with the independent public accountants the plans and results of the audit engagement, to approve professional services provided by the independent public accountants, to review the independence of the independent public accountants, to consider the range of audit and non-audit fees and to review the adequacy of our company’s internal accounting controls. Our management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, our audit committee reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. Our audit committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America, their judgments as to the quality, not just
the acceptability, of our accounting principles and such other matters as are required to be discussed with our audit committee under generally accepted auditing standards. While financially literate under the applicable rules of the Amex, the members of our audit committee are not currently professionally engaged in the practices of accounting or auditing and are not all experts in the fields of accounting or auditing, including in respect of auditor independence. Members of our audit committee rely without independent verification on the information provided to them and on the representations made by management and our auditors, BDO Seidman, LLP. Accordingly, our audit committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Our audit committee’s reviews, considerations and discussions do not provide assurance that BDO Seidman’s audit of our financial statements was carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with accounting principles generally accepted in the United States of America or that our public accountants are in fact “independent.” Our audit committee operates pursuant to a written amended and restated charter approved by our board of directors.
Audit Committee Financial Expert. Our “audit committee financial expert,” as defined by the rules of the Securities and Exchange Commission, is Mr. Fred W. Reams. Mr. Reams qualifies as an independent director pursuant to the standards of the American Stock Exchange. In addition:
(i) Mr. Reams, who is an audit committee financial expert, will not be deemed expert for any purpose, including without limitation for purposes of section 11 of the Securities Act of 1933 (15 U.S.C. 77k), as a result of being designated or identified as an audit committee financial expert.
(ii) The designation or identification of Mr. Reams as an audit committee financial expert does not impose on him any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of our audit committee and board of directors in the absence of such designation or identification.
(iii) The designation or identification of Mr. Reams as an audit committee financial expert does not affect the duties, obligations or liability of any other member of our audit committee or board of directors.
Compensation Committee. The board of directors has established a compensation committee to determine compensation, including granting awards under our stock incentive plans, for our officers. However, we do not intend to make any further option awards to our executives or to any other person. The compensation committee consists of Messrs. Wax, Reams, Jones, Toor and Loeb each of whom is independent under the rules of the Amex. The chairman of the compensation committee is Mr. Wax.
Nominating Committee. The board of directors has established a nominating committee to nominate individuals for election to the board of directors. The nominating committee consists of Messrs. Wax, Reams, Jones, Toor and Loeb each of whom is independent under the rules of the Amex. The chairman of the nominating committee is Mr. Reams. The nominating committee does not have a charter.
Other Committees. The board of directors may, from time to time, form other committees as circumstances warrant. Any additional committees will have authority and responsibility as may be delegated by the board of directors, to the extent permitted by Maryland law. During 2001, the board had two such committees, the strategic alternatives working committee, comprised of Messrs. Blair and Wax, which was created to work with our financial advisor, and an independent committee, composed of the four independent directors, which was created to review and make a recommendation regarding the Legends transaction and agreement. During 2003 and 2004, these two committees did not meet. In December 2004, a special committee was created comprised of our three independent directors. This
special committee was created to assess and make recommendations regarding appropriate courses of action to pursue in connection with completing our plan of liquidation. This special committee did not meet during 2006, eleven times during 2005, and did not meet during 2004. However, in December 2006, the five independent directors, known as the independent committee, met one time to discuss matters concerning our preferred shareholder.
Criteria for Board Membership. In selecting candidates for appointment or re-election to our board of directors, our nominating committee considers the appropriate balance of experience, skills and characteristics required of our board of directors, and seeks to insure that at least a majority of our directors are independent under the rules of the Amex, that members of our audit committee meet the financial literacy and sophistication requirements under the rules of the Amex and that at least one of them qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission. Nominees for director are selected on the basis of their depth and breadth of experience, integrity, leadership, ability to make sound business judgments, ability to read and understand basic financial statements, understanding of our business environment, and willingness to devote adequate time to board duties. Other factors considered in evaluating nominees for director include whether the nominee will complement our board’s existing strengths, with particular emphasis placed on skills relating to our expected activities, including the efficient completion of our liquidation.
Directors and Officers Insurance
We maintain directors and officers liability insurance. Directors and officers liability insurance insures our officers and directors from claims arising out of an alleged wrongful act by such persons while acting as directors and officers of our company, and it insures our company to the extent that we have indemnified the directors and officers for such loss.
Indemnification
Our charter provides that we shall indemnify our officers and directors against certain liabilities to the fullest extent permitted under applicable law. The charter also provides that our directors and officers shall be exculpated from monetary damages to us to the fullest extent permitted under applicable law.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of our common stock, to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission and American Stock Exchange. Officers, directors and stockholders owning more than 10% of our common stock are required by SEC regulations to furnish us with copies of all reports filed pursuant to Section 16(a).
Based solely on review of copies of any Section 16(a) reports filed by or on behalf of our officers and directors or written representations that no such reports were required, we believe that during 2005 all of our officers and directors and stockholders owning greater than 10% of our common stock complied with all applicable Section 16(a) filing requirements.
Code of Ethics
We have a written Code of Ethics that applies to our chief executive officer and senior financial officers, including our chief financial officer and controller. The Code of Ethics being available on our website, www.golftrust.com, and we will provide a copy of the Code of Ethics, without charge, upon written request to Investor Relations, 10 N. Adger’s Wharf, Charleston SC 29401. If we change our Code of Ethics in any material respect or waive any provision of the Code of Ethics for any of our officers to whom it applies, we expect to provide the public with notice of any such change or waiver by publishing an
appropriate description of such event on our website or by other appropriate means as required or permitted under applicable rules of the SEC. We do not currently expect to make any such waivers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Objectives. We refer to our chief executive officer as our principal executive officer. Our chief financial officer and principal accounting officer was Mr. Scott D. Peters until February 5, 2007, the effective date of his resignation. Ms. Tracy S. Clifford, formerly our controller, was appointed our Principal Accounting Officer on February 6, 2007. The objectives of our compensation programs are to:
1. retain (to the extent necessary) and reward experienced, highly motivated principal officers who are capable of effectively leading the liquidation of our company pursuant to the plan of liquidation; and
2. reward and encourage principal officer activity that results in enhanced value for our stockholders pursuant to the plan of liquidation.
Elements of Compensation. Each element of compensation is designed to reward different performance goals, yet have the components work together to satisfy the ultimate goal of enhancing stockholder value in the context of the plan of liquidation. The elements of principal officer compensation are:
1. Base salary. Base salaries for our principal officers are established based on their performance of their basic job description and through the performance of assigned responsibilities. (See specific discussion regarding the base salary of our principal executive officer below); and
2. Cash bonuses. Cash bonuses reward the principal officers for commendable performance of specially designated tasks or outstanding performance of assigned responsibilities pertaining to the plan of liquidation exceeding the compensation committee’s expectations. These bonuses are discretionary and are not awarded based on a formula or a specific time frame other than the milestone bonuses that are paid pursuant to the terms of the employment agreements for our principal executive officer, W. Bradley Blair, II and former principal accounting officer, Scott D. Peters. (See further discussion below.)
3. Defined contribution plan. We have a 401(k) savings/retirement plan, which permits our eligible employees to defer up to 12% of their annual compensation, subject to certain limitations imposed by the Internal Revenue Code. The employees’ elective deferrals are immediately vested and nonforfeitable upon contribution to the 401(k) plan. We discontinued our discretionary contribution matching policy in July of 2001.
4. Other elements. We provide at our sole cost to each principal officer and their spouse and children health, dental and optical insurance. We also provide at our sole cost to each principal officer life and disability insurance. Our principal executive officer also receives an automobile allowance as disclosed in the footnotes to the Summary Compensation Table.
Base Salary. Based upon the assumption that a reduction in his duties would occur as the plan of liquidation progressed under Mr. Blair’s amended and restated employment agreement, effective April 1, 2004, Mr. Blair’s base salary was reduced 25%, then effective January 1, 2005, his base salary was reduced an additional 25%. Subsequent to that date, the only change in Mr. Blair’s base salary was an inflationary adjustment on January 1, 2006 based on the consumer price index pursuant to the terms of his amended employment agreement.
Cash Bonuses. Pursuant to the amended and restated employment agreements, the Mr. Blair’s and Mr. Peters’ right to performance bonuses and stock based awards terminated upon stockholder approval of the plan of liquidation. Instead, the amended and restated employment agreements provided for a retention bonus, which was paid when our board adopted the plan of liquidation, and two performance milestones to be paid if and when the remaining milestones were met. As described below, both milestones were met in mid-2003. The performance milestones are as follows:
· stockholder approval of the plan of liquidation (occurred on May 22, 2001);
· continued employment of Messrs. Blair and Peters with us for 12 months following board approval of the plan of liquidation (Mr. Peters resigned effective February 5, 2007); and
· repayment of all of our debt (occurred on June 19, 2003).
Our implementation of the plan of liquidation is still ongoing. Both milestone bonus payments became payable on June 19, 2003, the date on which all of our bank debt was repaid. We have made a portion of the milestone payments and we expect to pay the remainder in due course.
Following the disposition of our Sandpiper property in June of 2003 and the corresponding reduction in demands on Mr. Peters’ time, the compensation committee and Mr. Peters agreed upon a reduced time commitment and a reduced salary arrangement. Accordingly, a further amended and restated employment agreement with Mr. Peters was executed on August 29, 2003. Under this amended and restated employment agreement, Mr. Peters was expected to devote a substantially reduced number of hours per calendar quarter to our Company. Correspondingly, we paid him a salary of $12,000 per quarter. To the extent that we required more of Mr. Peters’ time, we paid him on an hourly basis, up to a capped amount per diem. This arrangement was extended by mutual agreement until April 30, 2007; however, Mr. Peters resigned prior to its termination effective February 5, 2007 due to his commitments to another employer. The balance of Mr. Peters’ remaining milestone payment of $82,615 plus accrued interest and remains due and payable by us.
In anticipation of the reduction of our asset base, the conclusion of the Innisbrook Resort and Golf Club settlement negotiations, our assumption of the ownership of the Innisbrook Resort and Golf Club and the assumption that there would be a corresponding reduction in demands on Mr. Blair’s time, this compensation committee negotiated a reduced time commitment and a reduced salary arrangement, as noted above under the caption “Base Salary” with Mr. Blair. Accordingly, a further amended and restated employment agreement with Mr. Blair was executed on March 22, 2004. Under this amended and restated employment agreement, Mr. Blair was expected to devote a reduced number of hours per calendar quarter to our Company. Correspondingly, we agreed to pay him an annual salary (plus an annual inflationary adjustment based on the consumer price index) of $286,241 for 2004 (effective April 1, 2004), $190,827 for 2005 and $190,827 for each subsequent year.
On February 9, 2001, in connection with our plan of liquidation we entered into a “stay” arrangement with Tracy S. Clifford which provided for fifteen months of severance equivalent to her then annual salary and health benefits upon a change of control created by our Board of Directors’ adoption of our plan of liquidation. This arrangement was amended on January 1, 2005 to extend the severance term from fifteen to eighteen months. Ms. Clifford’s base salary was not adjusted upon her appointment as our principal accounting officer. Ms. Clifford is not subject to any other employment agreements.
Because Mr. Blair’s right to receive his milestone performance bonus is vested and payable, we face the risk that he might resign, even though the plan of liquidation has not yet been completed. The resignation or incapacitation of Mr. Blair poses a relatively greater risk at this time in light of Mr. Peters’ resignation. If Mr. Blair were to resign, we would be required to hire a replacement. Our cost to hire a replacement would likely depend upon the experience and skills required of such an individual in light of our financial condition, our assets remaining to be liquidated, and the complexity of any issues bearing on
us and our liquidation at that time. This compensation committee will from time to time evaluate the means of retaining our remaining principal executive and the three remaining corporate employees, including our principal accounting officer.
Summary Compensation Table
As of March 26, 2007, we currently have two executive officers, Mr. Blair and Ms. Clifford and one executive officer of our material subsidiary, GTA-IB LLC, Mr. R. Keith Wilt. The following table sets forth 2006, 2005 and 2004 annual and long-term compensation to our executive officers:
(1) Includes an annual car allowance of $12,000 and annual health and life insurance premiums and other reimbursements of $32,566 paid by us on behalf of Mr. Blair.
(2) Includes an annual car allowance of $12,000 and annual health and life insurance premiums and other reimbursements of $29,208 paid by us on behalf of Mr. Blair.
(3) Includes an annual car allowance of $12,000, annual health and life insurance premiums and other reimbursements of $20,318 paid by us on behalf of Mr. Blair and indebtedness of $1,150,000, plus accrued interest, that we canceled on March 22, 2004 as discussed below under the caption “Indebtedness of Management.”
(4) We entered into written employment agreements with W. Bradley Blair, II and Scott D. Peters at the time of our initial public offering. On February 25, 2001, in connection with our plan of liquidation, those employment agreements were amended and restated as discussed under the caption “Employment Agreements.” Those employment agreements, as amended and restated, provide for payment to Messrs. Blair and Peters of bonuses upon the achievement of certain milestones. Performance milestone bonus amounts, which include accrued interest, were paid to Scott D. Peters in 2004 and 2006 as follows: (i) $191,649 to Mr. Peters on August 27, 2004; (ii) $191,794 to Mr. Peters on September 27, 2004; and (iii) $104,927 to Mr. Peters on September 29, 2006. The amounts remaining to be paid by us are $1,233,907, plus accrued interest, to Mr. Blair, and $82,615, plus accrued interest, to Mr. Peters. All conditions to payment of the amounts remaining to be paid to Messrs. Blair and Peters have been satisfied, and we reiterate that such payments will be made in due course without offset or any deduction. On October 1, 2003, interest began to accrue on the unpaid portion of Mr. Peters’ remaining earned milestone payment at 5% per annum. This interest continues to accrue.
(5) Includes annual health and life insurance premiums of $17,648 paid by us on behalf of Mr. Peters.
(6) Includes hourly compensation of $15,305 and annual health and life insurance premiums of $16,321 paid by us on behalf of or to Mr. Peters. The fourth amended and restated employment agreement for Mr. Peters, as amended, provides for quarterly compensation of $12,000 plus additional compensation at a rate of $150 per hour for hours worked in excess of eighty hours per quarter.
(7) Includes annual health and life insurance premiums of $15,265 paid by us on behalf of Mr. Peters.
(8) Includes annual health and life insurance premiums of $21,297, $18,900, $15,247 for the years ended December 31, 2006, 2005 and 2004, respectively, paid by us on behalf of Ms. Clifford.
(9) Mr. Peters resigned as our Chief Financial Officer, Senior Vice President and Secretary effective February 5, 2007. Ms. Clifford was appointed Principal Accounting Officer effective February 6, 2007 and was appointed Secretary on February 20, 2007.
(10) Includes accrued severance of $82,500 pursuant to the terms of a stay arrangement with Mr. Wilt dated March 31, 2006, in connection with our plan of liquidation. This stay arrangement provides for a severance payment to Mr. Wilt equivalent to nine months of his then current annual salary upon the termination of his employment following a sale of the Resort. Also, includes annual health and life insurance premiums and 401K contributions of $23,549 paid by us on behalf of Mr. Wilt.
(11) Includes an increase in accrued severance of $71,429 to reflect a salary increase effective January 1, 2005 and the change in the severance term from fifteen to eighteen months pursuant to the terms of the amended stay arrangement, with Tracy S. Clifford. On February 9, 2001, in connection with our plan of liquidation we entered into a stay arrangement with Tracy S. Clifford which provided for fifteen months of severance equivalent to her then annual salary and health benefits upon a change of control created by our Board of Directors’ adoption of our plan of liquidation. This stay arrangement was amended on January 1, 2005 to extend the severance term from fifteen to eighteen months.
(12) Bonuses are discretionary and are not calculated or paid according to a formula or specific time-frame or schedule.
(13) Includes annual health and life insurance premiums and 401K contributions of $23,549 and $20,541 for the years ended December 31, 2006 and 2005, respectively, and $8,973 for the period July 16, 2004 to December 31, 2004 paid by us on behalf of Mr. Wilt.
Indebtedness of Management
Pursuant to the terms of our then executive officers’ amended and restated employment agreements dated as of February 25, 2001, we made non-recourse loans of $1,595,000 to our executive officers ($1,150,000 to Mr. Blair and $445,000 to Mr. Peters) for the payment of personal income taxes arising from the acceleration of their restricted stock grants and the forgiveness of their outstanding debt to us as of such date. These loans were evidenced by promissory notes from the executives and secured by their total holdings at that time of 199,415 shares (143,790 of which were owned by Mr. Blair and 55,625 of which were owned by Mr. Peters) of our common stock valued at $8 per share at the time of the issuance of these loans. The outstanding balance of these loans at June 30, 2002, principal and interest, was $1,655,000. For the years ended December 31, 2004 and 2003, we recorded an allowance for doubtful accounts against this receivable in the aggregate amounts of $112,000 and $497,000, respectively, which approximated the difference in the pledged value of $8 per share and the computed value based on the net assets in liquidation at December 31, 2004 and 2003, respectively.
As a result of the letter agreement that we entered into with Mr. Blair on March 22, 2004, Mr. Blair agreed to, among other things, irrevocably assign to us the shares of our common stock which secure the above-mentioned $1,150,000 non-recourse loan previously made to Mr. Blair in exchange for our agreement to cancel such loan.
As a result of the letter agreement that we entered into with Mr. Peters on March 30, 2005, Mr. Peters agreed to, among other things, irrevocably assign to us the shares of our common stock which secure the above-mentioned $445,000 non-recourse loan previously made to Mr. Peters in exchange for our agreement to cancel such loan.
Grants of Plan-Based Awards
No grants of plan based awards have been made to our named officers so the Grants of Plan-Based Awards table has been omitted.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning the outstanding equity awards of each of the named executive officers as of December 31, 2006. The value of unexercised in-the-money options at December 29, 2006 (the last business day of the year) is based on a value of $1.47 per share, the prior closing price of our common stock on the Amex on December 29, 2006.
(1) The vesting of all of the granted stock options accelerated when our plan of liquidation was approved by our shareholders on May 22, 2001.
(2) Scott D. Peters served as our Chief Financial Officer, Senior Vice President, and Secretary from 1997 until his resignation effective February 5, 2007. All of Mr. Peters’ outstanding options expire one-year from the date of his resignation if they have not previously expired pursuant to their original expiration date at the time of issuance.
Option Exercises and Stock Vested in 2006
The following table shows that there were no option exercises and no stock vested during the fiscal year ended December 31, 2006 by any of our executive officers.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
We entered into written employment agreements with W. Bradley Blair, II and Scott D. Peters at the time of our initial public offering. Both agreements were since amended and restated. The amended and restated employment agreement of Mr. Blair was included as an exhibit to our current report on Form 8-K filed March 12, 2001. Mr. Blair’s employment agreement was amended further by that certain letter agreement included as exhibit 10.16.3 to our annual report on Form 10-K filed March 31, 2004. The employment agreement of Mr. Peters that was in effect on the date of his resignation was included as an
exhibit to our current report on Form 8-K, filed October 9, 2003. Mr. Peters’s employment agreement was amended further by certain letter agreements which we have filed with the Securities and Exchange Commission. The most recent of these letter agreements was executed on September 30, 2006 and included as an exhibit to the Report on Form 8-K that we filed on October 2, 2006. Mr. Peter’s current employment agreement, as amended, was to expire pursuant to its terms on April 30, 2007; however, he resigned for personal reasons effective February 5, 2007. The employment agreements of Messrs. Blair and Peters, as amended through September 30, 2006, include the following provisions:
Salary. The amended employment agreement for Mr. Blair previously provided for an annual base salary of $360,000, with automatic annual cost of living increases based on the increase, if any, in the consumer price index. We entered into a letter agreement with Mr. Blair on March 22, 2004 which provides for Mr. Blair to receive a reduced base salary from us as of April 1, 2004 in exchange for a corresponding reduction in the amount of time he is required to devote to us. As a result, effective April 1, 2004, Mr. Blair’s annual salary was adjusted to $286,241, or seventy-five percent of his current base salary of $381,654 for 2004. Effective January 1, 2005, Mr. Blair’s annual base salary was further reduced to $190,827.
The fourth amended and restated employment agreement for Mr. Peters, as amended, provided for quarterly compensation of $12,000 plus additional compensation at a rate of $150 per hour for hours worked in excess of eighty hours per quarter. Commencing October 1, 2003, interest is accruing on the unpaid portion of Mr. Peters’ remaining earned milestone payment at 5% per annum.
Bonuses. Under the employment agreements, as amended in 2001, the eligibility of our named executive officers for normal performance bonuses and stock based awards terminated upon the approval of the plan of liquidation by our stockholders. Upon such approval of the plan of liquidation, the applicable amended employment contracts provided for (i) retention bonuses and forgiveness of indebtedness and (ii) performance milestone bonuses, each as described below:
· Retention Bonuses and Forgiveness of Indebtedness. The retention bonuses were designed to recognize services rendered by the named executive officers (including, without limitation, services rendered in assisting in the creation of the plan of liquidation, negotiating the agreements with Legends and our Series A preferred stock holder, and seeking to achieve resolutions of various issues with our lenders). Pursuant to their amended and restated employment agreements, Messrs. Blair and Peters received retention bonuses of $1,233,907 and $660,921, respectively, on February 25, 2001. In addition, in recognition of their services and pursuant to their amended and restated employment agreements, their options and restricted stock awards immediately vested in full at that time. All of the options that became fully vested are at the present time “out of the money.” Pursuant to the terms of the named executive officers’ existing promissory notes, which were not modified, the debt owed to us by the named executive officers, or $2,163,738 for Mr. Blair and $683,118 for Mr. Peters, was automatically forgiven upon board of directors adoption of the plan of liquidation on February 25, 2001.
· Performance Milestone Bonuses. As a result of our achievement of all milestones set forth below, Messrs. Blair and Peters have earned and are entitled to payment of the additional cash performance milestone bonuses shown below:
* Plus interest from the date of stockholder approval of the plan of liquidation.
** Including debt of our operating partnership, but excluding routine trade creditor debt not yet due and excluding debt that we have agreed to keep outstanding for the benefit of limited partners.
Performance milestone bonus amounts, which include accrued interest, were paid to our named executives as follows: (i) $1,815,523 to Mr. Blair on June 19, 2003; (ii) $972,453 to Mr. Peters on June 19,2003; (iii) $184,227 to Mr. Peters on September 30, 2003; (iv) $191,649 to Mr. Peters on August 27, 2004; (v) $191,794 to Mr. Peters on September 27, 2004; and (vi) $104,927 to Mr. Peters on September 29, 2006. The amounts remaining to be paid by us are $1,233,907, plus accrued interest, to Mr. Blair and $82,615, plus accrued interest, to Mr. Peters. All conditions to payment of the amounts remaining to be paid to Messrs. Blair and Peters have been satisfied, and we reiterate that such payments will be made in due course.
Term. Pursuant to Mr. Blair’s amended and restated employment agreement, our board has the right, upon 45 days notice, to terminate him without good reason and without any obligation to pay further severance payments following the date on which the final milestone payment is made. Prior to such time, if we terminate Mr. Blair without “good reason” or if he resigns for “good cause” we would be required to make additional payments to him pursuant to his amended and restated employment agreement. We would have “good reason” to terminate a named executive officer’s employment if he engaged in gross negligence, willful misconduct, fraud or material breach of his employment agreement. Each named executive officer would have “good cause” to resign in the event of any material reduction in his compensation or benefits, material breach or material default by us under the applicable employment agreement or following a change in control of us. The additional payment at this point in time would be an amount equivalent to the earned but unpaid performance milestone bonus set forth above.
The fourth amended and restated employment agreement for Mr. Peters, had a fixed termination date of April 30, 2007, unless such date was extended by an additional amendment. This employment agreement also provided both us and Mr. Peters with earlier termination rights in certain circumstances. Mr. Peters exercised his early termination rights and resigned effective February 5, 2007 for personal reasons.
Extension of Non-Recourse Tax Loans Secured by Stock. Upon each non-cash benefit payment (i.e. , debt forgiveness and stock award acceleration) occurring concurrently with our board’s adoption of the plan of liquidation, our named executive officers incurred tax liability, but were unable to fund such liability by selling our common stock because of federal securities law restrictions and other concerns. Pursuant to their amended and restated employment agreements, we extended to each named executive officer a non-recourse loan in the amount necessary to cover such personal income tax liability. On the date it was made, each loan was secured by a number of shares of our stock with a then-current market value equal to the amount of the loan. Interest accrued at the applicable federal rate and was added to principal. Any distributions on the pledged shares prior to maturity were applied to loan service. Each named executive officer had the right, prior to maturity, if the loan was then over-secured, to sell the pledged stock on the open market, provided that the proceeds are first applied to outstanding principal and interest on the loan.
As a result of the letter agreement that we entered into with Mr. Blair on March 22, 2004, Mr. Blair agreed to irrevocably assign to us the shares of our common stock which secure the above-mentioned non-recourse loan previously made to Mr. Blair in the amount of $1,150,320 in exchange for our cancellation of such loan.
As a result of the letter agreement that we entered into with Mr. Peters on March 30, 2005, Mr. Peters agreed to irrevocably assign to us the shares of our common stock which secure the above-mentioned non-recourse loan previously made to Mr. Peters in the amount of $444,996 in exchange for our cancellation of such loan.
We entered into a revised stay arrangement with Tracy S. Clifford on February 9, 2001, in connection with our plan of liquidation. This stay arrangement as amended on January 1, 2005, provides for a severance payment to Ms. Clifford equivalent to eighteen months of her then current annual salary and health benefits upon a change of control created by our Board of Directors’ adoption of our plan of liquidation.
We entered into a stay arrangement with R. Keith Wilt on March 31, 2006, in connection with our plan of liquidation. This stay arrangement provides for a severance payment to Mr. Wilt equivalent to nine months of his then current annual salary upon the termination of his employment following a sale of the Resort.
Covenants Not to Compete
In Mr. Blair’s applicable amended and restated employment agreement, he has agreed not to engage in any competitive businesses. He also agreed not to compete directly with us or in a business similar to ours during his employment. However, Mr. Blair may continue to invest in certain residential real estate developments and resort operations.
Under Mr. Peters’ amended and restated employment agreement, he was required to devote substantially all of his full working time to our business only through September 30, 2003. However, while he remains employed by us, and for one year after his termination or resignation, Mr. Peters may not:
· compete directly with us in a similar business;
· compete directly or indirectly with us, our subsidiaries, partners, potential golf course buyers, potential buyers (and/or their affiliates), potential buyers of our preferred stock or debt (or any of their affiliates) with respect to any acquisition or development of any real estate project undertaken or being considered by any of such parties at any time during Mr. Peters’ employment with us;
· lend or allow his name or reputation to be used by or in connection with any business competitive with our company, our subsidiaries and/or partners; or
· intentionally interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between our company or our subsidiaries and/or partners, and any lessee, tenant, supplier, contractor, lender, employee or governmental agency or authority.
Notwithstanding the above limitations, Mr. Peters may be employed by a business that competes with us so long as he does not have direct or indirect responsibility for any interaction with, or analysis of, our company and is wholly screened-off from such interaction and analysis by the competitive business.
Change of Control Agreements
Mr. Blair’s amended and restated employment agreement provides that he will have “good cause” to resign upon a change of control and, in that case, all of his stock options and restricted stock would vest in full and he would be entitled to severance payments, minus the previously paid retention bonus and any milestone payments in connection with the plan of liquidation described above. The amended and restated employment agreements of our named executive officers provide that if any payment by or on behalf of our company or our operating partnership to either executive qualifies as an excess parachute payment under the tax code, we shall make additional payments in cash to the executive (so called gross-up payments) so that the executive is put in the same after-tax position as he would have been had no excise tax been imposed by the tax code.
Pension Benefits
We do not have any pension benefits.
Non Qualified Deferred Compensation
Compensation of Directors
We pay our independent directors fees for their services as directors. Independent directors receive annual compensation of $10,000, plus a fee of $1,000 for attendance at each meeting of the board of directors (whether in person or telephonically), and $500 for attending each committee meeting. Directors who are not independent directors are not paid any director fees. We reimburse directors for their reasonable and documented out-of-pocket travel expenses. Under our non-employee directors’ stock option plan, at the time of our initial public offering and on the first four anniversaries of our initial public offering, our three independent directors at that time received automatic annual grants of options to purchase 5,000 shares of our common stock at the stock’s fair market value on the date of grant. All grants to our independent directors were fully vested on the grant date and expire ten years from the date of grant. Upon the February 2001 grant, the shares available under our non-employee directors’ stock option plan were exhausted and no options have been granted to our independent directors since that time.
Directors who are also our officers are not separately compensated for their service as directors. Our non-employee directors earned the following aggregate amounts of compensation for 2006.
(1) W. Bradley Blair, II, the Company’s Executive Chairman of the Board and the Company’s President and Chief Executive Officer and Scott D. Peters, the Company’s Senior Vice President, Chief Financial Officer and Secretary (until February 5, 2007), are not included in this table as they are employees of the Company and thus receive no compensation for their services as directors. The compensation received by Messrs. Blair and Peters as employees of the Company are shown in the Summary Compensation Table.
(2) Jan H. Loeb and Nauman S. Toor joined our Board of Directors as of November 17, 2006.
(3) These directors own 25,000 shares of common stock issuable upon exercise of vested options, including:
· 5,000 vested shares at $21.00 issued on 2/6/97 and expiring on 2/5/07
· 5,000 vested shares at $29.00 issued on 2/6/98 and expiring on 2/5/08
· 5,000 vested shares at $24.50 issued on 2/6/99 and expiring on 2/5/09
· 5,000 vested shares at $17.938 issued on 2/6/00 and expiring on 2/5/10
· 5,000 vested shares at $7.85 issued on 2/6/01 and expiring on 2/5/11
(4) The Other Compensation to Mr. Loeb is for reimbursement of his legal fees incurred in his proxy bid to be elected to our Board of Directors.
Compensation Committee Interlocks and Insider Participation
During fiscal year 2006, our compensation committee members were Messrs. Reams, Jones and Wax until November 17, 2006 when Messrs. Loeb and Toor joined them on this committee upon their election to our Board of Directors. During fiscal year 2006, our compensation committee was comprised solely of directors who are independent under the rules of the American Stock Exchange.
None of the members of our compensation committee is presently or was at any time since our formation our officer, our employee or an officer or employee of any of our subsidiaries. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our compensation committee. None of the members of our compensation committee requires Item. 404 disclosure.
Report of the Compensation Committee on Executive Compensation
The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. The following report describes our executive officers’ compensation for the 2006 fiscal year, including the changes to the executives’ compensation arrangements implemented in connection with the plan of liquidation.
Compensation Committee Report
The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. The following report describes our executive officers’ compensation for the 2006 fiscal year, including the changes to the executives’ compensation arrangements implemented in connection with the plan of liquidation.
Our compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based upon the review and the discussions referred to in the preceding sentence, the Compensation Committee recommended that the disclosure under the heading Compensation Discussion and Analysis be included in our annual report on Form 10-K.
The Compensation Committee
Edward L. Wax
Fred W. Reams
Raymond V. Jones
Jan Loeb
Nauman S. Toor
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table describes, as of March 26, 2007, the beneficial ownership of common stock and common OP units held by (i) each of our directors and nominees, (ii) each of our executive officers, (iii) all of our directors and executive officers as a group and (iv) each person known to us to be the beneficial owner of 5% or more of our outstanding common stock. OP units represent limited partnership interests in Golf Trust of America, L.P., our operating partnership, and are convertible into shares of our common stock on a one-for-one basis. This table shows beneficial ownership in accordance with the rules of the Securities and Exchange Commission to include securities that a named person has the right to acquire within 60 days. Each person named in the table has sole voting and investment/disposition power with respect to all of the shares of common stock or OP units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. Unless otherwise noted, the address of each person in the table is c/o Golf Trust of America, Inc., 10 North Adger’s Wharf, Charleston, South Carolina 29401.
* Less than 1%
(1) Based on 7,317,163 common shares outstanding. In accordance with the rules of the Securities and Exchange Commission, each person’s percentage interest is calculated by dividing such person’s beneficially owned common shares by the sum of the total number of common shares outstanding plus the number of currently unissued common shares such person has the right to acquire (including upon exercise of vested options and upon conversion of preferred stock, but excluding upon conversion of the separately shown OP units) within 60 days of March 26, 2007.
(2) Mr. Blair’s beneficial ownership includes options to purchase 400,000 shares of common stock, all of which have vested and are exercisable as of March 26, 2007. None of these options were in the money as of March 26, 2007.
(3) Mr. Peters’ beneficial ownership includes options to purchase 225,000 shares of common stock, all of which have vested and are exercisable as of March 26, 2007. None of these options were in the money as of March 26, 2007.
(4) Includes options to purchase 20,000 shares of our common stock all of which are vested and are exercisable as of March 26, 2007. None of these options were in the money as of March 26, 2007.
(5) Mr. Loeb’s business address is 10451 Mill Run Circle, Owings Mills, Maryland 21117. Mr. Loeb reports that he has sole power to vote or to direct the vote of 806,100 shares, shared power to vote or to direct the vote of 38,000 shares, sole power to dispose or to direct the disposition of 806,100 shares
and shared power to dispose or to direct the disposition of 38,000 shares. Information about Mr. Loeb is included in reliance on the Schedule 13D/A filed with the SEC on October 13, 2006.
(6) Amounts shown for AEW Capital Management, L.P. include 800,000 shares of our company’s Series A convertible cumulative preferred stock held by its affiliate AEW Targeted Securities Fund, L.P., which shares are convertible into an aggregate of 761,904 shares of our company’s common stock. AEW Capital Management, L.P. reports that it has the sole power to vote or direct the vote of 761,904 shares and the sole power to dispose of or direct the disposition of 761,904 shares. The address for these entities is c/o AEW Capital Management, Inc., World Trade Center East, Two Seaport Lane, Boston, MA 02210. Information about AEW Capital Management, L.P. is included in reliance on its Schedule 13D filed with the SEC on May 13, 2005.
(7) Mr. Gottlieb’s business address is 27 Misty Brook Lane, New Fairfield, Connecticut 06812. Mr. Gottlieb reports that he has sole power to vote or to direct the vote of 666,300 shares, shared power to vote or to direct the vote of 666,300 shares, sole power to dispose or to direct the disposition of 666,300 shares and shared power to dispose or to direct the disposition of 666,300 shares. Information about Mr. Gottlieb is included in reliance on the Schedule 13G/A filed with the SEC on December 1, 2006.
(8) Merrill Lynch Pierce, Fenner & Smith, Inc.’s address is 4 World Financial Center, New York, NY 10080. Merrill Lynch Pierce, Fenner & Smith, Inc.’s reports that it has sole power to vote or to direct the vote of 370,000 shares, shared power to vote or to direct the vote of 0 shares, sole power to dispose or to direct the disposition of 370,000 shares and shared power to dispose or to direct the disposition of 0 shares. Information about Merrill Lynch Pierce, Fenner & Smith, Inc. is included in reliance on the Schedule 13G filed with the SEC on February 13, 2006.
(9) Includes options to purchase 1,000,000 shares of common stock, all of which have vested and are exercisable as of Marcy 26, 2007. None of these options were in the money as of March 26, 2007.
Securities Authorized for Issuance under Equity Compensation Plans
The following table presents summary information about our equity compensation plans, including our stock option plans and any individual stock option arrangements not arising under any plan. We submitted all of our stock option plans for stockholders’ approval. The table presents the following data on our plans as of the close of business on December 31, 2006:
· the aggregate number of shares of our common stock subject to outstanding stock options;
· the weighted-average exercise price of those outstanding stock options; and
· the number of shares that remain available for future option grants.
For additional information regarding our stock option plans and the accounting effects of our stock-based compensation, please see Note 11 of our Notes to Financial Statements.
Equity Compensation Plan Information
Our employee stock purchase plan terminated as of the stockholders’ approval of the plan of liquidation on May 22, 2001.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table shows the fees paid or accrued by us for audit and other services provided by BDO Seidman, LLP for fiscal years 2006 and 2005.
(1) Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements and audit services provided in connection with other statutory or regulatory filings. For 2006 and 2005, the total audit fees include $167,376 and $246,012, respectively, in fees incurred for the audit of our wholly-owned subsidiary, GTA-IB, LLC, the entity that owns the Resort.
(2) Audit-related fees consisted primarily of accounting consultations related to the Resort.
(3) For fiscal 2006 and 2005, respectively, tax fees principally included tax compliance fees of $33,566 and $44,511, and tax advice and tax planning fees of $-0- and $8,227.
Our audit committee is required to pre-approve the audit and non-audit services performed by the independent auditor for us in order to assure that the provision of such services do not impair the auditor’s independence. Prior to the beginning of our fiscal year, our audit committee typically pre-approves certain general audit and non-audit services up to specified cost levels. Any audit or non-audit services that are not generally pre-approved in this manner, require specific pre-approval by our audit committee. While our audit committee may delegate pre-approval authority to one or more of its members, the member or members to whom such authority is delegated must report any pre-approval decisions to our audit committee at its next scheduled meeting. Our audit committee does not delegate its responsibilities to pre-approve services performed by the independent auditor to management.
All of the services described in Items 9(e)(2) through 9(e)(4) of Schedule 14A were approved by our audit committee pursuant to paragraph c(7)(i)(C) of Rule 2-01 of Regulation S-X.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules
The financial statements and schedules filed as part of this annual report on Form 10-K are listed on page 81, which is incorporated herein by reference.
Exhibits
The exhibits filed as part of this annual report on Form 10-K are listed in the Exhibit Index, which is incorporated herein by reference.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors and Stockholders
Golf Trust of America, Inc.
We have audited the accompanying consolidated statements of net assets (liquidation basis) of Golf Trust of America, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of changes in net assets and cash flows (liquidation basis) for the years ended December 31, 2006, 2005 and 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 net assets (liquidation basis) of Golf Trust of America, Inc. and subsidiaries at December 31, 2006 and 2005, and the changes in their net assets and cash flows for the years ended December 31, 2006, 2005 and 2004 (liquidation basis), in conformity with accounting principles generally accepted in the United States of America applied on the liquidation basis.
Charlotte, North Carolina
BDO Seidman, LLP
March 30, 2007
GOLF TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF NET ASSETS AS OF DECEMBER 31, 2006 AND 2005
(LIQUIDATION BASIS)
(in thousands)
See accompanying notes to consolidated financial statements.
GOLF TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands)
See accompanying notes to consolidated financial statements.
GOLF TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (LIQUIDATION BASIS)
(in thousands)
See accompanying notes to consolidated financial statements.
GOLF TRUST OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Plan of Liquidation and the Participating Mortgage
On February 25, 2001 our board of directors adopted, and on May 22, 2001 our common and preferred stockholders approved, a plan of liquidation for us. The plan of liquidation contemplates the sale of all of our assets and the payment of, or provision for, our liabilities and expenses, and authorizes us to establish a reserve to fund our contingent liabilities. As of March 26, 2007, we had sold 41 of the 47 (eighteen-hole equivalent) golf courses in which we once held interests pursuant to the plan of liquidation.
In March 2002, as a result of the conditions in the golf industry at that time, we retained an independent financial advisor, Houlihan Lokey, to advise us on strategic alternatives available to us in furtherance of our efforts to seek to enhance stockholder value under our plan of liquidation. In connection with this engagement, Houlihan Lokey reviewed: (i) our corporate strategy; (ii) various possible strategic alternatives available to us with a view towards determining the best approach of maximizing stockholder value in the context of our existing plan of liquidation; and (iii) other strategic alternatives independent of the plan of liquidation. Following receipt of Houlihan Lokey’s report on March 15, 2002, and after consideration of other relevant facts and circumstances then available to us, our board of directors unanimously voted to proceed with our plan of liquidation without modification. In February 2003, we, at the direction of our board, again engaged Houlihan Lokey to assist us in updating our projected range of liquidating distributions in light of the actual sale prices we had obtained during the prior year and other relevant factors. Following receipt of Houlihan Lokey’s updated report on March 18, 2003, and after consideration of other relevant facts and circumstances then available to us, our board of directors unanimously reaffirmed its decision to proceed with our plan of liquidation without modification. As a result, we valued the participating mortgage on our balance sheet based on our estimate of the resale value of the Resort at the conclusion of the holding period.
During 1997, our operating partnership closed and funded an aggregate $78.95 million participating mortgage to Golf Host Resorts, Inc. (“GHR”), an entity affiliated with Starwood Capital Group LLC. The participating loan was secured by the Innisbrook Resort and Golf Club (the “Resort”), a 72-hole destination golf and conference facility located near Tampa, Florida. GHR became delinquent in its payments of interest in late 2001 following the terrorist attacks of September 11, 2001. Upon the default, we began seeking a negotiated foreclosure or settlement with our former borrower.
At June 30, 2003, we carried the participating mortgage on our books at $60.0 million, based on the assumption that we would take ownership of the Resort, that the Resort’s operations would begin to recover in 2004 and that by the end of the 2005 holding period the Resort would have realized a modest recovery generally in line with historical results (among other assumptions). At September 30, 2003, we wrote down the value of the participating mortgage from a value of $60.0 million to $44.24 million.
On July 15, 2004, we entered into a Settlement Agreement (the “Settlement Agreement”) with GTA-IB, LLC (“GTA-IB”), our former borrower (Golf Host Resorts, Inc., or “GHR”), Golf Hosts, Inc., Golf Host Management, Inc., Golf Host Condominium, Inc. and Golf Host Condominium, LLC, and took control of the Resort. As part of the process of allocating the settlement amount (as derived from our valuation of the Resort, the “Settlement Amount”) of the Resort and related entities acquired, we had to reevaluate our carrying value of the Resort at June 30, 2004 to determine if it was representative of the Resort’s fair value as a business enterprise. After we received and reviewed the 2005 budget from Westin Management Company South, or Westin, the Resort manager, and attended the 2005 budget review meeting with Westin and Troon Golf LLC, or Troon, the Resort golf operations manager, we determined that while the budget did reflect that the Resort was expected to realize a modest recovery from the depressed performance of 2003 and 2004 (attributed in part to two significant group cancellations and the hurricane weather in Florida), the Resort is burdened by several significant liabilities which will
decrease the net proceeds available for our stockholders upon the sale of the Resort. Based on a review of the facts and circumstances at this time, we determined that a write-down of $5.0 million in the value of the Resort to $39.24 million was necessary to appropriately reflect our estimate of the net proceeds available to stockholders upon a sale of the Resort.
The Company’s former borrower also entered into an agreement with Troon, which provided that Troon would manage the golf courses, and an amended management agreement, or Management Agreement, with Westin Management Company South, or Westin, which provided that Westin would manage the condominium unit Rental Pool and the conference facilities.
The Company had previously entered into an agreement with the former borrower and the prospective purchaser of a parcel of undeveloped land within the Resort known as Parcel F. This agreement, known as the Parcel F Development Agreement, was executed on March 29, 2004 and held in escrow pending the closing of the transactions contemplated by the Settlement Agreement. The Parcel F Development Agreement provides for the terms and conditions under which Parcel F may be developed including restrictions to avoid interference with the operations of the Resort. The Company also entered into an agreement, known as the Defense and Escrow Agreement, with its former borrower that outlined the distribution allocation of the proceeds from the sale of Parcel F.
As a result of the settlement, the financial results of GTA-IB, our wholly owned subsidiary that now holds title to the Resort, are consolidated in the Company’s financial statements commencing July 16, 2004. GTA-IB recorded its interest in Parcel F at approximately $2,200,000 on July 16, 2004. See further discussion below regarding an increase in the estimated proceeds of the Company’s interest in Parcel F.
The settlement was accounted for using methods consistent with purchase accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business Combinations.” The settlement amount was allocated to the net assets acquired, including the liabilities assumed as of July 15, 2004, based upon their estimated fair values as of that date. The settlement amount was allocated (in thousands) as follows:
Operations of the acquired Resort and related entity (Golf Host Securities) are included in the consolidated financial statements from the date of settlement. The following sets forth pro forma consolidated financial information as if the settlement had taken place at the beginning of the earliest period presented (in thousands).
On January 21, 2005, we engaged Houlihan Lokey as our then financial advisor for an initial term of nine months to provide financial advisory services to us in furtherance of our stockholder-approved plan of liquidation. Our liquidation may occur through the sale of our assets, merger or otherwise in order to allow us to maximize value to our stockholders. In addition, subject to appropriate approvals, we may pursue a recapitalization. At the end of the initial term, if the Special Committee was actively considering a specific proposed transaction, or a specific proposed transaction is in the process of being consummated, then the initial term shall be automatically extended on a month-to-month basis until the earlier to occur of either the consummation of that transaction or termination or failure thereof. The engagement was extended on a month-to-month basis until June 29, 2006. Since an exit transaction had not occurred by June 29, 2006,
the Company terminated the engagement with Houlihan Lokey. The tail period following the termination of the engagement during which Houlihan Lokey might still have been due a transaction fee expired on February 28, 2007; therefore, no obligation for financial advisor fees currently exists. The Company continues to market the Resort for sale.
The net investment in the Company’s subsidiary, GTA-IB, LLC, that was recorded at $39.24 million at the date of acquisition had been reduced in the normal course of operations by a cumulative net operating loss to a carrying value of $38.821 million at December 31, 2005, prior to the year-end write-down. Based on market indications of interest obtained in the Resort sales process, the combined estimate of the Resort’s resale value as a going concern and the Company’s interest in Parcel F at December 31, 2005 was $36.4 million. Therefore, the Company recorded a write-down to the carrying value of the business of the Resort of $2.421 million at December 31, 2005. Pursuant to the terms of an amendment to the purchase and sale agreement between GHR and the purchaser of Parcel F executed in December 2006 which eliminated certain purchase price reductions, the Company wrote up the estimated fair value of its interest in Parcel F by approximately $1,410,000 resulting in an adjusted combined estimate of the Resort’s resale value of $37.9 million as of December 31, 2006. The Company faces the risk that our efforts to preserve the value of the Resort might be unsuccessful and, therefore, that we might ultimately sell our interest in the Resort for less than our current estimates of its fair value. Finally, it is possible that at some future date our assessment of the Resort’s fair value may change, and the asset may be written-down further.
2. Organization and Basis of Presentation
We were incorporated in Maryland on November 8, 1996. We were originally formed to be a real estate investment trust, or REIT, however, as of fiscal year 2002 we no longer have our REIT status as a result of our repossession and operation of golf courses following the default of their original third-party lessees. On January 30, 2003, we sold our last property that was under a participating lease. As of March 26, 2007, we own two properties which represent six golf courses. The Resort (4.0 golf courses) was managed by Westin Management South until October 31, 2006 when the Westin Management Agreement was terminated by mutual agreement and the Company assumed management of the Resort. The four golf courses at the Resort are managed by Troon. The Company and Troon have a ten-day rolling right from November 30, 2006 to terminate the facility management agreement pursuant to which Troon manages the golf facilities of the Resort. See Note 15 Subsequent Events for further discussion.
Prior to July 15, 2004, the Resort served as collateral for a 30-year participating mortgage wherein the Company was the lender. Upon the execution of the Settlement Agreement with the Company’s former borrower on July 15, 2004, the Company obtained ownership of the Resort. The Company presently holds its two properties (6.0 golf courses) in fee simple. The six golf courses are located in Florida (4) and South Carolina (2). Title to the Company’s golf courses, except in the case of the Resort, is generally held by Golf Trust of America, L.P., a Delaware limited partnership. The Company refers to Golf Trust of America, L.P. as its “operating partnership” or “OP” and the Company refers to the operating partnership and ourselves (together with all subsidiaries) collectively as “we,” “us” or the “Company.” The title to the Resort is held by GTA-IB, LLC, a wholly owned subsidiary of Golf Trust of America, L.P. Through the Company’s wholly owned subsidiaries GTA GP, Inc. (“GTA GP”) and GTA LP, Inc. (“GTA LP”), the Company holds a 100 percent interest in our operating partnership as of December 31, 2006. GTA GP is the sole general partner of our operating partnership and owns a 0.2 percent interest therein. GTA LP is a limited partner in the operating partnership and owns a 99.8 percent interest therein. These percentages give effect to all outstanding preferred OP units on an as-converted basis. No OP units remain outstanding as of December 31, 2006.
Adjustments to Liquidation Basis of Accounting
As a result of our board of directors’ adoption of our plan of liquidation and approval of that plan by our stockholders, we adopted the liquidation basis of accounting for all periods subsequent to May 22, 2001. Accordingly, on May 22, 2001, our assets were adjusted to their estimated fair value and our liabilities, including estimated costs associated with implementing the plan of liquidation, were adjusted to their estimated settlement amounts. The valuation of real estate held for sale as of December 31, 2006 is based on estimates of sales values based on indications of interest from the marketplace, certain assumptions by management specifically applicable to each property, and on the property value ranges. The valuation of our other assets and liabilities under the liquidation basis of accounting are based on our management’s estimates as of December 31, 2006.
The changes in net assets in liquidation of approximately $83,000 for the year ended December 31, 2006 is comprised of (a) an increase in the carrying value of Tierra Del Sol to reflect the estimated gain on the sale of Tierra Del Sol of approximately $340,000 plus (b) the additional gain realized upon the actual closing of the sale of Tierra Del Sol of approximately $34,000, (c) the increase in the carrying value of our interest in Parcel F of approximately $1,410,000 to reflect the estimated financial benefit to us of a contract amendment executed between GHR and the purchaser of Parcel F, (d) the decrease in the estimated settlement amount of the Westin termination fee liability of approximately $79,000, (e) the discount realized in the assignment and termination of the Elk Funding note payable of approximately $122,000, (f) the reversal of the accrual for financial advisor fees of approximately $600,000 due to the expiration of the tail period and related fee obligations of the Houlihan Lokey engagement offset by (g) the redemption of the 35,794 operating partnership units discussed above for approximately $18,000, and an increase in the provision for (h) capital expenditures of approximately $69,000, (i) accounting and tax fees of approximately $285,000, (j) corporate operating costs of approximately $625,000, (k) directors and officers insurance premiums of approximately $240,000, and (l) legal fees of approximately $1,265,000 to be incurred in (A) the negotiation of an asset purchase agreement and contemplated consummation of the sale of the Resort, (B) litigating the proceedings to which we are currently a party and (C) the administrative conclusion of our plan of liquidation.
Reserve for Estimated Costs During the Period of Liquidation
Under the liquidation basis of accounting, the Company is required to estimate and accrue the costs associated with implementing and completing the plan of liquidation. These amounts can vary significantly due to, among other things, the timing and realized proceeds from golf course sales, the costs of retaining personnel and others to oversee the liquidation, including the costs of insurance, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with cessation of our operations. These costs are estimates and are expected to be paid out over the liquidation period. Since the Company obtained title to the Resort and are seeking to pursue an exit transaction, the Company has more information with which to make projections of certain liquidation costs expected to be incurred during the projected period required to complete the liquidation (i.e., exit transaction to be closed by June 30, 2007 and the corporate wind-up to be concluded by September 30, 2007). As a result, the Company has accrued the projected costs, including corporate overhead and specific liquidation costs of severance, financial advisors and other professional fees, and other miscellaneous wind-down costs, expected to be incurred during the projected period required to complete the liquidation of our remaining assets as contemplated. The Company has been in negotiations with AEW, the holder of all of the Company’s series A preferred stock, regarding the terms of a new agreement which will allow the Company to repurchase all of AEW’s series A preferred stock for a price of $20 million or less. As a result of the Company’s assumption that these negotiations will lead to an executed agreement, the Company has not recorded in its net assets for the year ended December 31, 2006 either (i) a liability of $12,522,000 for the accrual of preferred dividends payable for the period beginning July 1, 2001 to December 31, 2006 or
(ii) additional dividend accruals of $625,000 for each subsequent quarter through the date that the exit transaction is ultimately consummated and liquidation payments are made to AEW. Further, the carrying amount of the preferred stock remains at $20 million on the Company’s statement of net assets, consistent with the redemption amount in the prior letter agreement with AEW. In the event that either the Company is unable to reach an agreement with AEW, or the Company is unable to exercise any repurchase right and close the repurchase under any agreement the Company may reach with AEW, the Company may be required to pay AEW all or a portion of the preferred dividends for which the Company has not recorded a liability, reducing its liquidating distributions to holders of its common stock. These preferred dividends would reduce the net assets available to stockholders in liquidation, and, correspondingly, the estimated liquidation distribution per share. These projections could change materially based on the timing of any anticipated sale, the performance of the underlying assets, and change in the underlying assumptions of the cash flow amount projected. These accruals will be adjusted from time to time as projections and assumptions change.
The following is a summary of the changes in the Reserve for Estimated Costs During the Period of Liquidation:
Included in the accrued severance amounts above are performance milestone payments due to our executives pursuant to their amended and restated employment agreements. The accrued interest is reflected in accounts payable and other liabilities instead of the liquidation reserve. Performance milestone payments aggregating approximately $1,754,000 plus accrued interest will be paid in due course, however, there are no remaining conditions to such payment. Any severance payments otherwise payable by us under the amended and restated employment agreements will be reduced by the amount of all earlier performance milestone payments.
Since the Company is presenting liquidation basis financial statements that only reflect the changes in net assets in liquidation, the operating results of the Company are summarized and reflected in the table below:
3. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of GTA LP, Inc., our operating partnership and their wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash Equivalents
We consider all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Fair Value-Liquidation Basis
We adopted the liquidation basis of accounting upon the stockholder approval of our plan of liquidation on May 22, 2001. From this date forward, all assets and liabilities have been stated at their estimated fair value and estimated settlement amounts. The estimated fair value has been determined using available market information and appropriate valuation methodologies. However, considerable judgment 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 we 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.
Cash Risk Concentration
We have cash and cash equivalents in a financial institution which is insured by the Federal Deposit Insurance Corporation, or FDIC, for amounts up to $100,000 per institution. At December 31, 2006 and 2005, we had amounts in excess of FDIC limits. We limit our risk by placing our cash and cash equivalents in a high quality financial institution.
Property and Equipment
Substantially all of our long-lived assets have been deemed to be held for sale and, therefore, depreciation expense has not been recorded since September 30, 2000.
Accounts Receivable
Accounts receivable represents amounts due from Resort guests and golf course members and is net of allowances of approximately $26,000 and $15,000 for doubtful accounts at December 31, 2006 and 2005, respectively. Groups with prior direct bill positive history with the Resort are granted credit for billing. With respect to extending credit to Resort groups, if a group has not been to the Resort within the past two years, an updated credit evaluation is conducted. The Resort requires a deposit of approximately 25% of the total estimated contracted revenue. Additional deposits may be required depending on the outcome of the credit evaluation. Terms are negotiable by group contract but are typically 30 days from receipt of bill.
Management reviews accounts receivable monthly to determine if any receivables are uncollectible. Any receivable considered to be uncollectible is included in the allowance for doubtful accounts. After all attempts to collect the receivable have failed, the receivable is written off against the allowance.
Revenue Recognition
With respect to the golf courses that we are currently managing, 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. All initiation fees received are initially
recorded as deferred revenue and amortized over the average life of a membership which, based on historical information, is deemed to be (i) ten years for full golf memberships at the Resort and five years for resort, executive and tennis memberships at the Resort and (ii) nine years for all categories of memberships at Stonehenge.
Group cancellation fees are computed at the time of the cancellation pursuant to the terms of the respective contract and recorded as deferred revenue. When the cancellation fees are received, they are then recognized as revenue.
Leases
Leases which transfer substantially all of the benefits and risks of ownership of property are classified as capital leases. Assets and liabilities are recorded at amounts equal to the present value of the minimum lease payments at the beginning of the lease term. Interest expense relating to the lease liabilities is recorded to affect constant rates of interest over the terms of the leases.
Leases which do not transfer substantially all of the benefits and risks of ownership of property are classified as operating leases, and the related rentals are charged to expense as incurred.
Income Taxes
We provide for income taxes using the asset and liability method. Deferred tax assets or liabilities at the end of each period are determined using the enacted tax rates. Income tax expense will increase or decrease in the same period in which a change in tax rates is enacted. We record a valuation allowance against deferred tax assets when the weight of available evidence indicates it is more likely than not that the deferred tax asset will not be realized at its initially recorded value.
Use of estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, 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.
Advertising
The Company expenses advertising costs as incurred. Total advertising costs were $1,173,000, $998,000, and $409,000 for the years ended December 31, 2006, 2005, and 2004, respectively.
4. Dispositions
Golf Course Dispositions since January 1, 2004 through December 31, 2006 were as follows:
5. Operating Leases
In connection with the assumption of operations at the various golf courses, the Company assumes related operating leases on golf carts, maintenance equipment and vehicles. These lease agreements expire at various dates through December 2008. The Company also leases its corporate facilities under an operating agreement that expired in June 2006 and has been a month-to-month lease since its expiration. Total lease expense, excluding the lease expense for golf courses sold prior to December 31, 2006, was approximately $502,000, $586,000, and $432,000 for the years ended December 31, 2006, 2005 and 2004 respectively. Future minimum lease commitments under non-cancelable operating leases at December 31, 2006 are as follows:
6. Commitments and Contingencies
Land Use Lawsuits
On March 10, 2005 in the Circuit Court of the Sixth Judicial Circuit, in and for Pinellas County, Florida, Civil Division, we filed a Motion to Intervene in the lawsuit titled Innisbrook Condominium Association, Inc., C. Frank Wreath, Meredith P. Sauer, and Mark Banning, Plaintiffs (the “Plaintiffs”) vs. Pinellas County, Florida, Golf Host Resorts, Inc. and Innisbrook F LLC, Defendants (the “Defendants”), Case No. 043388CI-15. We refer to this lawsuit as the Initial Land Use Lawsuit. The Plaintiffs filed a multi-count complaint, or the Complaint, seeking injunctive and declaratory relief with respect to the land use and development rights of a tract of land within the Resort known as Parcel F. The Plaintiffs allege that there were no remaining development units (residential units) available to be developed within the Resort property. On March 29, 2005, we filed a Motion to Intervene as a defendant in the Initial Land Use Lawsuit in order to protect our property, and our land use and development rights with respect to Parcel F and our property. A hearing on the Motion to Intervene was held on April 4, 2005, after which the court granted our Motion to Intervene. On January 6, 2006, the court ruled in favor of all defendants and against all plaintiffs as to each count in both cases. Subsequent to the court’s oral rulings, defense counsel prepared a proposed final judgment which reflects the court’s factual findings and legal conclusions. On March 8, 2006, the court formally entered its final judgment on the record ruling in favor of the defendants on all counts and denying all claims asserted by the plaintiffs in both Land Use Lawsuits. On April 4, 2006, the plaintiffs in the consolidated cases filed a notice of appeal. See Note 15, Subsequent Events, for a recent update.
Wall Springs Conservatory, Inc. Complaint
On July 13, 2006, Wall Springs Conservatory, Inc., or Wall Springs, filed suit against GTA-IB as successor in interest to Golf Host Resorts, Inc. in the circuit court of Pinellas County for declaratory relief. On July 14, 2006, Wall Springs also filed suit against us in the small claims division of the Pinellas County Court in connection with an easement agreement. We answered both claims, also asserting affirmative defenses and counterclaims in each action. We then filed a motion to transfer the small claims matter to Circuit Court, which was granted on September 27, 2006. We then moved to consolidate these two cases. Our motion to consolidate was granted by the Circuit Court on March 1, 2007 and the parties are awaiting entry of the order.
Lake Ozark Industries, Inc. and Everett Holding Company, Inc. v. Golf Trust of America, et al.
This is an action initiated in the Circuit Court of Miller County, Missouri, by a contractor, Lake Ozark Construction Industries, Inc., or LOCI, and its asserted assignee of lien and account rights, Everett Holding Company, Inc., in the Fall of 1999 against numerous defendants, including Golf Trust of America, L.P. Plaintiffs assert LOCI performed construction services on, or that benefited, the property of various defendants, including Golf Trust of America, L.P. So far as the action concerns Golf Trust of America, L.P., plaintiffs seek to foreclose a mechanic’s lien upon property formerly owned by Golf Trust of America, L.P. The lien is for the principal amount of approximately $1,276,000, plus interest at 10% per annum and attorney fees. Plaintiffs calculate interest to May 20, 1999, just prior to the lien filing, to be approximately $151,000 and interest thereafter to be $354 per day. In April 2002 the Court granted the motion for summary judgment filed by the Company ruling that the plaintiffs’ claimed lien does not comply with requirements of the Missouri mechanic’s lien statute and is invalid. Since not all claims involved in this lawsuit were disposed of by that ruling, Plaintiffs’ time to appeal this ruling did not begin to run. In November 2003 the court entered a final judgment, and plaintiffs appealed the ruling in favor of the Company to the Missouri Court of Appeals. On November 9, 2004, the Company filed with the Court of Appeals a Motion to File Supplemental Brief, along with a copy of a Supplemental Brief. On April 5, 2005 the Court of Appeals reversed the Circuit Court judgment in favor of the Company and remanded the case to the Circuit Court for further proceedings. On April 20, 2005, the Company filed with the Court of Appeals a motion for rehearing and an alternative application to transfer the case to the Missouri Supreme Court. The Court of Appeals denied this motion and the transfer application on May 31, 2005. On May 31, 2005, the Court of Appeals also filed modified Opinion, which again reversed the Circuit Court judgment in favor of the Company and remanded the case to the Circuit Court for further proceedings. On June 15, 2005, the Company filed with the Missouri Supreme Court an application to transfer the case to that court. On August 30, 2005, the Missouri Supreme Court denied the application for transfer. The case was returned to the Circuit Court for trial on plaintiffs’ claim that LOCI performed construction services on, or that benefited, the property of various defendants, including the Company. A trial date has not yet been set. At this time, the Company is unable to assess the likely outcome of this litigation.
Ordinary Course 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. Since we are now the operator of our remaining golf courses we maintain insurance for these purposes. We are not currently subject to any material claims of this type.
Westin and Troon Management Fees
The July 15, 2004 Management Agreement between the Company’s subsidiary, GTA-IB, LLC, or “GTA-IB,” and Westin provided that Westin would manage the Resort for a fee equal to 2.2% of gross revenue of the Resort. Contemporaneously with the signing of this new Management Agreement, Westin and GTA-IB, for the limited purposes described in the Management Agreement, entered into a separate agreement with Troon which provided that Troon shall manage the golf facilities of the Resort for a fee, payable by GTA-IB, equal to 2% of gross golf revenue. These agreements also provided for the opportunity for Westin and Troon to earn supplemental fees based on financial performance metrics. The Management Agreement with Westin had a termination date of December 31, 2017, however, by mutual agreement, on September 28, 2006, the Company, Westin and GTA-IB entered a Termination and Release Agreement (the “Termination Agreement”), pursuant to which the Company, GTA-IB, and Westin agreed to terminate the Management Agreement as of October 31, 2006 (the “Termination Date”). In addition to the termination of the Management Agreement, the Termination Agreement provides that (i) on or prior to October 3, 2006, the Company will deposit $600,000 in the Resort’s
operating account (which the Company did) to be used in part to pay to Westin certain unpaid fees and charges which have accrued under the Management Agreement and which are expected to approximate this amount, (ii) on or prior to the earlier of March 31, 2008, or any sale of the Resort by the Company, the Company will pay to Westin the termination fee provided under Section 4.4.2 of the Management Agreement calculated as of the Termination Date, approximately $5,594,000, and (iii) Westin will permit the Company and GTA-IB to continue to access Westin’s “SAP” accounting system for the operation of the Resort for a period of three months after the Termination Date for a total charge of $6,000. The Company and GTA-IB plan to independently manage the Resort as of the Termination Date. The Company and Troon have a ten-day rolling right from November 30, 2006 to terminate the facility management agreement between the Company and Troon pursuant to which Troon manages the golf facilities of the Resort. See Note 15, Subsequent Events, for further discussion.
Refundable Initiation Fees
Certain membership initiation fees at the Country Club at Wildewood and Woodcreek (collectively known as Stonehenge) are refundable based on specific conditions. The estimated present value of the potential refunds over the thirty-year required membership term, as defined in the Club Membership Manual, is recorded as an accrued liability on our books at December 31, 2006 and is valued at $125,000. Additionally, certain initiation fees may be refundable prior to the expiration of the thirty-year term under specific membership replacement conditions. There is no liability recorded to consider the refundability of refunds issued under these conditions due to the fact that four new members have to join in the specific membership category for a resigned member to receive a refund. A refund issued under these specific circumstances would be considered a reduction of membership revenue for that period. All new initiation fees received are initially recorded as deferred revenue and amortized over the average life of a membership which, based on historical information, is deemed to be nine years.
7. Receivables-Net
Receivables-net consists of the following:
As of December 31, 2005, the note receivable represents the $2.5 million note the Company received from the buyer of the Eagle Ridge Inn & Resort and any accrued interest on that note, less a discount reserve of $200,000 (i.e., in the event that the borrower has not caused any uncured event of default to occur under the note up to its maturity date of February 1, 2007, the borrower shall have the right to reduce its payment obligations under the note by $200,000 plus any interest paid on that sum during the term of the note upon borrower’s payment of the balance of the note, subject to certain prepayment prohibitions). On August 23, 2006, pursuant to a mutually negotiated termination of pledge and security agreement, the Company accepted a discounted payoff of $2.0 million for the note receivable originally taken in connection with the sale of Eagle Ridge on January 30, 2003. Pursuant to the terms of the termination of pledge and security agreement, the Company redeemed 35,794 shares of the Company’s common stock that were pledged to the Company by the borrower pursuant to the note receivable. The shares were redeemed at the ten day trailing average price of $0.493 for a total redemption value of approximately $18,000. The remaining discount of approximately $236,000 ($300,000 net of deferred interest income of approximately $64,000) was recorded against the reserve for estimated costs during liquidation and is reflected in the other liquidation expense transfers and payments totaling approximately $614,000 for year ending December 31, 2006. See Note 3.
The other miscellaneous receivables at December 31, 2006 include approximately $2,892,000 of member, trade and other miscellaneous receivables of our managed golf courses, the Resort and its related entity Golf Host Securities, as compared to the other miscellaneous receivables at December 31, 2005, which include approximately $3,480,000 of member, trade and other miscellaneous receivables of our managed golf courses, the Resort and its related entity Golf Host Securities.
8. Debt
Revolving Line of Credit
On March 18, 2004, the Company entered into a loan agreement and related mortgage with Textron Financial Corporation, or Textron, for a revolving line of credit with a maximum permissible outstanding loan amount of $2,100,000. On August 4, 2005, the line was increased to $4,200,000 and the term was extended to March 18, 2009. This loan is collateralized by a security interest in the Company’s golf courses in Columbia, South Carolina, located at the Country Club at Wildewood and the Country Club at Woodcreek, collectively known as Stonehenge. The interest rate is the prime rate plus 1.75% per annum paid monthly. This loan requires that the operations at Stonehenge for the immediately preceding twelve month period be sufficient to meet a debt service coverage ratio, as defined in the mortgage of at least 1.20, as measured monthly. At September 30, 2006, the Company did not meet the debt service coverage ratio (in part due to the start-up costs of a new full-service fine dining restaurant that opened at Stonehenge on September 15, 2006); however, due to the fact that the Company has consistently paid our interest obligations throughout the term of the loan, Textron waived the covenant violation subject to re-evaluation at December 31, 2006. The Company was in compliance with the debt service coverage ratio covenant at December 31, 2006.
In certain instances, the loan may be assumed by a buyer of Stonehenge pursuant to assumption provisions in this loan amendment. The interest rate continues to be the prime rate (8.25% per annum at September 30, 2006) plus 1.75% per annum, paid monthly. The Company paid a one-time commitment fee to Textron of $42,000 to obtain the increase in this credit line. In addition, the Company will pay to Textron a fee of 0.25% per annum of the unused balance of this line of credit.
In connection with the execution of the Textron loan amendment, the Company, through its subsidiaries Stonehenge LLC and Golf Trust of America, L.P., collectively the Borrower, entered into a Notice of Future Advance, Note, Mortgage and Loan Modification Agreement with Textron, or the Amended Mortgage, modifying the March 2004 Mortgage, Security Agreement and Fixture Filing (as modified by the Amended Mortgage, the “Security Agreement”). The Security Agreement contains events of default provisions that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross defaults, bankruptcy and insolvency proceedings, termination, dissolution or liquidation of Stonehenge LLC of Golf Trust of America, L.P., failure to cure the loss of certain licenses, permits or contracts, curtailment of utilities or services at Stonehenge, and material judgments. In the event of the occurrence of an event of default, Textron is entitled to, among other things, accelerate all obligations of the Borrower under the aforesaid loan documents and sell certain of the Borrower’s assets, namely the Wildewood and Woodcreek golf courses and related assets, to satisfy the Borrower’s obligations.
Note Payable
In connection with the Settlement Agreement, Elk Funding, L.L.C., or Elk Funding, provided a $2,000,000 loan to the Company in the form of two promissory notes, known as Promissory Note A and Promissory Note B. Promissory Note B was repaid pursuant to it terms in September 2004 and Promissory Note A was satisfied in December 2006 as discussed below. Pursuant to the Company’s agreement with Elk Funding, these loans were to fund the Resort’s current working capital needs. Promissory Note A was a non-recourse loan in the original principal amount of $700,000, and the Company’s obligations under that note were collateralized by a security interest in the Company’s portion of the net proceeds from the ultimate sale of Parcel F. Interest accrued on the unpaid balance of Promissory Note A at a rate of prime plus 1%. On December 28, 2006, the Company entered into the First Amendment to the Defense and Escrow Agreement related to Parcel F. Pursuant to the terms of this Amendment, the Company assigned its right to $710,000 of the deposit proceeds from the purchaser of Parcel F to Elk Funding to satisfy Promissory Note A. As a result Elk Funding executed a Loan Satisfaction Agreement and Promissory Note A was cancelled. The Company realized a gain of approximately $122,000 on this transaction in accrued interest that was forgiven. This gain is reflected in the statements of changes in net assets as a decrease in the fair value of other obligations.
Capital Lease Obligations
At December 31, 2006, we had capital lease agreements for certain golf course and related equipment. These lease agreements expire at various dates through 2008.
9. Accounts Payable and Other Liabilities
Accounts payable and other liabilities consist of the following:
10. Investment in Subsidiary
Certain condensed balance sheet information of the Resort as of December 31, 2006 and 2005, adjusted for the liquidation basis of accounting, is provided below.
Master Lease Refurbishment Obligation
In connection with the Company taking control of the Resort from its unaffiliated borrower effective July 16, 2004, the Company recorded a liability to recognize its obligations under the Master Lease Agreement, or MLA, refurbishment program. This program entitles condominium owners who participate in the Rental Pool to 50% reimbursement of the refurbishment costs of their unit subject to the terms and conditions of the MLA. Interest on this liability is accrued at a rate of 5% and is paid quarterly. Principal payments began in the first quarter of 2005 and will be paid quarterly through the fourth quarter of 2009. In addition, the Company’s subsidiary, GTA IB, LLC, agreed to provide refurbishment reimbursement for units placed into the rental pool during 2005 at a level of 25% of the applicable condominium owner’s investment in the refurbishment. The Company refers to this program as Phase 5. Interest on the Phase 5 liability is accrued at a rate of 2.5% per annum and paid quarterly. Principal payments for Phase 5 begin in the first quarter of 2008 and will be paid quarterly through the fourth quarter of 2012. As of December 31, 2006, the Company estimates the settlement value of this liability upon sale of the Resort to be $4,254,000.
Minimum principal payments on the refurbishment program at the Resort are as follows:
Westin Termination Fee
The Management Agreement that the Company executed with Westin on July 15, 2004 provides that the Company shall pay to Westin, subject to the terms and conditions set forth in that agreement, a termination fee of not less than $5,500,000. The estimated settlement value of this liability upon sale of the Resort is approximately $5,594,000 as of December 31, 2006. The termination fee is due the earlier of a sale of the Resort or March 31, 2008. See Note 6 regarding the termination of the Management Agreement.
Troon Supplemental Fee
The facility management agreement that Westin executed with Troon was effective as of July 15, 2004. That agreement provides that the Company shall pay to Troon, subject to the terms and conditions set forth in that agreement, a supplemental fee of $800,000 for outstanding management fees originally payable to Troon prior to July 15, 2004. See Notes 4 and 14 for further discussion regarding the facility management agreement.
11. Preferred Stock
Series A Cumulative Convertible Redeemable Preferred Stock
On April 2, 1999, the Company completed a registered offering of 800,000 shares of 9.25% Series A Cumulative Convertible Preferred Stock, par value $0.01 per share, or series A preferred stock, at a price of $25.00 per share. All shares of this series A preferred stock were sold to AEW Targeted Securities Fund, L.P., or AEW. The series A preferred stock is convertible, in whole or in part, at the option of the holder at any time into the Company’s common stock at an implicit conversion price of $26.25 per share of common stock, subject to adjustment in certain circumstances. The Company contributed the net proceeds to the Company’s operating partnership in exchange for 800,000 series A preferred OP units with analogous terms.
Aggregate series A preferred stock dividends accrued until July 20, 2003 at a rate of $462,500 per quarter. Effective July 21, 2003, the rate increased to $625,000 per quarter (see further discussion of this increase below). As of December 31, 2006, the Company had not paid 21quarters of series A preferred stock dividends (including the dividend otherwise payable in respect of the quarter ended December 31, 2006). Under the Company’s series A charter document, because the Company has at least six quarters of unpaid Series A preferred stock dividends, the holder of the series A preferred stock, AEW or its transferee, has the right to elect two additional directors to the Company’s board of directors whose terms as directors would continue until the Company fully pays all accrued but unpaid series A dividends. This right went in to effect at the Company’s annual meeting that was held on November 17,2003 and although AEW has not exercised this right, it may do so in the future in accordance with the terms of the Company’s series A charter and the voting agreement.
On February 22, 2001, the Company entered into a voting agreement with AEW, which continues to hold all shares of the series A preferred stock. That agreement required AEW to vote in favor of the plan of liquidation and required the Company to redeem all of the shares of series A preferred stock (for $25 per share plus dividends accrued and unpaid thereon through the date of the final redemption payment) promptly after the Company determines in good faith that it has received sufficient net proceeds from the disposition of the Company’s assets and/or operations to redeem all of the series A preferred stock without violating any legal or contractual obligations.
Moreover, under the Company’s voting agreement with AEW, since the Company did not fully redeem the series A preferred stock by May 22, 2003, AEW or its transferee had the right to require the Company to redeem the series A preferred stock in full within 60 days thereafter, which right AEW exercised. Since the Company defaulted on that obligation, from July 21, 2003 until the series A preferred stock is redeemed, the stated dividend rate of the series A preferred stock increased from 9.25% to 12.50% per annum (equivalent to a quarterly dividend of $625,000). Although the Company is permitted to continue to accrue such dividends without paying the same on a current basis, the dividends must be paid in full prior to any distribution to the Company’s common stockholders (but after payment of all obligations to the Company’s creditors), which will reduce the Company’s cash available for liquidating distributions to common stockholders.
On May 6, 2005, the Company executed an option agreement with AEW which granted the Company the right to repurchase all 800,000 shares of the Company’s series A preferred stock held by AEW at a fixed price. AEW and the Company have entered into a series of agreements granting the Company the right to repurchase AEW’s series A preferred stock, each of which has expired by its terms. In particular, on April 12, 2006, the Company entered into a new option agreement with AEW. In this option agreement (now expired), AEW granted the Company the option, exercisable by the Company in its sole discretion, to purchase, on or before June 30, 2006, all 800,000 shares of the Company’s series A preferred stock held by AEW, including, without limitation, all of AEW’s rights to Liquidation Preferences (as defined in the Company’s Articles Supplementary, including, without limitation, Liquidation Preferences in respect of any accrued and unpaid dividends) payable in respect of such shares as of the Company’s exercise of the option for a price of $20,000,000. The option to repurchase AEW’s series A preferred stock was only exercisable in the event that the business of the Resort is purchased for cash consideration of no more than $35 million. This option agreement expired on June 30, 2006 pursuant to its terms.
The conclusion of the Company’s negotiations with AEW which will allow the Company to repurchase all of AEW’s series A preferred stock plus accrued dividends for a price of $20 million or less is pending evidence or confirmation that the Company has secured adequate financing to demonstrate its ability to close on the transaction to repurchase all of the series A preferred stock.
As a result of the Company’s assumption that these negotiations will lead to an executed agreement, the Company has not recorded in its net assets for the year ended December 31, 2006 either (i) a liability of $12,522,000 for the accrual of quarterly preferred dividends for the period July 1, 2001 to December 31, 2006 or (ii) additional dividend accruals of $625,000 for each subsequent quarter through the date that the exit transaction is ultimately consummated and liquidation payments are made to AEW. Further, the carrying amount of the preferred shares remains at $20 million on the accompanying statement of net assets; however, absent either an agreement by a third party to assume all or a portion of the Company’s accrued preferred dividend obligation or an agreement by AEW to forgive all or a portion of the Company’s preferred dividend obligations, (neither of which have occurred), the Company will be required to accrue, and ultimately pay in liquidating distributions to AEW, these preferred dividends. Any preferred dividends which the Company is required to pay to AEW ultimately would reduce the net assets available to stockholders in liquidation and correspondingly the estimated liquidation distribution per common share. If the Company were required to pay to AEW dividends accrued through December 31, 2006, the
Company’s liquidating distributions would be reduced by $1.73 per common share or OP unit of the Operating Partnership outstanding on that date.
At the present time, the Company has not executed a binding agreement with AEW. There can be no assurances that the Company will successfully execute such an agreement with AEW, or that the terms of any agreement that the Company may execute with AEW will not be more onerous to the Company than management currently anticipates. Further, even if the Company is able to execute an agreement with AEW which permits the Company to repurchase the series A preferred stock at $20 million or less, the Company may be unable to negotiate a financing arrangement through its existing lender relationships or otherwise procure sufficient funding to permit it to exercise that repurchase right and close the repurchase prior to its expiration. In the event that the Company executes an agreement with AEW and it is unable to repurchase AEW’s series A preferred stock in accordance with the terms of that agreement, in addition to the requirement that the Company pay accrued dividends to AEW, the Company expects that the agreement also would subject the Company to penalties or grant AEW additional rights with respect to the Company and its remaining assets which will be prejudicial to the Company and its assets.
12. Stock Options and Awards
Employee Stock Options and Awards
The compensation committee of the board of directors 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 became exercisable in three to five years. The company has several stock option/award plans as listed below. All issued options and restricted stock automatically vested on May 22, 2001, the approval of our plan of liquidation by our stockholders.
Compensation expense is determined by reference to the market value on the date of grant and is amortized on a straight-line basis over the vesting period. In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment, which was effective for interim and annual reporting periods beginning after December 15, 2006. SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. Since there were no outstanding unvested options at any time during 2006, and the Company does not anticipate issuing additional shares under these plans, the adoption of this Statement did not have a material impact on the consolidated financial statements of the Company and is not expected to have a material impact unless the Company grants share-based payment awards in the future.
Stock Option Plan Transactions
No option shares were granted to employees or exercised in 2006, 2005 or 2004. Mr. Blair’s and Mr. Peters’ unvested options accelerated upon board approval of the plan of liquidation on February 25, 2001 (as provided in their employment contracts). All unvested options previously granted to other
employees accelerated upon stockholder approval of the plan of liquidation on May 22, 2001 (as provided in section 6.2 of the New 1997 Employee Stock Option Plan and the 1998 Employee Stock Option Plan).
(1) As of December 31, 2006, these options had no intrinsic value.
13. Quarterly financial Information (Unaudited)
Summarized quarterly financial data is as follows (in thousands):
(1) Reversal of accrual of dividends pursuant to the AEW letter agreement. See Note 15 “Subsequent Events” for further discussion.
14. Income Taxes
The Company initially qualified as a real estate investment trust, commonly called a REIT, but the Company lost its REIT status in 2002. Under the tax code, once REIT status is lost, it generally may not be regained for the following four years. Accordingly, the Company will be subject to federal income tax on any net taxable income it earns (or net taxable gain it realizes) throughout the remainder of its liquidation.
During 2004, 2005 and 2006 the Company’s operations resulted in a net operating loss for income tax purposes. Therefore, no income tax will be due on its 2006, 2005 or 2004 operating revenues or its proceeds from 2004 and 2006 property sales. The Company did not have any property sales in 2005. Additionally, based on the Company’s current projections and the availability of its net operating loss carryovers, the Company does not anticipate that it will incur any federal income tax liability throughout its liquidation period. The Company’s actual results and tax liability could vary materially from its estimates. As a result, the Company could generate positive taxable income in future taxable years, which would likely cause the Company to incur federal and state income tax liabilities. Any tax liabilities will reduce the amount of cash available for liquidating distributions. Deferred income tax assets (liabilities) as of December 31, 2006 and 2005 are as follows:
Included in deferred tax assets as of December 31, 2006 above are federal and state net operating losses of $82,655,000 and $70,120,000, respectively. These net operating losses expire at various dates beginning with the 2021 tax year and ending with the 2026 tax year.
Also included in deferred tax assets above is a capital loss carryover of $45,071,000, which expires in 2009.
The provision for federal and state income taxes for the years ended December 31, 2006, 2005 and 2004 is made up of the following components:
Utilization of the deferred tax asset of $44,680,000 calculated above, is dependent on future taxable profits. Based on our current estimates through the remainder of our liquidation period, we do not anticipate generating future profits from which to benefit from the calculated deferred tax asset; accordingly, a valuation allowance for the entire amount has been recorded.
The effective income tax rate is different from the federal statutory rate for the years ended December 31, 2006 and 2005 for the following reasons:
The statutory rate reconciling percentages for 2006 are initiated primarily as a result of the nominal amount of pretax income to which the reconciling items are being compared. The state income expense for 2006 is higher than in prior years due to an adjustment of state net operating loss carryovers. The “Other” reconciling amount for 2006 is the result of an adjustment to the net fixed asset tax basis that did not have a corresponding impact on the net operating loss carryover.
In June 2006, the FASB issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 also provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to the opening balance of retained earnings. We estimate that the adoption of this standard will not have a material impact on the opening balance of retained earnings for 2007 and will have no impact to our cash flows.
15. Subsequent Events
Land Use Lawsuits
The Second District Court of Appeal head oral argument on February 14, 2007. The Appeal Court affirmed per curium, or by the whole court instead of just one judge, the Circuit Court judgment in favor of the Defendants on February 28, 2007 and denied the plaintiff-appellants’ motion for attorneys fees. On March 14, 2007, the plaintiff-appellants filed a motion requesting the Appeal Court to rehear their claims. The Appeal Court has not yet responded to this motion. See Note 6 for further discussion.
Termination of Facility Management Agreement with Troon
On February 22, 2007, the Company sent Troon a notice of termination in regards to the Facilities Management Agreement pursuant to which Troon manages the golf operations at the Resort. The Company and Troon are in the process of negotiating the terms and conditions of the termination which the Company expects to be effective upon the conclusion of the negotiations and the execution of a termination agreement. The Company intends to manage the golf operations internally following the termination of the Troon management agreement.
Financing
The Company is currently negotiating the terms of a three year non-revolving credit facility with a Tampa community bank for approximately $1,200,000. The proceeds of which would be used to finance renovations at the Resort restaurants, information technology infrastructure upgrades and other property improvements at the Resort and to cover short-term working capital shortfalls. The three condominium units that the Company owns at the Resort will serve as collateral for this loan. The Company is also seeking to obtain a revolving accounts receivable line of credit for at least $500,000. However, there can be no assurance that the Company will enter into this loan facility or that we will be able to obtain an accounts receivable credit line.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Directors and Stockholders
Golf Trust of America, Inc.
The audits referred to in our report dated March 30, 2007 relating to the consolidated financial statements of Golf Trust of America, Inc. and subsidiaries, which are contained in Item 8 of this Form 10-K, included the audit of the following Real Estate and Accumulated Depreciation financial statement schedule as of December 31, 2006. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based upon our audit.
In our opinion such financial statement schedule presents fairly, in all material respects, the information set forth therein.
/s/ BDO SEIDMAN, LLP
Charlotte, North Carolina
BDO Seidman, LLP
March 30, 2007
Schedule III
Golf Trust of America
Real Estate and Accumulated Depreciation
December 31, 2006
(in thousands)
(1) The balance of the Valuation Reserve, which was recorded to adjust golf course assets to estimated fair value, is approximately $4,553,000 at December 31, 2006.
(2) Depreciation expense has not been recorded since the fourth quarter of 2000 because subsequently all assets were deemed to be assets held for sale.
(3) The balance of intangible assets acquired in the acquisition of the Resort on July 15, 2004 is approximately $20,170,000 at December 31, 2006.
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charleston, State of South Carolina, on March 30, 2007.
Each of the undersigned officers and directors of Golf Trust of America, Inc. does hereby constitute and appoint W. Bradley Blair, II and Tracy S. Clifford, and each of them individually, his 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:
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 2006 (and are numbered in accordance with Item 601 of Regulation S-K). Items marked with an asterisk (*) are filed with this annual report.
No.
Description
2.1
Plan of Liquidation and Dissolution of Golf Trust of America, Inc., as approved by stockholders on May 22, 2001 and as currently in effect (previously filed as Exhibit 2.1 to our company’s Current Report on Form 8-K, filed May 30, 2001, and incorporated herein by reference).
3.1.1
Articles of Amendment and Restatement of Golf Trust of America, Inc., as filed with the State Department of Assessments and Taxation of Maryland on January 31, 1997, (previously filed as Exhibit 3.1A to our 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 Golf Trust of America, Inc., as filed with the State Department of Assessments and Taxation of Maryland on June 9, 1998 (previously filed as Exhibit 3.2B to our company’s Quarterly Report on Form 10-Q, filed August 14, 1998 and incorporated herein by reference).
3.1.3
Articles of Amendment of Golf Trust of America, Inc. dated May 22, 2001, as filed with the State Department of Assessments and Taxation of Maryland on May 25, 2001 (previously filed as Exhibit 3.1 to our company’s Current Report on Form 8-K, filed May 30, 2001, and incorporated herein by reference).
3.2.1
Articles Supplementary of Golf Trust of America, Inc. 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 our company’s Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference).
3.2.2
Articles Supplementary of Golf Trust of America, Inc. 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 our company’s Current Report on Form 8-K, filed August 30, 1999, and incorporated herein by reference).
3.3.1
Bylaws of Golf Trust of America, Inc., as amended and restated by the Board of Directors on February 16, 1998 (previously filed as Exhibit 3.2 to our company’s Quarterly Report on Form 10-Q, filed May 15, 1998 and incorporated herein by reference).
3.3.2
Bylaws of Golf Trust of America, Inc., as amended and restated by the Board of Directors on March 27, 2001 (previously filed as Exhibit 3.3 to our company’s Quarterly Report on Form 10-Q, filed May 15, 2001 and incorporated herein by reference).
3.3.3
Bylaws of Golf Trust of America, Inc., as amended and restated by the Board of Directors on August 20, 2001 and as currently in effect (except for the provision amended by the following exhibit 3.3.4) (previously filed as Exhibit 3.3 to our company’s Current Report on Form 8-K, filed August 30, 2001 and incorporated herein by reference).
3.3.4
Bylaws Amendment of Golf Trust of America, Inc., as adopted by the Board of Directors on February 9, 2004 (previously filed as Exhibit 3.3.4 to our company’s Annual Report on Form 10-K, filed March 30, 2004 and incorporated herein by reference).
3.3.5
Bylaws Amendment of Golf Trust of America, Inc., as adopted by the Board of Directors on January 5, 2005 and as currently in effect (previously filed as Exhibit 3.3.4 to our company’s Current Report on Form 8-K, filed January 10, 2005 and incorporated herein by reference).
3.3.6
Bylaws Amendment of Golf Trust of America, Inc., as adopted by the Board of Directors on March 8, 2006 and as currently in effect (previously filed as Exhibit 3.2 to our company’s Current Report on Form 8-K, filed March 13, 2006 and incorporated herein by reference).
4.1
Form of Share Certificate for Golf Trust of America, Inc. Common Stock (previously filed as Exhibit 4.3 to our company’s Current Report on Form 8-K, filed August 30, 1999, and incorporated herein by reference).
4.2
Form of Share Certificate for Golf Trust of America, Inc. Series A Preferred Stock (previously filed as Exhibit 3.2 to our 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 Golf Trust of America, Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent, dated August 24, 1999 (previously filed as Exhibit 4.1 to our company’s Current Report on Form 8-K, filed August 30, 1999, and incorporated herein by reference).
4.4
Voting Agreement, between Golf Trust of America, Inc. and the holder of all of its outstanding shares of Series A Preferred Stock, AEW Targeted Securities Fund, L.P., dated February 22, 2001 (previously filed as Exhibit 4.2 to our company’s Current Report on Form 8-K, filed March 12, 2001, and incorporated herein by reference).
4.5
Voting Agreement, by and among Golf Trust of America, Inc., Golf Trust of America, L.P., GTA GP, Inc. and the holders of operating partnership units named therein, dated as of February 14, 2001 (previously filed as Exhibit 4.3 to our company’s Current Report on Form 8-K, filed March 12, 2001, 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., dated February 12, 1997 (previously filed as Exhibit 10.1 to our 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 of Golf Trust of America, L.P., dated as of February 1, 1998 (previously filed as Exhibit 10.1.2 to our company’s Annual Report on Form 10-K, filed March 31, 1998, and incorporated herein by reference).
10.1.3
Second Amendment and Consent to the Partnership Agreement of Golf Trust of America, L.P., as amended, dated as of February 14, 2001 (previously filed as Exhibit 10.3 to our company’s Current Report on Form 8-K, filed March 12, 2001, and incorporated herein by reference).
10.1.4****
Exhibit A to the Partnership Agreement (Schedule of Partnership Interests) of Golf Trust of America, L.P., as revised through March 26, 2007.
10.1.5
Designation of Class B Common OP units of Golf Trust of America, L.P., 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 our company’s Annual Report on Form 10-K, filed March 31, 1998, and incorporated herein by reference).
10.1.6
Designation of Series A Preferred OP units of Golf Trust of America, L.P., dated April 2, 1999, which has been added to Exhibit D to the Partnership Agreement (previously filed as Exhibit 10.3 to our company’s Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference).
10.1.7
Designation of Series B Preferred OP units of Golf Trust of America, L.P., dated May 11, 1999, which has been added to Exhibit D to the Partnership Agreement (previously filed as Exhibit 10.1.6 to our company’s Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by reference).
10.1.8
Designation of Series C Preferred OP units of Golf Trust of America, L.P., dated July 28, 1999, which has been added to Exhibit D to the Partnership Agreement (previously filed as Exhibit 10.1.7 to our company’s Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by reference).
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 our 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 our 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 (previously filed as Exhibit 10.2.3 to our company’s Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by reference).
10.2.4
Second Amended and Restated Credit Agreement, dated as of July 25, 2001, by and among Golf Trust of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc., GTA LP, Inc., Sandpiper-Golf Trust, LLC, GTA Tierra Del Sol, LLC, and GTA Osage, LLC, as Guarantors, the Lenders referred to therein, and Bank of America, N.A., as Administrative Agent, First Union National Bank, as Syndication Agent, and Fleet National Bank, as Documentation Agent (previously filed as Exhibit 10.1 to our company’s Current Report on Form 8-K, filed August 1, 2001, and incorporated herein by reference).
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 (previously filed as Exhibit 10.3 to our company’s Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by reference).
10.4
Loan Agreement (the “participating mortgage”), 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 our company’s Current Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and incorporated herein by reference).
10.5
Form of Participating Lease Agreement (previously filed as Exhibit 10.2 to our company’s Registration Statement on Form S-11, filed January 15, 1997, and incorporated herein by reference).
10.6+
1997 Non-Employee Directors’ Plan of Golf Trust of America, Inc. (previously filed as Exhibit 10.7 to our 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 Incentive Plan (the “Original 1997 Plan”) of Golf Trust of America, Inc. (previously filed as Exhibit 10.6 to our 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).
10.8+
1997 Stock-Based Incentive Plan of Golf Trust of America, Inc. (the “New 1997 Plan”) (previously filed as Exhibit 10.3 to our 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 Nonqualified Stock Option Agreement for use under the New 1997 Plan (previously filed as Exhibit 10.4 to our company’s Quarterly Report on Form 10-Q (Commission File No. 000-22091), filed August 15, 1997, and incorporated herein by reference).
10.10+
Form of Employee Incentive Stock Option Agreement for use under the New 1997 Plan (previously filed as Exhibit 10.5 to our company’s Quarterly Report on Form 10-Q (Commission File No. 000-22091), filed August 15, 1997, and incorporated herein by reference).
10.11+
General Provisions Applicable to Restricted Stock Awards Granted Under the New 1997 Plan (previously filed as Exhibit 10.14 to our 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+
Form of Restricted Stock Award Agreement for use under the New 1997 Plan (previously filed as Exhibit 10.15 to our 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).
10.13+
1998 Stock-Based Incentive Plan of Golf Trust of America, Inc. (previously filed as Exhibit A to our company’s definitive proxy statement, dated April 1, 1999 and filed March 29, 1999, and incorporated herein by reference).
10.14+
Employee Stock Purchase Plan of Golf Trust of America, Inc. (previously filed as Exhibit 4.1 to our company’s Registration Statement on Form S-8 (Commission File No. 333-46659), filed February 20, 1998, and incorporated herein by reference).
10.15+
Subscription Agreement for use with the Employee Stock Purchase Plan (previously filed as Exhibit 4.2 to our company’s Registration Statement on Form S-8 (Commission File No. 333-46659), filed February 20, 1998, and incorporated herein by reference).
10.16.1+
First Amended and Restated Employment Agreement between Golf Trust of America, Inc. and W. Bradley Blair, II, dated November 7, 1999 (previously filed as Exhibit 10.15 to our company’s Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by reference).
10.16.2+
Second Amended and Restated Employment Agreement between Golf Trust of America, Inc. and W. Bradley Blair, II, dated as of February 25, 2001 (previously filed as Exhibit 10.4 to our company’s Current Report on Form 8-K, filed March 12, 2001, and incorporated herein by reference).
10.16.3+
Letter Agreement to the Second Amended and Restated Employment Agreement between Golf Trust of America, Inc. and W. Bradley Blair, II, dated as of March 22, 2004 (previously filed as Exhibit 10.16.3 to our company’s Annual Report on Form 10-K filed March 30, 2004, and incorporated herein by reference).
10.17.1+
Second Amended and Restated Employment Agreement between Golf Trust of America, Inc. and Scott D. Peters, dated November 7, 1999 (previously filed as Exhibit 10.16 to our company’s Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by reference).
10.17.2+
Third Amended and Restated Employment Agreement between Golf Trust of America, Inc. and Scott D. Peters, dated as of February 25, 2001 (previously filed as Exhibit 10.5 to our company’s Current Report on Form 8-K, filed March 12, 2001, and incorporated herein by reference).
10.17.3+
Fourth Amended and Restated Employment Agreement and related General Release between Golf Trust of America, Inc. and Scott D. Peters, dated as of August 29, 2003 (previously filed as Exhibits 10.1 and 10.2 to our company’s Current Report on Form 8-K, filed October 9, 2003, and incorporated herein by reference).
10.18
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 our company’s Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference).
10.19
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 our company’s Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by reference).
10.20.1
Purchase and Sale Agreement, between Golf Trust of America, L.P., as seller, and Legends Golf Holding, LLC, as buyer, dated as of February 14, 2001 (previously filed as Exhibit 10.1 to our company’s Current Report on Form 8-K, filed August 14, 2001, and incorporated herein by reference).
10.20.2
First Amendment to Purchase Agreement, Fifth Amendment to Lease Agreement (Bonaventure Golf Club) and Settlement Agreement by and among Golf Trust of America, L.P., Legends Golf Holding, LLC, Legends at Bonaventure, Inc., Larry Young and Danny Young, dated as of July 30, 2001 (previously filed as Exhibit 10.2 to our company’s Current Report on Form 8-K, filed August 14, 2001, and incorporated herein by reference).
10.21
Confidentiality and Standstill Letter Agreement between Golf Trust of America, Inc. and The Legends Group, dated as of February 14, 2001 (previously filed as Exhibit 10.2 to our company’s Current Report on Form 8-K, filed March 12, 2001, and incorporated herein by reference).
10.22.1
Loan Agreement, dated as of March 18, 2004, by and among GTA-Stonehenge, LLC, as Borrower, Golf Trust of America, L.P., as Guarantor, and Textron Financial Corporation as the Lender (previously filed as Exhibit 10.22.1 to our company’s Annual Report on Form 10-K filed March 30, 2004, and incorporated herein by reference).
10.22.2
Mortgage Security Agreement and Fixture Filing, dated as of March 18, 2004, from Golf Trust of America, L.P. in favor of Textron Financial Corporation (previously filed as Exhibit 10.22.2 to our company’s Annual Report on Form 10-K filed March 30, 2004, and incorporated herein by reference).
10.22.3
Amended and Restated Loan Agreement, dated as of August 4, 2005, by and among GTA-Stonehenge, LLC, as Borrower, Golf Trust of America, L.P., as Guarantor, and Textron Financial Corporation as the Lender (previously filed as Exhibit 10.22.3 to our company’s Current Report on Form 8-K, filed August 9, 2005, and incorporated herein by reference).
10.22.4
Notice of Future Advances, Note Mortgage, Security Agreement, and Fixture Filing, dated as of August 4, 2005, from Golf Trust of America, L.P. in favor of Textron Financial Corporation (previously filed as Exhibit 10.22.4 to our company’s Current Report on Form 8-K, filed August 9, 2005, and incorporated herein by reference).
10.23
Settlement Agreement dated July 15, 2004 by and among Golf Trust of America, L.P., GTA-IB, LLC, Golf Host Resorts, Inc., Golf Hosts, Inc., Golf Host Management, Inc., Golf Host Condominium, Inc. and Golf Host Condominium, LLC (previously filed as Exhibit 10.1 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.24
Defense and Escrow Agreement dated July 15, 2004 by and among Golf Host Resorts, Inc., GTA-IB, LLC, Golf Trust of America, L.P., Golf Trust of America, Inc. and Chicago Title Insurance Company (previously filed as Exhibit 10.2 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.24.2
First Amendment to Defense and Escrow Agreement dated December 28, 2006 by and among Golf Host Resorts, Inc., GTA-IB, LLC, Golf Trust of America, L.P., Golf Trust of America, Inc. and Chicago Title Insurance Company (previously filed as Exhibit 10.24.2 to our company’s Current Report on Form 8-K, filed January 4, 2007, and incorporated herein by reference).
10.25
Operational Benefits Agreement dated July 15, 2004 by and among Golf Host Resorts, Inc., Golf Hosts, Inc., GTA-IB, LLC, and Golf Trust of America, L.P. (previously filed as Exhibit 10.3 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.26
Management Agreement dated July 15, 2004 by and between Westin Management Company South and GTA-IB, LLC (previously filed as Exhibit 10.4 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.27
Assignment, Consent, Subordination and Nondisturbance Agreement dated July 15, 2004 by and among GTA-IB, LLC, Golf Trust of America, L.P. and Westin Management Company South (previously filed as Exhibit 10.5 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.28
Facility Management Agreement dated July 15, 2004 by and among Troon Golf L.L.C., Westin Management Company South and GTA-IB, LLC (previously filed as Exhibit 10.6 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.29
Loan Agreement dated July 15, 2004 by and between Golf Trust of America, L.P. and Elk Funding, L.L.C. and related Notes A and B (previously filed as Exhibit 10.7 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.29.2
Loan Satisfaction and Termination of Assignment of Defense and Escrow Agreement dated December 28, 2006 by and between Golf Trust of America, L.P. and Elk Funding, L.L.C. (previously filed as Exhibit 10.29.2 to our company’s Current Report on Form 8-K, January 4, 2007, and incorporated herein by reference).
10.30.1
Parcel F Development Agreement dated March 29, 2004 by and among Golf Hosts Resorts, Inc., Golf Trust of America, L.P. and Parcel F, LLC, formerly known as Innisbrook F, LLC, formerly known as Bayfair Innisbrook, L.L.C. (previously filed as Exhibit 10.1 to our company’s Current Report on Form 8-K, filed July 29, 2004, and incorporated herein by reference).
10.30.2
First Amendment to Parcel F Development Agreement by and among Golf Hosts Resorts, Inc., Golf Trust of America, L.P. and Parcel F, LLC (formerly known as Innisbrook F, LLC) (previously filed as Exhibit 10.30.2 to our company’s Quarterly Report on Form 10-Q, filed August 15, 2005, and incorporated herein by reference).
10.30.3
Second Amendment to Parcel F Development Agreement by and among Golf Hosts Resorts, LLC (formerly known as Golf Host Resorts, Inc.), Golf Trust of America, L.P., GTA-IB, LLC and Parcel F, LLC (formerly known as Innisbrook F, LLC) (previously filed as Exhibit 10.30.3 to our company’s Quarterly Report on Form 10-Q, filed August 15, 2005, and incorporated herein by reference).
10.31
Amendment to Loan Agreement between GTA-IB, LLC and Golf Trust of America, L.P. (previously filed as Exhibit 10.31 to our company’s Quarterly Report on Form 10-Q, filed November 22, 2004, and incorporated herein by reference).
10.32
Promissory Note issued by GTA-IB, LLC to Golf Trust of America, L.P. (previously filed as Exhibit 10.32 to our company’s Quarterly Report on Form 10-Q, filed November 22, 2004, and incorporated herein by reference).
10.33.1+
Letter Agreement, dated as of March 30, 2005, amending the fourth amended and restated employment agreement of Scott Peters (previously filed as Exhibit 10.33 to our company’s Annual Report on Form 10-K, filed March 30, 2005, and incorporated herein by reference.
10.33.2+
Letter Agreement, dated as of March 31, 2006, amending the fourth amended and restated employment agreement of Scott Peters (previously filed as Exhibit 10.35 to our company’s Current Report on Form 8-K, filed April 6, 2006, and incorporated herein by reference).
10.33.3+
Letter Agreement, dated as of September 29, 2006, amending the fourth amended and restated employment agreement of Scott Peters (previously filed as Exhibit 10.33.3 to our company’s Current Report on Form 8-K, filed October 2, 2006, and incorporated herein by reference).
10.34*
Letter Agreement, dated March 24, 2005, between our company and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.34 to our company’s Annual Report on Form 10-K filed March 30, 2005, and incorporated herein by reference).
10.35*
Option Agreement, dated May 6, 2005, between our company and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.35 to our company’s Current Report on Form 8-K filed May 9, 2005).
10.36*
Letter Agreement, dated November 11, 2005, between our company and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.37 to our company’s Quarterly Report on Form 10-Q filed November 14, 2005, and incorporated herein by reference).
10.37**
Option Agreement, dated April 12, 2006, between our company and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.37 to our company’s Annual Report on Form 10-K filed April 17, 2006, and incorporated herein by reference).
10.38***
Asset Purchase Agreement by and between Golf Trust of America, Inc., Golf Trust of America, L.P., GTA-IB, LLC, GTA-IB Golf Resort, LLC, GTA-IB Condominium, LLC, GTA-IB Management, LLC and CMI Financial Network, LLC dated October 27, 2005 (previously filed as Exhibit 10.36 to our company’s Quarterly Report on Form 10-Q filed November 14, 2005, and incorporated herein by reference).
10.39
Termination and Release Agreement by and between Golf Trust of America, Inc., GTA-IB, LLC, and Westin Hotel Management L.P., as successor in interest to Westin Management Company South, dated September 28, 2006 (previously filed as Exhibit 10.39 to our company’s Current Report on Form 8-K filed October 3, 2006 and incorporated herein by reference).
10.40
Letter Agreement by and between Golf Trust of America, Inc. and Messers. Jan H. Loeb and Nauman S. Toor, collectively, the “Director Candidates,” dated October 5, 2006 (previously filed as Exhibit 10.40 to our company’s Current Report on Form 8-K filed October 3, 2006 and incorporated herein by reference).
14.1
Code of Ethics, adopted by the Board of Directors of Golf Trust of America, Inc. on February 9, 2004 (previously filed as Exhibit 14.1 to our company’s Annual Report on Form 10-K, filed March 30, 2004, and incorporated herein by reference).
21.1****
List of Subsidiaries of Golf Trust of America, Inc.
23.1****
Consent of BDO Seidman, LLP
24.1****
Powers of Attorney (included under the caption “Signatures”)
31.1****
Certification of W. Bradley Blair II pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2****
Certification of Tracy S. Clifford pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1****
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
Charter of the Audit Committee of the Board of Directors of Golf Trust of America, Inc. (previously filed as Appendix A to our company’s definitive proxy statement on Schedule 14A, filed October 15, 2001, and incorporated herein by reference).
* This agreement expired pursuant to its terms on November 30, 2005.
** This agreement was terminated pursuant to its terms on June 30, 2006.
*** This agreement was terminated pursuant to its terms on November 23, 2005.
**** Filed herewith
 Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
+ Denotes a management contract or compensatory plan.