<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1996
REGISTRATION NO. 333-6341
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BOYKIN LODGING COMPANY
(Exact name of registrant as specified in its governing instruments)
------------------------
TERMINAL TOWER, SUITE 1500
50 PUBLIC SQUARE
CLEVELAND, OHIO 44113-2258
(216) 241-6375
(Address of principal executive offices)
------------------------
ROBERT W. BOYKIN
TERMINAL TOWER, SUITE 1500
50 PUBLIC SQUARE
CLEVELAND, OHIO 44113-2258
(216) 241-6375
(Name and address of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
ALBERT T. ADAMS, ESQ. BRUCE M. MONTGOMERIE, ESQ.
ROBERT A. WEIBLE, ESQ. WILLKIE FARR & GALLAGHER
BAKER & HOSTETLER ONE CITICORP CENTER
3200 NATIONAL CITY CENTER 153 EAST 53RD STREET
CLEVELAND, OHIO 44114-3485 NEW YORK, NEW YORK 10022-4677
(216) 621-0200 (212) 821-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / ___________________________________________
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, without
par value........................ 9,056,250 $22.00 $199,237,500 $68,703
=================================================================================================
<FN>
(1) Includes up to 1,181,250 shares which may be purchased by the Underwriters
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 501(A) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
--------------------------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Policies and
Objectives With Respect to Certain
Activities; Shares Available for Future
Sale
4. Determination of Offering Price.............. Outside Front Cover Page; Underwriting
5. Dilution..................................... Dilution
6. Selling Security Holders..................... Not Applicable
7. Plan of Distribution......................... Outside Front Cover Page; Underwriting
8. Use of Proceeds.............................. Use of Proceeds
9. Selected Financial Data...................... Selected Financial Information
10. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
11. General Information as to Registrant......... Prospectus Summary; Management; Business
and Properties
12. Policy With Respect to Certain Activities.... Prospectus Summary; Policies and
Objectives with Respect to Certain
Activities
13. Investment Policies of Registrant............ Prospectus Summary; Policies and
Objectives with Respect to Certain
Activities; Business and Properties
14. Description of Real Estate................... Prospectus Summary; Business and
Properties
15. Operating Data............................... Business and Properties
16. Tax Treatment of Registrant and its Security
Holders.................................... Prospectus Summary; Federal Income Tax
Considerations
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Shareholder Matters........................ Not Applicable
18. Description of Registrant's Securities....... Capital Stock of the Company
19. Legal Proceedings............................ Business and Properties -- Legal
Proceedings
20. Security Ownership of Certain Beneficial
Owners and Management...................... Principal Shareholders of the Company
21. Directors and Executive Officers............. Management
22. Executive Compensation....................... Management
23. Certain Relationships and Related
Transactions............................... Prospectus Summary; Business and
Properties; Management; Certain
Transactions
24. Selection, Management and Custody of
Registrant's Investments................... Outside Front Cover Page; Prospectus
Summary; Business and Properties;
Management; Policies and Objectives
with Respect to Certain Activities
25. Policies With Respect to Certain
Transactions............................... Risk Factors; Policies and Objectives
with Respect to Certain Activities
26. Limitations of Liability..................... Capital Stock of the Company
27. Financial Statements and Information......... Prospectus Summary; Selected Financial
Information; Financial Statements
28. Interests of Named Experts and Counsel....... Legal Matters; Experts
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, dated August 14, 1996
PROSPECTUS
7,875,000 COMMON SHARES
BOYKIN LODGING COMPANY
Boykin Lodging Company (the "Company") was formed to continue and expand
the hotel ownership, acquisition, redevelopment and repositioning operations of
Boykin Management Company and its affiliates (collectively, the "Boykin Group").
The Company will own nine national franchise hotels, all managed by the Boykin
Group, containing a total of 2,408 rooms located in California, Florida, New
York, North Carolina and Ohio (the "Initial Hotels") upon completion of this
offering (the "Offering"). The Company's operations will focus on the ownership
of full-service hotels that serve both business and leisure travelers under
franchise agreements with Marriott, Radisson, Holiday Inn and other national
franchisors.
The Company will operate as a self-administered equity real estate
investment trust (a "REIT"). The Initial Hotels will be leased to Boykin
Management Company Limited Liability Company (the "Initial Lessee"), which is
owned by Robert W. Boykin and John E. Boykin, pursuant to leases (the
"Percentage Leases") designed to allow the Company to achieve substantial
participation in the future revenue growth generated by the Initial Hotels. The
Company intends to lease its hotel properties to the Initial Lessee and other
selected operating companies. The Company intends to pay regular quarterly
dividends, initially at a rate of $ per share per annum, beginning with a
prorated dividend for the quarter ending September 30, 1996.
All of the common shares, without par value (the "Common Shares"), offered
hereby are being offered by the Company. Upon completion of the Offering, the
Common Shares offered hereby will represent 84.1% of the fully diluted equity of
the Company. Members of management and other Boykin Group Affiliates will own
approximately 14.4% of the equity of the Company in the form of interests
exchangeable for Common Shares.
Prior to the Offering, there has been no public market for the Common
Shares. Application has been made to list the Common Shares on the New York
Stock Exchange under the symbol "BOY". It is currently anticipated that the
initial public offering price per Common Share will be $22.00. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES, INCLUDING:
- dependence of the Company on Robert W. Boykin and other key personnel;
- dependence of the Company on lessees for its operating income;
- risks affecting the hotel industry generally and the Company's hotels
specifically, including potential loss of franchises and risks arising
from requirements imposed by franchisors;
- conflicts of interest between the Company and certain of its Affiliates,
including lack of independent appraisals for the Initial Hotels and lack
of arm's-length negotiations in connection with the formation of the
Company;
- risks associated with the leasing, acquisition and development of real
property;
- the Company's lack of operating history and lack of experience in
operating in accordance with the requirements for maintaining its
qualification as a REIT;
- adverse tax consequences if the Company fails to qualify as a REIT; and
- limitations on shareholders' ability to change control of the Company,
including restriction of ownership of Common Shares by any single person
to 9.0% of the outstanding shares.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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- ---------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $2,250,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional Common Shares solely to cover over-allotments, if any.
See "Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively.
</TABLE>
------------------------
The Common Shares are offered by the several Underwriters named herein,
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that certificates for the Common Shares
offered hereby will be available for delivery on or about , 1996 at
the offices of Lehman Brothers Inc., New York, New York.
------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
EVEREN SECURITIES, INC.
MCDONALD & COMPANY
, 1996 SECURITIES, INC.
<PAGE> 4
[INSIDE FRONT COVER]
[Reserved for Photos]
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 1
The Company..................... 1
The Initial Lessee.............. 3
Additional Lessees.............. 4
Risk Factors.................... 4
The Initial Hotels.............. 6
Business Objectives and
Strategies.................... 7
Formation Transactions.......... 9
Organizational Chart............ 10
Summary Financial Information... 11
Distributions................... 16
Tax Status of The Company....... 16
The Offering.................... 17
RISK FACTORS......................... 18
Dependence on Key Personnel..... 18
Control by Boykin Group and Lack
of Shareholder Control........ 18
Dependence on Lessees........... 19
Hotel Industry Risks............ 19
Conflicts of Interest........... 21
Lack of Independent Appraisals
and Arm's-Length
Negotiations.................. 22
Affiliates' Benefits From the
Formation..................... 22
Real Estate Investment Risks.... 22
The Company's Lack of Operating
History....................... 24
Potential Adverse Effect on the
Value of the Common Shares of
Fluctuations in Interest Rates
or Equity Markets............. 24
Potential Environmental
Liability..................... 24
Tax Risks....................... 25
Anti-Takeover Effect of
Ownership Limit............... 27
No Limitation on Debt; Ability
to Issue Preferred Shares..... 27
Dilution........................ 27
Absence of Prior Public Market
for Common Shares............. 28
Limitations on Ownership of
Common Shares................. 28
Risk of High Distribution Payout
Percentage.................... 28
Board's Ability to Change
Policies...................... 28
Effect on Market Price of Shares
Available for Future Sale..... 28
ERISA........................... 28
THE COMPANY.......................... 29
General......................... 29
Business Objectives and
Strategies.................... 31
LESSEES.............................. 34
The Initial Lessee.............. 34
Additional Lessees.............. 35
USE OF PROCEEDS...................... 36
DISTRIBUTION POLICY.................. 37
<CAPTION>
PAGE
----
<S> <C>
CAPITALIZATION....................... 39
DILUTION............................. 40
SELECTED FINANCIAL INFORMATION....... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS......................... 47
Overview........................ 47
General......................... 47
Pro Forma Results of Operations
for the Consolidated
Company....................... 47
Results of Operations of the
Initial Hotels (Excluding Lake
Norman Hotels)................ 47
Liquidity and Capital
Resources..................... 50
Inflation....................... 51
Seasonality..................... 52
BUSINESS AND PROPERTIES.............. 53
The Hotel Industry.............. 53
The Initial Hotels.............. 54
The Percentage Leases........... 59
Franchise Agreements............ 62
Excluded Properties............. 64
Other Activities................ 64
Employees....................... 65
Environmental Matters........... 65
Competition..................... 66
Tax Depreciation................ 66
The Intercompany Convertible
Note.......................... 66
Legal Proceedings............... 67
POLICIES AND OBJECTIVES WITH RESPECT
TO CERTAIN ACTIVITIES.............. 67
Investment Policies............. 67
Financing....................... 68
Policies with Respect to Certain
Other Activities.............. 68
Conflict of Interest Policy..... 68
THE FORMATION........................ 69
MANAGEMENT........................... 71
Company Directors and Executive
Officers...................... 71
Audit Committee................. 72
Compensation Committee.......... 72
Liability and Indemnification of
Directors and Officers........ 72
Executive Compensation.......... 73
Employment Contracts............ 73
Registration Rights............. 74
Compensation of Directors....... 74
Directors' Deferred Compensation
Plan.......................... 74
Long-Term Incentive Plan........ 74
Initial Lessee Directors and
Officers...................... 75
CERTAIN TRANSACTIONS................. 76
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINCIPAL SHAREHOLDERS OF THE
COMPANY............................ 77
CAPITAL STOCK OF THE COMPANY......... 78
General......................... 78
Common Shares................... 78
Preferred Shares................ 79
Restrictions on Transfer........ 79
Ohio Anti-Takeover Provisions... 80
THE PARTNERSHIP...................... 80
Management...................... 80
Transferability of Interests.... 81
Capital Contributions........... 81
Exchange Rights................. 81
Tax Matters; Profits and
Losses........................ 82
Operations...................... 82
Distributions................... 82
Term............................ 82
SHARES AVAILABLE FOR FUTURE SALE..... 82
FEDERAL INCOME TAX CONSIDERATIONS.... 83
General......................... 83
Taxation of the Company as a
REIT.......................... 84
<CAPTION>
PAGE
----
<S> <C>
Requirements for Qualification
as a REIT..................... 84
Tax Aspects of the Company's
Investment in the Operating
Partnership................... 90
Taxation of Taxable Domestic
Shareholders.................. 93
Taxation of Tax-Exempt
Shareholders.................. 94
Taxation of Foreign
Shareholders.................. 94
Other Tax Considerations........ 95
ERISA CONSIDERATIONS................. 95
UNDERWRITING......................... 97
EXPERTS.............................. 98
LEGAL MATTERS........................ 98
ADDITIONAL INFORMATION............... 99
GLOSSARY............................. 100
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information and statements, and the notes thereto,
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in "Risk Factors." Unless otherwise indicated, the
information contained in this Prospectus assumes (i) an initial offering price
of $22.00 per Common Share; (ii) that the Underwriters' over-allotment option is
not exercised; (iii) that the units of limited partnership interest ("Units") in
Boykin Hotel Properties, L.P., an Ohio limited partnership which will own the
Company's initial hotel properties (the "Partnership"), that are outstanding on
the date the Offering is consummated are exchanged for Common Shares on a
one-for-one basis; (iv) that an intercompany convertible note payable to the
Company which is convertible into equity interests in the Partnership is so
converted; and (v) that options granted to directors and officers of the Company
for the purchase of Common Shares are not exercised. Unless otherwise indicated
or the context otherwise requires, as used in this Prospectus (a) "COMPANY"
means Boykin Lodging Company and its subsidiaries on a consolidated basis
(including the Partnership); (b) "INITIAL LESSEE" means Boykin Management
Company Limited Liability Company; (c) "INITIAL HOTELS" means the nine initial
hotels owned by the Company, each of which is a full-service or limited-service
national franchise hotel; (d) "BOYKIN MANAGEMENT" means Boykin Management
Company; (e) "BOYKIN GROUP" means Boykin Management and its Affiliates, and (f)
"BOYKIN GROUP AFFILIATE" means Boykin Management or any Affiliate of Boykin
Management. See "Glossary" for the definitions of certain other terms used in
this Prospectus.
THE COMPANY
The Company was formed to continue and expand the hotel ownership,
acquisition, redevelopment and repositioning activities of the Boykin Group and
will operate as a self-administered equity real estate investment trust (a
"REIT"). Upon completion of the Offering and Formation Transactions described
herein, the Company will own nine hotels with a total of 2,408 guest rooms. The
Initial Hotels are operated under franchise license agreements with premiere
nationally-recognized hotel chains, including Marriott, Radisson, Holiday Inn,
Quality Suites, and Hampton Inns. Serving both business and leisure travelers,
the Initial Hotels are geographically diversified and are located in Berkeley,
California; Buffalo, New York; Cleveland and Columbus, Ohio; Charlotte, North
Carolina; and Ft. Myers and Melbourne, Florida. The Initial Hotels include eight
full-service hotels and one limited-service hotel, all of which compete in the
upscale to moderate price segment of the hospitality market. For the twelve
months ended June 30, 1996, the Initial Hotels had an average occupancy rate of
76.2%, an average daily room rate ("ADR") of $87.62 and an average room revenue
per available room night ("REVPAR") of $66.74. The Boykin Group developed and
has owned and managed seven of the Initial Hotels since their opening.
The Company will capitalize on the substantial hotel operating,
development, acquisition and transactional experience of its management and the
Boykin Group. The Boykin Group was founded in 1959, and was one of the first
franchisees of Marriott Hotels and an early franchisee of Howard Johnson's
Hotels. Since its founding, the Boykin Group has developed 13 full-service
hotels containing a total of 3,085 rooms and has owned or managed 36 properties
containing a total of 6,943 rooms. Robert W. Boykin, the President and Chief
Executive Officer of the Company, has over 27 years of experience in the hotel
industry, all with the Boykin Group. Raymond P. Heitland, the Company's Chief
Financial Officer, has 26 years of industry experience and tenure with the
Boykin Group. Mark L. Bishop, the Company's Senior Vice President --
Acquisitions and Development, has 18 years of industry experience. During the
past 10 years, the Company's officers have directly overseen the acquisition,
disposition, recapitalization, development and repositioning of approximately
$750 million of hotel assets throughout the United States. Upon completion of
the Offering, Company management and other Boykin Group Affiliates will own
approximately 14.4% of the outstanding equity of the Company. Each Boykin Group
Affiliate will conduct all future hotel acquisition, development and ownership
activities only through the Company, except for any separate activity to which
the Company consents.
1
<PAGE> 8
The Company will focus on maximizing cash flow from both the Initial Hotels
and acquired hotels through the implementation of the active asset management
strategies of the Boykin Group. The current and the historical performance of
the Initial Hotels have exceeded industry averages. During the five year period
ended December 31, 1995, the Initial Hotels generated REVPAR that exceeded the
REVPAR of their local competing hotels (in each market, four to seven
competitors as currently defined by Boykin Management for property and personnel
performance evaluation purposes) by 16% on average and exceeded the U.S. average
REVPAR for upscale/moderate full-service hotels by 26%. In 1991, a year
generally considered weak in the hotel industry, the REVPAR of the Initial
Hotels exceeded the REVPAR of their local competing hotels by over 19% and
exceeded the U.S. average REVPAR for upscale/moderate full-service hotels by
over 29%. Over the three year and five year periods ended December 31, 1995 the
aggregate revenues of the Initial Hotels increased at a compound annual rate of
4.4% and 3.6% per year, and earnings before interest, income taxes,
depreciation, amortization and unusual and extraordinary items ("EBITDA") from
the Initial Hotels increased at a compound average growth rate of 13.4% and 9.8%
per year, respectively.
The following table compares average occupancy, ADR and REVPAR for the
Initial Hotels with that for their local competition for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OCCUPANCY RATE
Initial Hotels(1)..................... 69.9% 71.6% 72.6% 74.7% 74.9% 74.2% 76.8%
Local Competition(2).................. 66.3% 68.7% 70.3% 71.6% 72.1% 71.9% 73.2%
ADR
Initial Hotels(1)..................... $75.83 $75.45 $75.50 $79.27 $85.47 $84.82 $89.03
Local Competition(2).................. $67.37 $68.02 $69.51 $71.39 $75.45 $75.31 $80.45
REVPAR
Initial Hotels(1)..................... $52.97 $54.05 $54.80 $59.24 $63.98 $62.93 $68.35
Local Competition(2).................. $44.68 $46.75 $48.89 $51.12 $54.39 $54.15 $58.90
</TABLE>
(1) Source: Company-provided information.
(2) Source: Smith Travel Research (reports dated August 1 and 5, 1996). Smith
Travel Research is not associated in any way with the Company or any of its
Affiliates and has not provided any form of assistance in connection with
the Offering. Local Competition includes Initial Hotels and four to seven
competitors in each market, as currently defined by Boykin Management for
property and personnel performance evaluation purposes and used for all
periods shown. Boykin Management's consistently-applied criteria for
defining each hotel's competitive set include comparability of location,
target customers, rates, and level of service provided. See the table under
"The Company -- General -- Historical Performance" for comparative
information regarding all upscale/moderate hotels and all U.S. hotels, and
"Business and Properties -- The Initial Hotels -- General."
Management believes that, while the lodging industry as a whole is
benefiting from an improved supply/demand dynamic, the greatest opportunities
for revenue growth and profitability will arise from skillful management of
hotel properties. An integral element of this management is the continuous
evaluation of each hotel's position in its market and the implementation, as
necessary, of changes in franchise, theme and customer focus to maximize the
continuing returns from the hotel. The Company attributes the excellent
performance of the Initial Hotels to the successful implementation of this asset
management strategy.
The Company also intends to achieve a significant part of its growth
through the acquisition, redevelopment and repositioning of additional
full-service hotels. The Company has obtained a commitment for a $75 million
credit facility (the "Credit Facility") for acquiring additional hotels without
financing contingencies, and will have no outstanding indebtedness upon
completion of the Offering. The Company believes that there are full-service
hotel properties that can be acquired at a discount to replacement cost, and
that many of these properties are located in areas of increasing demand. The
Company further believes that the full-service segment of the market, in
particular, has potential for improved performance as business and leisure
travel continues to increase and demand rises at a faster rate than supply.
2
<PAGE> 9
In order to qualify as a REIT, the Company may not operate hotels. The
Company will lease its properties to established hotel operators pursuant to
leases that will provide the Company with the greater of a base rental income or
a percentage of revenues from operations. The Initial Hotels will be leased
pursuant to such leases (the "Percentage Leases") to the Initial Lessee. The
Company's structure is designed to accommodate multiple lessees, and the Company
intends to aggressively pursue relationships with additional hotel operators
that have successful operating histories and demonstrated management expertise.
THE INITIAL LESSEE
In connection with the Formation Transactions, Robert W. Boykin and John E.
Boykin will form and indirectly own the Initial Lessee. The Initial Lessee will
acquire and continue the 37-year hotel operation and management business of the
Boykin Group and will operate the Initial Hotels under the Percentage Leases.
The operations of the Boykin Group are fully integrated, with capabilities in
all phases of development and management of hotel properties. As of June 30,
1996, the Boykin Group had approximately 2,400 employees and owned or managed 21
properties containing 4,354 rooms located throughout the United States. Because
neither the Company nor the Initial Lessee will have to pay a separate hotel
management company to manage the Initial Hotels, the Company believes it will
obtain a higher rent than such added management arrangements would permit, thus
maximizing the Company's Percentage Lease revenues. The Company believes that
the Boykin Group's ability to achieve consistently above-average market
penetration during various economic cycles positions the Company, through the
Initial Lessee, to maximize its returns on the Initial Hotels.
While the Initial Lessee will operate and manage hotels only under the
Percentage Leases, its subsidiaries will continue hotel management activities
for owners other than the Company, and the award-winning hotel interior design
business and the hotel and restaurant food, beverage, supply and equipment
purchasing business currently operated by the Boykin Group. The Company expects
that these operations will be continued in part with a view to introducing the
Company to acquisition opportunities. In addition, the income generated by the
Initial Lessee and its subsidiaries will strengthen the Initial Lessee's ability
to perform under the Percentage Leases.
The Initial Lessee and its owners will have interests that conflict with
the Company's interests in connection with the structuring and enforcement of
the Percentage Leases and any other leases and agreements between the Company
and the Initial Lessee, and in connection with activities that may maximize
profits for the Initial Lessee without necessarily benefiting the Company. The
Company and the Initial Lessee have agreed on several measures to align the
interests of the Initial Lessee and its owners with the interests of the Company
and its shareholders and to address these conflicts of interest:
- The Initial Lessee's owners and certain other Boykin Group
Affiliates will own approximately 14.3% of the Company following
completion of the Offering in the form of Units exchangeable, at the
Company's election, for Common Shares, and have agreed to retain
these interests for at least three years following completion of the
Offering;
- Robert W. Boykin will resign from his positions with Boykin
Management in connection with the Formation Transactions and will
not hold office in the Initial Lessee, and neither John E. Boykin
nor any other officer of the Initial Lessee will hold office in the
Company;
- Any distributions from the Initial Lessee (other than distributions
to cover income taxes) during the first ten years after the
Offering, and any net cash proceeds of any sale of the Initial
Lessee within ten years after the Offering, will be used to purchase
Units or Common Shares (subject to applicable ownership limitations)
that must be held for at least two years from the purchase date;
- The Initial Lessee's consolidated net worth on completion of the
Formation Transactions will be approximately $3 million, and half of
the Initial Lessee's consolidated earnings (after distributions to
cover income taxes) during the first ten years after the Offering
will be retained in the Initial Lessee and its subsidiaries until
their consolidated net worth reaches 25% of the aggregate annual
rent payments under the Percentage Leases (and will be retained
thereafter during that period to maintain that level);
3
<PAGE> 10
- Determinations to be made on behalf of the Company in connection
with any conflict of interest involving any Boykin Group Affiliate
will be made by the Company's Independent Directors;
- Each Boykin Group Affiliate will conduct all future hotel
acquisition, development and ownership activities only through the
Company, except for any separate activity to which the Company
consents;
- Any change in control of the Initial Lessee without the prior
written consent of the Company will constitute a default under the
Percentage Leases; and
- The Percentage Leases will contain cross-default provisions that
will enhance the Company's ability to enforce strict compliance with
each Percentage Lease.
The Initial Lessee also intends to develop incentive compensation plans for
its hotel-level and corporate-level senior executives which tie such
compensation in part to the performance of the Company and in part to the
performance of the Initial Hotels. Such plans may include awards of Company
shares, options and other similar incentives.
ADDITIONAL LESSEES
The Company believes that having multiple tenants will facilitate meeting
its growth objectives, and therefore intends to pursue relationships with
additional lessees. The Company believes there are a number of capable hotel
owner-operators who are undercapitalized and, therefore, unable to reposition
their properties adequately, or are faced with a difficult financing environment
because of today's increased equity requirements, and will be willing to engage
in a sale and leaseback of their properties on terms that would allow both
parties to participate in the improving fundamentals of the lodging industry. In
addition, the Company believes certain national franchisors are willing to
develop a relationship with the Company and may become additional lessees as a
means of expanding their franchise systems. The Company believes that its
management's long tenure and reputation in the hotel industry will provide the
Company access to these acquisition opportunities and enable the Company to
select hotel properties and lessees that will further its acquisition and growth
strategies.
RISK FACTORS
An investment in the Common Shares involves various risks (see "Risk
Factors"), including, among others:
- Dependence on key personnel and control over the operations of the
Company, the Partnership and the Initial Lessee by Robert and John
Boykin;
- Dependence on lessees for operating income, including risks that the
lessees will become subject to liabilities relating to the Initial Hotels
and hotel properties subsequently leased to them, risks of default
resulting in the termination of franchise, liquor and other operating
licenses, and risks associated with re-leasing hotel properties after a
lessee default or other lease termination event;
- The hotel industry generally and the Initial Hotels specifically;
- Franchise relationships, including the possibility that a franchisor may
impose various increased costs, exercise options to buy or lease
properties, impose restrictions on the Company's or the Initial Lessee's
ability to compete with other franchisor-affiliated hotels, potential
loss of franchises on franchise defaults and the uncertainty and costs of
renewing franchises upon their expiration;
- Conflicts of interest between the Company and Boykin Group Affiliates,
including risks associated with the lack of third party appraisals for
the Initial Hotels and arm's-length negotiations in connection with the
formation of the Company;
- Receipt by Boykin Group Affiliates, including Robert and John Boykin, of
substantial benefits from the Formation Transactions;
4
<PAGE> 11
- The ownership, leasing, acquisition, development and expansion of hotel
properties, including risks of changes in economic and real estate market
conditions, changes in interest rates and the availability of financing,
the impact of environmental laws, the ongoing need for capital
improvements, and other factors beyond the Company's control;
- The Company's lack of operating history and lack of experience in
operating in accordance with the requirements for maintaining its
qualification as a REIT, and taxation of the Company as a regular
corporation if it fails to quality as a REIT;
- Limitations on shareholders' ability to acquire or change control of the
Company, including the restriction on ownership of Common Shares by any
single person to 9.0% of the outstanding shares;
- The absence of any contractual limitation on debt that the Company may
incur;
- Substantial and immediate dilution in the net tangible book value per
Common Share to be experienced by the purchasers of Common Shares in the
Offering (see "Dilution"); and
- The absence of any public market for the Company's Common Shares prior to
the Offering.
5
<PAGE> 12
THE INITIAL HOTELS
The following table sets forth certain information regarding the Initial
Hotels:
<TABLE>
<CAPTION>
AVERAGE DAILY RATE
AVERAGE OCCUPANCY ----------------------------------
----------------------------------------------- SIX
MONTHS
NUMBER YEARS ENDED: SIX MONTHS ENDED: YEARS ENDED: ENDED:
OF --------------------- --------------------- --------------------- --------
PROPERTY/LOCATION ROOMS 12/31/94 12/31/95 6/30/95 6/30/96 12/31/94 12/31/95 6/30/95
- ---------------------------- ------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Berkeley Marina Marriott 373 80.3% 81.1% 80.1% 85.4% $96.61 $100.03 $99.04
Berkeley, CA................
Buffalo Marriott 356 76.0% 73.4% 69.1% 71.3% $85.32 $ 91.79 $90.30
Buffalo, NY.................
Cleveland Airport Marriott 375 70.9% 71.0% 67.3% 73.5% $81.99 $ 90.35 $89.47
Cleveland, OH...............
Cleveland Marriott East 403 72.9% 72.7% 69.7% 72.1% $80.74 $ 89.54 $87.51
Cleveland, OH...............
Columbus North Marriott 300 72.7% 71.9% 72.8% 75.6% $77.98 $ 85.20 $84.79
Columbus, OH................
Lake Norman Hampton Inn 117 75.8% 78.6% 79.9% 77.0% $45.70 $ 52.67 $49.16
Charlotte, NC...............
Lake Norman Holiday Inn 119 73.0% 75.7% 75.1% 71.2% $54.13 $ 60.72 $57.46
Charlotte, NC...............
Melbourne Quality Suites 208 78.1% 79.0% 84.7% 81.3% $72.98 $ 77.61 $78.50
Melbourne, FL...............
Radisson Inn Sanibel Gateway 157 72.2% 76.3% 83.2% 88.8% $66.03 $ 66.12 $80.21
Fort Myers, FL..............
------
Total....................... 2,408
=====
Weighted average............ 268 74.7% 74.9% 74.2% 76.8% $79.27 $ 85.47 $84.82
<CAPTION>
ROOM REVENUES PER AVAILABLE ROOM
-----------------------------------------------
YEARS ENDED: SIX MONTHS ENDED
--------------------- ---------------------
PROPERTY/LOCATION 6/30/96 12/31/94 12/31/95 6/30/95 6/30/96
- ---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Berkeley Marina Marriott $102.56 $77.54 $81.17 $79.36 $87.63
Berkeley, CA................
Buffalo Marriott $ 94.02 $64.85 $67.34 $62.39 $67.00
Buffalo, NY.................
Cleveland Airport Marriott $ 89.87 $58.11 $64.11 $60.25 $66.02
Cleveland, OH...............
Cleveland Marriott East $ 91.10 $58.90 $65.11 $60.98 $65.64
Cleveland, OH...............
Columbus North Marriott $ 89.18 $56.68 $61.29 $61.71 $67.44
Columbus, OH................
Lake Norman Hampton Inn $ 61.63 $34.63 $41.40 $39.26 $47.45
Charlotte, NC...............
Lake Norman Holiday Inn $ 68.41 $39.50 $45.96 $43.18 $48.74
Charlotte, NC...............
Melbourne Quality Suites $ 82.26 $57.02 $61.34 $66.49 $66.91
Melbourne, FL...............
Radisson Inn Sanibel Gateway $ 81.23 $47.71 $50.43 $66.77 $72.12
Fort Myers, FL..............
Total.......................
Weighted average............ $ 89.03 $59.24 $63.98 $62.93 $68.35
</TABLE>
6
<PAGE> 13
BUSINESS OBJECTIVES AND STRATEGIES
BUSINESS OBJECTIVES
The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in value
of the Common Shares. The Company will seek to achieve these objectives through
participation in increased revenues from the Initial Hotels pursuant to the
Percentage Leases and by selective acquisition, ownership, redevelopment,
repositioning and expansion of additional hotel properties. The Company will
seek to continue to invest in properties where the Company's established
industry and marketing expertise and other resources will enable it to improve
the acquired hotels' performance.
BUSINESS STRATEGIES
The Company's strategies to meet its objectives include (i) achieving
revenue growth in the Initial Hotels, (ii) acquiring and leasing hotel and
resort properties in the upscale and moderate markets on an accretive basis,
(iii) strategically upgrading hotel properties, and (iv) expanding and
developing additional hotel properties.
Internal Growth. The Company believes that, based on historical operating
results and the strength of the Company's management team, portfolio and
markets, the Initial Hotels should provide the Company with the opportunity for
cash flow growth through the Percentage Leases. Over the three year and five
year periods ended December 31, 1995 the aggregate total revenues of the Initial
Hotels increased at a compound annual rate of 4.4% and 3.6% per year, and EBITDA
from the Initial Hotels increased at a compound average growth rate of 13.4% and
9.8% per year, respectively. The Company believes that the revenue and cash flow
of the Initial Hotels will be maximized by intensive management and marketing.
The Company intends to derive increased cash flow through the application of the
Initial Lessee's operating strategies, which include the active management and
balancing of room rates with forecasted room demand in order to maximize total
hotel revenues (a system known as "yield management"). The Company believes that
the Initial Lessee's continued commitment to customer service and the experience
of its management team should position the Company to capitalize on the expected
continued strength in the economy and improvement in the U.S. hotel market. The
Company's objectives include enhancing its competitive market position through
the continuation of a regular program of renovation and capital improvement.
Acquisitions. The Company believes that attractive opportunities exist to
acquire full-service hotels serving the upscale and moderate market segments of
the lodging industry. The Company intends to concentrate its investment
activities on hotel properties that are in one or more of the following
categories:
- Product Type -- Full-service commercial hotels, airport hotels, major
tourist hotels and destination resorts in major markets and business
centers;
- Market Repositioning Opportunities -- Undervalued hotels whose
performance can be significantly enhanced through new brand affiliations,
implementation of new marketing strategies and effective yield
management;
- Redevelopment and Renovation Opportunities -- Hotels with sound
operational fundamentals that, because of a lack of capital, require
physical renovation or redevelopment to achieve their full performance
potential; and
- Portfolio Acquisitions -- Portfolios of hotels that result in geographic
economies of scale or that may be leased back to qualified hotel
operators as additional lessees, and that may benefit from the Company's
repositioning and redevelopment experience and access to capital.
As a result of the Company's management's successful transactional
activities, which include approximately $750 million in hotel acquisition,
disposition, recapitalization, renovation, development and repositioning over
the last 10 years, the Company believes it possesses a competitive advantage in
market knowledge, technical expertise and industry relationships that will
enable it to continue successfully to implement its acquisition strategy on a
national scale. Further, the Company believes it will benefit from its
continuing
7
<PAGE> 14
relationship with the Initial Lessee and from developing relationships with
additional lessees who have a demonstrated history of managing hotel properties.
As a public company, the Company expects to have access to a wide variety of
financing sources to fund acquisitions, such as the ability to issue public and
private debt, equity and hybrid securities, and the ability to utilize Units as
consideration when cash is not appropriate for tax or other reasons.
Additionally, the Credit Facility will enable the Company to contract for and
complete the acquisition of additional hotels without financing contingencies.
See "The Company -- Business Objectives and Strategies -- Financing Strategy"
for a description of the terms of the credit facility.
The Company's philosophy is to identify and actively seek hotel properties
that can be associated with the brands that will lead the hospitality industry
in REVPAR, such as Marriott, Radisson, Hilton, Hyatt, Westin, Omni, Doubletree,
Sheraton, Holiday Inn and Quality Suites. The Company believes that it can
maximize its market share and revenues by taking advantage of its orientation
toward sales and marketing to identify the most effective branding and to
leverage its brands with effective direct sales strategies. The Company expects
to continue to affiliate with a number of different franchise companies in order
to maximize the performance of its hotels by providing greater access to a broad
base of national marketing and reservation systems and to mitigate the risks of
franchise loss and franchise overlap. The Company will seek to maintain a
geographically diversified hotel portfolio, and may also cluster hotels within
certain primary markets in order to take advantage of operational and managerial
economies of scale. The Company believes it has the capacity to acquire
additional hotels without significantly increasing management and overhead
expenses.
The Boykin Group's recent purchase of the Lake Norman hotel properties
exemplifies the strategies described above. The Company believes that those
hotels' present franchise affiliations will enable the Company to maximize
REVPAR in the local market. The hotels' purchase price represented a significant
discount to their replacement costs, and the hotels' historical earnings
represented an attractive yield on the purchase price. The Company believes that
the Initial Lessee can increase the ADR and REVPAR of both hotels, and the
Boykin Group has been implementing its yield management systems since the
acquisition to achieve these results. REVPAR for the six months ended June 30,
1996 increased over REVPAR for the same period in 1995 by 21% for the Lake
Norman Hampton Inn and by 13% for the Lake Norman Holiday Inn, with a resulting
increase in pro forma Percentage Lease revenues. The Boykin Group also caused
the Lake Norman hotels to implement a combined purchasing program, direct
overflow business to each other and begin cross-training and sharing employees.
The Company believes the economies gained from the clustering of the Lake Norman
acquisitions, combined with the active yield management strategies employed by
the Boykin Group at these hotels, has resulted in a significantly more
attractive yield to the Company than that calculated based on their trailing
operating performance at the time of the acquisitions.
Renovation and Development. The Company believes that a regular program of
capital improvements at the Initial Hotels, including replacement and
refurbishment of FF&E, will maintain and enhance their competitiveness and
maximize revenue growth under the Percentage Leases. During the fiscal years
1991 through 1995, approximately $18 million was spent on renovations and
capital improvements at the Initial Hotels, including approximately $1.2 million
for restoration of the Melbourne Quality Suites hotel following damage from
Hurricane Erin in August 1995. This represents an average of approximately
$1,400 per room per year (excluding the amount spent on the Melbourne property
restoration, which was funded entirely from insurance proceeds). The Company
will use approximately $3.5 million of the net proceeds of the Offering as its
initial contribution to its capital expenditures fund (the "Capital Expenditures
Fund"). The Percentage Leases require the Company to contribute to the Capital
Expenditures Fund additional aggregate minimum reserves of 4% of total revenue
of the Initial Hotels. For the 12-month period ended June 30, 1996, this reserve
would have represented approximately 6.1% of room revenue and an average of
approximately $1,400 per room. The Company intends to use the Capital
Expenditures Fund for the replacement and refurbishment of FF&E and other
capital expenditures (approximately $250,000 of which is required by
franchisors) to maintain and enhance the competitive position of the Initial
Hotels, although it may make other uses of amounts in the fund that it considers
appropriate from time to time. See "The Company -- Business Objectives and
Strategies -- Renovation Strategy," and "Business and Properties -- The Initial
Hotels." The Boykin Group's experience in developing and renovating its
properties will assist the Company in maintaining its properties' competitive
edge in their respective markets.
8
<PAGE> 15
The Company may develop additional full-service or upscale limited-service
hotels on land that the Company acquires in its current geographic markets or on
land contiguous to the Initial Hotels. The Company believes that selective
development of hotels in its existing geographic markets would enable it to take
advantage of operating efficiencies to generate attractive returns on
investment.
Financing Strategy. Upon completion of the Offering, the Company will have
no outstanding debt. While its organizational documents contain no limitation on
the amount of debt it may incur, the Company, subject to the discretion of the
Board of Directors, intends to use the Credit Facility for acquisitions while
maintaining a debt-to-total market capitalization ratio (measured at the time
debt is incurred) of not more than 45%. The Company may from time to time
re-evaluate its debt capitalization policy in light of economic conditions,
relative costs of debt and equity capital, market values of its properties,
acquisition, development and expansion opportunities, and other factors.
FORMATION TRANSACTIONS
The principal transactions in connection with the formation (the
"Formation") of the Company as a REIT and the acquisition of the Initial Hotels
by the Partnership (the "Formation Transactions") are as follows:
- The Company was formed as an Ohio corporation in February 1996 and issued
one Common Share to Raymond P. Heitland.
- Upon completion of the Offering, the Company will contribute
approximately $119 million of the net proceeds to the Partnership in
exchange for an approximately 80.3% equity interest as the sole general
partner of the Partnership, and will lend approximately $40 million of
the net proceeds to the Partnership in exchange for a note (the
"Intercompany Convertible Note") bearing interest initially at % per
annum, which is convertible by the Company into equity interests in the
Partnership based on the initial public offering price of the Common
Shares.
- After the Contributed Partnerships convey certain working capital assets
and liabilities to the Initial Lessee, certain Boykin Group Affiliates,
the Other Partners and the Boykin Associates will contribute their
interests in the Contributed Partnerships to the Partnership and
indemnify the Partnership against liabilities of the Contributed
Partnerships other than the mortgage indebtedness to be discharged by the
Partnership. The Partnership will thereby acquire a 100% ownership
interest in all of the Initial Hotels for an aggregate of approximately
1.49 million Units (valued at approximately $32.8 million), approximately
$9.2 million in cash, the repayment of approximately $8.0 million of
existing indebtedness on the Initial Hotels, and the assumption of
approximately $ million of mortgage indebtedness to be repaid from
the proceeds of the Offering. See "Risk Factors -- Lack of Independent
Appraisals and Arm's-Length Negotiations" for a discussion of the
valuation matters considered in connection with the Formation
Transactions.
- The recipients of Units will have rights (generally not exercisable until
the third anniversary of the closing of the Offering, in the case of the
Boykin Group Affiliates and Boykin Associates) to exchange their Units
for cash (the "Exchange Rights"), subject to the Company's right to issue
Common Shares for those Units on a one-for-one basis.
- The Partnership will use approximately $136.6 million to repay
third-party mortgage indebtedness encumbering the Initial Hotels,
approximately $3.5 million to create the Capital Expenditures Fund, and
approximately $1.7 million for formation costs, working capital and other
general partnership purposes.
- Robert and John Boykin will form the Initial Lessee, which will succeed
to the business of Boykin Management, and the Partnership will lease each
Initial Hotel to the Initial Lessee pursuant to a Percentage Lease.
- The Initial Lessee will assume the liquor licenses, franchise agreements
and other licenses and permits and certain working capital liabilities of
the Initial Hotels.
9
<PAGE> 16
- Robert W. Boykin will resign from Boykin Management and become the
Chairman, President and Chief Executive Officer of the Company and will
enter into the employment agreement and be granted the stock options
described under "Management -- Employment Agreements" and "Management --
Executive Compensation."
The Formation Transactions benefits to the Boykin Group Affiliates, the
Boykin Associates and the Other Partners, in addition to those described above,
include: (i) increased cash distributions to recipients of Units from the
operations of the Initial Hotels, because of the prepayment of mortgage debt;
(ii) elimination of approximately $5.3 million of mortgage debt guaranties;
(iii) the ability to exchange Units received in the Formation Transactions for
cash or, at the Company's election, Common Shares with registration rights,
which will be more liquid than their interests in the Initial Hotels; (iv)
deferral of income tax by contributing their interests in the Contributed
Partnerships; (v) repayment from the proceeds of the Offering of $3.1 million of
loans made by Boykin Management to one of the Initial Hotels; (vi) realization
of an immediate accretion in the net tangible book value of their investment in
the Partnership of $52.55 per Unit (an aggregate accretion of $71.6 million; and
(vii) receipt by Robert W. Boykin, Raymond P. Heitland and Mark L. Bishop of
options to purchase 250,000, 75,000 and 75,000 Common Shares, respectively,
under the Company's Long Term Incentive Plan. In addition, Robert and John
Boykin will indirectly own all of the interests in the Initial Lessee, which
will be entitled to all profits and cash flow from the Initial Hotels after
payment of rent under the Percentage Leases and other operating expenses.
ORGANIZATIONAL CHART
As a result of the Offering and the Formation Transactions, the
relationships among the Company, the Partnership, the Initial Hotels and the
Initial Lessee will be as follows:
[GRAPHIC]
- ---------------
(1) Assumes conversion of the Intercompany Convertible Note into general
partnership interests.
(2) Robert W. Boykin, John E. Boykin and Raymond P. Heitland will own 653,582,
552,038 and 9,682 Units, respectively (6.98%, 5.89% and less than 1.0%,
respectively, of the Company, assuming conversion of those Units into Common
Shares). See "Principal Shareholders of the Company."
(3) Robert W. Boykin and John E. Boykin are the sole beneficial owners of Boykin
Management Company Limited Liability Company.
10
<PAGE> 17
SUMMARY FINANCIAL INFORMATION
The following table sets forth unaudited summary pro forma consolidated
financial information for the Company, unaudited summary pro forma financial
information for the Initial Lessee and summary combined historical financial
information for the Initial Hotels, which are presented as the Initial Hotels
(Excluding Lake Norman Hotels), and the Lake Norman Hotels. This information
should be read in conjunction with the financial statements and the notes
thereto contained elsewhere in this Prospectus. The pro forma operating
information for the Company and for the Initial Lessee is presented as if the
Offering, the Formation Transactions and the beginning of the relevant lease
year had occurred on January 1, 1995. The pro forma balance sheet data is
presented as if the Offering and the Formation Transactions had occurred on June
30, 1996.
BOYKIN LODGING COMPANY
SUMMARY CONSOLIDATED PRO FORMA FINANCIAL DATA (1)
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -------------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ---------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Percentage Lease revenue(3)... $ 25,521 $ 27,166 $12,277 $13,922
---------- ---------- ------- -------
Depreciation.................. 9,544 9,544 4,772 4,772
Real estate and personal
property taxes, property
and casualty insurance and
ground rent................ 3,893 3,935 1,973 2,015
General and
administrative(4).......... 1,450 1,450 725 725
Minority Interest(5).......... 1,691 1,946 764 1,019
---------- ---------- ------- -------
Total Expenses and Minority
Interest................... 16,578 16,875 8,234 8,531
---------- ---------- ------- -------
Net income attributable to
Common Shares.............. $ 8,943 $ 10,291 $ 4,043 $ 5,391
========== ========== ======= =======
Net Income per Common Share... $ 1.14 $ 1.31 $ .51 $ .68
Weighted average number of
Common Shares
outstanding................ 7,875 7,875 7,875 7,875
OTHER DATA:
Funds From Operations(6)...... $ 20,178 $ 21,781 $ 9,579 $11,182
Additions to Capital
Expenditures Fund(7)....... (3,373) (3,492) (1,654) (1,773)
Cash Available For
Distribution(8)............ 16,805 18,289 7,925 9,409
Distributions(9)..............
Number of Common Shares and
Units outstanding.......... 9,365 9,365 9,365 9,365
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
----------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel
properties, net............ $115,990
Total assets.................. 120,894
Total debt.................... -0-
Minority interest in
Partnership................ 18,906
Shareholders' equity.......... 99,997
</TABLE>
11
<PAGE> 18
INITIAL LESSEE
SUMMARY PRO FORMA FINANCIAL DATA(1)
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -------------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ---------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Room revenue.................. $ 54,785 $ 57,298 $27,398 $29,911
Food and beverage revenue..... 23,643 23,980 11,711 12,048
Other revenue -- Initial
Hotels..................... 4,643 4,760 2,237 2,354
---------- ---------- ------- -------
Total revenues of Initial
Hotels................... 83,071 86,038 41,346 44,313
Other revenue -- Initial
Lessee..................... 2,051 2,270 1,042 1,355
---------- ---------- ------- -------
Total revenues............. 85,122 88,308 42,388 45,668
---------- ---------- ------- -------
Operating expenses............ 56,601 58,315 28,090 29,899
Cost of goods sold of Initial
Lessee..................... 1,254 1,438 511 756
Percentage Lease
payments(3)................ 25,521 27,166 12,277 13,922
---------- ---------- ------- -------
Total expenses............. 83,376 86,919 40,878 44,577
---------- ---------- ------- -------
Income before extraordinary
items...................... $ 1,746 $ 1,389 $ 1,510 $ 1,091
========== ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
-----------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 3,833
Total assets................... 11,429
Equity......................... 3,000
</TABLE>
12
<PAGE> 19
INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS)
SUMMARY COMBINED HISTORICAL FINANCIAL DATA
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(2) JUNE 30,(2)
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue................ $ 42,645 $ 45,200 $ 45,753 $ 48,652 $ 50,730 $25,631 $ 27,845
Food and beverage revenue... 21,791 22,514 22,357 22,811 22,984 11,411 11,763
Other revenue............... 3,334 3,634 3,977 4,092 4,490 2,159 2,266
-------- -------- -------- -------- -------- ------- --------
Total revenues............ 67,770 71,348 72,087 75,555 78,204 39,201 41,874
-------- -------- -------- -------- -------- ------- --------
Departmental and other
expenses.................. 51,321 52,248 53,242 53,967 54,629 27,161 28,864
Real estate and personal
property taxes, insurance
and rent.................. 2,534 2,988 3,112 3,329 3,579 1,818 1,863
Depreciation and
amortization.............. 5,663 5,822 5,822 5,690 6,545 2,990 3,528
Interest expense............ 12,557 12,997 12,375 12,397 14,169 6,452 7,367
Gain on property insurance
recovery.................. -- -- -- -- (670) -- --
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary items....... (4,305) (2,707) (2,464) 172 (48) 780 252
Extraordinary item -- gain
(loss) on early
extinguishment of debt.... -- -- -- -- 556 556 (1,315)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)......... $ (4,305) $ (2,707) $ (2,464) $ 172 $ 508 $ 1,336 $ (1,063)
========= ========= ========= ========= ========= ======== =========
BALANCE SHEET DATA:
Investment in hotel
properties, net........... $ 66,238 $ 62,497 $ 59,457 $ 58,527 $ 70,577 N/A $ 68,204
Total assets................ 74,380 70,823 68,757 68,688 83,332 N/A 83,421
Mortgage notes payable...... 114,132 113,333 112,660 111,788 122,203 N/A 123,726
Total partners' deficit..... (61,256) (64,458) (66,795) (67,197) (56,260) N/A (57,192)
CASH FLOW DATA:
Net cash provided by
operating activities...... N/A N/A $ 3,723 $ 7,700 $ 7,175 $ 5,853 $ 3,326
Net cash used for investing
activities................ N/A N/A (2,771) (4,746) (4,244) (2,006) (1,546)
Net cash used for financing
activities................ N/A N/A (635) (1,488) (4,018) (3,287) (842)
OTHER DATA:
EBITDA(10).................. $ 13,915 $ 16,112 $ 15,733 $ 18,259 $ 19,996 $10,222 $ 11,147
</TABLE>
13
<PAGE> 20
LAKE NORMAN HOTELS
SUMMARY COMBINED HISTORICAL FINANCIAL DATA
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(2) JUNE 30,(11)
---------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue.................. $2,643 $2,596 $2,764 $3,200 $3,764 $1,767 $ 2,066
Food and beverage
revenue(12)................ 612 681 300 -- -- -- 223
Other revenue................. 117 132 149 153 124 78 88
------ ------ ------ ------ ------ ------ -------
Total revenues........ 3,372 3,409 3,213 3,353 3,888 1,845 2,377
------ ------ ------ ------ ------ ------ -------
Departmental and other
expenses................... 2,485 2,605 2,224 2,096 2,437 1,244 1,580
Real estate and personal
property taxes, insurance
and rent................... 125 130 129 96 106 55 52
Depreciation and
amortization............... 601 606 577 523 466 289 289
Interest expense.............. 507 401 289 326 415 759 759
------ ------ ------ ------ ------ ------ -------
Net income (loss)..... $ (346) $ (333) $ (6) $ 312 $ 464 $ (502) $ (303)
====== ====== ====== ====== ====== ====== =======
BALANCE SHEET DATA:
Investment in hotel
properties, net............ $7,268 $6,807 $6,276 $5,888 $5,739 N/A $ 9,438
Total assets.................. 7,803 7,218 6,846 6,452 6,229 N/A 10,465
Mortgage notes payable........ 6,050 5,860 5,595 5,318 5,057 N/A 9,618
Total partners' equity........ 1,372 988 982 894 938 N/A 456
CASH FLOW DATA:
Net cash provided by (used
for) operating
activities................. N/A N/A $ 477 $ 804 $ 938 $ (54) $ 155
Net cash used for investing
activities................. N/A N/A (30) (129) (311) (247) (51)
Net cash used for financing
activities................. N/A N/A (265) (677) (681) (43) (49)
OTHER DATA:
EBITDA(10).................... $ 762 $ 674 $ 860 $1,161 $1,345 $ 546 $ 745
- ---------------
<FN>
1. The pro forma information does not purport to represent what the Company's
or the Initial Lessee's financial position or results of operations would
actually have been if the consummation of the Formation Transactions had, in
fact, occurred on such dates, or to project the Company's or the Initial
Lessee's financial position or results of operations at any future date or
for any future period.
2. Eight of the Initial Hotels utilize December 31 as year-end for financial
reporting purposes and one of the Initial Hotels utilizes a September 30
fiscal year-end. For pro forma purposes, adjustments have been made to
conform the year-ends of all the Initial Hotels to stated periods shown. For
historical financial reporting purposes of the Initial Hotels (Excluding the
Lake Norman Hotels), for the five years ended December 31, 1995, the
September 30 financial data of the Initial Hotel having a September 30
fiscal year end have been combined with the December 31, 1995 financial data
of the other Initial Hotels. For the twelve months ended June 30, 1996 and
six month periods ended June 30, 1995 and 1996, the financial data of the
hotel with the September 30 year end have been combined using the same month
and periods as the other eight hotels. In the opinion of management, the
impact of using the different interim period ends is not material.
3. Represents lease payments from the Initial Lessee to the Partnership
calculated on a pro forma basis by applying the rent provisions in the
Percentage Leases to the historical revenues of the Initial Hotels for the
period indicated, including for the Melbourne Quality Suites Inn an
additional $725 of rent for the year ended December 31, 1995 and the 12
months ended June 30, 1996, required under the rental interruption
</TABLE>
14
<PAGE> 21
insurance provision of the Percentage Lease agreements. The rent formula
utilized in computing the pro forma Percentage Lease revenue and expense
includes, for the calendar year 1995, an adjustment to reduce the threshold
revenue amounts in the Percentage Lease formulas by the 2.5% increase in the
Consumer Price Index for that year.
4. Estimated at $1.45 million annually for salaries, professional fees,
directors' and officers' insurance, directors fees and expenses and other
general and administrative expenses associated with being a public company.
5. Calculated as 15.9% of the income before minority interest.
6. Represents Funds From Operations of the Company, on a consolidated basis.
The following table computes Funds From Operations for the twelve months
ended June 30, 1996 under the newly adopted National Association of Real
Estate Investment Trusts ("NAREIT") definition. Funds From Operations
consists of income (loss) before minority interest (computed in accordance
with generally accepted accounting principles) excluding gains (losses) from
debt restructuring and sales of property (including furniture and equipment)
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Industry analysts consider
Funds From Operations to be an appropriate measure of the performance of an
equity REIT. Funds From Operations should not be considered as a basis for
computing distributions or as an alternative (i) to net income or other
measurements under generally accepted accounting principles, as an indicator
of operating performance, or (ii) to cash flows from operating, investing,
or financing activities, as a measure of liquidity. Funds From Operations
does not reflect cash expenditures for capital improvements or principal
amortization of indebtedness on the Initial Hotels.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
-------------------
<S> <C>
Net income............................................. $10,291
Minority interest...................................... 1,946
Depreciation........................................... 9,544
----------
Funds From Operations.................................. $21,781
==========
</TABLE>
7. Represents additions to the Capital Expenditures Fund calculated as 4% of
total revenue of the Initial Hotels, adjusted for $1,261 of additional
revenues at the Melbourne Quality Suites for the year ended December 31,
1995 and the twelve months ended June 30, 1996 as required under the rental
interruption insurance provision of the Percentage Leases.
8. Calculated as Funds From Operations less additions to the Capital
Expenditures Fund.
9. Represents estimated initial dividends to be paid based on the initial
dividend rate of $ per share and an aggregate of 9,365 Common Shares and
Units outstanding.
10. Represents income (loss) before extraordinary items, excluding depreciation
and amortization, interest expense and gain on property insurance recovery.
11. The Summary Combined Historical Operating Data, Cash Flow Data and Other
Data for the Lake Norman Hotels for the six months ended June 30, 1995 and
1996 are presented on a pro forma basis, making necessary pro forma
adjustments to the historical operating results to reflect additional
depreciation expense associated with the purchase accounting writeup to the
investment in hotel properties, the additional interest expense associated
with the acquisition indebtedness and an increase in management fee expense.
12. From August 1993 until February 1996, the catering, meeting, lounge and
restaurant facilities of the Lake Norman Holiday Inn were operated by a
third party operator. In February 1996, when a Boykin Group Affiliate
purchased the hotel facility, it also purchased the food and beverage
business assets of this operator.
15
<PAGE> 22
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to holders of
Common Shares initially equal to $0. per share ($ per share on an annual
basis), which would represent approximately 95% of the Company's pro forma Cash
Available for Distribution for the twelve months ending June 30, 1996. The
distribution for the period commencing on the completion of the Offering and
ending September 30, 1996 is expected to be a pro rata portion of the initial
quarterly distribution. The Company does not intend to change its estimated
initial distribution per share if the Underwriters' over-allotment option is
exercised. The statements in this paragraph are forward-looking statements
involving certain risks and uncertainties that could cause actual results to
differ materially from those projected in such statements. Factors that might
cause such differences are discussed elsewhere in this Prospectus. See
"Distribution Policy" for information regarding the basis for the Company's
estimates, and "Risk Factors." The declaration and payment of any distributions
by the Company will be at the discretion of the Company's Board of Directors and
will depend on, among other things, the Company's receipt of cash distributions
from the Partnership, the Company's level of indebtedness, any contractual
restrictions, and other factors considered relevant by the Board. The level of
the Partnership's cash distributions will be determined by the Partnership in
light of its cash needs, including its requirements for investing and financing
activities and other anticipated cash needs. The Partnership's principal source
of revenue initially will be payments of rent by the Initial Lessee under the
Percentage Leases. See "Risk Factors -- Hotel Industry Risks -- Seasonality" for
a discussion of the effect of the seasonal nature of hotel revenues on the
Company's receipt of rent payments from the Initial Lessee.
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ending December 31,
1996. If the Company qualifies as a REIT, under current Federal income tax laws
the Company generally will not be subject to federal income tax on income it
distributes to shareholders as long as it distributes at least 95% of its REIT
taxable income currently and satisfies a number of organizational and
operational requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates, which would effectively impose on the Company's shareholders the "double
taxation" that generally results from investment in a corporation. The Company
will receive an opinion of its counsel in connection with the closing of the
Offering to the effect that, based on certain representations made by the
Company and certain assumptions, the Company will be organized in conformity
with the requirements for qualification as a REIT under the Code and that the
method of operation of the Company and the Operating Partnership will permit the
Company to continue to so qualify for its current and future taxable years. See
"Risk Factors -- Tax Risks -- Failure to Qualify as a REIT" and "Federal Income
Tax Considerations." Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and will be subject to Federal and state income taxes and may be
subject to excise taxes on its undistributed income.
16
<PAGE> 23
THE OFFERING
All Common Shares offered hereby are being offered by the Company.
<TABLE>
<S> <C>
Common Shares offered:............................. 7,875,000 shares(1)
Common Shares and Units to be outstanding after the
Offering......................................... 9,365,000 shares(2)
Use of Proceeds:................................... Acquisition of the Initial Hotels;
repayment of mortgage indebtedness
relating to the Initial Hotels
(including prepayment penalties);
repayment of loans made by Boykin
Management and by certain Other Partners
to one of the Initial Hotels;
contribution to the Capital Expenditures
Fund; and formation costs, working
capital and other general purposes. See
"Use of Proceeds."
Proposed New York Stock Exchange symbol............ BOY
- ---------------
<FN>
(1) Assumes the Underwriters' over-allotment option is not exercised.
(2) Includes 1,490,000 shares issuable on exchange of 1,490,000 Units. Does not
give effect to the 1,000,000 Common Shares issuable under the Company's Long
Term Incentive Plan or to the Common Shares subject to the options covering
25,000 Common Shares to be granted to the Company's Independent Directors upon
completion of the Offering. See "Management -- Long-Term Incentive Plan" and
"-- Compensation of Directors."
</TABLE>
17
<PAGE> 24
RISK FACTORS
This Prospectus contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to (i) the declaration or
payments of dividends; (ii) the leasing, management or operation of the Initial
Hotels and of hotels to be acquired; (iii) the adequacy of reserves for
renovation and refurbishment; (iv) potential acquisitions by the Company; (v)
the use of the proceeds of the Offering; (vi) the Company's financing plans;
(vii) the Company's policies regarding investments, dispositions, financings,
conflicts of interest and other matters; (viii) the Company's qualification and
continued qualification as a REIT; and (ix) trends affecting the Company's or
any hotel's financial condition or results of operations.
Prospective investors are cautioned that any such forward-looking statement
is not a guarantee of future performance and involves risks and uncertainties,
and that actual results may differ materially from those in the forward-looking
statement as a result of various factors. The accompanying information contained
in this Prospectus, including without limitation the information set forth below
and the information under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Policies and Objectives with
Respect to Certain Activities" and "Federal Income Tax Considerations,"
identifies important factors that could cause such differences. With respect to
any such forward-looking statement that includes a statement of its underlying
assumptions or bases, the Company cautions that, while it believes such
assumptions or bases to be reasonable and has formed them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material depending on
the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.
Accordingly, prospective investors should carefully consider, among other
factors, the matters described below, each of which could have adverse
consequences to the Company and adversely affect the value of the Common Shares.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of Robert W. Boykin, Chairman,
President and Chief Executive Officer, Raymond P. Heitland, Chief Financial
Officer and Treasurer, and Mark L. Bishop, Senior Vice President -- Acquisitions
and Development. The loss of the services of any of these executive officers
could have a material adverse effect on the performance of the Company. The
Company does not maintain a "key-man" life insurance policy with respect to any
executive officer.
CONTROL BY BOYKIN GROUP AND LACK OF SHAREHOLDER CONTROL
Upon completion of the Offering, Robert and John Boykin (who are brothers)
will have the ability to acquire in the aggregate approximately 12.9% of the
Company through their direct or indirect ownership of Units that they may
exchange for Common Shares on a one-for-one-basis (subject to the Company's
right to pay cash in lieu of issuing shares), commencing on the third
anniversary of the closing of the Offering. Robert Boykin will also have
significant control over the operations of the Company as a result of his senior
management position with the Company. Robert and John Boykin will have
significant control over the operations of the Initial Lessee as a result of
their ownership interests and directorships in the Initial Lessee and John
Boykin's senior management position with the Initial Lessee. See "Lessees -- The
Initial Lessee" and "Management." Accordingly, Robert and John Boykin and their
Affiliates will have substantial influence over the Company, which influence may
not necessarily be consistent with the interests of other shareholders.
The investment and financing policies of the Company and its policies with
respect to certain other activities, including its growth, capitalization,
distributions, REIT status and operating policies, are determined by the Board
of Directors. These policies may be changed from time to time at the discretion
of the Board of Directors without a vote of the shareholders of the Company,
although the Board of Directors has
18
<PAGE> 25
no present intention to make any such change. Any such change could be
detrimental to the value of the shareholders' interests in the Company.
DEPENDENCE ON LESSEES
The Company will lease the Initial Hotels to the Initial Lessee under the
Percentage Leases and expects to lease any hotels acquired after completion of
the Offering to the Initial Lessee or to other lessees under similar leases. As
a result, the Company will be dependent on lessees for all of its operating
income. The Initial Lessee may be subject to obligations to and possible claims
of third parties arising out of its subsidiaries' separate operating activities.
See "The Lessees -- The Initial Lessee." The incurrence of any such liabilities
could have a material adverse effect on the Initial Lessee's ability to perform
under the Percentage Leases and any other leases between the Company and the
Initial Lessee. The Initial Lessee's obligations under the Percentage Leases are
unsecured.
Each lessee is expected to hold in its name the franchise licenses, liquor
licenses and other operating licenses and permits relating to the hotels leased
to it. On a default by a lessee resulting in the termination of any Percentage
Lease or other lease, the franchise license, liquor licenses and operating
licenses and permits held by the lessee with respect to the affected property
will not devolve automatically on a successor operator designated by the
Company, and the process of transferring those licenses and permits to a
successor operator may be costly and time-consuming. Furthermore, any default by
a lessee under any such franchise license, liquor license or operating license
or permit could result in the loss or suspension of that license or permit. The
Company may be adversely affected as a result of any loss, suspension or delay
in reinstating or transferring any such license or permit.
If the Company terminates any Percentage Lease or other lease following a
default by a lessee, the Company will have to re-lease the affected property in
order to maintain its qualification as a REIT. There can be no assurance that
the Company would be able to do so on terms substantially similar to those
contained in the terminated lease. The Company also may have to incur
substantial expenditures in connection with any such re-leasing. Moreover, in
the event of a bankruptcy of a lessee, the Company's ability to re-lease the
affected hotels or recover damages based on the default under or rejection of
the relevant leases by the lessee would be adversely affected.
With respect to any hotel property acquired by the Company following the
Offering, the Company will seek to enter into a lease with the Initial Lessee or
another lessee on terms substantially similar to the Percentage Leases. The
inability to conclude any such lease or any lease with a different lessee, or
any delay in establishing the terms thereof, could adversely affect the
Company's ability to expand its portfolio of properties.
HOTEL INDUSTRY RISKS
Operating Risks. The Company's hotel properties will be subject to all
operating risks common to the hotel industry. These risks include, among other
things, competition from other hotels; overbuilding in the hotel industry, which
has adversely affected occupancy and room rates; increases in operating costs
attributable to inflation and other factors, which increases have not
consistently been, and may not necessarily in the future be, offset by increased
room rates; significant dependence on business and commercial travelers and
tourism; increases in energy costs and other expenses of travel; and adverse
effects of general and local economic conditions. The Company's hotel properties
are also subject to risks associated with food and beverage operations and risks
presented by governmental regulations and authorities, particularly with respect
to liquor licenses, which could result in interruptions in food and beverage
operations. These factors could adversely affect a lessee's ability to make
lease payments and therefore the Company's ability to make expected
distributions to shareholders.
Competition. The Company's hotel properties will compete with other hotel
properties in their geographic markets. The Company may also be competing for
investment opportunities with entities that have substantially greater financial
resources than the Company. These entities may generally be able to accept more
risk than the Company can prudently manage, including risks with respect to the
creditworthiness of
19
<PAGE> 26
entities in which investments may be made or risks attendant to a geographic
concentration of investments. Competition may generally reduce the number of
suitable investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell.
Investment in Single Industry. The Company's current strategy is to acquire
interests in hotel properties. The Company does not expect to seek to diversify
its real estate investments, and will therefore be subject to risks inherent in
investments in a single industry.
Seasonality. The hotel industry is seasonal. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
While the Initial Hotels in Florida generate comparatively greater revenues from
January through April than the other Initial Hotels, the Initial Hotels continue
to experience this quarterly effect on an aggregate basis. This effect can be
expected to cause quarterly fluctuations in the Company's lease revenues.
Notwithstanding these fluctuations, the Company does not expect this seasonality
to affect its quarterly dividend payments.
Limited Number of Hotels; Geographic Concentration. The Company initially
will own nine hotels, two of which, containing approximately 32% of the rooms of
the Initial Hotels, are in the Cleveland, Ohio market. Significant adverse
changes in the operating results of any of the Initial Hotels, or in economic
conditions in any of the Company's markets, could have a material adverse effect
on lease revenues and on the Company's ability to make expected distributions to
its shareholders.
Franchise Risks. The Initial Hotels are subject to franchise agreements.
The Company expects that hotels that it may acquire will also be subject to
franchise agreements. The failure of an Initial Hotel, the Company, the Initial
Lessee or another Company lessee to meet standards imposed by a franchisor or
otherwise to adhere to a franchise agreement could result in the loss or
cancellation of the franchise agreement. A franchisor also could condition the
continuation of a franchise agreement on the completion of capital improvements
that the Company determines are unwarranted in light of economic conditions. In
that event, the Company may elect to allow a franchise agreement to lapse. If
any franchise is terminated or expires, the Company and the lessee may seek to
obtain a suitable replacement franchise or to operate the affected property
independently of a franchise agreement. The loss of a franchise could have a
material adverse effect on the operations or the underlying value of the hotel
covered by the franchise because of the loss of associated name recognition,
marketing support and centralized reservation systems provided by the
franchisor. In addition, a franchisor may seek to impose a charge as a condition
to consenting to a proposed sale or lease of a hotel property. The Percentage
Leases require the Initial Lessee to cooperate with the Company in its efforts
to effect relevant sales and leases without incurring such charges.
The franchise agreements with Marriott governing five of the Initial Hotels
contain a provision requiring the franchisee, on receiving a bona fide offer to
buy the related Initial Hotel, to give the franchisor the option to buy that
hotel on the same terms as are contained in that offer. These agreements also
require Marriott's consent to the sale of the hotel and, subject to certain
conditions, to the incurrence and refinancing of indebtedness secured by the
hotel, which Marriott may not unreasonably withhold. These provisions may
inhibit the Company's ability to sell the hotels. The Marriott Franchise
Agreements also require the Company, upon a default under the franchise
agreement by the Initial Lessee, (i) to arrange for a replacement lessee,
acceptable to Marriott, for the remainder of the franchise term, and (ii) to
guarantee the performance of certain obligations of the Initial Lessee,
including the payment of specified fees, the making of required renovations and
other capital improvements, the replacement of FF&E and certain equipment and
materials, the maintenance of insurance, and certain other obligations relating
to the maintenance of the Marriott system's standards.
Renovation and Capital Improvements Requirements. Hotel properties require
continuing renovation and capital improvements, including periodic refurbishment
and replacement of FF&E, to remain competitive. While the Company will maintain
the Capital Expenditures Fund to fund such renovations and improvements,
required expenditures could exceed the Company's expectations. If that occurs,
the incremental costs could adversely affect Cash Available for Distribution. In
addition, renovations and other capital improvements
20
<PAGE> 27
entail certain risks, including environmental risks, construction cost overruns
and delays, and unanticipated downturns in demand or unanticipated emergence of
competition in the affected market.
CONFLICTS OF INTEREST
Conflicts Between Initial Lessee's Interests and Company's
Interests. Robert and John Boykin will derive benefits from the operation of the
Initial Hotels by the Initial Lessee. Accordingly, they have faced conflicts of
interest in connection with the structuring of the Percentage Leases and may
face such conflicts upon renewals thereof. They will also face conflicts of
interest in connection with the structuring of leases for hotels the Company may
acquire in the future and lease to the Initial Lessee and in operating the
Initial Hotels and such other acquired hotels in a manner that may maximize
profits for the Initial Lessee without necessarily benefiting the Company.
Determinations to be made on behalf of the Company in connection with any such
conflict will be subject to the approval of the Company's Independent Directors.
See "Policies and Objectives with Respect to Certain Activities -- Conflict of
Interest Policy."
Differing Consequences of Sale of Hotels. Unlike public shareholders
purchasing Common Shares in the Offering, certain Boykin Group Affiliates will
own interests in the Partnership in addition to Common Shares. As a result, the
sale of the Initial Hotels by the Partnership may result in different and more
adverse tax consequences to these Boykin Group Affiliates than would be
experienced by the Company and the public shareholders, and they may seek to
influence the Company not to sell an Initial Hotel even though that sale might
otherwise be financially advantageous to the Company and the public
shareholders. In addition, if the Company sells an Initial Hotel to a
non-Affiliate and terminates the related Percentage Lease in connection
therewith, the Company must pay the Initial Lessee the fair market value of its
leasehold interest in the remaining term of that Percentage Lease.
Conflicting Interests in Enforcement of Terms of Certain Agreements; Time
Allocation Conflicts. Robert W. Boykin will have a conflict of interest with
respect to his obligations as an executive officer and director of the Company
to enforce the terms of certain agreements being entered into in connection with
the Formation, including the Percentage Leases, his and certain Boykin Group
Affiliates' noncompetition agreements with the Company, the agreements relating
to the conveyance to the Company of the Initial Hotels and certain related
assets, and the Intercompany Convertible Note. Any failure to enforce the
material terms of any of these agreements, including the indemnification
provisions for breaches of representations and warranties contained in the
agreements governing the contribution of the Initial Hotels, could have a
material adverse effect on the Company. Mr. Boykin, who will be an officer and
director of the Company and a director of the Initial Lessee, may also face
conflicts of interest with respect to the allocation of his time and resources.
See "Policies and Objectives with Respect to Certain Activities -- Conflict of
Interest Policy."
Affiliates' Participation in Other Activities. At the time of the Formation
Transactions, subsidiaries of the Initial Lessee will acquire and continue the
third-party hotel management, interior design and purchasing services businesses
of Boykin Management. John E. Boykin will serve as the initial Secretary of the
subsidiaries. The subsidiaries initially will manage 12 hotels, none of which is
owned by the Company, Boykin Management or any other Boykin Group Affiliate.
Three of these hotels are Hampton Inns in the Chicago, Illinois area, containing
an aggregate of 366 rooms. These hotels are owned by an insurance company and
have been managed by Boykin Management since December 1995. Another of these
hotels is the 400-room Hanalei Best Western Hotel, in San Diego, California. The
Boykin Group has managed this property, which is owned by another insurance
company, since 1992. The remaining eight managed hotels, which Boykin Management
has managed since February 1996 on behalf of an institutional investor, contain
an aggregate of 1,154 rooms and are located in Santa Barbara County and Ventura
County, California.
William, Robert and John Boykin hold interests in a joint venture formed to
purchase, other than for hotel purposes, a six-acre parcel in the immediate
vicinity of the Buffalo Marriott Hotel. The Company and the joint venture have
entered into an agreement that provides for certain cross-easements between the
properties and provides that the land will contain specific deed restrictions to
prevent the development of any hotel thereon.
21
<PAGE> 28
William J. Boykin, the retired Chairman of Boykin Management and the father
of Robert and John Boykin, is developing a Hampton Inn on certain real property
owned by him in Miami, Florida that is adjacent to a shopping center developed
by him in 1989. The hotel is expected to open in the fall of 1996. No other
Boykin Group Affiliate will have an interest in the development of this hotel,
but the Company will have a right of first refusal to purchase the hotel if
William J. Boykin elects to sell it.
LACK OF INDEPENDENT APPRAISALS AND ARM'S-LENGTH NEGOTIATIONS
No independent appraisals were obtained or arm's length negotiations
conducted in connection with the formation of the Company. The terms of the
contribution of the Initial Hotels to the Company were determined by the
principals of the Boykin Group, who will receive an economic benefit as a result
of these contributions. The Company believes it is appropriate to value the
Company as a going concern, rather than with a view toward values that could be
obtained from a liquidation of the Company or of the assets owned by the
Company. Accordingly, the valuation of the Company has been determined based
primarily on an estimate of the Company's Cash Available for Distribution,
rather than on an asset-by-asset valuation based on historical costs or current
market value. No assurance can be given that the value of the economic benefits
received by the principals of the Boykin Group and other Boykin Group Affiliates
in the formation of the Company accurately reflects the fair market value of the
assets contributed by them to the Company. See "Certain Transactions" and
"Underwriting."
AFFILIATES' BENEFITS FROM THE FORMATION
Certain Boykin Group Affiliates will receive the following benefits as a
result of the Formation Transactions: (i) increased cash distributions from the
operations of the Initial Hotels, because of the prepayment of mortgage debt;
(ii) elimination of approximately $5.3 million of mortgage debt guaranties;
(iii) the ability to exchange Units received in the Formation Transactions for
cash or, at the Company's election, for Common Shares with registration rights,
which will be more liquid than their interests in the Contributed Partnerships;
(iv) deferral of income tax by contributing their interests in the Contributed
Partnerships; (v) repayment from the proceeds of the Offering of approximately
$3.1 million of loans made by Boykin Management for the benefit of one of the
Initial Hotels; (vi) realization of an immediate accretion in the net tangible
book value of their investment in the Partnership of $52.55 per Unit (for an
aggregate accretion of $71.6 million); (vii) receipt by Robert W. Boykin of
options to purchase an aggregate of 20,000 Common Shares under the Company's
Long-Term Incentive Plan; and (viii) beneficial ownership of the Initial Lessee,
which will be entitled to all profits and cash flow from the Initial Hotels
after payment of rent under the Percentage Leases and other operating expenses.
See "The Formation" for further discussion of the benefits to Boykin Group
Affiliates from the Formation Transactions.
REAL ESTATE INVESTMENT RISKS
General. The Company's investments will be subject to varying degrees of
risk generally incident to the ownership of real estate. These risks include,
among others, changes in national, regional and local economic conditions, local
real estate market conditions, changes in interest rates and in the
availability, costs and terms of financing, the impact of present or future
environmental legislation and compliance with environmental laws, the ongoing
need for capital improvements, changes in real estate tax rates and other
operating expenses, adverse changes in governmental laws and rules, the
potential for uninsured or underinsured losses, adverse changes in zoning laws,
and other factors beyond the control of the Company.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio of hotels in
response to changes in economic and other conditions will therefore be limited.
In addition, certain significant expenditures associated with each equity
investment (such as mortgage payments, real estate taxes and maintenance costs)
are generally not reduced when circumstances cause a reduction in income from
the investment. After completion of the Offering and the application of the
proceeds therefrom as set forth under "Use of Proceeds," certain of the Initial
Hotels may be mortgaged to secure the Credit Facility. See "The
Company -- Business Objectives and Strategies -- Financing Strategy."
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Uninsured and Underinsured Losses. The Percentage Leases require the
Initial Lessee to maintain comprehensive insurance on each of the Initial
Hotels, including loss of business income, liability, and employee dishonesty
coverage. The Company is required to maintain building casualty insurance on
each Initial Hotel. Management believes the Initial Hotels' coverage is of the
type and amount, including coverage limits and deductibility provisions,
customarily carried on similar properties. However, there are certain types of
losses, generally of a catastrophic nature, such as earthquakes and floods, that
may be uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its investment in
the affected Initial Hotel as well as the anticipated future revenues from that
hotel, while remaining obligated for any mortgage indebtedness or other
financial obligations related to that hotel.
Acquisition Risks. The Company intends to pursue acquisition of future
hotels selectively. In undertaking these acquisitions, the Company will incur
certain risks, including the expenditure of funds on, and the devotion of
management's time to, transactions that may not come to fruition. Additional
risks inherent in acquisitions include risks that the properties will not
achieve anticipated occupancy levels or sustain anticipated room rate levels,
and that judgments with respect to the cost of improvements to bring acquired
properties to the Company's standards will prove inaccurate. In addition, the
Company anticipates that new acquisitions will be financed under the Credit
Facility or other forms of interim financing, resulting in the risk that
permanent financing may not be available or may be available only on
disadvantageous terms. If permanent financing is not available on acceptable
terms, the Company may be forced to dispose of the affected property or other
property on disadvantageous terms.
Development and Redevelopment Risks. The Company may develop and redevelop
hotels when it believes that doing so is consistent with its business
strategies. While the Company's policies with respect to these activities are
intended to limit some of the risks associated with those activities, new and
continued project development will be subject to a number of risks, including
that financing may not be available on favorable terms that construction costs
of a property may exceed original estimates, that occupancy rates and ADR may
not stabilize at anticipated levels, that financing may not be available on
completion of construction, and that construction may not be completed on
schedule. If the Company undertakes but elects not to proceed with a development
or redevelopment opportunity, the costs associated therewith will ordinarily be
charged against income for the current period. The Company continually attempts
to improve its ability to evaluate projects in advance and to minimize the costs
incurred before it acquires the properties that are the subject of contemplated
development or redevelopment projects. These activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, the necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations.
Property Tax Changes. Under the Percentage Leases, the Company will be
responsible for the payment of real and personal property taxes and assessments.
These taxes and assessments may increase or decrease as property tax rates
change and as the properties are assessed or reassessed by taxing authorities.
If property taxes increase or assessments are levied, the Company's ability to
make distributions to its shareholders could be adversely affected.
Costs of Compliance with Certain Laws. The Initial Hotels must comply with
Title III of the Americans with Disabilities Act (the "ADA") to the extent that
they are "public accommodations" or "commercial facilities" as defined in the
ADA. Noncompliance with the ADA could result in the imposition of fines or an
award of damages to private litigants. The Company believes, based on an
internal review, that the Initial Hotels comply in all material respects with
the ADA and similar applicable state laws. If changes in these laws involve
substantial expenditures or must be made on an accelerated basis, the Company's
ability to make distributions to shareholders could be adversely affected.
Risks Involved in Investments Through Joint Ventures and Other Entities. On
commencement of the Offering, all of the Company's hotels will be owned solely
by the Partnership. However, the Company may in the future invest as a
co-venturer in a hotel property if it will have control of the operation of the
joint venture assets. Any such investment may involve risks such as the
possibility that the co-venturer may become bankrupt or have economic or
business interests or goals that are inconsistent with the business interests or
goals of the Company.
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The Company may also invest in securities of other entities engaged in the
ownership of hotels. Investments of this type may not entitle the Company to
control the ownership and leasing of the underlying hotels or to control
distributions therefrom, which may adversely affect the Company's ability to
make distributions to its shareholders. Furthermore, the Company may be
prevented from controlling an issuer of securities by the percentage limitations
on the ownership of securities and the gross income tests for REIT
qualification. See "Policies and Objectives with Respect to Certain
Activities -- Investment Policies" and "Federal Income Tax
Considerations -- Taxation of the Company as a REIT."
Real Estate Financing Risks. Although the Company initially will have no
debt outstanding, the Company expects to finance future acquisitions in part
through the Credit Facility or other new debt financing. In doing so the Company
will be subject to the risks normally associated with debt financing, including
the risk that the Company's cash flow will be insufficient to meet required
payments of principal and interest, the risk that the Company will not be able
to refinance that indebtedness or that the terms of any such refinancing will
not be as favorable as the terms of the existing indebtedness, and the risk that
necessary capital expenditures for such purposes as renovations and other
improvements cannot be financed on favorable terms, if at all. If the Company
were unable to secure refinancing of any such indebtedness on acceptable terms,
the Company might be forced to dispose of properties on disadvantageous terms,
which could result in losses to the Company and could adversely affect the cash
flow of the Company available for distribution. If the Company incurs variable
rate mortgage indebtedness, an increase in interest rates could have an adverse
effect on the Company's net income and Distributable Cash Flow. In addition, if
a property is mortgaged to secure payment of indebtedness and the Company is
unable to make mortgage payments, the property could be foreclosed upon by, or
otherwise transferred to, the mortgagee with a consequent loss of income and
asset value to the Company. The Credit Facility is expected to be secured by
mortgages on several of the Initial Hotels.
In addition, the Company's need to distribute 95% of its REIT taxable
income in order to maintain its qualification as a REIT will limit its ability
to rely on cash flow from operations to finance new development or acquisitions.
As a result, if permanent debt or equity financing is not available on
acceptable terms to refinance new development or acquisitions undertaken without
permanent financing, further development activities or acquisitions may not be
feasible.
THE COMPANY'S LACK OF OPERATING HISTORY
The Company is a newly formed corporation. Accordingly, the Company does
not have any operating history or experience in operating in accordance with the
requirements for maintaining its qualification as a REIT.
POTENTIAL ADVERSE EFFECT ON THE VALUE OF THE COMMON SHARES OF
FLUCTUATIONS IN INTEREST RATES OR EQUITY MARKETS
The market price of equity securities of a publicly traded REIT is
determined in part by the attractiveness of the yield from distributions on
those securities in relation to prevailing interest rates. Accordingly, an
increase in interest rates generally may lead purchasers of the Common Shares to
demand a higher annual yield, which could adversely affect the market price of
the Common Shares. Moreover, the market value of the Common Shares could be
substantially and adversely affected by changes in general securities market
conditions or fluctuations in the markets for equity securities.
POTENTIAL ENVIRONMENTAL LIABILITY
Under various federal, state and local laws, ordinances, and regulations,
an owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on, under or in the
property. This liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. Furthermore, a person that arranges for the disposal of a hazardous
substance at another property or transports a hazardous substance for disposal
or treatment at another property may be liable for the costs of removal or
remediation of hazardous substances at that property, regardless whether that
person owns or operates that property. The costs of any such remediation or
removal may be substantial, and the presence of any such substance, or the
failure promptly to
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remediate any such substance, may adversely affect the property owner's ability
to sell or lease the property or to borrow using it as collateral. Other
federal, state and local laws, ordinances and regulations require abatement or
removal of certain asbestos-containing materials in connection with demolition
or certain renovations or remodeling, impose certain worker protection and
notification requirements, and govern emissions of and exposure to asbestos
fibers in the air. Other federal, state and local laws, ordinances and
regulations and the common law impose on owners and operators certain
requirements regarding conditions and activities that may affect human health or
the environment. These conditions and activities include, for example, the
presence of lead in drinking water, the presence of lead-containing paint in
occupied structures, and the ownership or operation of underground storage
tanks. Failure to comply with applicable requirements could result in difficulty
in the lease or sale of any affected property or the imposition of monetary
penalties, in addition to the costs required to achieve compliance and potential
liability to third parties. The Company, the Partnership or the Initial Lessee,
as the case may be, may be potentially liable for such costs or claims in
connection with the ownership and operation of the Initial Hotels.
Phase I environmental site assessments or assessment updates have been
completed within the last 24 months on each Initial Hotel, and a Phase II
assessment was conducted for one hotel in April 1996. These assessments did not
reveal any environmental contamination or condition that the Company believes
would have a material adverse effect on the Company's business, assets or
results of operations, nor is the Company aware of any such contamination or
condition. Nonetheless, it is possible that material environmental contamination
or conditions exist of which the Company is unaware.
No assurance can be given that (i) the assessments referred to above
revealed all potential environmental liabilities, (ii) future or amended laws,
ordinances or regulations, or more stringent interpretations or enforcement
policies of existing environmental requirements, will not impose any material
environmental liability or (iii) the environmental condition of the Initial
Hotels has not been and will not be affected by changes in the condition of
properties in the vicinity of the Initial Hotels or by the acts of third parties
unrelated to the Company or the Partnership. See "Business and
Properties -- Environmental Matters."
TAX RISKS
Failure to Qualify as a REIT. The Company intends to operate as a REIT
under the Code, commencing with its initial taxable year ending December 31,
1996. The Company has not requested, and does not expect to request, a ruling
from the IRS regarding its status as a REIT. Qualification as a REIT involves
the application of technical and complex provisions of the Code for which there
are only limited judicial or administrative interpretations. The determination
of various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT, including default by a
lessee under, and a termination of, an operating lease. In addition, no
assurance can be given that legislation, regulations, administrative
interpretations or court decisions will not significantly change the rules
applicable to the Company with respect to its qualification as a REIT or the
federal income tax consequences of such qualification.
The Company will receive an opinion of Baker & Hostetler that, based on the
assumption that the Percentage Leases, the Partnership Agreement, the Company's
organizational documents, and all other documents to which the Company is a
party will be complied with by all parties thereto, and based upon certain
representations of the Company, the Company will qualify as a REIT under the
Code. Investors should be aware, however, that opinions of counsel are not
binding on the IRS or the courts. Both the opinion and the continued
qualification of the Company as a REIT will depend on the Company's continuing
ability to meet various requirements concerning, among other things, the
ownership of its outstanding shares, the nature of its assets, the sources of
its income, and the amount of its distributions to shareholders. See "Federal
Income Tax Considerations -- Taxation of the Company as a REIT."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which REIT qualification was lost. As a result,
the
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cash available for distribution to the shareholders could be reduced or
eliminated for each of the years involved. Although the Company currently
intends to operate in a manner designed to qualify it as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause the
Board of Directors, with the consent of a majority of the shareholders, to
revoke the REIT election.
REIT Minimum Distribution Requirements. In order to qualify as a REIT, the
Company generally will be required each year to distribute to its shareholders
at least 95% of its net taxable income (excluding any net capital gain).
Further, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income plus 95% of
its capital gain net income for that year plus amounts not distributed in prior
years.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Partnership. The Company's cash available for distribution will consist
primarily of cash distributions from the Partnership. Differences in timing
between taxable income and receipt of cash available for distribution and the
seasonality of the hospitality industry could require the Company, through the
Partnership, to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. Under certain
circumstances, the Company may be required from time to time to accrue certain
income items for tax purposes prior to their receipt in cash (for example, rent
earned but not yet received). These differences in timing between the accrual of
certain income items for tax purposes and the receipt thereof could cause the
Company to have taxable income without sufficient cash to make the annual
distributions required of a REIT under the Code. In such cases, the Company may
be compelled to borrow funds or liquidate investments on terms that are
disadvantageous to the Company in order to meet the distribution requirements.
See "Federal Income Tax Considerations."
Distributions by the Partnership will be determined by the Company's Board
of Directors and will be dependent on a number of factors, including the amount
of cash in the Partnership available for distribution, the Partnership's
financial condition, any decision by the Board of Directors to reinvest funds
rather than distributing such funds, the Partnership's capital expenditures, the
annual distribution requirements under the REIT provisions of the Code, and any
other factor the Board of Directors believes is relevant. See "Federal Income
Tax Considerations -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements."
Failure of the Partnership to Be Classified as a Partnership for Federal
Income Tax Purposes: Impact on REIT Status. The Company will receive an opinion
from Baker & Hostetler stating that the Partnership will be classified as a
partnership for federal income tax purposes. If the IRS were to challenge
successfully the tax status of the Partnership as a partnership for federal
income tax purposes, the Partnership would be taxable as a corporation. In that
event, because the value of the Company's ownership interest in the Partnership
(i) constitutes more than 10% of the Partnership's voting securities and (ii)
exceeds 5% of the Company's assets, the Company would cease to qualify as a
REIT. Further, the imposition of a corporate-level tax on the Partnership would
substantially reduce the amount of cash available for distribution to the
Company and its shareholders. See "Federal Income Tax Considerations -- Tax
Aspects of the Company's Investments in the Partnership."
Tax on Net Income from Foreclosure Property. The Company will be subject to
a tax at the highest rate applicable to corporations (currently 35%) on any "net
income from foreclosure property." "Foreclosure property" is property acquired
by the Company as a result of a foreclosure proceeding or by otherwise reducing
such property to ownership by agreement or process of law. "Net income from
foreclosure property" is the gross income derived during the taxable year from
foreclosure property, less applicable deductions, but only to the extent such
income does not qualify under the 75% income test and 95% income test. As a
result of the rules with respect to foreclosure property, if the Initial Lessee
defaults on its obligations under a Percentage Lease for an Initial Hotel, the
Company terminates the Percentage Lease, and the Company is unable to find a
replacement lessee for such Initial Hotel within 90 days of such foreclosure,
gross income from hotel operations conducted by the Company from such Initial
Hotel would cease to qualify for the 75% and 95%
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gross income tests and, thus, the Company would fail to qualify as a REIT;
however, although it is unclear under the Code, if the hotel operations were
conducted by an independent contractor, it may be possible for the Initial Hotel
to be foreclosure property for two years after such foreclosure (which period
could be extended an additional four years) without the disqualifying the
Company as a REIT.
ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT
Generally prohibiting any shareholder from owning more than 9.0% of the
Common Shares may (i) discourage a change in control of the Company, (ii) deter
tender offers for the Common Shares, which may otherwise be attractive to the
Company's shareholders, or (iii) limit the opportunity for shareholders to
receive a premium for their Common Shares that may otherwise exist if an
investor attempted to assemble a block of Common Shares in excess of 9.0% of the
outstanding Common Shares or to effect a change in control of the Company. The
ownership limitation exists to enable the Company to meet the REIT qualification
requirement that not more than 50% in value of its outstanding shares be owned
by five or fewer individuals, while providing the Company's Board of Directors
the flexibility to allow an individual to own more than 10% of the Company's
outstanding shares so long as that ownership will not violate other REIT
qualification requirements. Certain tender offers and invitations for tenders
for more than 10% of the Common Shares of the Company are also subject to
certain advance filing and notification requirements under Section 1707.041 of
the Ohio Revised Code.
NO LIMITATION ON DEBT; ABILITY TO ISSUE PREFERRED SHARES
While the Company will have no outstanding indebtedness on completion of
the Offering, it has obtained a commitment for the Credit Facility from a
lending syndicate led by Lehman Brothers Holdings, Inc., and may incur other
indebtedness in the future. The Company currently has a policy of maintaining a
ratio of debt-to-total market capitalization (i.e., total third-party debt of
the Company as a percentage of the market value of issued and outstanding Common
Shares, including Common Shares issuable on exchange of outstanding Units, plus
total debt, measured at the time the debt is incurred) of not more than 45%. The
Company's organizational documents, however, do not contain any limitation on
the amount or percentage of indebtedness the Company may incur, and the Board of
Directors could alter or eliminate the Company's current borrowing policy. If
this policy were changed or eliminated, the Company could become more highly
leveraged, resulting in an increase in debt service, which could adversely
affect the Company's funds from operations and its ability to make expected
distributions to its shareholders, and in an increased risk of default on the
Company's obligations. The more leveraged a company is, the more likely it is
that a decrease in cash flow would impair its ability to make debt service
payments in the normal course of business. The Company's Articles of
Incorporation authorize the Board of Directors to issue up to 5,000,000
preferred shares and to establish certain preferences and rights of any such
shares issued. See "Description of Capital Stock -- Preferred Shares." While the
Company has no current intention to issue any preferred shares, the issuance of
any such shares with preferential dividend rights could diminish the cash
available for distribution to the holders of Common Shares. In addition, the
issuance of such shares could have the effect of delaying or preventing a change
in control of the Company even if a change in control were in the shareholders'
interest.
The Initial Hotels mortgage indebtedness that is being prepaid in
connection with the Offering includes an aggregate of approximately $67.2
million in principal and interest payable under loans from Lehman Brothers
Holdings, Inc. to the Contributed Partnerships that own four of the Initial
Hotels. See "Use of Proceeds."
DILUTION
Purchasers of the Common Shares will experience immediate and substantial
dilution from the initial public offering price in the net tangible book value
per share of the Common Shares. See "Dilution." Any exercise of options to
purchase Common Shares at a price below the market price of the Common Shares at
the time of exercise will also be dilutive.
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ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES
Prior to the Offering, there has been no public market for the Company's
Common Shares. There can be no assurance that an active trading market will
develop or be sustained following the Offering or that Common Shares may be
resold at or above the initial public offering price. The initial public
offering price will be determined through negotiations between the Company and
the representatives of the Underwriters (the "Representatives") and may not be
indicative of the market price of the Common Shares after the Offering. See
"Underwriting."
LIMITATIONS ON OWNERSHIP OF COMMON SHARES
In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares of the Company may be owned,
directly or indirectly, by five or fewer individuals. Accordingly, the Company's
Articles of Incorporation prohibit ownership of more than 9.0% of the Common
Shares by any single shareholder following completion of the Offering, with
certain exceptions. The Board of Directors may waive this restriction if
evidence satisfactory to it and to the Company's tax counsel is presented
showing that ownership in excess of this limit will not jeopardize the Company's
status as a REIT. See "Capital Stock of the Company -- Restrictions on
Transfer." Accordingly, a holder of Common Shares may be prohibited from
increasing his holdings of Common Shares.
RISK OF HIGH DISTRIBUTION PAYOUT PERCENTAGE
The Company's estimated annual distribution rate to shareholders is 95% of
the Company's estimated Cash Available for Distribution for the twelve months
ended June 30, 1996. See "Distribution Policy." Should actual Cash Available for
Distribution be less than estimated Cash Available for Distribution, the Company
may not be able to achieve and maintain its proposed initial distribution rate.
BOARD'S ABILITY TO CHANGE POLICIES
The principal policies of the Company, including its policies with respect
to acquisitions, financing, growth, operations, debt capitalization and
distributions, will be determined by its Board of Directors. The Board of
Directors may amend or revise these and other policies from time to time without
a vote of the shareholders of the Company. See "Policies and Objectives with
Respect to Certain Activities."
EFFECT ON MARKET PRICE OF SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales, or
the availability of Common Shares for future sale, by the Company or by its
executive officers will have on the market price of the Common Shares prevailing
from time to time. Sales of substantial amounts of Common Shares (including
shares issued on the exercise of options), or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Shares. The Boykin Group Affiliates and Boykin Associates have agreed, subject
to certain limited exceptions, not to offer, sell, contract to sell or otherwise
dispose of any Common Shares for a period of three years after the date of this
Prospectus. See "Shares Available for Future Sale" and "Underwriting."
ERISA
An investment in Common Shares may be an appropriate investment for a
pension, profit sharing, retirement, welfare or other employee benefit plan
subject to ERISA, depending upon the circumstances of the plan. In deciding
whether to purchase Common Shares, a fiduciary of any such plan, in consultation
with its advisors, should carefully consider its fiduciary responsibilities
under ERISA, the prohibited transaction rules of ERISA and the Code, and the
effect of the "plan asset" regulations issued by the U.S. Department of Labor.
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THE COMPANY
GENERAL
The Company was formed to continue and expand the hotel ownership,
acquisition, redevelopment and repositioning activities of the Boykin Group and
will operate as a self-administered equity REIT. The Boykin Group was founded in
1959, and was one of the first franchisees of Marriott Hotels and an early
franchisee of Howard Johnson's Hotels. Since its founding, the Boykin Group has
developed 13 full-service hotels containing a total of 3,085 rooms and has owned
or managed 36 properties containing a total of 6,943 rooms. Upon completion of
the Offering and the Formation Transactions, the Company will own nine hotels
with a total of 2,408 guest rooms. The Company's primary business strategies are
to achieve revenue growth in the Initial Hotels, acquire and lease additional
hotel and resort properties in the upscale and moderate markets on an accretive
basis, strategically renovate and upgrade properties to maximize performance,
and selectively expand and develop additional hotel properties.
Quality of Initial Hotel Portfolio
The Initial Hotels are operated under franchise license agreements with
premiere nationally-recognized hotel chains, including Marriott, Radisson,
Holiday Inn, Quality Suites, and Hampton Inns. Serving both business and leisure
travelers, the Initial Hotels are geographically diversified and located in
Berkeley, California; Buffalo, New York; Cleveland and Columbus, Ohio;
Charlotte, North Carolina; and Ft. Myers and Melbourne, Florida. The Initial
Hotels include eight full-service hotels and one limited-service hotel, all of
which compete in the upscale to moderate price segment of the hospitality
market. For the twelve months ended June 30, 1996, the Initial Hotels had an
average occupancy rate of 76.2%, an ADR of $87.62 and a REVPAR of $66.74. The
Boykin Group developed and has owned and managed seven of the Initial Hotels
since their opening.
Long-standing Management Team
The Company will capitalize on the substantial hotel operating,
development, acquisition and transactional experience of its management and the
Boykin Group. Robert W. Boykin, President and Chief Executive Officer of the
Company, has over 27 years of experience in the hotel industry, all with the
Boykin Group. Raymond P. Heitland, the Company's Chief Financial Officer, has 26
years of industry experience and tenure with the Boykin Group. Mark L. Bishop,
the Company's Senior Vice President -- Acquisitions and Development, has 18
years of industry experience. During the past 10 years, the Company's officers
have directly overseen the acquisition, disposition, recapitalization,
development and repositioning of approximately $750 million of hotel assets
throughout the United States. Upon completion of the Offering, Company
management and their affiliates will own approximately 14.4% of the outstanding
equity of the Company. All future hotel acquisition, development and ownership
activities of the Boykin Group will be conducted through the Company.
Focus on Full-service Hotels
The Company intends to achieve a significant part of its growth through the
acquisition, redevelopment and repositioning of additional full-service hotels.
The Company believes that there are full-service hotel properties that can be
acquired at a discount to replacement cost, and that many of these properties
are located in areas of increasing demand. The Company further believes that the
full-service segment of the market, in particular, has potential for improved
performance as business and leisure travel continues to increase and demand
rises at a faster rate than supply. The Company expects no significant new
supply of full-service hotels over the next several years because current costs
do not justify new hotel construction. While the Company intends to maintain its
focus on full-service hotels, it may also acquire upscale limited-service hotels
in selected cases when doing so will further its strategic objectives. For
example, when the Boykin Group acquired a Holiday Inn in February 1996, it also
acquired a Hampton Inn located in close proximity to enable it to benefit from
cross-over marketing and training and the operating efficiencies achievable
through having multiple hotels in one geographic area.
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Cash Flow Growth
The Company will focus on maximizing cash flow from both the Initial Hotels
and acquired hotels through the implementation of the active asset management
strategies of the Boykin Group. The Company has demonstrated the ability to
increase cash flow from the hotels which it owns. Over the three year and five
year periods ended December 31, 1995, the aggregate revenues of the Initial
Hotels increased at a compound annual rate of 4.4% and 3.6% per year, and EBITDA
from the Initial Hotels increased at a compound average growth rate of 13.4% and
9.8% per year, respectively. The Company believes that it will have long-term
financial stability as a result of its ownership of the Initial Hotels and the
expected growth in its hotel portfolio.
Historical Performance
The current and the historical performance of the Initial Hotels has well
exceeded the industry averages. During the five year period ended December 31,
1995, the Initial Hotels generated REVPAR that exceeded the REVPAR of their
local competing hotels (in each market, six to eight competitors as currently
defined by Boykin Management for performance evaluation purposes and compared
over that period) by 16% on average and exceeded the U.S. average REVPAR for
upscale/moderate full-service hotels by 26%. In 1991, a year generally
considered weak in the hotel industry, REVPAR of the Initial Hotels exceeded the
REVPAR of their local competing hotels by over 19% and exceeded the U.S. average
REVPAR for upscale/moderate full-service hotels by over 29%. The following table
compares average occupancy, ADR and REVPAR for the Initial Hotels with that for
their local competition, all upscale/moderate U.S. hotels and all U.S. hotels
for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OCCUPANCY RATE
Initial Hotels(1)..................... 69.9% 71.6% 72.6% 74.7% 74.9% 74.2% 76.8%
Local Competition(2).................. 66.3% 68.7% 70.3% 71.6% 72.1% 71.9% 73.2%
All U.S. Upscale/Moderate(2).......... 61.9% 63.2% 64.5% 66.1% 66.8% 66.1% 66.8%
All U.S. Hotels(2).................... 60.6% 61.7% 63.0% 64.6% 65.3% 64.4% 65.3%
ADR
Initial Hotels(1)..................... $75.83 $75.45 $75.50 $79.27 $85.47 $84.82 $89.03
Local Competition(2).................. $67.37 $68.02 $69.51 $71.39 $75.45 $75.31 $80.45
All Upscale/Moderate(2)............... $66.46 $66.84 $68.83 $71.71 $75.32 $74.87 $79.85
All U.S. Hotels(2).................... $59.04 $59.92 $61.99 $64.34 $67.43 $67.22 $71.38
REVPAR
Initial Hotels(1)..................... $52.97 $54.05 $54.80 $59.24 $63.98 $62.93 $68.35
Local Competition(2).................. $44.68 $46.75 $48.89 $51.12 $54.39 $54.15 $58.90
All Upscale/Moderate(2)............... $41.12 $42.27 $44.39 $47.39 $50.28 $49.50 $53.36
All U.S. Hotels(2).................... $35.80 $36.94 $39.04 $41.56 $44.04 $43.31 $46.62
- ---------------
<FN>
(1) Source: Company-provided information.
(2) Source: Smith Travel Research (reports dated August 1 and 5, 1996). Smith
Travel Research is not associated in any way with the Company or any of its
Affiliates and has not provided any form of assistance in connection with
the Offering. Local Competition includes Initial Hotels and six to eight
competitors in each market, as currently defined by Boykin Management for
performance evaluation purposes and consistently used for the periods shown.
</TABLE>
Management believes that, while the lodging industry as a whole is
benefiting from an improved supply/demand dynamic, the most significant advances
in revenue growth and profitability will arise from skillful management of hotel
properties. An integral element of this management is the continuous evaluation
of each hotel's position in its market and the implementation, as necessary, of
changes in franchise, theme and customer focus to maximize the continuing
returns from the hotel. The Company attributes the excellent performance of the
Initial Hotels to the successful implementation of this asset management
strategy.
30
<PAGE> 37
Access to Capital
The Company has obtained a commitment for a $75 million Credit Facility for
acquiring hotels without financing contingencies, and will have no outstanding
indebtedness upon completion of the Offering. As a public company, the Company
expects to have access to a wide variety of financing sources to fund
acquisitions, such as the ability to issue public and private debt, equity and
hybrid securities, and the ability to utilize Units as consideration when cash
is not appropriate for tax or other reasons. While its organizational documents
contain no limitation on the amount of debt it may incur, the Company, subject
to the discretion of the Board of Directors, intends to maintain a debt-to-total
market capitalization ratio (measured at the time debt is incurred) of not more
than 45%. The Company may from time to time re-evaluate its debt capitalization
policy in light of economic conditions, relative costs of debt and equity
capital, market values of its properties, acquisition, development and expansion
opportunities and other factors.
BUSINESS OBJECTIVES AND STRATEGIES
The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in value
of the Common Shares. The Company will seek to achieve these objectives through
participation in increased revenues from the Initial Hotels pursuant to the
Percentage Leases and by selective acquisition, ownership, redevelopment,
repositioning and expansion of additional hotel properties. The Company will
seek to continue to invest in properties where the Company's established
industry and marketing expertise enable it to improve the acquired hotels'
performance.
Internal Growth Strategy
The Company believes that, based on historical operating results and the
strength of the Company's management team, portfolio and markets, the Initial
Hotels should provide the Company with the opportunity for cash flow growth
through the Percentage Leases. The Company believes that the revenue and cash
flow of the Initial Hotels will be maximized by intensive management and
marketing. The Company intends to derive increased cash flow through the
application of the Initial Lessee's operating strategies, which include the
active management and balancing of room rates with forecasted room demand in
order to maximize total hotel revenues (a system known as "yield management").
The Company believes that the Initial Lessee's continued commitment to customer
service and the experience of its management team should position the Company to
capitalize on the expected continued strength in the economy and improvement in
the U.S. hotel market. The Company's objectives include enhancing its
competitive market position through the continuation of a regular program of
renovation and capital improvement.
An example of the active yield management employed by the Boykin Group is
its strategies during 1995 at the Cleveland Airport Marriott. The Boykin Group
anticipated increased demand in the business transient sector and scaled back
lower-rated contract rooms in order to maximize revenue. The result was an
increase in room revenues in excess of $800,000 for calendar year 1995 over
1994, and a corresponding increase in REVPAR for the same period of 10.3%. See
"Prospectus Summary -- The Initial Hotels" for information regarding the
operating performance of the Initial Hotels.
Acquisition Strategy
The Company believes that attractive opportunities exist to acquire
full-service hotels serving the upscale and moderate market segments of the
lodging industry. The Company intends to concentrate its investment activities
on hotel properties that are in one or more of the following categories:
Product Type -- Full-service commercial hotels, airport hotels, major
tourist hotels and destination resorts in major markets and business centers.
Market Repositioning Opportunities -- Undervalued hotels whose occupancy,
daily rates and overall revenues can be significantly enhanced through new brand
affiliations, implementation of new marketing strategies and effective yield
management.
31
<PAGE> 38
Redevelopment and Renovation Opportunities -- Hotels with sound operational
fundamentals that, because of a lack of capital, require physical renovation or
redevelopment to achieve their full performance potential.
Portfolio Acquisitions -- Portfolios of hotels which result in geographic
economies of scale or which may be leased back to proven hotel operators as
additional lessees, and that may benefit from the Company's repositioning and
redevelopment experience and access to capital.
As a result of the Company's management's successful transactional
activities, the Company believes it possesses a competitive advantage in market
knowledge, technical expertise and industry relationships that will enable it to
continue to successfully implement its acquisition strategy on a national scale.
Further, the Company believes it will benefit from its continuing relationship
with the Initial Lessee and from developing relationships with additional
lessees who have demonstrated ability to manage hotel properties.
The Company's philosophy is to identify and actively seek hotel properties
that can be associated with the brands that will lead the hospitality industry
in REVPAR, such as Marriott, Radisson, Hilton, Hyatt, Westin, Omni, Doubletree,
Sheraton, Holiday Inn and Quality Suites. The Company believes that it can
maximize its market share and revenues by taking advantage of its orientation
toward sales and marketing to identify the most effective branding and to
leverage its brands with effective direct sales strategies. The Company expects
to continue to affiliate with a number of different franchise companies in order
to maximize the performance of its hotels by providing greater access to a broad
base of national marketing and reservation systems and to mitigate the risks of
franchise loss and franchise overlap. The Company will seek to maintain a
geographically diversified hotel portfolio, and may also cluster hotels within
certain primary markets in order to take advantage of operational and managerial
economies of scale. The Company believes it has the capacity to acquire
additional hotels without significantly increasing management and overhead
expenses.
The Boykin Group's recent purchase of the Lake Norman Holiday Inn and Lake
Norman Hampton Inn exemplifies the strategies described above. The Company
believes that those hotels' present franchise affiliations will enable the
Company to maximize REVPAR in the local market. The hotels' purchase price
represented a significant discount to replacement costs, and the hotels'
historical earnings represented an attractive yield on the purchase price. The
Company believes that the Initial Lessee can increase the ADR and REVPAR of both
hotels, and the Boykin Group has been implementing its yield management systems
since the acquisition to achieve these results. REVPAR for the six months ended
June 30, 1996 increased over REVPAR for the same period in 1995 by 21% for the
Lake Norman Hampton Inn and by 13% for the Lake Norman Holiday Inn, with a
resulting increase in pro forma Percentage Lease revenues. The Boykin Group also
took over the previously out-sourced food and beverage operations at the Lake
Norman Holiday Inn, and is currently in the process of repositioning the food
and beverage operations at the hotel in order to generate more business from
hotel guests and to increase patronage of the restaurant and catering facilities
by the local residents. The Boykin Group also caused the Lake Norman hotels to
implement a combined purchasing program, direct overflow business to each other
and begin cross-training and sharing employees. The Company believes the
economies gained from the clustering of the Lake Norman acquisitions, combined
with the active yield management strategies and product repositioning strategies
employed by the Boykin Group at these hotels, has resulted in a significantly
more attractive yield to the Company than that calculated based on their
trailing operating performance at the time of the acquisitions.
There can be no assurance that the Company will be able to acquire
properties that meet its investment criteria or that have operations that can be
successfully integrated with the operation of the Initial Hotels.
Renovation Strategy
The Company believes that a regular program of capital improvements at the
Initial Hotels, including replacement and refurbishment of FF&E, will maintain
and enhance their competitiveness and maximize revenue growth under the
Percentage Leases. During the fiscal years 1991 through 1995, approximately $18
million was spent on renovations and capital improvements at the Initial Hotels,
including approximately $1.2 million for the restoration of the Melbourne
Quality Suites hotel following damage from Hurricane Erin in August 1995. This
represents an average of approximately $1,400 per room per year (excluding the
amount
32
<PAGE> 39
spent on the Melbourne property restoration, which was funded entirely from
insurance proceeds). The Company will use approximately $3.5 million of the net
proceeds of the Offering as its initial contribution to the Capital Expenditures
Fund. The Percentage Leases require the Company to contribute to the Capital
Expenditures Fund additional aggregate minimum reserves of 4.0% of total revenue
of the Initial Hotels. For the 12-month period ended June 30, 1996, this reserve
would have represented approximately 6.1% of room revenue and an average of
$1,400 per room. The Company intends to use the Capital Expenditures Fund for
the replacement and refurbishment of FF&E and other capital expenditures
(approximately $250,000 of which is required by franchisors) to maintain and
enhance the competitive position of the Initial Hotels, although it may make
other uses of amounts in the fund that it considers appropriate from time to
time. The Company believes that the fund will be adequate to meet its continuing
capital expenditure and FF&E needs for the Initial Hotels in light of their age
and condition. The Boykin Group's experience in developing and renovating its
properties will assist the Company in maintaining its properties' competitive
edge in their respective markets.
The following table sets forth information about the historical capital
expenditures of the Initial Hotels for the five fiscal years ended December 31,
1995:
<TABLE>
<CAPTION>
5 YEAR TOTAL
CAPITAL 5 YEAR
EXPENDITURES AVERAGE PER
INITIAL HOTEL ROOMS (000'S) ROOM(1)
- ------------------------------------------------- ----- ------------ -----------
<S> <C> <C> <C>
Berkeley Marina Marriott......................... 373 $ 3,520 $ 1,900
Buffalo Marriott................................. 356 3,208 1,800
Cleveland Airport Marriott....................... 375 2,606 1,400
Cleveland Marriott East.......................... 403 2,611 1,300
Columbus North Marriott.......................... 300 2,961 2,000
Lake Norman Hampton Inn.......................... 117 329 600
Lake Norman Holiday Inn.......................... 119 286 500
Melbourne Quality Suites......................... 208 1,869 1,800(2)
Radisson Inn Sanibel Gateway..................... 157 514 700
----- --------
Total/Average.................................... 2,408 $ 17,904 $ 1,500(2)
- ---------------
<FN>
(1) Rounded to the nearest $100
(2) Includes the amount spent on the Melbourne property restoration described in
the paragraph preceding the table.
</TABLE>
The Company expects to spend approximately $4.0 million on capital
improvements at the Initial Hotels during the first twelve months after the
Offering as part of its ongoing renovation and capital expenditures program.
These expenditures will be funded from the $3.5 million of the net proceeds of
the Offering and from funds contributed to the Capital Expenditures Fund from
the Initial Hotels' revenues during that period. Some of the major ongoing
capital expenditure items included in the capital expenditures program over the
next 12 months are: renovation and refurbishment of lobby and public spaces,
upgrading and redecorating the guest rooms including expanding the Marriott
"room that works" concept and incorporating other amenities designed to meet the
needs of today's business travelers, and repositioning of several hotel
restaurants and lounges to increase both guest and local patronage.
Development Strategy
The Company may develop additional full-service or upscale limited-service
hotels on land that the Company acquires in its current geographic markets or on
land contiguous to the Initial Hotels. Full-service hotels may include hotels
affiliated with Marriott, Radisson, Hilton, Hyatt, Westin, Omni, Doubletree,
Sheraton, Holiday Inn and Quality Suites. Limited-service hotels may include
Marriott Courtyard Hotels, Fairfield Inns, Residence Inns, Homewood Suites and
Hampton Inns. The Company believes that selective development of hotels in its
existing geographic markets would enable it to take advantage of operating
efficiencies to generate attractive returns on investment.
33
<PAGE> 40
Financing Strategy
On completion of the Offering, the Company will have no outstanding debt.
While its organizational documents contain no limitation on the amount of debt
it may incur, the Company, subject to the discretion of the Board of Directors,
intends to maintain a debt-to-total market capitalization ratio (measured at the
time debt is incurred) of not more than 45%. The Company may from time to time
re-evaluate its debt capitalization policy in light of economic conditions,
relative costs of debt and equity capital, market values of its properties,
acquisition, development and expansion opportunities, and other factors.
The Company has obtained a commitment for the Credit Facility from Lehman
Brothers Holdings, Inc. The commitment is contingent on, among other things, the
closing of the Offering. The Company intends to use this facility to provide
interim financing for property acquisitions and capital improvements in
anticipation of long-term financing and to fund working capital requirements.
The Credit Facility is expected to be secured by first mortgages on several of
the Initial Hotels.
Other
On completion of the Offering, assuming the conversion of Intercompany Note
and further assuming the Units have not been exchanged the Company will own
approximately 84.1% of the equity interests in the Partnership and be its
general partner, and the executive officers of the Company will own in the
aggregate approximately 14.4% of the equity interests in the Company, directly
or through ownership of Units.
The Company's executive offices are located at Terminal Tower, Suite 1500,
50 Public Square, Cleveland, Ohio 44113, and its telephone number is (216)
241-6375.
LESSEES
THE INITIAL LESSEE
In order to qualify as a REIT, the Company will not operate its hotels, but
will lease its properties to established hotel operators pursuant to leases
which will provide the Company with the greater of a base rental income or a
percentage of revenues of operations. In connection with the Formation
Transactions, Robert and John Boykin will form and indirectly own the Initial
Lessee. The Initial Lessee will acquire and continue the 37-year hotel operation
and management business of the Boykin Group and will operate the Initial Hotels
under the Percentage Leases. The operations of the Boykin Group are fully
integrated, with capabilities in all phases of development and management of
hotel properties. As of June 30, 1996, the Boykin Group had approximately 2,400
employees and owned or managed 21 properties containing 4,354 rooms located
throughout the United States. Because neither the Company nor the Initial Lessee
will have to pay a separate hotel management company to manage the Initial
Hotels, the Company believes it will obtain a higher rent than such added
management arrangements would permit, thus maximizing the Company's Percentage
Lease revenues. The Company believes that the Boykin Group's ability to achieve
consistently above-average market penetration during various economic cycles
positions the Company, through the Initial Lessee, to maximize its returns on
the Initial Hotels. See "The Company -- General -- Strong Historical
Performance."
The Initial Lessee's core capabilities will be based on continued
implementation of the Boykin Group's (i) commitment to superior customer service
and satisfaction; (ii) sophisticated sales and marketing systems, including
customer lead-generating and management incentive systems; (iii) effective
personnel recruitment, selection, orientation, training and retention programs;
(iv) comprehensive property operations and maintenance capabilities, including
design, renovation management, energy conservation, purchasing and preventive
maintenance; and (v) strong auditing, cash-handling, recordkeeping and
information management systems and controls.
While the Initial Lessee will operate and manage hotels only under the
Percentage Leases, its subsidiaries will continue hotel management activities
for owners other than the Company and the award-winning hotel interior design
business and the hotel and restaurant food, beverage, supply and equipment
purchasing business currently operated by the Boykin Group. The Company expects
that these operations will be continued in part with a view to introducing the
Company to acquisition opportunities. In addition, the income
34
<PAGE> 41
generated by the Initial Lessee and its subsidiaries will strengthen the Initial
Lessee's ability to perform under the Percentage Leases.
The Initial Lessee intends to develop incentive compensation plans for its
hotel-level and corporate-level senior executives which tie such compensation in
part to the performance of the Company and in part to the performance of the
Initial Hotels. Such plans may include awards of Company shares, options and
other similar incentives.
The Company and the Initial Lessee have agreed on several measures to align
the interests of the Initial Lessee and its owners with the interests of the
Company's shareholders and to minimize conflicts of interest between them:
- The Initial Lessee's owners and certain other Boykin Group Affiliates
will own approximately 14.3% of the Company following completion of the
Offering in the form of Units exchangeable, at the Company's election,
for Common Shares, and have agreed to retain these interests for at least
three years following completion of the Offering;
- Robert W. Boykin will resign from his positions with Boykin Management in
connection with the Formation Transactions and will not hold office in
the Initial Lessee, and neither John E. Boykin nor any other officer of
the Initial Lessee will hold office in the Company;
- Any distributions from the Initial Lessee (other than distributions to
cover income taxes) during the first ten years after the Offering that
are distributed to the Initial Lessee's owners, and any net cash proceeds
of any sale of the Initial Lessee within ten years after the Offering,
will be used to purchase Units or Common Shares (subject to applicable
ownership limitations) that must be held for at least two years from the
purchase date;
- The Initial Lessee's and its subsidiaries' consolidated net worth on
completion of the Formation Transactions will be approximately $3
million, and half of the Initial Lessee's and its subsidiaries'
consolidated earnings (after distributions to cover income taxes) during
the first ten years after the Offering will be retained in the Initial
Lessee and its subsidiaries until their consolidated net worth reaches
25% of the aggregate annual rent payments under the Percentage Leases
(and will be retained thereafter during that period to maintain that
level);
- Determinations to be made on behalf of the Company in connection with any
conflict of interest involving any Boykin Group Affiliate will be made by
the Company's independent directors;
- Each Boykin Group Affiliate will conduct all future hotel acquisition,
development and ownership activities only through the Company, except for
any separate activity to which the Company expressly consents.
- Any change in control of the Initial Lessee without the prior written
consent of the Company will constitute a default under the Percentage
Leases; and
- The Percentage Leases will contain cross-default provisions that will
enhance the Company's ability to enforce strict compliance with each
Percentage Lease.
ADDITIONAL LESSEES
The Company believes that having multiple tenants will facilitate meeting
its growth objectives, and therefore intends to pursue relationships with
additional lessees. The Company believes there are a number of capable hotel
owner-operators who are undercapitalized and, therefore, unable to reposition
their properties adequately, or are faced with a difficult financing environment
because of today's increased equity requirements, and will be willing to engage
in a sale and leaseback of their properties on terms that would allow both
parties to achieve participation in the improving fundamentals of the lodging
industry. In addition, the Company believes certain national franchisors are
willing to develop a relationship with the Company and may become additional
lessees as a means of expanding their franchise systems. The Company believes
that its management's long tenure and reputation in the hotel industry will
provide the Company access to these
35
<PAGE> 42
acquisition opportunities and enable the Company to select hotel properties and
lessees that will further its acquisition and growth strategies.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after payment of
expenses incurred in connection with the Offering, are estimated to be
approximately $159.0 million ($183.2 million if the over-allotment option is
exercised in full), based on an assumed initial public offering price of $22.00
per share. All of the net proceeds will be contributed by the Company to the
Partnership in exchange for an approximately 84% equity interest in the
Partnership (assuming conversion of the Intercompany Convertible Note).
Assuming the Offering occurs in mid-September 1996, the Partnership will
use the amounts contributed to it approximately as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Repayment of third party mortgage indebtedness (including certain
prepayment penalties).................................................. $ 136.6
Repayment of loans payable to Boykin Management.......................... 3.1
Purchase of interests held by certain Other Partners, and Boykin
Associates, including repayment of advances and accrued interest
thereon of $4.9 million................................................ 14.1
Deposit to Capital Expenditures Fund..................................... 3.5
Working capital, formation costs and general partnership purposes........ 1.7
---------
Total uses of proceeds................................................. $ 159.0
=========
</TABLE>
If the over-allotment option is exercised in full, the additional net
proceeds will be invested in the Partnership and used by it for general
purposes, including possible future acquisitions of additional hotel properties.
While the Company engages from time to time in discussions regarding potential
acquisitions, it has not entered into any agreement as of the date of this
Prospectus to make any such acquisition. Pending the described uses, the net
proceeds may be invested in interest-bearing accounts and short-term
interest-bearing securities that are consistent with the Company's intention to
qualify for taxation as a REIT. These investments may include, for example,
government and government agency securities, certificates of deposit,
interest-bearing bank deposits, mortgage loan participations and shares of other
real estate investment trusts.
The mortgage indebtedness to be paid out of the net proceeds of the
Offering matures at various times from June 1998 through October 2004 and bears
interest at effective rates varying from 8.6% to 11.8% per year, as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
-------------------------------------
PRINCIPAL PREPAYMENT TOTAL TO INTEREST MATURITY
INITIAL HOTEL BALANCE CHARGES BE PAID RATE DATE NOTES
- -------------------------- --------- ---------- -------- -------- ----------------- ------
<S> <C> <C> <C> <C> <C> <C>
Berkeley Marina
Marriott................ $ 28.5 $0.9 $ 29.4 9.8% June 1, 1998 (1)
Buffalo Marriott.......... 14.2 0.3 14.5 8.6% February 1, 2001 (2)
Cleveland Airport
Marriott................ 19.0 0.6 19.6 9.8% June 1, 1998 (1)
Cleveland Marriott East... 28.2 0.5 28.7 8.6% February 1, 2001 (2)
Columbus North Marriott... 13.7 2.5 16.2 11.0% October 1, 2004
Columbus North Marriott... 3.1 3.1 10.0% (3)
Columbus North Marriott... 4.9 4.9 10.0% (4)
Lake Norman Hotels........ 9.5 0.6 10.1 11.8% February 8, 2001 (5)
Melbourne Quality
Suites.................. 12.8 0.4 13.2 9.8% June 1, 1998 (1)
Radisson Inn Sanibel
Gateway................. 4.8 0.1 4.9 9.8% June 1, 1998 (1)
-------- ----- -------
Total........... $ 138.7 $5.9 $144.6
</TABLE>
36
<PAGE> 43
- ---------------
(1) Payable to an affiliate of Lehman Brothers Inc.
(2) Incurred within the last twelve months; proceeds were used to refinance
outstanding indebtedness. See Note 3 of the Initial Hotels Excluding Lake
Norman Hotels Notes to Combined Financial Statements.
(3) Payable to Boykin Management; matures based on cash flow.
(4) Payable to certain Other Partners; matures based on cash flow.
(5) Incurred within the last twelve months; proceeds were used to fund the
acquisition of the Lake Norman hotels. See Notes 3 and 4 of the Lake Norman
Hotels Notes to Combined Financial Statements.
The $3.1 million indebtedness payable to Boykin Management will be paid to
the Initial Lessee, as Boykin Management's successor. The Initial Lessee will
use approximately $1.5 million of the amount paid to it to repay a third party
lender, and will use the remaining balance to pay income taxes arising from the
Formation Transactions or for working capital purposes. Robert and John Boykin
are the sole beneficial owners of the Initial Lessee.
DISTRIBUTION POLICY
The Company intends to make regular quarterly distributions to holders of
Common Shares initially equal to $0. per share, which on an annual basis
would equal $ per share and would represent approximately 95% of the
Company's pro forma Cash Available for Distribution for the twelve months ending
June 30, 1996. The distribution for the period commencing on the completion of
the Offering and ending September 30, 1996 is expected to be a pro rata portion
of the initial quarterly distribution. The Company intends to maintain its
initial dividend rate for the first 12 months following the completion of the
Offering, unless actual results of operations, economic conditions or other
factors differ from the assumptions used in its estimate. The Company does not
expect to change its estimated dividend rate per share if the Underwriters'
over-allotment option is exercised.
For Federal income tax purposes, distributions paid to shareholders may
consist of ordinary income, capital gains, nontaxable returns of capital, or a
combination thereof. Aggregate distributions for the 12 months following the
closing of the Offering are expected to be greater than 95% of the Company's
REIT taxable income. The estimated minimum distribution required for the Company
to maintain REIT status, based on the Company's estimated revenues less expenses
for the 12 months ended June 30, 1996, is $13,500,000. Distributions in excess
of earnings and profits generally will be treated as nontaxable return of
capital and, therefore, will result in a reduction of a shareholder's basis in
the Common Shares, to the extent thereof, and thereafter as taxable gain. Those
distributions will have the effect of deferring taxation until the sale of the
shareholder's Common Shares. The Company will provide its shareholders an annual
statement as to its designation of the taxability of distributions. The Company
estimates that approximately 90% of the annual distribution to holders of Common
Shares for 1996 will represent a return of capital for Federal income tax
purposes. The Company's expectation reflects, among other things, the effect of
nonrecurring penalties to be incurred in connection with the prepayment of
certain debt at the time of the Formation Transactions. The Company anticipates
that substantially all of the distributions in respect of 1997 will be taxable
as dividends.
37
<PAGE> 44
The following table sets forth certain pro forma financial information for
the Partnership for the twelve months ended June 30, 1996, which was used to
establish the expected initial distribution per share.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
--------------------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C>
Pro forma income before minority interest.................. $ 12,237
Depreciation............................................... 9,544
----------
Pro forma Funds From Operations............................ $ 21,781
Additions to Capital Expenditures Fund..................... (3,492)
----------
Estimated Cash Available for Distribution(1)............... $ 18,289
----------
Estimated initial annual distribution(2)................... $
Estimated initial annual distribution per share............ $
Estimated payout ratio of Cash Available for
Distribution(3).......................................... 95%
- ---------------
<FN>
(1) The amount of Cash Available for Distribution if the Partnership received
only the Minimum Rent under the Percentage Leases is estimated to be $9,763.
(2) Based on 7,875 Common Shares and 1,490 Units outstanding on completion of
the Formation Transactions. Represents approximately 80% of Funds From
Operations. Funds From Operations consists of income (loss) before minority
interest (computed in accordance with generally accepted accounting
principles) excluding gains (losses) from debt restructuring and sales of
property (including furniture and equipment) plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs) and after adjustments for unconsolidated partnerships and joint
ventures. Industry analysts consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered as a basis for computing distributions
or as an alternative (i) to net income or other measurements under generally
accepted accounting principles, as an indicator of operating performance, or
(ii) to cash flows from operating, investing, or financing activities, as a
measure of liquidity. Funds From Operations does not reflect cash
expenditures for capital improvements or principal amortization of
indebtedness on the Initial Hotels.
(3) Represents the anticipated initial aggregate annual distribution divided by
estimated Cash Available for Distribution.
</TABLE>
The primary source of proceeds to be used for distributions to shareholders
is the Company's share of the rents due the Partnership pursuant to the
Percentage Leases. The anticipated revenue may or may not be realized or
collected. Accordingly, the statements set forth above with regard to
distributions are forward-looking statements involving certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in such statements. Important factors that could cause such different
results include, but are not limited to, competition from other hotels,
increases in operating costs, seasonality effects in hotel occupancy and
revenues, and the potential loss of a franchise or liquor license in respect of
any Initial Hotel or acquired hotel. See "Risk Factors."
38
<PAGE> 45
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the historical
combined capitalization of the Initial Hotels and (ii) the pro forma
consolidated capitalization of the Company, as adjusted to give effect to the
Formation Transactions and the use of the net proceeds as described under the
caption "Use of Proceeds." The information set forth in the following table
should be read in conjunction with the "Selected Financial Information," the pro
forma consolidated financial statements of the Company, the historical combined
financial statements of the Initial Hotels, and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------
INITIAL
HOTELS COMPANY
HISTORICAL PRO FORMA
-------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Long-term debt............................................. $133,344 $ --
-------- ------------
Advances from partners..................................... 7,725 --
-------- ------------
Minority Interest(1)....................................... -- 18,906
-------- ------------
Shareholders' Equity/Partners' Deficit, Combined Initial
Hotels................................................... (56,736) --
Preferred Shares, without par value, 5,000,000 shares
authorized, none issued............................... -- --
Common Shares, without par value, 25,000,000 shares
authorized, 7,875,000 shares issued and
outstanding(2)........................................ -- --
Capital Surplus............................................ -- 106,815
Retained earnings(3)....................................... -- (6,818)
-------- ----------
Total shareholders' equity (deficit)..................... (56,736) 99,997
-------- ----------
Total capitalization..................................... $ 84,333 $118,903
======== ==========
- ---------------
<FN>
(1) Assumes conversion of the Intercompany Convertible Note.
(2) Excludes the exchange of 1,490,000 Units issued in the Formation
Transactions for a like number of Common Shares.
(3) Reflects estimated prepayment penalties and other fees of $4,508 on the
anticipated repayment of long-term debt with a portion of the proceeds from
the Offering, and the writeoff of deferred financing costs of $2,310.
</TABLE>
39
<PAGE> 46
DILUTION
The expected initial public offering price per Common Share exceeds the pro
forma net tangible book value per share. Therefore, the Boykin Group Affiliates
who receive Units will realize an immediate increase in the net tangible book
value of their Units, while purchasers of Common Shares sold in the Offering
will realize an immediate and substantial dilution in the net tangible book
value of their shares. Pro forma net tangible book value per share is determined
by subtracting total liabilities from total tangible assets and dividing the
remainder by the number of Common Shares and Units that will be outstanding
after the Offering. The following table illustrates the dilution to purchasers
of Common Shares sold in the Offering, based on an assumed initial public
offering price of $22.00 per share.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common
Share(1)................................................. $22.00
Pro forma net tangible book value per share prior to the
Offering(2).............................................. $(39.85)
Increase in pro forma net tangible book value per Common
Share and Unit attributable to purchases of Common Shares
in the Offering.......................................... $ 52.55
-------
Pro forma net tangible book value per Common Share and Unit
after the Offering and the Formation Transactions(3)..... $12.70
------
Dilution per Common Share purchased in the Offering........ $ 9.30
======
</TABLE>
The following table sets forth (i) the number of Common Shares to be sold
by the Company in the Offering, the total contributions to be paid to the
Company by purchasers of Common Shares sold in the Offering (assuming an initial
public offering price of $22.00 per share), the number of Common Shares
outstanding and the number of Units to be issued in connection with the
Formation Transactions; (ii) the net tangible book value as of June 30, 1996 of
the assets contributed to the Company and the Partnership; and (iii) the net
tangible book value of the average contribution per share and Unit based on
total contributions.
<TABLE>
<CAPTION>
SHARES ISSUED BY BOOK VALUE OF
THE COMPANY TOTAL TANGIBLE
AND UNITS ISSUED CONTRIBUTIONS TO TANGIBLE BOOK
BY THE PARTNERSHIP THE COMPANY VALUE OF
-------------------------- -------------------------- CONTRIBUTION
NUMBER PERCENT AMOUNT PERCENT PER SHARE/UNIT
-------------- ------- -------------- ------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Common Shares issued by the
Company in the Offering......... 7,875 84.1% $173,250 145.7% $ 22.00(1)
Units issued by the Partnership in
the Formation Transactions...... 1,490 15.9% (59,380) (49.9%) $ (39.85)(4)
Other............................. -- -- 5,033(5) 4.2%
------ ------- -------- -------
Total Common Shares and Units... 9,365 100% $118,903 100% $ 12.70
====== ======= ======== =======
- ---------------
<FN>
(1) Before deducting underwriting discounts and estimated expenses of the
Offering.
(2) Pro forma net tangible book value prior to the Offering is determined by
subtracting total liabilities from total tangible assets of the Initial
Hotels divided by the total Units to be issued by the Partnership in the
Formation Transactions.
(3) Based on the total pro forma net tangible book value of the Company
($118,903) divided by the total Common Shares and Units outstanding after
the Offering and Formation Transactions (9,365). Does not give effect to the
1,000 Common Shares issuable under the Company's Long Term Incentive Plan or
to the Common Shares subject to the options covering 25 Common Shares to be
granted to the Company's Independent Directors upon completion of the
Offering. See "Management -- Long-Term Incentive Plan" and "-- Compensation
of Directors."
(4) Based on the net tangible book value of assets to be contributed to the
Operating Partnership in the Formation Transactions.
</TABLE>
40
<PAGE> 47
(5) Represents the expenses of the Offering, net of the effects of the Formation
Transactions.
SELECTED FINANCIAL INFORMATION
The following tables set forth (i) selected unaudited pro forma condensed
consolidated financial information for the Company for the year ended December
31, 1995, and the twelve months ended June 30, 1996, and the six month periods
ended June 30, 1995 and 1996; (ii) selected unaudited combined pro forma
financial information for the Initial Lessee for the year ended December 31,
1995, the twelve months ended June 30, 1996, and the six month periods ended
June 30, 1995 and 1996; (iii) selected combined historical financial and
operating data of the Initial Hotels, which are presented as (a) the Initial
Hotels (Excluding Lake Norman Hotels) for each of the years in the five-year
period ended December 31, 1995, and the six months ended June 30, 1995 and 1996;
and (b) selected combined historical financial and operating data of the Lake
Norman Hotels for each of the years in the five-year period ended December 31,
1995 and the six months ended June 30, 1995 and 1996.
The selected combined historical financial data for both the Initial Hotels
(Excluding Lake Norman Hotels) and the Lake Norman Hotels for the three years
ended December 31, 1995 have been derived from the historical financial
statements audited by Arthur Andersen LLP, independent public accountants, whose
reports with respect thereto are included elsewhere in this Prospectus. The
selected combined historical financial data for each of the two years in the
period ended December 31, 1992 are derived from unaudited financial statements.
In the opinion of management, the unaudited financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein.
The pro forma statement of operations data is presented as if the Offering,
the Formation Transactions, and the beginning of the relevant lease year had
occurred on January 1, 1995 and, therefore, incorporates certain assumptions
that are included in the Notes to the Pro Forma Condensed Consolidated
Statements of Operations included elsewhere in this Prospectus. The pro forma
operating information for the Initial Lessee is presented to reflect the pro
forma operations of the Initial Lessee for the periods presented, which
operations are the source of the Initial Lessee's Percentage Lease payments to
the Partnership. The pro forma balance sheet data is presented as if the
Formation Transactions had occurred on June 30, 1996.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this Prospectus.
41
<PAGE> 48
BOYKIN LODGING COMPANY
SELECTED PRO FORMA FINANCIAL DATA (1)
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -------------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ----------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Percentage lease
revenue(3)................ $ 25,521 $27,166 $12,277 $13,922
------- ------- ------ ------
Depreciation................. 9,544 9,544 4,772 4,772
Real estate and personal
property taxes, property
and casualty insurance,
and ground rent........... 3,893 3,935 1,973 2,015
General and
administrative(4)......... 1,450 1,450 725 725
Minority interest(5)......... 1,691 1,946 764 1,019
------- ------- ------ ------
Total expenses and minority
interest.................. 16,578 16,875 8,234 8,531
------- ------- ------ ------
Net income attributable to
Common Shares............. $ 8,943 $10,291 $ 4,043 $ 5,391
======= ======= ====== ======
Net income per Common Share.. $ 1.14 $ 1.31 $ .51 $ .68
Weighted average number of
Common Shares
outstanding............... 7,875 7,875 7,875 7,875
OTHER DATA:
Funds From Operations(6)..... $ 20,178 $21,781 $ 9,579 $11,182
Additions to Capital
Expenditures Fund(7)...... (3,373) (3,492) (1,654) (1,773)
Cash Available for
Distribution(8)........... 16,805 18,289 7,925 9,409
Distributions(9).............
Number of Common shares and
Units outstanding......... 9,365 9,365 9,365 9,365
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
-----------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel properties,
net......................... $ 115,990
Total assets................... 120,894
Total debt..................... -0-
Minority interest in
Partnership................. 18,906
Shareholders' equity........... 99,997
</TABLE>
42
<PAGE> 49
INITIAL LESSEE
SELECTED PRO FORMA FINANCIAL DATA(1)
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -----------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ----------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Room revenue....................... $ 54,785 $57,298 $27,398 $29,911
Food and beverage revenue.......... 23,643 23,980 11,711 12,048
Other revenue--Initial Hotels...... 4,643 4,760 2,237 2,354
---------- ---------- ------- -------
Total revenues of Initial
Hotels........................ 83,071 86,038 41,346 44,313
Other revenue--Initial Lessee...... 2,051 2,270 1,042 1,355
---------- ---------- ------- -------
Total revenues.................. 85,122 88,308 42,388 45,668
---------- ---------- ------- -------
Operating expenses................. 56,601 58,315 28,090 29,899
Cost of goods sold of Initial
Lessee.......................... 1,254 1,438 511 756
Percentage Lease payments(3)....... 25,521 27,166 12,277 13,922
---------- ---------- ------- -------
Total expenses.................. 83,376 86,919 40,878 44,577
---------- ---------- ------- -------
Income before extraordinary
items......................... $ 1,746 $ 1,389 $ 1,510 $ 1,091
========== ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
-----------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 3,833
Total assets....................... 11,429
Equity............................. 3,000
</TABLE>
43
<PAGE> 50
INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS)
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(2) JUNE 30,(2)
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue....................... $ 42,645 $ 45,200 $ 45,753 $ 48,652 $ 50,730 $25,631 $ 27,845
Food and beverage revenue.......... 21,791 22,514 22,357 22,811 22,984 11,411 11,763
Other revenue...................... 3,334 3,634 3,977 4,092 4,490 2,159 2,266
-------- -------- -------- -------- -------- ------- --------
Total revenues.............. 67,770 71,348 72,087 75,555 78,204 39,201 41,874
-------- -------- -------- -------- -------- ------- --------
Departmental and other expenses.... 51,321 52,248 53,242 53,967 54,629 27,161 28,864
Real estate and personal property
taxes, insurance and rent........ 2,534 2,988 3,112 3,329 3,579 1,818 1,863
Depreciation and amortization...... 5,663 5,822 5,822 5,690 6,545 2,990 3,528
Interest expense................... 12,557 12,997 12,375 12,397 14,169 6,452 7,367
Gain on property insurance
recovery......................... -- -- -- -- (670) -- --
-------- -------- -------- -------- -------- ------- --------
Income (loss) before extraordinary
items.............................. (4,305) (2,707) (2,464) 172 (48) 780 252
Extraordinary item -- gain (loss)
on early extinguishment of
debt............................. -- -- -- -- 556 556 (1,315)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)........... $ (4,305) $ (2,707) $ (2,464) $ 172 $ 508 $ 1,336 $ (1,063)
========= ========= ========= ========= ========= ======== =========
BALANCE SHEET DATA:
Investment in hotel properties,
net.............................. $ 66,238 $ 62,497 $ 59,457 $ 58,527 $ 70,577 N/A $ 68,204
Total assets....................... 74,380 70,823 68,757 68,688 83,332 N/A 83,421
Mortgage notes payable............. 114,132 113,333 112,660 111,788 122,203 N/A 123,726
Total partners' deficit............ (61,256) (64,458) (66,795) (67,197) (56,260) N/A (57,192)
CASH FLOW DATA:
Net cash provided by operating
activities....................... N/A N/A $ 3,723 $ 7,700 $ 7,175 $ 5,853 $ 3,326
Net cash used for investing
activities....................... N/A N/A (2,771) (4,746) (4,244) (2,006) (1,546)
Net cash used for financing
activities....................... N/A N/A (635) (1,488) (4,018) (3,287) (842)
OTHER DATA:
EBITDA(10)......................... $ 13,915 $ 16,112 $ 15,733 $ 18,259 $ 19,996 $10,222 $ 11,147
</TABLE>
44
<PAGE> 51
LAKE NORMAN HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,(11)
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue...................... $ 2,643 $ 2,596 $ 2,764 $ 3,200 $ 3,764 $ 1,767 $ 2,066
Food and beverage revenue(12)..... 612 681 300 -- -- -- 223
Other revenue..................... 117 132 149 153 124 78 88
-------- -------- -------- -------- -------- -------- --------
Total revenues............. 3,372 3,409 3,213 3,353 3,888 1,845 2,377
-------- -------- -------- -------- -------- -------- --------
Departmental and other expenses... 2,485 2,605 2,224 2,096 2,437 1,244 1,580
Real estate and personal property
taxes, insurance and rent....... 125 130 129 96 106 55 52
Depreciation and amortization..... 601 606 577 523 466 289 289
Interest expense.................. 507 401 289 326 415 759 759
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ (346) $ (333) $ (6) $ 312 $ 464 $ (502) $ (303)
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Investment in hotel properties,
net............................. $ 7,268 $ 6,807 $ 6,276 $ 5,888 $ 5,739 N/A $ 9,438
Total assets...................... 7,803 7,218 6,846 6,452 6,229 N/A 10,465
Mortgage notes payable............ 6,050 5,860 5,595 5,318 5,057 N/A 9,618
Total partners' equity............ 1,372 988 982 894 938 N/A 456
CASH FLOW DATA:
Net cash provided by (used for)
operating activities............ N/A N/A $ 477 $ 804 $ 938 $ (54) $ 155
Net cash used for investing
activities...................... N/A N/A (30) (129) (311) (247) (51)
Net cash used for financing
activities...................... N/A N/A (265) (677) (681) (43) (49)
OTHER DATA:
EBITDA(10)........................ $ 762 $ 674 $ 860 $ 1,161 $ 1,345 $ 546 $ 745
- ---------------
<FN>
1. The pro forma information does not purport to represent what the Company's
or the Initial Lessee's financial position or results of operations would
actually have been if the consummation of the Formation Transactions had, in
fact, occurred on such dates, or to project the Company's or the Initial
Lessee's financial position or results of operations at any future date or
for any future period.
2. Eight of the Initial Hotels utilize December 31 as year-end for financial
reporting purposes and one of the Initial Hotels utilizes a September 30
fiscal year-end. For pro forma purposes, adjustments have been made to
conform the year-ends of all the Initial Hotels to stated periods shown. For
historical financial reporting purposes of the Initial Hotels (Excluding the
Lake Norman Hotels), for the five years ended December 31, 1995, the
September 30 financial data of the Initial Hotel having a September 30
fiscal year end have been combined with the December 31, 1995 financial data
of the other Initial Hotels. For the twelve months ended June 30, 1996 and
six month periods ended June 30, 1995 and 1996, the financial data of the
hotel with the September 30 year end have been combined using the same month
and periods as the other eight hotels. In the opinion of management, the
impact of using the different interim period ends is not material.
3. Represents lease payments from the Initial Lessee to the Partnership
calculated on a pro forma basis by applying the rent provisions in the
Percentage Leases to the historical revenues of the Initial Hotels for the
period indicated, including for the Melbourne Quality Suites Inn an
additional $725 of rent for the year ended December 31, 1995 and the 12
months ended June 30, 1996 required under the rental interruption insurance
provision of the Percentage Lease agreements. The rent formula utilized in
computing the pro forma Percentage Lease revenue and expense includes, for
the calendar year 1995, an adjustment to reduce the threshold revenue
amounts in the Percentage Lease formulas by the 2.5% increase in the
Consumer Price Index for that year.
</TABLE>
45
<PAGE> 52
4. Estimated at $1.45 million annually for salaries, professional fees,
directors' and officers' insurance, directors' fees and expenses and other
general and administrative expenses associated with being a public company.
5. Calculated as 15.9% of the income before minority interest.
6. Represents Funds From Operations of the Company, on a consolidated basis.
The following table computes Funds From Operations for the twelve months
ended June 30, 1996 under the newly adopted National Association of Real
Estate Investment Trusts ("NAREIT") definition. Funds From Operations
consists of income (loss) before minority interest (computed in accordance
with generally accepted accounting principles) excluding gains (losses) from
debt restructuring and sales of property (including furniture and equipment)
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Industry analysts consider
Funds From Operations to be an appropriate measure of the performance of an
equity REIT. Funds From Operations should not be considered as a basis for
computing distributions or as an alternative (i) to net income or other
measurements under generally accepted accounting principles, as an indicator
of operating performance, or (ii) to cash flows from operating, investing,
or financing activities, as a measure of liquidity. Funds From Operations
does not reflect cash expenditures for capital improvements or principal
amortization of indebtedness on the Initial Hotels.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
--------------------
<S> <C>
Net income................................... $ 10,291
Minority interest............................ 1,946
Depreciation................................. 9,544
----------
Funds From Operations........................ $ 21,781
==========
</TABLE>
7. Represents additions to the Capital Expenditures Fund calculated as 4% of
total revenue of the Initial Hotels, adjusted for $1,261 additional revenues
at the Melbourne Quality Suites for the year ended December 31, 1995 as
required under the rental interruption insurance provision of the Percentage
Leases.
8. Calculated as Funds From Operations less additions to the Capital
Expenditures Fund.
9. Represents estimated initial dividends to be paid based on the initial
dividend rate of $ per share and an aggregate of 9,365 Common Shares and
Units outstanding.
10. Represents income (loss) before extraordinary items, excluding depreciation
and amortization, interest expense, and gain on property insurance recovery.
11. The Summary Combined Historical Operating Data, Cash Flow Data and Other
Data for the Lake Norman Hotels for the six month periods ended June 30,
1995 and 1996 are presented on a pro forma basis, making necessary pro forma
adjustments to the historical operating results to reflect additional
depreciation expense associated with the purchase accounting writeup to the
investment in hotel properties, the additional interest expense associated
with the acquisition indebtedness and an increase in management fee expense.
12. From August 1993 until February 1996, the catering, meeting, lounge and
restaurant facilities of the Lake Norman Holiday Inn were operated by a
third party operator. In February 1996, when a Boykin Group Affiliate
purchased the hotel facility, it also purchased the food and beverage
business assets of this operator.
46
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Upon completion of the Formation Transactions and the Offering, the Company
will own an 84.1% interest in the Initial Hotels through its interest in the
Partnership. In order for the Company to qualify as a REIT, neither the Company
nor the Partnership can operate hotels. Therefore, the Partnership will lease
the Initial Hotels to the Initial Lessee. The Partnership's, and therefore the
Company's, principal sources of funds will be lease payments under the
Percentage Leases. Percentage Rent will be based on the Initial Hotels'
revenues, and the Initial Lessee's ability to make payments to the Partnership
under the Percentage Leases will be dependent primarily on the Initial Lessee's
ability to generate cash flow from the operation of the Initial Hotels.
GENERAL
Results of operations are best explained by three key performance
indicators: Occupancy, ADR, and REVPAR. Increases in REVPAR attributable to
increases in Occupancy are accompanied by increases in most categories of
variable operating costs. Increases in REVPAR attributable to increases in ADR
are accompanied by increases in limited categories of operating costs, such as
management fees and license fees.
PRO FORMA RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY
The following table sets forth key indicators for all of the Initial Hotels
combined and is useful in understanding the underlying changes in the percentage
rent for the Company during the pro forma period of 1995 and the six months
ended June 1996.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
KEY FACTORS 1993 1994 1995 1995 1996
------------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Occupancy........................... 72.6% 74.7% 74.9% 74.2% 76.8%
ADR................................. $75.50 $79.27 $85.47 $84.82 $89.03
REVPAR.............................. $54.08 $59.24 $63.98 $62.93 $68.35
</TABLE>
For the year ended December 31, 1995 the Company had pro forma revenues of
$25.5 million from the Percentage Leases that would have been in place at the
Initial Hotels. The pro forma revenues for the twelve months ended June 30, 1996
would have been $27.2 million. This 6.7% increase of $1.7 million is
attributable to a 3.5% improvement in occupancy from 74.2% for the six months
ended June 30, 1995 to 76.8% for the six months ended June 30, 1996, and a 5%
improvement in ADR from $84.82 in the six months ended June 30, 1995 to $89.03
in the six months ended June 30, 1996. Pro forma expenses remained about the
same as no significant changes have occurred during the six month period.
RESULTS OF OPERATIONS OF THE INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS)
The following table sets forth certain combined historical financial
information for the Initial Hotels (Excluding Lake Norman Hotels), as a
percentage of revenues, for the periods indicated.
47
<PAGE> 54
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
FINANCIAL DATA 1993 1994 1995 1995 1996
------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Room revenue................... 63.5% 64.4% 64.9% 65.4% 66.5%
Food and beverage revenue...... 31.0 30.2 29.4 29.1 28.1
Other revenue.................. 5.5 5.4 5.7 5.5 5.4
------- ------- ------- ------- -------
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Departmental and other
expenses..................... 73.9 71.4 69.9 69.3 68.9
Real estate and personal
property taxes, insurance and
rent......................... 4.3 4.4 4.6 4.6 4.4
Depreciation and
amortization................. 8.1 7.5 8.4 7.6 8.4
Interest expense............... 17.2 16.4 18.1 16.5 17.6
Gain on property insurance
recovery..................... -- -- (.9) -- --
------- ------- ------- ------- -------
Income (loss) before
extraordinary items.......... (3.5) .3 (.1) 2.0 .7
Extraordinary item -- gain
(loss) on early
extinguishment of debt....... -- -- .7 1.4 (3.1)
------- ------- ------- ------- -------
Net income (loss).............. (3.5)% .3% .6% 3.4% (2.4)%
======= ======= ======= ======= =======
OTHER DATA(1)
EBITDA, as a % of revenue...... 21.8% 24.2% 25.6% 26.1% 26.6%
KEY FACTORS(2)
Occupancy...................... 74.5% 75.2% 74.5% 73.8% 77.1%
ADR............................ $ 77.59 $ 81.91 $ 88.07 $ 88.40 $ 91.56
REVPAR......................... $ 57.79 $ 61.59 $ 65.59 $ 65.30 $ 70.55
- ---------------
<FN>
(1) The Company believes that EBITDA, defined as net income before interest,
depreciation, amortization, gain on property insurance recovery and
extraordinary items, provides a good indicator of the financial performance
of the Initial Hotels and will be a significant factor in determining the
Initial Lessee's ability to make lease payments to the Partnership. Industry
analysts generally consider this to be an appropriate measure of the
performance of hotels. However, this indicator should not be considered as
an alternative to net income as an indication of the Initial Lessee's
performance or to cash flow as a measure of liquidity.
(2) No assurance can be given that the trends reflected in this data will
continue or that occupancy, ADR and REVPAR will not decrease as a result of
changes in national or local economic or hospitality industry conditions.
</TABLE>
Comparison of the six months ended June 30, 1996 with the six months ended
June 30, 1995
Room revenues increased $2.2 million, or 8.6% from the six months ended
June 30, 1995 to the same period in 1996. REVPAR increased from $65.30 in the
six months ended June 30, 1995 to $70.55 for the same period in 1996, or a 8%
increase. Room revenues were driven by both increases in ADR at all of the
Initial Hotels (excluding Lake Norman Hotels), and occupancy which increased
between the periods at six of the seven Initial Hotels (excluding Lake Norman
Hotels). The occupancy growth is attributable to a continuation into 1996 of the
strong demand experienced in the last half of 1995, particularly in the Ohio and
California markets.
Food and beverage revenue grew $.4 million or 3.1% from the six months
ended June 30, 1995 compared to the same period in 1996. This is attributable to
the growth in occupancy between the periods.
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<PAGE> 55
Departmental and other expenses grew by $1.7 million or 6.3% between the
periods. This was caused primarily by the growth in occupancy, which is
accompanied by increases in most categories of variable expenses. This is
demonstrated by these costs remaining relatively unchanged as a percentage of
revenues during both periods. In addition, management fees increased by $.2
million between the periods because of higher revenues and increases in the
management fee rate implemented in the second quarter of 1995 at four of the
hotels. Franchisor fees also increased by $.3 million between the periods
because of revenue increases and contractually scheduled increases in the fee
rate at two of the hotels.
Depreciation and amortization expense increased by $.5 million or 18%
primarily due to the additional depreciation on the property writeup recorded in
May 1995 when the Melbourne, Berkeley, and Cleveland Airport hotels redeemed
their respective partnership interests held by non-Boykin Group Affiliates and
Boykin Group Affiliates were admitted as new partners, and the depreciation on
new property additions. Interest expense increased by $.9 million or 14% due to
the new mortgage debt incurred in May 1995 to finance the redemptions of the
Melbourne, Berkeley and Cleveland Airport hotels' partnership interests and to
refinance existing mortgage debt at the Fort Myers, Melbourne, Berkeley and
Cleveland Airport hotels.
The gain on early extinguishment of debt of $.6 million recorded in May
1995 related to the refinancing referred to above while the loss of $1.3 million
on early extinguishment of debt in 1996 related to the refinancing of the
mortgage debt of the Buffalo hotel.
Net income was impacted most significantly by the change in the
extraordinary items between the periods. In 1995 the Initial Hotels (excluding
Lake Norman Hotels) recorded an extraordinary gain of $.6 million on refinancing
while in 1996 the Buffalo hotel recorded an extraordinary loss of $1.3 million
on its refinancing.
EBITDA increased $.9 million or 9.0% from the six months ended June 1995 to
the six months ended June 1996. This improvement is attributable to the increase
in revenues of $2.7 million due to growth in occupancy during the periods,
reduced by the corresponding increases in variable operating costs of $1.7
million in departmental and other expenses.
Comparison of the year ended December 31, 1995 with 1994
Room revenues increased $2.1 million, or 4.3% from 1994 to 1995. As can be
seen by the growth of REVPAR, revenues as reported were driven by increases in
the ADR which occurred at almost all of the hotels, while occupancy declined .7%
overall. This was attributable in part to the general improvement in the
business travel and tourism industries. The continuation of the Boykin Group's
focus on maximizing REVPAR by focusing on increasing ADR while maintaining
stable occupancy during this period had a significant effect. Food and beverage
revenue grew $.2 million or .8% from 1994 to 1995. This reflects the slight
decline in occupancy offset by inflationary price increases in food and
beverages. The composition of revenue stayed consistent between the periods,
with only a slight decline in food revenues, from 30.2% of the total to 29.4%,
reflecting that the gains in revenue occurred in room rates during this period.
Total revenues increased $2.6 million, or 3.5%, from 1994 to 1995. This
increase was in spite of the loss of an estimated $1.3 million in revenues
arising from the damage to the Melbourne Quality Suites by Hurricane Erin in
August 1995. The hurricane damage was covered by insurance, including business
interruption insurance, so the net income of the combined hotels was not
materially affected.
Departmental and other expenses increased by $.7 million or 1.2% between
the years because of general inflationary pressures which were offset by
aggressive cost management and $1.3 million in estimated proceeds from the
Melbourne business interruption insurance claims which were netted against
operating expenses. These costs declined as a percentage of revenues from 71.4%
in 1994 to 69.9% in 1995, due to the positive effect of revenues growing at a
faster pace than expenses. In addition, management fees increased from 3.8% of
revenues in 1994 to 4.2% of revenues in 1995 because of higher revenues and
increases in the management fee rate implemented in the second quarter of 1995
at four of the hotels. Franchisor fees increased $.9 million, or 29.2%, between
years primarily because 1994 contained a reduction in franchise fees of $.6
million from the forgiveness of accrued franchise fees at the Melbourne Quality
Suites hotel that resulted from a renegotiation of the franchise agreement. This
was offset by growth in fees as a result of
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<PAGE> 56
improved revenues and a contractually scheduled increase in the fee rate at the
Columbus Marriott North. Real estate and personal property taxes, insurance and
rent increased 7.5% from 1994 to 1995. This is primarily attributable to higher
costs for insurance as the Boykin Group purchased improved coverage. The gain on
property insurance recovery of $.7 million recorded in 1995 related to the
excess of insurance proceeds over the net book value of assets replaced at the
Melbourne Quality Suites due to the damage caused by Hurricane Erin in August
1995.
Depreciation and amortization expense increased by $.9 million or 15%
primarily due to the additional depreciation on the property writeup recorded in
May 1995 when Melbourne, Berkeley and Cleveland Airport hotels redeemed their
respective partnership interests held by non-Boykin Group Affiliates and Boykin
Group Affiliates were admitted as new partners. Interest expense increased by
$1.8 million or 15% due to the new mortgage debt incurred in May 1995 to finance
the redemption of the Melbourne, Berkeley and Cleveland Airport hotels'
partnership interests and to refinance existing mortgage debt at the Fort Myers,
Melbourne, Berkeley and Cleveland Airport hotels.
The gain on early extinguishment of debt of $.6 million recorded in May
1995 related to the refinancing referred to above.
Net income improved $.3 million due to the improved ADR at most of the
Initial Hotels (excluding Lake Norman Hotels), the benefit of the Melbourne
property insurance settlement and the extraordinary gain on refinancing, all of
which were partially offset by higher depreciation and interest costs resulting
from the May 1995 redemption of partnership interests held by certain non-Boykin
Group Affiliates.
EBITDA grew $1.7 million or 19.5% from 1994 to 1995. This improvement is
attributable to the increase in revenues due to growth in ADR during the periods
which was partially offset by increases in franchise and management fees.
Comparison of the year ended December 31, 1994 with 1993
Room revenues increased $2.9 million, or 6.3% from 1993 to 1994. This was
primarily driven by increases in ADR at almost all of the Initial Hotels
(excluding Lake Norman Hotels), while occupancy increased .7%. This was
attributable to the general improvement in the business travel and tourism
industries and lack of any new competition in the markets where the Initial
Hotels (excluding Lake Norman Hotels) operate. Food and beverage revenue grew
$.5 million or 2% from 1993 to 1994, relating to the slight increase in
occupancy and inflationary price increases in food and beverages. The
composition of revenue stayed consistent between the periods, with only a slight
decline in food revenues, from 31.0% of the total to 30.2%, which reflects that
most of the gains in revenue occurred in room rates during this period.
Departmental and other expenses grew by $.7 million, or 1.4%, between the
years because of general inflationary pressures, offset by aggressive cost
management. These costs declined as a percentage of revenues from 73.9% in 1993
to 71.4% in 1994, as revenues grew faster than expenses. Expenses were also
reduced in 1994 by $.6 million because of the forgiveness of accrued franchise
fees at the Melbourne Quality Suites hotel that resulted from a renegotiation of
the franchise agreement with the franchisor. Depreciation and amortization
expense remained relatively constant between 1993 and 1994.
Net income improved $2.6 million due to improved ADR and the benefit of the
forgiveness of franchise fees at Melbourne, offset partially by higher
departmental and other expenses.
EBITDA grew $2.5 million or 16.1% from 1993 to 1994. This improvement is
attributable to the increase in ADR during the periods and the forgiveness of
accrued in franchise fees at Melbourne.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, will be its share of the Partnership's
cash flow. The Partnership's principal source of revenue will be rent payments
under the Percentage Leases. The Initial Lessee's obligations under the
Percentage Leases are unsecured and the Initial Lessee's ability to make rent
payments to the Partnership under the Percentage Leases, and the Company's
liquidity, including its ability to make distributions to shareholders, will be
50
<PAGE> 57
dependent on the Initial Lessee's ability to generate sufficient cash flow from
the operation of the Initial Hotels.
On consummation of the Offering and application of the net proceeds
therefrom, the Company will have no outstanding debt. The Company intends to
acquire and develop additional hotels and will incur indebtedness to fund that
acquisition and development. The Company may also incur indebtedness to meet
distribution requirements imposed on a REIT under the Code to the extent that
working capital and cash flow from the Company's investments are insufficient to
make the required distributions. The proposed terms of the $75 million Credit
Facility permit borrowings for that purpose, but impose certain limitations on
the Company's ability to engage in other borrowings. See "Policies and
Objectives with Respect to Certain Activities -- Financing."
The Company has obtained a commitment for the Credit Facility to assist it
in funding its acquisition and development of additional hotels and for certain
other business purposes. Borrowings under the Credit Facility are expected to be
secured by first mortgages on several of the Initial Hotels and on any
additional properties acquired or developed by the Company, subject to certain
release provisions. If the Company and the Credit Facility lenders are unable to
reach a definitive agreement with respect to the Credit Facility, the Company
will seek a substitute credit facility with similar features. The Company may
also seek to increase the amount of any credit facility, negotiate additional
credit facilities, or issue debt instruments. Any debt incurred or issued by the
Company may be secured or unsecured, long-term, medium-term or short-term, bear
interest at a fixed or variable rate, and be subject to such other terms as the
Board of Directors considers prudent.
The Company will acquire or develop additional hotels only as suitable
opportunities arise, and the Company will not undertake acquisition or
development of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Credit Facility or other
borrowings or from the proceeds of additional issuances of Common Shares or
other securities. The Company has no agreement or understanding to invest in any
properties other than the Initial Hotels, and there can be no assurance that the
Company will successfully acquire or develop additional hotels. See "The
Company -- Business Objectives and Strategies -- Acquisition Strategy."
The Company will use $3.5 million of the net proceeds from the Offering as
its initial contribution to the Capital Expenditures Fund. The Company will also
contribute to the Capital Expenditures Fund on a continuing basis, from the rent
paid under the Percentage Leases, an amount equal to 4% of the Initial Lessee's
revenues from operation of the Initial Hotels. The Company intends to use the
Capital Expenditures Fund for capital improvements to the Initial Hotels and
refurbishment and replacement of FF&E, but may make other uses of amounts in the
fund that it considers appropriate from time to time. The Company anticipates
making similar arrangements with respect to future hotels that it may acquire or
develop. During the period from January 1, 1993 through June 30, 1996, the
Initial Hotels spent approximately $15 million for capital expenditures. The
Company considers the majority of these improvements to be revenue producing and
therefore these amounts have been capitalized and are being depreciated over
their estimated useful lives. The Initial Hotels also spent $13.4 million during
the period from January 1, 1993 through June 30, 1996 on repairs and maintenance
and these amounts have been charged to expense as incurred. See "The Company --
Business Objectives and Strategies -- Renovation Strategy" for further
discussion of capital expenditures at the Initial Hotels.
INFLATION
The Company's revenues initially will be based on the Percentage Leases,
which will result in changes in the Company's revenues based on changes in the
underlying Initial Hotel revenues. Therefore, the Company initially will be
relying entirely on the performance of the Initial Hotels and the Initial
Lessee's ability to increase revenues to keep pace with inflation. Operators of
hotels in general, and the Initial Lessee, can change room rates quickly, but
competitive pressures may limit the Initial Lessee's ability to raise rates
faster than inflation. The compound annual growth rate of ADR on the Initial
Hotels for the five years ended December 31, 1995 was 3.0%, or about the rate of
inflation in the Consumer Price Index. According to industry statistics,
industry-wide annual increases in ADR have failed to keep pace with inflation
since 1987.
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<PAGE> 58
The Company's largest fixed expense is the depreciation of the investment
in hotel properties. The Company's variable expenses, which are subject to
inflation, represent approximately 20.0% of pro forma revenues. These variable
expenses (general & administrative costs as well as real estate and personal
taxes, property and casualty insurance and ground rent) are expected to grow
with the general rate of inflation.
SEASONALITY
The Initial Hotels' operations historically have been seasonal. Seven of
the Initial Hotels maintain higher occupancy rates during the second and third
quarters. The two Florida Initial Hotels experience their highest occupancy in
the first quarter. This seasonality pattern can be expected to cause
fluctuations in the Company's quarterly lease revenue under the Percentage
Leases. The Company anticipates that its cash flow from the Initial Lessee's
operation of the Initial Hotels will be sufficient to enable the Company to make
quarterly distributions at the estimated initial rate for at least the next
twelve months. To the extent that cash flow from operations is insufficient
during any quarter, because of temporary or seasonal fluctuations in lease
revenue, the Company expects to utilize other cash on hand or borrowings to make
those distributions. See "Business and Properties -- Business
Strategy -- Financing Strategy.") No assurance can be given that the Company
will make distributions in the future at the initially estimated rate, or at
all.
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<PAGE> 59
BUSINESS AND PROPERTIES
THE HOTEL INDUSTRY
The hotel industry is currently benefiting from an increase in room demand
which outpaces the growth in supply. According to the Kenneth Leventhal Real
Estate Group of Ernst & Young LLP, industry-wide room demand increased between
3.0% and 4.7% each year from 1992 through 1995, while the supply of new rooms
increased between 1.0% and 1.4% annually during that period. As might be
expected in such a supply/demand environment, occupancies and ADR have increased
each year during the period and are projected to increase in 1996. Occupancy
rose from 62% industry-wide in 1992 to a projected 66% in 1995. As shown in the
following chart from Kenneth Leventhal's 1996 National Lodging Forecast (the
"1996 Forecast") Kenneth Leventhal projects industry-wide occupancy to grow to
67% in 1996 and to increase to 68% by year-end 1997.
See the chart set forth under "The Company" for a comparison of the
occupancy, ADR and REVPAR for the Initial Hotels to that of their local markets
(including the Initial Hotels and their local competing hotels as defined by the
Company), all U.S. upscale/moderate full service hotels, and all U.S. hotels.
U. S. HOTEL OCCUPANCY
HISTORIC AND PROJECTED
[GRAPHIC]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PERCENTAGE OF OCCUPANCY
<S> <C>
1990 62
1991 61
1992 62
1993 63
1994 65
1995 66
1996 67
1997 68
</TABLE>
SOURCE: SMITH TRAVEL RESEARCH (1990-1994); E&Y KENNETH LEVENTHAL REAL ESTATE
GROUP (1995-1997)
Industry-wide ADR grew from $60 to $66 during the period 1992 through 1995,
and, as shown in the following chart from the 1996 Forecast, ADR is projected to
increase 4.5% to $69 in 1996 and 4.3% to $72 in 1997.
U. S. HOTEL AVERAGE DAILY RATE
HISTORIC AND PROJECTED
[GRAPHIC]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) $ AVERAGE DAILY RATE
<S> <C>
1990 58
1991 59
1992 60
1993 61
1994 64
1995 66
1996 69
1997 72
</TABLE>
SOURCE: SMITH TRAVEL RESEARCH (1990-1994); E&Y KENNETH LEVENTHAL REAL ESTATE
GROUP (1995-1997)
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<PAGE> 60
THE INITIAL HOTELS
The following table sets forth certain information with respect to each of
the Initial Hotels:
<TABLE>
<CAPTION>
NUMBER NUMBER OF
NUMBER OF RESTAURANTS/
OF PARKING LOUNGES/ FITNESS GIFT
PROPERTY ROOMS SPACES PROPERTY DESCRIPTION POOL BARS MEETING ROOM CENTER POOL SHOP
- ----------------------------- ------ ------ -------------------------- ------------ ---------------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Berkeley Marina Marriott 373 539 Three 3-story buildings 1/1/0 11,000 sq. ft, Yes Yes Yes
and one 4-story building. including 5,100
sq. ft. ballroom
Buffalo Marriott 356 637 One 10-story tower. 1/1/1 11,500 sq. ft. Yes Yes Yes
Cleveland Airport Marriott 375 600 Two 4-story room wings and 2/1/0 11,600 sq. ft. Yes Yes Yes
one 9-story guest room including 4,900
tower. sq. ft. ballroom
Cleveland Marriott East 403 840 Two 7-story guest room 1/1/0 14,400 sq. ft. Yes Yes Yes
wings, one 4-story guest including 6,864
room wing. sq. ft. ballroom
Columbus North Marriott 300 694 One 9-story tower and one 1/1/0 14,000 sq. ft. Yes Yes Yes
3-story guest room wing. including 7,500
sq. ft. ballroom
Lake Norman Hampton Inn 117 134 One 5-story building. 0/0/0 900 sq. ft. Yes Yes No
Lake Norman Holiday Inn 119 195 One 2-story building. 1/1/0 2,300 sq. Yes Yes No
Melbourne Quality Suites 208 295 Two 9-story guest towers. 1/1/1 1,584 sq. ft. Yes Yes Yes
Radisson Inn Sanibel Gateway 157 160 Two 3-story guest 1/1/1 480 sq. ft. No Yes Yes
buildings.
<CAPTION>
OTHER
PROPERTY AMENITIES
- ----------------------------- --------------------------
<S> <C>
Berkeley Marina Marriott Concierge
Buffalo Marriott Car rental desk; shoe
shine stand; concierge;
game room
Cleveland Airport Marriott Concierge; auto rental
Cleveland Marriott East Concierge; auto rental
Columbus North Marriott Concierge
Lake Norman Hampton Inn Free continental breakfast
Lake Norman Holiday Inn Free continental breakfast
Melbourne Quality Suites Beach; game room
Radisson Inn Sanibel Gateway Beach access; game room
</TABLE>
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<PAGE> 61
GENERAL. Each of the Initial Hotels is under the direction of a general
manager and an executive committee, which are accountable for and are
compensated in part based on the property's performance. This group oversees
day-to-day operations and develops annual budgets and marketing, long-term
capital, and human resource development plans. Each Initial Hotel is responsible
for developing its own marketing plan. These plans are comprehensive, analyzing
local market conditions and the hotel's competition, determining hotel
positioning, identifying consumer needs, and outlining marketing objectives and
strategies. Each plan will continue to be evaluated quarterly by the Initial
Lessee to maintain effectiveness under changing market conditions.
The Initial Lessee stresses first-rate financial management and
comprehensive revenue reporting and believes its management team is skilled at
anticipating business needs and changes to maintain competitiveness in its
markets. All hotel departments, including rooms, food & beverage, accounting,
sales and marketing, engineering and human resources, will continue to receive
regular on-site performance reviews and have open lines of communication
directly to the Initial Lessee's management. These performance reviews will
enable the Initial Lessee to maintain an in-depth understanding of each hotel's
marketing opportunities and insure that the Company's properties receive
direction to enable on-site management to maximize profits.
The following discussion sets forth additional information for each Initial
Hotel. Additional statistical data concerning capital expenditures at each of
the Initial Hotels during the fiscal years 1991 through 1995 is set forth in the
chart under the heading "The Company -- Business Objectives and
Strategies -- Renovation Strategy." Information concerning the indebtedness
associated with the Initial Hotels and the payment thereof in connection with
the Offering is set forth under "Use of Proceeds."
The information set forth below comparing each Initial Hotel to its local
competition is based on reports obtained from Smith Travel Research, which is
not associated in any way with the Company or any of its Affiliates and has not
provided any form of assistance in connection with and the Offering. Each
Initial Hotel's Local Competition includes four to seven competitors in its
market, as currently defined by Boykin Management for property and personnel
performance evaluation purposes and used for all periods referred to. Boykin
Management's consistently-applied criteria for defining each hotel's competitive
set include comparability of location, target customers, rates, and level of
service provided. The composition of a hotel's competitive set changes from time
to time as competitors enter or exit the market or as comparative information
for competitors becomes unavailable.
BERKELEY MARINA MARRIOT. This 373-room waterfront hotel is on the east side
of San Francisco Bay in the Berkeley Marina Complex. The hotel is in a secluded
area approximately 20 minutes from downtown San Francisco and 30 minutes from
San Francisco International Airport. The hotel is located near the Golden Gate
Bridge, Fisherman's Wharf and the Napa/Sonoma wine country. The University of
California at Berkeley is three miles away. Approximately 60% of the guests are
business travelers. The primary business travelers are employed by Sybase,
Chevron, University of California at Berkeley, Kaiser, and AT&T. Tourist travel
accounts for approximately 40% of the hotel's business and is based on nearby
tourist destinations and the hotel's marina location. Group travel, which
accounts for about 25% of the hotel's business and tourist travel, is primarily
related to professional and amateur sports, entertainment and educational
groups.
The property has been owned and managed by the Boykin Group as a Marriott
since its opening in 1972. The property was expanded to its current size in
1985. The hotel has approximately 11,000 square feet of flexible meeting and
banquet space, which can be divided into 14 rooms. In addition, there are seven
executive suites that can accommodate smaller conferences. The hotel also has a
300-seat restaurant and a lounge and has 700 feet of dock space in the Berkeley
Marina Complex that is leased to Hornblower Dining Yachts. Areas budgeted for
renovation during the next 12 months include additional guest rooms, the hotel's
conference center, and certain structural improvements and equipment upgrades.
The land underlying this hotel is leased under a ground lease that expires
in 2033 but can be extended by the tenant to 2051. The rent payable under the
lease includes annual minimum rent of $100,000 and percentage rent based on the
hotel's revenues. The tenant is responsible for all taxes, maintenance and
insurance on the leased property. See note 8 to the Combined Financial
Statements for the Initial Hotels
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<PAGE> 62
(Excluding Lake Norman Hotels) for the year ended December 31, 1995, for further
information concerning the lease.
This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by 8.0%, 11.6% and 20.5%, respectively.
BUFFALO MARRIOTT. This 356-room hotel is the only full-service Marriott
hotel in the greater Buffalo Metropolitan area. Located just off Interstate 290
in the growing suburb of Amherst, the hotel is adjacent to the State University
of New York at Buffalo and is approximately 15 minutes from downtown Buffalo, 30
minutes from Niagara Falls, and 10 minutes from the Greater Buffalo
International Airport. Approximately 70% of the guests are business travelers.
The primary business travelers are employed by General Motors, NYNEX, Citicorp,
Dupont and the State University of New York. Group travel, which accounts for
approximately 18% of the hotel's business, is generated by sports and
social-related activities.
The property has been owned and managed by the Boykin Group as a Marriott
since opening in 1981. The hotel has approximately 11,500 square feet of
flexible meeting and banquet space, which can be divided into 11 rooms. In
addition, there are six executive suites that can accommodate smaller
conferences. The hotel also has a 250-seat restaurant and a lounge. The property
had approximately 200 rooms renovated, at an estimated cost of $1.0 million, in
1995. The hotel's design will accommodate a 2,500 square foot ballroom expansion
and the addition of up to 100 guest rooms. Improvements and renovations budgeted
for the next 12 months include installation of a business center, renovation of
the hotel's restaurant, guest room HVAC and bedding replacements, and
miscellaneous equipment items.
This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by 9.2%, 17.5% and 28.4%, respectively.
CLEVELAND AIRPORT MARRIOTT. This 375-room hotel is located in Cleveland,
Ohio on Interstate 71 approximately eight miles from downtown Cleveland and two
miles from Cleveland Hopkins International Airport. Approximately 42% of the
guests are business travelers. The primary business traveler guests are employed
by PPG Industries, American Greetings, General Electric, Marriott Corporation,
Ford Motor Company, and certain others. Group travel, which accounts for
approximately 25% of the hotel's business, is primarily related to professional
sports and entertainment and educational groups. Tourist travel accounts for
approximately 33% of the hotel's business and is based on nearby tourist
attractions such as the Cleveland Zoo and Rainforest, NASA Lewis Research
Center, the Rock & Roll Hall of Fame, Jacobs Field, the home of the Cleveland
Indians baseball team, and Gund Arena, the home of the Cleveland Cavaliers
basketball team. The hotel is also expected to benefit from the contemplated
expansion of the airport, the development of Science Parkway (adjacent to NASA),
and continued usage of the nearby International Exposition Center, which houses
the largest meeting facility under one roof in the world.
The property was developed by the Boykin Group and has been managed by it
since its opening in 1970. In 1974, the property was expanded to 375 guest
rooms, and meeting space, a ballroom and a second restaurant were added. The
hotel has approximately 11,600 square feet of flexible meeting and banquet
space, which can be divided into 14 rooms. In addition there are four executive
suites that can accommodate smaller conferences. The hotel also has a lounge. As
part of an ongoing program, approximately $2.6 million has been spent over the
last five years on improvement and renovation of this hotel. Areas budgeted for
renovation during the next 12 months include certain meeting rooms, exterior lot
lighting, guest room bathroom floors and miscellaneous equipment.
This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by 1.6%, 14.3% and 15.7%, respectively.
CLEVELAND MARRIOTT EAST. This 403-room hotel is located in Beachwood, Ohio,
a suburb of Cleveland, just off Interstate 271. The hotel adjoins commercial
office development and is approximately 20 minutes from downtown Cleveland and
30 minutes from the Cleveland Hopkins International Airport. Approximately 80%
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<PAGE> 63
of the guests are business travelers. The primary business travelers are
employed by Swagelok, Allen Bradley, General Electric, TRW, Progressive
Insurance, Picker International and Master Builders. Group travel accounts for
approximately 20% of the hotel's business. The hotel is also adjacent to the
planned 650-acre Chagrin Highlands research-office park development.
The property has been owned and managed by the Boykin Group as a Marriott
since its opening in 1977. The hotel has approximately 14,400 square feet of
flexible meeting and banquet space, which can be divided into as many as 17
rooms. In addition, there are eight executive suites that can accommodate
smaller conferences. The hotel also has a 200-seat restaurant and a lounge. As
part of an ongoing program, approximately $2.6 million has been spent over the
last five years on improvement and renovation of this hotel, including a
substantial lobby renovation. Areas budgeted for renovation and improvement
during the next 12 months include the restaurant and ballroom, guest room
corridor carpeting, guest elevators and certain exterior maintenance items.
While this hotel's average occupancy for the years 1991 through 1995
trailed the aggregate average occupancy of its local competition during that
period by 2.8%, the hotel's average ADR and REVPAR for that period exceeded the
aggregate average ADR and REVPAR of that competitive set during that period by
4.4% and 1.5%, respectively.
COLUMBUS NORTH MARRIOTT. This 300-room hotel is located in Columbus, Ohio,
just off Interstate 71 and near Interstate 270. The hotel is the only
full-service Marriott Hotel in Columbus, and is approximately 20 minutes from
downtown Columbus, 20 minutes from Ohio State University and 20 minutes from the
Port Columbus International Airport. Approximately 70% of the guests are
business travelers. The primary business travelers are employed by American
Express, Honda, Banc One, Borden, General Electric, AT&T and IBM. Group travel,
which accounts for 30% of the hotel's business, is primarily related to
convention and business groups.
The property has been owned and managed by the Boykin Group as a Marriott
since its opening in 1981. The hotel has approximately 14,000 square of flexible
meeting and banquet space, which can be divided into 13 rooms. In addition,
there are ten executive suites that can accommodate smaller conferences. The
hotel also has a 200-seat restaurant and a lounge. A $2.5 million renovation of
the hotel's guest rooms, lobby and lounge was completed in 1994. Items budgeted
for capital expenditures during the next 12 months include renovation of the
restaurant and certain guest rooms, installation of fire sprinklers, replacement
of the hotel's parking lot, and certain exterior maintenance items. The hotel's
management is evaluating expansion of the ballroom by 2,500 square feet and an
addition of up to 100 guest rooms, but no decision has been made regarding
either opportunity.
This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by .1%, 8.5% and 8.6%, respectively.
LAKE NORMAN HAMPTON INN. This 117-room limited-service hotel, which was
built in 1991, is located in Lake Norman, North Carolina at the southeast corner
of the intersection of Interstate 77 North, Exit 28 and North Carolina Highway
73. See "Business and Property -- The Initial Hotels -- Lake Norman Holiday
Inn," for a description of this hotel's location and sources of room demand.
The hotel has one meeting room. In 1995 the property underwent a soft goods
renovation and improvement. Improvements budgeted for the next 12 months include
replacement of lobby furniture and area rugs and guest room furniture and
televisions.
The Boykin Group acquired this hotel in February 1996, and the competitive
data available to the Company does not cover the period 1991 through 1993. While
this hotel's average occupancy for the years 1994 and 1995 exceeded the
aggregate average occupancy of its local competition during those years by 3.7%,
the hotel's average ADR and REVPAR for those years trailed the aggregate average
ADR and REVPAR of that competitive set for those years by 4.2% and .8%,
respectively.
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<PAGE> 64
LAKE NORMAN HOLIDAY INN. This 119-room hotel is located in Lake Norman,
North Carolina at the northeast corner of the intersection of Interstate 77
North, Exit 28 and North Carolina Highway 73. Charlotte, North Carolina is 19
miles to the south. Lake Norman is an upscale community located approximately
five miles south of downtown Mooresville, North Carolina and just southeast of
Lake Norman, one of North Carolina's most widely-used recreational lakes,
offering boating, swimming, and nearby golf facilities. About 30% to 40% of the
demand results from leisure travel. Approximately 60% to 70% of the area's hotel
market is represented by the commercial segment, which includes government,
social, military, educational, religious and fraternal groups. Commercial
sources of room demand include Duke Power, Ingersol Rand, Matsushita,
Muratec/Murata, Widemann, Polymerland, Nautilus, Trans Industries and
Westinghouse.
This hotel has three banquet and meeting rooms. In 1994 and 1995 the
property underwent a soft goods renovation and improvement. Areas budgeted for
renovation and improvement during the next 12 months include banquet meeting
room, restaurant and guest room renovations and installation of certain exterior
lighting.
The Boykin Group acquired this hotel in February 1996 and the competitive
data available to the Company does not cover the period 1991 through 1993. While
this hotel's average occupancy for the years 1994 and 1995 trailed the aggregate
average occupancy of its local competition by .1% during those years, the
hotel's average ADR and room REVPAR for those years exceeded the aggregate
average ADR and REVPAR of that competitive set for those years by 11.9% and
11.5%, respectively.
MELBOURNE QUALITY SUITES. This 208-suite oceanfront hotel is located in
Indialantic, Florida, on the beach off Florida's coastal highway A1A,
approximately 20 miles south of Kennedy Space Center and 65 miles southeast of
Disney World. The hotel, which received a Gold Hospitality Award from Choice
Hotels in 1994, is approximately ten miles from Melbourne International Airport.
Approximately 25% of the guests are tourist or vacation travelers attracted by
popular destinations such as Disney World, Universal Studios and Sea World.
Approximately 20% of the guests are business travelers. The primary business
travelers are employed by Harris Corporation, the Department of Defense, and
certain aerospace companies. Group travel, which represents 55% of the hotel's
business, is primarily related to government and military travel.
This property has been owned and managed by the Boykin Group as a Quality
Suites hotel since its opening in 1986. The hotel has approximately 1,584 square
feet of flexible meeting and banquet space, which can be divided into two rooms.
In addition, there are three executive suites that can accommodate smaller
conferences. The hotel also has a 128-seat restaurant and a lounge. The property
has recently undergone a substantial renovation after being temporarily closed
as a result of damage caused by Hurricane Erin in August 1995. Capital
improvements budgeted for the next 12 months include installation of a new
lounge, conversion of the existing lounge into meeting rooms, certain guest room
conversions, and replacement of guest room televisions.
This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by 7.2%, 13.9% and 22.7%, respectively.
RADISSON INN SANIBEL GATEWAY. This 157-room hotel, located in Fort Myers,
Florida, is 15 miles from I-75, and seven miles off U.S. Highway 41. The hotel,
which was a President's Award recipient (awarded to the top 10% of Radisson
Hotels based on measures established by Radisson) in 1993, 1994 and 1995, is two
and one-half miles from Sanibel Island and four and one-half miles from Ft.
Myers Beach. It is 25 minutes from the New Southwest Florida Airport and 15
minutes from the Boston Red Sox and Minnesota Twins spring training complexes.
Approximately 80% of the guests are tourists and vacationers. Group travel
accounts for 14% of the hotel's business.
The property has been owned and managed by the Boykin Group since its
opening in 1986. The hotel has approximately 865 square feet of flexible meeting
and banquet space, a 90-seat restaurant and a lounge. Improvements budgeted for
the next 12 months include installation of guest room wall coatings, replacement
of guest room bathroom wall coverings and flooring, and certain guest room
furniture and equipment upgrades.
This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by 6.5%, 3.3% and 9.8%, respectively.
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<PAGE> 65
THE PERCENTAGE LEASES
Each of the Initial Hotels will be leased by the Partnership to the Initial
Lessee. The following table sets forth (i) the Percentage Rent formulas, (ii)
the annual Minimum Rent, and (iii) the pro forma Percentage Rent and total Rent
that would have been paid for each Initial Hotel pursuant to the terms of the
Percentage Leases based upon pro forma revenues for the twelve months ended June
30, 1996 as if the Partnership had owned the Initial Hotels and the Percentage
Leases had been in effect since January 1, 1995 (dollar amounts in thousands).
<TABLE>
<CAPTION>
FOR THE
TWELVE
MONTHS
ENDED
JUNE 30,
1996
FOOD & ---------
FRANCHISE BEVERAGE PRO FORMA
LEASE RENEWAL ANNUAL PERCENTAGE ROOMS &
EXPIRATION EXPIRATION MINIMUM ROOMS & OTHER PERCENTAGE RENT OTHER
HOTEL DATE DATE RENT RENT FORMULA(1) FORMULA(1) REVENUE
- ------------------- ---------- ---------- --------- --------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Berkeley 12/31/00 10/31/97 $ 5,200 35% from $0 to $8,391 6% $12,692
Marina 50% from $8,391 to $11,188
Marriott 75% over $11,188
Buffalo 3/26/04 3/26/04 2,570 31% from $0 to $5,731 6% 9,830
Marriott 45% from $5,731 to $8,597
70% over $8,597
Cleveland 4/1/02 4/1/02 2,740 33% from $0 to $6,832 6% 9,928
Airport 52.5% from $6,832 to $8,784
Marriott 70% over $8,784
Cleveland 10/7/01 10/7/01 3,020 32% from $0 to $7,566 6% 10,985
Marriott 50% from $7,566 to $9,728
East 70% over $9,728
Columbus 12/31/06 9/4/14 1,970 30% from $0 to $5,282 6% 7,639
North 45% from $5,282 to $6,791
Marriott 70% over $6,791
Lake Norman 12/31/06 4/11/10 520 30% from $0 to $1,110 6% 1,998
Hampton Inn 45% from $1,110 to $1,737
65% over $1,737
Lake Norman 2/8/06 2/8/06 580 30% from $0 to $1,512 6% 2,199
Holiday Inn 50% $1,512 to $1,944
75% over $1,944
Melbourne 12/31/06 12/31/06(3) 1,300 35% from $0 to $3,336 6% 4,779(4)
Quality Suites 50% from $3,336 to $4,290
75% over $4,290
Radisson Inn 12/31/06 12/31/09 740 25% from $0 to $1,875 6% 3,155
Sanibel 45% from $1,875 to $2,813
Gateway 65% over $2,813
--------- ---------
Total $18,640 $63,205
========= =========
<CAPTION>
PRO FORMA
FOOD &
BEVERAGE PRO FORMA
HOTEL REVENUE ANNUAL RENT(2)
- ------------------- --------- --------------
<S> <C> <C>
Berkeley $ 5,343 $ 5,833
Marina
Marriott
Buffalo 4,475 4,234
Marriott
Cleveland 3,985 4,355
Airport
Marriott
Cleveland 4,924 4,717
Marriott
East
Columbus 3,818 3,117
North
Marriott
Lake Norman 0 792
Hampton Inn
Lake Norman 585 906
Holiday Inn
Melbourne 493(4) 2,060
Quality Suites
Radisson Inn 471 1,152
Sanibel
Gateway
--------- -------
Total $24,094 $ 27,166
========= ==============
</TABLE>
- ---------------
(1) Shown as a percentage of revenues.
(2) Calculated on a pro forma basis by applying the rent provisions in the
Percentage Leases to pro forma revenues of the Initial Hotels for the twelve
month period as if January 1, 1995 was the beginning of the lease year. The
rent formula utilized in computing the pro forma Percentage Lease revenue
and expense includes for the calendar year 1995 an adjustment to reduce the
threshold revenue amounts in the Percentage Lease formulas by the 2.5%
increase in the Consumer Price Index for that year.
(3) Both the Initial Lessee and Choice Hotels International, Inc. may terminate
the franchise effective December 31, 1996 and December 31, 2001, upon three
months prior notice.
(4) Includes $1,147 of Rooms and Other Revenue and $114 of Food and Beverage
Revenue, as required under the rental interruption insurance provision of
the Percentage Lease agreements.
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<PAGE> 66
At the inception of the Company, each Initial Hotel will be separately
leased by the Company to the Initial Lessee under a Percentage Lease. Hotels
acquired in the future may be leased to the Initial Lessee or other lessees and
it is possible, though not presently intended, that the Initial Hotels may also
be leased to others or sold in the future. Each Percentage Lease contains the
provisions described below. The Company expects that leases with respect to its
future hotel property investments will contain substantially similar provisions,
although the Board of Directors may, in its discretion, alter any of these
provisions with respect to any particular lease, depending on the purchase price
paid, economic conditions and other factors it considers relevant. The following
summary of the material terms of the Percentage Leases is qualified in its
entirety by reference to the form of Percentage Lease, which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Duration. The Percentage Leases will have noncancelable terms ranging from
four to 10 years, subject to earlier termination on the occurrence of certain
contingencies described in the Percentage Leases (including, particularly, the
provisions described herein under "Damage to Hotels," "Condemnation of Hotel"
and "Termination of Percentage Leases on Disposition of the Hotels"). The
Percentage Leases do not contain renewal terms. The Percentage Leases for seven
of the Initial Hotels expire on the earlier of the franchise renewal date or the
tenth anniversary of the Offering. Having these lease terminations coincide with
franchise renewal dates may facilitate any necessary repositioning of the hotels
at the time of the franchise renewals. In addition, having staggered lease
termination dates will enable the Company to deal with lease and franchise
renewal issues on a more deliberate basis than would be the case if all of the
leases expired simultaneously.
Amounts Payable Under the Percentage Leases. The Initial Lessee will be
obligated to pay (i) the higher of Minimum Rent or Percentage Rent; and (ii)
certain other amounts, including interest accrued on any late payment or charge
(the "Additional Charges"). Minimum Rent is a fixed amount determined by
negotiation between the Company and the Initial Lessee. Percentage Rent is
calculated by multiplying fixed percentages by gross room and other revenue, and
gross food and beverage revenue, over specified threshold amounts. Minimum Rent
is payable monthly in advance, and Percentage Rent is payable for each quarter
within 30 days after the end of the quarter.
Both the threshold gross room and other revenue amounts used in computing
Percentage Rent and Minimum Rent will be adjusted for changes in the Consumer
Price Index. The changes will be calculated at the beginning of each calendar
year beginning with 1997, based on the average annual change in the CPI during
the prior 12 months.
Each Percentage Lease requires the Initial Lessee to pay rent, all costs
and expenses, and all utility and other charges incurred in the operation of the
hotel. All capital expenditures (as defined in the lease) will be the
responsibility of the Company. Each Percentage Lease also provides for rent
reductions and abatements in the event of damage or destruction or a partial
taking of the hotel as described under "Damage to Initial Hotels" and
"Condemnation of Initial Hotels." The Initial Lessee will be required to carry
insurance to cover rental interruption for a period up to one year.
Maintenance and Modifications. The Initial Lessee will be required, at its
expense, to maintain the hotel in good order and repair, except for ordinary
wear and tear, and to make nonstructural, foreseen and unforeseen, and ordinary
and extraordinary, repairs which may be necessary and appropriate to keep the
hotel in good order and repair. The Company will fund capital expenditures and
the repair, replacement and refurbishment of FF&E in the hotel, when and as
considered necessary by the Company as required by the Franchises, and will
maintain the Capital Expenditures Fund to help provide funds to cover such
expenses. See "The Company -- Business Objectives and Strategies -- Renovation
Strategy." The Company will make an annual contribution to the Capital
Expenditures Fund in an amount equal to 4% of the Initial Lessee's aggregate
gross revenues generated from the hotel. The Company and the Initial Lessee will
agree on an annual capital budget for each Initial Hotel.
The Initial Lessee, at its expense, may make noncapital and capital
additions, modifications or improvements to the hotel, so long as doing so does
not significantly alter the character or purposes of the hotel or significantly
detract from its value or operating efficiencies. All such alterations,
replacements and improvements will be subject to all of the terms of the
Percentage Lease and will become the property of the
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<PAGE> 67
Company on termination of the lease. The Company will own the FF&E, except in
limited circumstances under which the Initial Lessee may purchase certain FF&E
and the Initial Lessee will own substantially all other personal property not
affixed to, or considered a part of, the real estate or improvements thereon.
Any purchase of FF&E by the Initial Lessee will be made on terms negotiated
between the Company and the Initial Lessee.
For so long as the Initial Lessee maintains its interior design and
purchasing operations, it will perform interior design and purchasing services
for the Initial Hotels without charge to the Company.
Insurance and Property Taxes. The Company is responsible for paying real
estate and personal property taxes on the hotel and for maintaining property
insurance, including casualty insurance. The Initial Lessee is required to
maintain comprehensive general public liability, workers' compensation, 12-month
rental interruption insurance and any other insurance customary for properties
similar to the hotel or required by any relevant Franchisor, and to have the
Company named as an additional insured. The Company believes that the insurance
coverage carried by each Initial Hotel is adequate in scope and amount.
Indemnification. Under each Percentage Lease, the Initial Lessee will
indemnify the Company against all liabilities, costs and expenses (including
reasonable attorneys' fees and disbursements) incurred by, imposed on or
asserted against the Partnership, on account of, among other things, (i) any
accident or injury to person or property on or about the hotel; (ii) any
negligence by the Initial Lessee or any of its agents as to the leased property;
(iii) any environmental liability resulting from conditions existing at the time
of completion of the Offering or caused or resulting thereafter from any action,
inaction or negligence of the Initial Lessee (see "Business and Properties --
Environmental Matters"); (iv) taxes and assessments in respect of the hotel
(other than real estate taxes and income taxes of the Company on income
attributable to the hotel); (v) the sale or consumption of alcoholic beverages
on or in the real property or improvements thereon; or (vi) any breach of the
lease by the Initial Lessee. The Initial Lessee will not be required, however,
to indemnify the Company against the Company's negligence or willful misconduct.
Assignment and Subleasing. The Initial Lessee will not be permitted to
sublet all or any part of the hotel or assign its interest under the lease
without the prior written consent of the Partnership. The Initial Lessee may,
however, enter into a management agreement with a third party for the management
and operation of the hotel, with the consent of the Company, which the Company
may withhold in its sole and absolute discretion. No assignment, subletting or
management agreement will release the Initial Lessee from any of its obligations
under the lease. The lease may not be indirectly sold by selling direct or
indirect ownership or control of the Initial Lessee without causing a default
under the Initial Lease.
Damage to Initial Hotels. If damage to or destruction of any Initial Hotel
renders such hotel unsuitable for the Initial Lessee's use and occupancy and is
covered by insurance, the Company may elect to repair, rebuild or restore the
hotel or offer to acquire it on the terms set forth in the lease. If the hotel
is not rebuilt, the lease will terminate and the insurance proceeds will be
retained by the Company. If damage to or destruction of the hotel does not
render the hotel wholly unsuitable for the Initial Lessee's use and occupancy
and is covered by insurance, the Company generally will be obligated to repair
or restore the hotel. The lease will remain in full force and effect during the
first 12 months of any period required for repair or restoration of the hotel,
after which time rent will be equitably abated.
Condemnation of Initial Hotels. In the event of a total condemnation of an
Initial Hotel, each of the Company and the Initial Lessee will be entitled to
terminate the lease as of the date of taking. The resulting condemnation award
will be allocated between the Company and the Initial Lessee as set forth in the
lease. In the event of a partial taking that does not render the hotel
unsuitable for the Initial Lessee's use, the Company must restore the untaken
portion of the hotel to a complete architectural unit, subject to an equitable
abatement of the rent during the period in which the hotel is not fully useable,
and the Company must provide the required funds to cover the cost of that
restoration, which may include that part of the condemnation award specified for
restoration.
Events of Default. Events of Default under each Percentage Lease include,
among others, the following:
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<PAGE> 68
(i) the failure by the Initial Lessee to pay Minimum Rent when due and the
continuation of that failure for a period of 10 days;
(ii) the failure by the Initial Lessee to pay the Percentage Rent for any
quarter within 10 days after the end of that quarter;
(iii) the failure by the Initial Lessee to observe or perform any other
term of the Lease and the continuation of that failure beyond any applicable
cure period;
(iv) an Event of Default under any other Percentage Lease;
(v) if the Initial Lessee files a petition in bankruptcy or reorganization
under any federal or state bankruptcy law or any similar federal or state law,
or is adjudicated a bankrupt or makes an assignment for the benefit of creditors
or admits in writing its inability to pay its debts generally as they become
due, or if a petition or answer proposing the adjudication of the Initial Lessee
as a bankrupt or its reorganization pursuant to any federal or state bankruptcy
law or any similar federal or state law is filed in any court and the Initial
Lessee is adjudicated a bankrupt and that adjudication is not vacated or set
aside or stayed within 60 days after the entry of an order in respect thereof,
or if a receiver of the Initial Lessee or of the whole or substantially all of
the assets of the Initial Lessee is appointed in any proceeding brought by the
Initial Lessee or any such receiver, trustee or liquidator is appointed in any
proceeding brought against the Initial Lessee and that appointment is not
vacated or set aside or stayed within 60 days after that appointment is made;
(vi) if the Initial Lessee voluntarily discontinues operations of the hotel
for more than 10 days, except as a result of damage, destruction, or
condemnation;
(vii) if the franchise agreement with respect to any Initial Hotel is
terminated by the franchisor as a result of any action or failure to act by the
Initial Lessee or its agents;
(viii) any failure to comply with the Initial Lessee's covenants regarding
distributions and maintenance of its net worth, as described under
"Lessees -- The Initial Lessee"; or
(ix) Robert and John Boykin and their heirs cease to own at least 51% of
the Initial Lessee or otherwise fail to control the Initial Lessee.
If an Event of Default occurs and continues beyond any curative period, the
Company may terminate the Lease and any or all of the other Percentage Leases,
and the Initial Lessee will be required to surrender possession of the affected
hotels.
Termination of Percentage Leases on Disposition of the Initial Hotels. If
the Company enters into an agreement to transfer an Initial Hotel to a
non-Affiliate, the Company may terminate that hotel's Percentage Lease by giving
the Initial Lessee 30 days prior notice and paying it the fair market value of
its leasehold interest in the remaining term of that Percentage Lease.
Franchise Agreements. The Initial Lessee will be the franchisee under the
franchise agreements for the Initial Hotels.
Inventory. All working capital assets required in the operation of the
Initial Hotels will be purchased by the Initial Lessee at its expense.
FRANCHISE AGREEMENTS
Five of the nine Initial Hotels are licensed by Marriott International,
Inc. Of the four remaining Initial Hotels, one is licensed by Promus Hotels,
Inc. (licensor of Hampton Inns hotels), one by Choice Hotels International, Inc.
(licensor of Quality Suites hotels), one by Radisson Hotels International, Inc.
and one by Holiday Inns Franchising, Inc. These franchisors have consented to
the transfer of the Initial Hotels to the Partnership and of the related
franchise agreements to the Initial Lessee.
The Company anticipates that the additional hotel properties in which it
invests will in most cases be operated under franchise agreements. The Company
believes that the public's perception of quality associated with a franchisor
can be an important feature in the operation of a hotel. Franchisors provide a
variety of
62
<PAGE> 69
benefits for franchisees, including national advertising, publicity, and other
marketing programs designed to increase brand awareness, training of personnel,
continuous review of quality standards, and centralized reservation systems.
The franchise agreements generally impose certain management, operational,
recordkeeping, accounting, reporting, and marketing standards and procedures
with which the Initial Lessee must comply. The franchise agreements will
obligate the Initial Lessee to comply with the franchisors' standards and
requirements with respect to, among other things, training of operational
personnel, safety, maintenance of insurance, provision of ancillary services and
products, display of signage, and the type, quality, and age of FF&E included in
guest rooms and lobbies and other common areas. See "Risk Factors -- Hotel
Industry Risks -- Franchise Risks."
Termination. Each franchise agreement gives the Initial Lessee the right to
operate the related Initial Hotel under a franchise for a period of years
specified in that agreement. The Initial Lessee is responsible for making all
payments under the franchise agreements to the franchisor. The expiration dates
for the Initial Hotels' franchise agreements range from October 31, 1997 to
September 4, 2014. The franchise agreements provide for early termination at the
franchisor's option on the occurrence of certain events, including the Initial
Lessee's failure to pay fees or perform its other covenants under the franchise
agreement, bankruptcy, abandonment of the franchise, or assignment of the
franchise without the consent of the franchisor. The Initial Lessee has the
right to terminate the Berkeley Marina Marriott franchise agreement, which is
scheduled to expire on October 31, 1997, at any time on or after December 31,
1996. Each of the Initial Lessee and Choice Hotels International, Inc. has the
right to terminate the Melbourne Quality Suites franchise agreement, which is
scheduled to expire on December 31, 2006, effective December 31, 1996 and, if
the agreement is not so terminated, effective December 31, 2001.
Sale of Hotel. The franchise agreements with Marriott contain a provision
requiring the franchisee, on receiving a bona fide offer to buy or lease the
related Initial Hotel, to give the franchisor the option to buy or lease (as
applicable) that hotel on the same terms as are contained in that offer. The
Choice Hotel franchise agreement provides that the agreement automatically
terminates on transfer of the related hotel unless the franchisor expressly
consents to that transfer. The Hampton Inn license agreement provides that a
transferee of the related hotel must apply for a new franchise and that
transfers not specifically authorized under the license agreement (for example,
transfers upon the death of the licensee or an equity owner of the licensee) are
void and are also a breach of the license agreement. The Holiday Inn license
agreement provides that a transferee of the hotel must apply for a new license
unless the franchisor has given its prior written consent to the transfer of the
hotel.
Noncompetition. The franchise agreements for the five Marriott hotels
included in the Initial Hotels prohibit the franchisee from being connected or
associated in any manner with any hotel, motel or inn business within a 5 mile
radius around the franchised hotel. These restrictions can be waived by
Marriott, whose waiver may not be unreasonably withheld. The Company has
obtained a waiver of these restrictions in regard to the Offering. If a
franchise agreement is terminated because of a default by the Initial Lessee,
the Initial Lessee may not, for 24 months after termination, operate any motel,
hotel or inn business (other than those in which it is then engaged) that is in
the 5 mile radius trade area.
There are no restrictions on the Company's ownership of other hotels in the
Hampton or Holiday Inn license agreements, or in the Radisson or Choice Hotel
franchise agreements.
Fees. Under the franchise agreements, the Initial Lessee will pay franchise
fees ranging from 3% to 6% of gross room sales and advertising or marketing and
reservation fees ranging from .8% to 4% of gross room sales.
HAMPTON INN IS A REGISTERED TRADEMARK OF PROMUS HOTELS, INC. PROMUS HOTELS,
INC., HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HAMPTON INN
FRANCHISE LICENSE FOR ANY HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY PROMUS HOTELS,
INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE
PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.
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<PAGE> 70
NEITHER HOLIDAY INNS, INC., HOLIDAY INNS FRANCHISING, INC., NOR ANY PARENT,
SUBSIDIARY, DIVISION OR AFFILIATE OF EITHER HAS ENDORSED OR APPROVED THE
OFFERING OR THIS PROSPECTUS. THE GRANT OF A HOLIDAY INN LICENSE AGREEMENT BY
HOLIDAY INNS FRANCHISING, INC. WITH RESPECT TO ANY HOTEL IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
HOLIDAY INNS, INC. OR HOLIDAY INNS FRANCHISING, INC. (OR ANY SUCH PARENT,
SUBSIDIARY, DIVISION OR AFFILIATE) OF THE COMPANY OR THE SALE OF THE COMMON
SHARES TO PROSPECTIVE INVESTORS AS DESCRIBED IN THIS PROSPECTUS.
MARRIOTT HOTEL IS A REGISTERED TRADEMARK OF MARRIOTT INTERNATIONAL, INC.
("MARRIOTT"). MARRIOTT HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A
MARRIOTT HOTEL FRANCHISE FOR ANY OF THE HOTELS IS NOT INTENDED AS, AND SHOULD
NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY MARRIOTT
(OR ANY OF ITS SUBSIDIARIES, AFFILIATES OR DIVISIONS) OF THE COMPANY, THE
PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.
QUALITY SUITES INN IS A REGISTERED TRADEMARK OF CHOICE HOTELS
INTERNATIONAL, INC. CHOICE HOTELS INTERNATIONAL, INC. HAS NOT ENDORSED OR
APPROVED THE OFFERING. A GRANT OF A QUALITY SUITES INN FRANCHISE LICENSE FOR ANY
HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY CHOICE HOTELS INTERNATIONAL, INC. (OR ANY OR
ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE PARTNERSHIP OR
THE COMMON SHARES OFFERED HEREBY.
RADISSON INN IS A REGISTERED TRADEMARK OF RADISSON HOTELS INTERNATIONAL,
INC. RADISSON HOTELS INTERNATIONAL, INC. HAS NOT ENDORSED OR APPROVED THE
OFFERING. A GRANT OF A RADISSON INN FRANCHISE LICENSE FOR ANY HOTEL IS NOT
INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY RADISSON HOTELS INTERNATIONAL, INC. OR ANY OF ITS AFFILIATES,
SUBSIDIARIES OR DIVISIONS OF THE COMPANY OR THE PARTNERSHIP OR THE COMMON SHARES
OFFERED HEREBY.
EXCLUDED PROPERTIES
William, Robert and John Boykin will participate with an unrelated party in
the development of a parcel, other than for hotel use, that is located near the
Buffalo Marriott Hotel and that is not owned by the Boykin Group. One parcel of
undeveloped real estate owned by William Boykin will also not be transferred to
the Partnership.
OTHER ACTIVITIES
At the time of the Formation Transactions, subsidiaries of the Initial
Lessee will acquire and continue the third-party hotel management, interior
design and purchasing services business of Boykin Management. John E. Boykin
will serve as the initial Secretary of the subsidiaries. The subsidiaries
initially will manage 12 hotels, none of which is owned by the Company, Boykin
Management or any other Boykin Group Affiliate. Three of these hotels are
Hampton Inns in the Chicago, Illinois area, containing an aggregate of 366
rooms. These hotels are owned by an insurance company and have been managed by
Boykin Management since December 1995. Another of these hotels is the 400-room
Hanalei Best Western Hotel, in San Diego, California. The Boykin Group has
managed this property, which is owned by another insurance company, since 1992.
The remaining eight managed hotels, which Boykin Management has managed since
February 1996 on behalf of an institutional investor, contain an aggregate of
1,154 rooms and are located in Santa Barbara County and Ventura County,
California.
William, Robert and John Boykin hold interests in a joint venture formed to
purchase, other than for hotel purposes, a six-acre parcel in the immediate
vicinity of the Buffalo Marriott Hotel. The Company and
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the joint venture have entered into an agreement that provides for certain
cross-easements between the properties and provides that the land will contain
specific deed restrictions to prevent the development of any hotel thereon.
William J. Boykin, the retired Chairman of Boykin Management and the father
of Robert and John Boykin, is developing a Hampton Inn on certain real property
owned by him in Miami, Florida that is adjacent to a shopping center developed
by him in 1989. The hotel is expected to open in the fall of 1996. No other
Boykin Group Affiliate will have an interest in the development of this hotel,
but the Company will have a right of first refusal to purchase the hotel if
William J. Boykin elects to sell it.
EMPLOYEES
The Company will have five employees. These employees will perform,
directly or through the Partnership, various acquisition, development,
redevelopment and management functions. Approximately 75% of the Initial
Lessee's employees will be engaged in managing the operations of the Initial
Hotels. Approximately 25 of the Initial Lessee's employees will also have
responsibilities relating to the design, purchasing and management services to
be rendered to third parties, as described above. The Initial Lessee will
continue the Boykin Group's ongoing recruiting efforts to attract the highest
quality talent at all levels of sales management.
None of the persons who will be employees of the Company or the Initial
Lessee are represented by a union. The Company believes that its and the Initial
Lessee's relations with their respective employees are excellent.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances, and regulations,
an owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on, under or in the
property. This liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. Furthermore, a person that arranges for the disposal of a hazardous
substance at another property or transports a hazardous substance for disposal
or treatment at another property may be liable for the costs of removal or
remediation of hazardous substances at that property, regardless whether that
person owns or operates that property. The costs of any such remediation or
removal may be substantial, and the presence of any such substance, or the
failure promptly to remediate any such substance, may adversely affect the
property owner's ability to sell or lease the property or to borrow using it as
collateral. Other federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in
connection with demolition or certain renovations or remodeling, impose certain
worker protection and notification requirements, and govern emissions of and
exposure to asbestos fibers in the air. Other federal, state and local laws,
ordinances and regulations and the common law impose on owners and operators
certain requirements regarding conditions and activities that may affect human
health or the environment. These conditions and activities include, for example,
the presence of lead in drinking water, the presence of lead-containing paint in
occupied structures, and the ownership or operation of underground storage
tanks. Failure to comply with applicable requirements could result in difficulty
in the lease or sale of any affected property or the imposition of monetary
penalties, in addition to the costs required to achieve compliance and potential
liability to third parties. The Company, the Partnership or the Initial Lessee,
as the case may be, may be potentially liable for such costs or claims in
connection with the ownership and operation of the Initial Hotels. See "Risk
Factors -- Potential Environmental Liability".
Phase I environmental site assessments or assessment updates have been
completed within the last 24 months for each Initial Hotel, and a Phase II
assessment was conducted for one Initial Hotel in April 1996. These assessments
were intended to identify potential sources of contamination for which the
Initial Hotels may be responsible. The Phase I assessments included historical
reviews of the Initial Hotels, reviews of certain public records, preliminary
investigations of the sites and surrounding properties (without invasive
sampling or testing), screening for the presence of asbestos, PCBs and
underground storage tanks, and the
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preparation and issuance of a written report. Certain of the Phase I assessments
tested for the presence of radon, lead-based paint, or lead in drinking water.
The Phase II assessment involved subsurface sampling.
The Phase I and Phase II assessments did not reveal any environmental
contamination or condition that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations.
Furthermore, the Company is not aware of any such contamination or condition.
Nevertheless, it is possible that there exists material environmental
contamination of which the Company is unaware.
No assurance can be given that (i) the assessments described above revealed
all potential environmental liabilities; (ii) future or amended laws, ordinances
or regulations, or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability; or (iii) the environmental condition of the Initial Hotels has not
been and will not be affected by changes in the condition of properties in the
vicinity of the Initial Hotels or by the acts of third parties unrelated to the
Company, Partnership or the Initial Lessee.
The Company believes that the Initial Hotels are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances and other environmental
matters, the violation of which could have a material adverse effect on the
Company or the Partnership. Neither the Company nor, to the knowledge of the
Company, any other entity with an interest in any of the Initial Hotels, has
been notified by any governmental authority, or is otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental matters in connection with any of its present
or former properties.
Certain Boykin Group Affiliates, including Robert and John Boykin, have
agreed to indemnify and hold harmless the Company from and against any liability
arising as a result of any environmental condition relating to the Initial
Hotels at the time of consummation of the Offering.
COMPETITION
Each of the Initial Hotels is located in a developed area that includes
other hotel properties. See "Business and Properties--The Initial Hotels" for a
more detailed description of each Initial Hotel's competitive position in its
market. The occupancy, ADR and REVPAR of any Initial Hotel or any hotel property
acquired in the future could be materially and adversely affected by the number
of competitive hotel properties in its market area.
The Company may be competing for investment opportunities with entities
that have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of
entities in which investments may be made or risks attendant to a geographic
concentration of investments. Competition may generally reduce the number of
suitable investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell.
TAX DEPRECIATION
The Partnership will acquire all of the equity interests in the Initial
Hotels in exchange for cash and equity interests in the Partnership. The
Partnership's initial basis for federal income tax purposes in the hotels in
which the Partnership acquires equity interests will be a carryover of the basis
of the sellers in the hotels on the date of the acquisitions, increased by any
gain recognized on the transfers to the Partnership. The Partnership plans to
use the Alternative Depreciation System ("ADS") for the buildings and
improvements constituting the Initial Hotels. Under ADS, the Partnership
generally will depreciate those buildings and improvements (even those acquired
with a carryover basis) over a new 40-year recovery period using a straight-line
method and a mid-month convention. The depreciation deductions generally will be
specially allocated to the Company under Code Section 704(c).
THE INTERCOMPANY CONVERTIBLE NOTE
The Company will lend approximately $40 million of the net proceeds of the
Offering to the Partnership for uses specified under "Use of Proceeds." The loan
will be evidenced by the Intercompany Convertible
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Note, which will mature on the fifth anniversary of the closing of the Offering.
Interest will accrue at a rate equal to % per annum, increasing to % per
annum on the third anniversary of the completion of the Offering, and will be
payable quarterly. The Intercompany Convertible Note may be prepaid in full, but
not in part, at any time. The Company will have the right to convert the
Intercompany Convertible Note after the second anniversary of the completion of
the Offering, and prior to maturity and in advance of any proposed prepayment by
the Partnership, into additional equity interests in the Partnership at face
value based on the initial offering price of the Common Shares (and assuming
that the value of one Partnership Unit equals the value of one Common Share). On
conversion of the Intercompany Convertible Note, the Company would receive an
additional equity interest in the Partnership of 3.8%, which will reduce the
equity interest in the Partnership of the other holders of Units to 15.9%,
assuming no other Common Shares or Units were issued prior to that conversion.
The Intercompany Convertible Note will be secured by a mortgage on certain of
the Initial Hotels and will be subordinated in right of payment to all other
indebtedness of the Partnership. The Intercompany Convertible Note will be
guaranteed by certain Boykin Group Affiliates and by certain Other Partners of
the Contributed Partnerships. Although the yield on the Intercompany Convertible
Note will initially exceed the yield on the equity in the Partnership, the
Company has not relied on the incremental cash flow in setting its initial
dividend rate.
LEGAL PROCEEDINGS
Neither the Company, the Initial Lessee nor the Partnership is currently
involved in any material litigation nor, to the Company's knowledge, is any
material litigation currently threatened against the Company, the Initial Lessee
or the Partnership. Robert and John Boykin and the other Boykin Group Affiliates
holding ownership interests in the Initial Hotels have represented to the
Partnership that there is no material litigation threatened against or affecting
the Initial Hotels, or threatened against or affecting any Boykin Group
Affiliate, in a manner that would have a material adverse effect on the Initial
Lessee.
POLICIES AND OBJECTIVES WITH RESPECT
TO CERTAIN ACTIVITIES
The following supplements the discussion of the Company's internal growth,
acquisition, development and financing strategies set forth in "The
Company -- Business Objectives and Strategies." The Company's policies with
respect to those activities and the matters discussed below have been
established by the Board of Directors of the Company and may be amended or
revised from time to time at the discretion of the Board of Directors without a
vote of the shareholders of the Company, except that changes in certain policies
with respect to conflicts of interest must be consistent with legal
requirements.
INVESTMENT POLICIES
Investments in Real Estate. The Company may acquire equity interests in
hotel properties other than the Initial Hotels through the Partnership or other
entities controlled by the Partnership, or through joint ventures or other types
of co-ownership. These investments may be subject to existing mortgage financing
and other indebtedness that may have priority over the equity interest of the
Company.
The Company's current policy is to not invest in any one property more than
25% of its total assets at the time of the investment.
Investments in Real Estate Mortgages. While the Company will emphasize
equity real estate investments, it may invest in mortgage and other real estate
interests, including securities of other REITs, and in nonperforming mortgages
with the goal of acquiring the underlying property. The Company may invest in
participating or convertible mortgages (which are similar to equity
participation) if it may benefit from the cash flow or any appreciation in the
value of the subject property. The Company does not currently intend to invest
in mortgages or securities of other REITs.
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FINANCING
While its organizational documents contain no limitation on the amount of
debt it may incur, the Company, subject to the discretion of the Board of
Directors, intends to maintain a debt-to-total market capitalization ratio
(measures at the time the debt is incurred) of not more than 45%. The Company
may from time to time re-evaluate its debt capitalization policy in light of
economic conditions, relative costs of debt and equity capital, market valued of
its properties acquisitions, development and expansion opportunities and other
factors. Any indebtedness may be incurred through the Partnership or the
Company. Indebtedness incurred by the Company may be in the form of bank
borrowings, secured or unsecured, and publicly or privately placed debt
instruments, the proceeds of which would be loaned or contributed to the
Partnership. Indebtedness incurred by the Partnership may be in the form of
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments, further borrowings from the Company, or financing from
banks, institutional investors or other lenders, any of which indebtedness may
be unsecured or may be secured by mortgages or other interests in the property
owned by the Partnership. This indebtedness may be recourse to all or any part
of the property of the Company or the Partnership, or may be limited to the
specific property to which the indebtedness relates. The proceeds from any
borrowings by the Company or the Partnership may be used for the payment of
distributions or dividends, for working capital, or to refinance existing
indebtedness or to finance acquisitions or expansions of properties. See
"Federal Income Tax Considerations -- Requirements for
Qualification -- Distribution Requirements."
If the Board of Directors determines to raise additional equity capital,
the Board has the authority, without shareholder approval, to issue additional
Common Shares or Preferred Shares or other capital shares of the Company in any
manner (and generally on such terms and for such consideration) as it deems
appropriate, including in exchange for property. Any such offering might cause a
dilution of the existing shareholders' investment in the Company.
The Company has obtained a commitment for the Credit Facility. See "The
Company -- Business Objectives and Strategies -- Financing Strategy" for a
description of the terms of the Credit Facility.
POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES
The Company has authority to offer capital shares or other securities and
to repurchase or otherwise reacquire its shares or any other securities, and may
engage in such activities in the future. As described under "Shares Available
for Future Sale," the Company may issue Common Shares to holders of Units in
connection with exercise of the Exchange Rights. The Company has not issued
Common Shares or any other securities to date, except in connection with the
formation of the Company. The Company has no outstanding loans to other entities
or persons, including its officers and directors, except for the loan to the
Partnership evidenced by the Intercompany Convertible Note, and except as
described above under " -- Investment Policies," does not currently intend to
make loans to other entities. The Company has not engaged, and does not
currently intend to engage, in trading, underwriting or agency distribution or
sale of securities of other issuers, and has not invested, and does not
currently intend to invest, in the securities of other issuers (other than the
Partnership) for the purpose of exercising control. The Company intends to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940.
The Company intends to make investments at all times in a manner consistent
with the requirements of the Code in order for the Company to qualify as a REIT
unless, because of changing circumstances or changes in the Code, in Treasury
Regulations or in the interpretations of either, the Company's Board of
Directors determines that it is no longer in the best interests of the Company
and its shareholders to qualify as a REIT.
CONFLICT OF INTEREST POLICY
Neither the Company's governing instruments nor Company policy prohibit any
Company director, officer, security holder or Affiliate from having a pecuniary
interest in any investment to be acquired or disposed of by the Company or in
any transaction to which the Company is a party or in which it has an interest.
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The Company's Articles of Incorporation require that a majority of the
Company's Board of Directors consist of persons who are not officers or other
employees of the Company, Affiliates of the Boykin Group, or persons (or members
of firms) who directly or indirectly receive substantial fee income from the
Company ("Independent Directors"). Determinations to be made on behalf of the
Company with respect to relationships or opportunities that represent a conflict
of interest for any Company officer or director as such will be subject to the
approval of the Independent Directors. See "Risk Factors -- Conflicts of
Interest." In addition, Robert and John Boykin and the other Affiliates of the
Boykin Group have agreed that they will conduct all of their hotel ownership,
development and acquisition activities through the Company, except as described
under " -- Excluded Properties." The Company and the Initial Lessee have agreed
on certain additional measures that are designed to minimize conflicts of
interest between the Initial Lessee and its owners, on one hand, and the Company
and its shareholders, on the other. See "Lessees -- The Initial Lessee."
The Partnership's partnership agreement requires the Company to resolve in
favor of the Company's shareholders any conflict of interest between those
shareholders, on one hand, and the limited partners of the Partnership, on the
other hand, if the conflict cannot be resolved in a manner not adverse to the
interests of either group. The partnership agreement also exonerates the Company
from monetary damages for losses sustained, liabilities incurred, or benefits
not derived by limited partners in connection with any such resolution, so long
as the Company has acted in good faith.
THE FORMATION
Formation Transactions. The principal transactions in connection with the
formation of the Company as a REIT and the acquisition of the Initial Hotels by
the Partnership are as follows:
- The Company was formed as an Ohio corporation in February 1996 and issued
an aggregate of one Common Share to Raymond P. Heitland.
- The Company will sell 7,875,000 Common Shares in the Offering.
- The Company will contribute approximately $119.0 million of the net
proceeds from the Offering to the Partnership in exchange for an
approximately 80.3% equity interest in the Partnership. The Company will
be the sole general partner of the Partnership. The Company will also
lend to the Partnership approximately $40 million of the net proceeds
from the Offering in exchange for an interest-bearing note convertible by
the Company into equity interests of the Partnership (the "Intercompany
Convertible Note"). See "Business and Properties -- The Intercompany
Convertible Note."
- Entities owned by Robert and John Boykin will form the Initial Lessee as
its sole members, and the Initial Lessee will acquire the Boykin Group
hotel operation and management business of Boykin Management.
Subsidiaries of the Initial Lessee will continue the third-party hotel
management, interior design and purchasing services businesses of Boykin
Management following the Offering. See "Lessees -- The Initial Lessee."
- The Boykin Group Affiliates will (i) cause the Contributed Partnerships
to convey certain working capital assets and liabilities to the Initial
Lessee; and (ii) together with the Other Partners and certain Boykin
Associates, indemnify the Partnership against liabilities of the
Contributed Partnerships other than the mortgage indebtedness to be
discharged by the Partnership as described herein.
- Each Initial Hotel is owned by a Contributed Partnership that comprises
other entities and individuals. Through the Contributed Partnerships,
Boykin Group Affiliates hold interests in all nine of the Initial Hotels,
Boykin Associates hold interests in two of the Initial Hotels, and Other
Partners hold interests in five of the Initial Hotels. The Partnership
will acquire a 100% ownership interest in all of the Initial Hotels for
an aggregate of approximately 1.49 million Units (valued at approximately
$32.8 million), approximately $9.2 million in cash, and the repayment of
approximately $8.0 million of existing indebtedness on the Initial
Hotels, as follows:
-- The Partnership will acquire interests in all nine of the Initial
Hotels from Boykin Group Affiliates in exchange for approximately
1.34 million Units (valued at approximately $29.5 mil-
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lion), and repayment of a $3.1 million loan made by Boykin Management
for the benefit of one of the Initial Hotels (approximately $1.5
million of which the Initial Lessee, as Boykin Management's
successor, will in turn repay to a third-party lender, and the
balance of which will be used to pay income taxes payable as a result
of the Formation Transactions or for working capital of the Initial
Lessee).
-- The Partnership will acquire interests in two of the Initial Hotels
from Boykin Associates in exchange for approximately 20,600 Units
(valued at approximately $454,000), and $829,000 in cash;
-- The Partnership will acquire interests in five of the Initial Hotels
from the Other Partners in exchange for approximately 127,400 Units
(valued at approximately $2.8 million) and $8.3 million in cash; and
-- The Partnership will repay a loan of approximately $4.9 million made
by the Other Partners to one of the Initial Hotels.
See "Risk Factors -- Lack of Independent Appraisals and Arm's-Length
Negotiations" for a discussion of the valuation matters considered in connection
with the Formation Transactions.
- The recipients of Units will have rights (generally not exercisable until
the third anniversary of the closing of the Offering in the case of
Boykin Group Affiliates and Boykin Associates) to exchange their Units
for cash (the "Exchange Rights"), subject to the Company's right to issue
Common Shares for those Units on a one-for-one basis. The Unit recipients
will enter into a Registration Rights Agreement with the Company under
which any Common Shares so issued may be registered in certain public
offerings made by the Company after the transfer restrictions on those
Common Shares lapse. Exchange Rights may be exercised before the
specified anniversary of the closing of the Offering to the extent
necessary to enable the estate of any Unit holder to satisfy estate tax
liabilities, subject to the prior approval of the Company's Board of
Directors for any exercise that would cause the number of Units exchanged
in any 12-month period to exceed five percent of the Units outstanding at
the beginning of that period.
- The Partnership will use approximately $136.6 million of the funds
contributed to it to repay third-party mortgage indebtedness encumbering
the Initial Hotels, approximately $3.5 million of those funds as the
initial contribution to the Capital Expenditures Fund, and approximately
$1.7 million of those funds for formation costs, working capital and
other general partnership purposes.
- The Partnership will lease each Initial Hotel to the Initial Lessee
pursuant to a Percentage Lease.
- The Initial Lessee will assume the liquor licenses, franchise agreements,
other licenses and permits and certain working capital liabilities of the
Initial Hotels.
- Robert W. Boykin will become the Chief Executive Officer of the Company
and will enter into the employment agreement and be granted the stock
options described under "Management -- Employment Agreements" and
"Management -- Executive Compensation."
The Formation Transactions benefits to the Boykin Group Affiliates, the
Boykin Associates and the Other Partners, in addition to those described above,
include: (i) increased cash distributions to recipients of Units from the
operations of the Initial Hotels, because of the prepayment of mortgage debt;
(ii) elimination of approximately $5.3 million of mortgage debt guaranties;
(iii) the ability to exchange Units received in the Formation Transactions (as
described above) for cash, or at the Company's election, Common Shares with
registration rights, which will be more liquid than their interests in the
Initial Hotels; (iv) deferral of income tax by contributing their interests in
the Contributed Partnerships; (v) repayment from the proceeds of the Offering of
$3.1 million of loans made by Boykin Management to one of the Initial Hotels;
(vi) realization of an immediate accretion in the net tangible book value of
their investment in the Partnership of $52.55 per Unit; and (vii) receipt by
Robert W. Boykin, Raymond P. Heitland and Mark L. Bishop of options to purchase
250,000, 75,000 and 75,000 Common Shares, respectively, under the Company's Long
Term Incentive Plan. In addition, Robert and John Boykin will indirectly own all
of the interests in the Initial Lessee, which will be entitled to all profits
and cash flow from the Initial Hotels after payment of rent under the Percentage
Leases and other operating expenses.
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MANAGEMENT
COMPANY DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company currently consists of two members,
each of whom is a Boykin Group Affiliate. The Company intends to expand the
Board of Directors, on or prior to completion of the Offering, to seven persons,
including four Independent Directors. Directors will be elected at each annual
meeting of shareholders and will serve until their successors are elected and
qualified.
Executive officers of the Company are elected and serve at the discretion
of the Board of Directors until their successors are duly chosen and qualified.
The following table sets forth certain information concerning the
individuals who will be directors and officers of the Company on the completion
of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Robert W. Boykin 46 Director; Chairman of the Board, President and
Chief Executive Officer
Raymond P. Heitland 60 Director; Chief Financial Officer
Mark L. Bishop 37 Senior Vice President--Acquisitions and
Development
Ivan J. Winfield 62 Proposed Director
Lee C. Howley, Jr. 49 Proposed Director
Frank E. Mosier 66 Proposed Director
William N. Hulett III 52 Proposed Director
Albert T. Adams 45 Proposed Director
</TABLE>
The following is a biographical summary of the business experience of the
current and proposed directors and executive officers of the Company.
Robert W. Boykin is the President and Chief Executive Officer of the
Company. He has served as the President and Chief Executive officer of Boykin
Management since 1985. He served as Boykin Management's Executive Vice-President
from 1981 to 1985.
Raymond P. Heitland is the Chief Financial Officer of the Company. He has
served as the Chief Financial Officer of Boykin Management since 1970.
Mark L. Bishop is Senior Vice President--Acquisitions and Development of
the Company. He has served as Senior Vice President--Acquisitions of Boykin
Management since April 1994. From December 1986 until April 1994 Mr. Bishop was
employed by Grubb-Ellis, serving as National Chairman of the Hospitality
Properties Division beginning in February 1988, and as Vice President/Senior
Marketing Consultant beginning in February 1991.
Ivan Winfield is currently Associate Professor and Chairholder of the
Herzog Chair in Free Enterprise at Baldwin Wallace College, in Berea, Ohio. Mr.
Winfield retired in 1994 from Coopers & Lybrand, L.L.P. From 1978 to 1990 he was
managing partner of the firm's Oklahoma practice and from 1990 to 1994 he was
managing partner of the firm's Northeast Ohio practice. Mr. Winfield is a
Trustee of The Fairport Funds and is Chairman of its audit committee. Mr.
Winfield is also a Director of HMI Industries, Inc. and is Chairman of its
Finance Committee.
Lee C. Howley, Jr. has been the sole owner and president of Howley &
Company, a real estate brokerage and development company, since 1981, and has
been the sole owner and Chairman of Coast Management Company, a cleaning and
real estate management company, since 1987. Since January 1992 Mr. Howley has
served as the Chairman of the Convention and Visitors Bureau of Greater
Cleveland. Mr. Howley serves on the Board of Directors of LESCO, Inc., a
publicly held manufacturer and supplier of lawn care products.
Frank E. Mosier is a director of Centerior Energy Corporation and
Associated Estates Realty Corporation. Mr. Mosier was Vice Chairman of the
Advisory Board of BP America Inc., a producer and refiner of
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petroleum products, from 1991 to 1993. Mr. Mosier was Vice Chairman of BP
America Inc. from 1988 until his retirement in 1991 and president and Chief
Operating Officer of BP America Inc. from 1986 to 1988.
William N. Hulett III is the Co-Chairman and Chief Executive Officer of the
Rock and Roll Hall of Fame and Museum in Cleveland, Ohio. From 1981 to 1993, Mr.
Hulett was the President of Stouffer Hotel Company, the owner of a national
hotel chain. Prior to that time, Mr. Hulett served as Vice President of
Operations for Westin Hotels, based in Seattle, Washington. In December 1991, he
completed a third consecutive term as Chairman of the Convention and Visitors
Bureau of Greater Cleveland. He is a member of the Board of Trustees of the New
Cleveland Campaign, a director of the Greater Cleveland Growth Association and a
member of the 1992 U.S. Savings Bonds Volunteer Committee appointed by the
Secretary of the Treasury. Mr. Hulett was named Business Executive of the year
for 1995 by the Sales and Marketing Executive Association. Mr. Hulett is a
Director of Developers Diversified Realty Corporation.
Albert T. Adams has been a partner with the law firm of Baker & Hostetler
in Cleveland, Ohio since 1984, and has been affiliated with the firm since 1977.
Baker & Hostetler provides legal services to the Boykin Group and various Boykin
Group Affiliates. Mr. Adams is a graduate of Harvard College, Harvard Business
School and Harvard Law School. He serves as a member of the Board of Trustees of
the Western Reserve Historical Society and is a Vice President of the Harvard
Business School Club of Northeastern Ohio. Mr. Adams is a director of Developers
Diversified Realty Corporation and Associated Estates Realty Corporation.
AUDIT COMMITTEE
The Audit Committee will consist of three Independent Directors. The Audit
Committee will make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and nonaudit fees, review the
independent public accountants' letter of comments and management's responses,
review the adequacy of the Company's internal accounting controls, and review
major accounting or reporting changes contemplated or made.
COMPENSATION COMMITTEE
The Compensation Committee will consist of three Independent Directors,
will determine compensation for senior management, advise the Board of Directors
on the adoption and administration of employee benefit and compensation plans,
and administer the Company's Long-Term Incentive Plan.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ohio Revised Code provides, with certain limited exceptions, that a
director may be held liable in damages for his act or omission as a director
only if it is proved by clear and convincing evidence that he undertook the act
or omission with deliberate intent to cause injury to the corporation or with
reckless disregard for its best interest.
The Ohio Revised Code authorizes Ohio corporations to indemnify officers
and directors from liability if the officer or director acted in good faith and
in a manner reasonably believed by the officer or director to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal actions, if the officer or director had no reason to believe his action
was unlawful. In the case of an action by or on behalf of a corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain
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insurance or furnish similar protection on behalf of any officer or director
against any liability asserted against him and incurred by him in his capacity,
or arising out of the status, as an officer or director, whether or not the
corporation would have the power to indemnify him against such liability under
the Ohio Code.
The Company's Code of Regulations provides for the indemnification of
directors and officers of the Company to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Company, and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director of the Company upon the receipt of an undertaking to repay such
amount unless it is ultimately determined that the director is entitled to
indemnification.
The Company is seeking to obtain an insurance policy which will insure the
officers and directors of the Company against claims arising out of alleged
wrongful acts by such persons in their respective capacities as officers and
directors of the Company.
EXECUTIVE COMPENSATION
The Company was incorporated in Ohio on February 8, 1996, and did not pay
any compensation to its officers or directors prior to the Offering. The
following table sets forth the annual base compensation expected to be paid for
the year ending December 31, 1996, to the Chief Executive Officer and to each of
the other executive officers of the Company whose annual salary will exceed
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME PRINCIPAL POSITION SALARY
- -------------------- --------------------------------------------------- --------
<S> <C> <C>
Robert W. Boykin Chairman, President and Chief Executive Officer $250,000
Raymond P. Heitland Chief Financial Officer and Treasurer $150,000
Mark L. Bishop Senior Vice President--Acquisitions and Development $140,000
</TABLE>
EMPLOYMENT CONTRACTS
Robert W. Boykin, Raymond P. Heitland and Mark L. Bishop have entered into
employment contracts with the Company. Mr. Boykin's agreement provides for an
initial three year term that is automatically extended for an additional year at
the end of each year of the agreement, subject to the right of either party to
terminate the agreement by giving two years' prior written notice. The
agreements for Messrs. Heitland and Bishop provide for an initial one year term
that is automatically extended for an additional year at the end of each year of
the agreement, subject to the right of either party to terminate the agreement
by giving six months' prior written notice.
Mr. Boykin will also be entitled to a bonus of from 10% to 90% of his
annual base salary, and Messrs. Heitland and Bishop will be entitled to bonuses
of from 5% to 45% of their annual base salaries, if Funds From Operations per
Common Share for any year exceed, by 5% to 20% or more, the Funds From
Operations per Common Share for the immediately preceding year. For purposes of
the bonuses payable for 1996, the Compensation Committee of the Board will
calculate appropriate prorated amounts. Messrs. Boykin, Heitland and Bishop will
also be granted certain options to purchase Common Shares in connection with the
Offering. See "-- Long-Term Incentive Plan."
Each agreement provides that the employee will not compete with the Company
in the ownership, acquisition or development of hotels during his employment or
at any time during a period of up to two years immediately following the
termination of his employment. Further, each agreement provides that upon (i)
the termination of the employee's employment by the Company other than for
"cause" (as defined in the employment contracts) or by the employee for certain
actions of the Company, such as effecting a material adverse change in the
employee's duties and responsibilities, or (ii) a "change in control" of the
Company (as defined in the employment contracts), the employee will be entitled
to all of the compensation and benefits payable to him under the employment
contract for the remainder of the stated term of the employment contract.
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<PAGE> 80
REGISTRATION RIGHTS
The Company has entered into a Registration Rights Agreement with certain
Boykin Group Affiliates and other partners of the Contributed Partnerships
pursuant to which the Company has granted those individuals and entities certain
rights, on exchange of their Units for Common Shares, to register Common Shares
in public offerings initiated by the Company after the transfer restrictions on
the Units and Common Shares held by those individuals and entities lapse.
COMPENSATION OF DIRECTORS
The Company intends to pay its Independent Directors an annual fee of
$16,000 and a fee of $1,000 for each directors' meeting and each committee
meeting attended. Each director may elect to receive his compensation in the
form of grants of Common Shares. No other directors will receive directors'
fees. Upon completion of the Offering, each Independent Director will receive an
option for 5,000 Common Shares exercisable at the initial public offering price
of the Common Shares, which option will vest fully within the first two years of
issuance and will have a term of ten years.
DIRECTORS' DEFERRED COMPENSATION PLAN
The purpose of the Company's Directors' Deferred Compensation Plan (the
"Deferred Plan") is to assist it in attracting and retaining persons of
competence and stature to serve as outside directors by giving them the option
to defer receipt of the fees payable to them by the Company for their services
as directors. A director is eligible to participate in the Deferred Plan if he
or she receives fees for services as a director and is not employed by the
Company. The Deferred Plan is administered by Company officers and directors who
are (i) appointed by the Board of Directors of the Company and (ii) not eligible
to participate in the Deferred Plan. The Deferred Plan is applicable to all
director's fees payable with respect to periods commencing on or after October
1, 1996. The value of amounts credited to a director in the Deferred Plan
increases or decreases based on the market value of the Company's Common Shares
plus the value of dividends or other distributions on the Company's Common
Shares. Distribution of amounts credited to a director in the Deferred Plan
commence (i) on a date elected by the director, provided that the date is not
earlier than the January 1 following the year in which the director attains age
55, and not later than the January 1 following the year in which the director
attains age 72, or (ii) within ninety (90) days after the date of the director's
death or disability.
LONG-TERM INCENTIVE PLAN
The purpose of the Company's Long-Term Incentive Plan (the "Plan") is to
promote the long-term growth and profitability of the Company by enabling it to
attract, retain and reward key employees of the Company and its affiliates and
to strengthen the mutuality of interest between such key employees and the
Company's shareholders. Grants of incentive or nonqualified share options,
restricted shares, deferred shares, share purchase rights, share appreciation
rights in tandem with options ("SARs"), other share-based awards, or any
combination thereof, may be made under the Plan. Officers and key employees who
are responsible for or contribute to the management, growth or profitability of
the business of the Company and its affiliates are eligible for grants and
awards under the Plan. The Compensation Committee will administer the Plan and
determine the type, amount and timing of grants and awards. The members of the
Compensation Committee are not eligible to participate in the Plan. The Company
has reserved 1,000,000 Common Shares for issuance under the Plan. No Participant
in the Plan may be granted stock options or other share awards in any calendar
year for more than 300,000 shares. Upon the Closing, Robert W. Boykin, Raymond
P. Heitland and Mark L. Bishop will be granted options to purchase 250,000,
75,000 and 75,000 shares, respectively, under the Plan. The share limitations,
shares reserved and the terms of outstanding awards will be adjusted, as the
Compensation Committee deems appropriate, in the event of a share dividend,
split or other change in the corporate structure of the Company affecting the
shares.
Share Options and Tandem SARs. The term of each option granted under the
Plan will not exceed 10 years from the date of grant, and the exercise price of
share options may not be less than 100% of the fair market value (as defined in
the Plan) of the shares on the date the option is granted. The Compensation
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<PAGE> 81
Committee may grant tandem SARs to any person granted an option under the Plan.
Each tandem SAR will represent the right to receive, in cash or shares as the
Compensation Committee determines, a distribution in an amount equal to the
excess of the fair market value of the option shares (to which the SAR
corresponds) on the date of exercise over the exercise price for those shares.
Each tandem SAR expires at the same time as its corresponding option. The
exercise of an option will result in an immediate forfeiture of its
corresponding SAR, and the exercise of an SAR will cause an immediate forfeiture
of its corresponding option. The Plan provides that all options and tandem SARs
will vest on a change in control (as defined in the Plan) of the Company.
Share Awards. The Compensation Committee may award Common Shares under the
Long-Term Incentive Plan and may place restrictions on the transfer or defer the
date of receipt of those shares. Each award will specify any applicable
restrictions or deferral date, the duration of those restrictions, and the time
at which the restrictions lapse. Participants will be required to deposit shares
with the Company during the period of any restrictions. The Compensation
Committee may also grant share purchase rights for which the purchase price may
not be less than 100% of the fair market value (as defined in the Plan) on the
date of grant.
Other Share-Based Awards. The Compensation Committee may grant other awards
of shares and other awards that are valued or otherwise based on the Company's
Common Shares.
Miscellaneous. The Plan provides for vesting, exercise or forfeiture of
rights granted under the Plan on retirement, death, disability, termination of
employment or a change of control. The Board of Directors may modify, suspend or
terminate the Plan as long as it does not impair the rights thereunder of any
participant. Under applicable law, the holders of Common Shares must approve any
increase in the maximum number of shares reserved for issuance under the Plan,
any change in the classes of employees eligible to participate in the Plan and
any material increase in the benefits accruing to participants.
INITIAL LESSEE DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Ronald A. Cook 44 Director; President
Paul A. O'Neil 38 Director; Chief Financial Officer and Treasurer
John E. Boykin 51 Director; Secretary
Thomas J. O'Leary 53 Director; Vice President--Operations
Joseph P. Berardi 47 Vice President--Architecture and Construction
Robert W. Boykin 46 Director
</TABLE>
The following is a biographical summary of the business experience of the
current and proposed directors and executive officers of the Initial Lessee.
Ronald A. Cook has served as Executive Vice President of Boykin Management
since December 1995. From March 1995 to December 1995, Mr. Cook was Executive
Vice President of Ruffin Hotel Management Company. Mr. Cook was President of
Hotel Management Group, Inc. from May 1986 to February 1995.
Paul A. O'Neil has served as Senior Vice President of Boykin Management
since October 1994. Mr. O'Neil was with Arthur Andersen from 1979 to October
1994, and managed the Real Estate Services Group in Arthur Andersen's Cleveland,
Ohio office from July 1990 to October 1994.
John E. Boykin, the brother of Robert W. Boykin, has served as Senior Vice
President--Food and Beverage Operations of Boykin Management since 1979. In 1981
he formed Purchasing Concepts, Inc., which manages the food and beverage
procurement activities for Boykin Management's hotels and for over 50
independent hotels, clubs and restaurants. Mr. Boykin has served as President of
Purchasing Concepts, Inc. since its inception.
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<PAGE> 82
Thomas J. O'Leary has served as Senior Vice President, Hotel Operations of
Boykin Management since February 1990. He was Vice President of Operations for
Mariner Hotel Corporation from 1988 to February 1990.
Joseph P. Berardi has served as Senior Vice President, Architecture and
Construction of Boykin Management since 1981.
The Initial Lessee intends to develop incentive compensation plans for its
hotel-level and corporate-level senior executives which tie such compensation in
part to the performance of the Company and in part to the performance of the
Initial Hotels. Such plans may include awards of Company shares, options and
other similar incentives.
CERTAIN TRANSACTIONS
Formation Transactions. In connection with the formation of the Company in
February 1996, Raymond P. Heitland acquired one Common Share for a price of
$100.
In connection with the Formation Transactions, all of the equity interests
in the Contributed Partnerships (which own the Initial Hotels) will be
transferred to the Partnership in exchange for an aggregate of 1,490,000 Units
and $9.2 million in cash. William, Robert and John Boykin will receive, either
directly or indirectly through entities that they own and control, approximately
136,400, 653,600, and 552,000 Units, respectively, for their ownership interests
in the Contributed Partnerships. These Units in the aggregate will represent
approximately 14.3% of the equity interest in the Partnership. The Contributed
Partnership that owned the Lake Norman Initial Hotels acquired those properties
in February 1996. The aggregate purchase price for the properties was
approximately $10 million. Prior to the Formation Transactions, Robert and John,
together, held a 46% interest and two of the Other Partners, together, held a
54% interest, in that Contributed Partnership. The aggregate value of the Units
distributed and mortgage indebtedness paid by the Partnership in the Formation
Transactions with respect to the Lake Norman Hotels will be approximately $13.9
million. See "The Formation."
The Partnership will use approximately $8.0 million of the net proceeds of
the Offering to repay loans made to the Contributed Partnerships by certain
partners of the Contributed Partnerships (the "Partner Loans"). Approximately
$3.1 million of the Partner Loans is payable to Boykin Management. The Initial
Lessee, as the successor to Boykin Management, will use those funds to retire
third party bank indebtedness incurred by it and to pay income taxes or meet
working capital needs.
Approximately $5.3 million of the mortgage indebtedness to be paid by the
Partnership from the net proceeds of the Offering is guaranteed by Boykin Group
Affiliates, including William, Robert and John Boykin.
Transactions with the Initial Lessee. The Initial Lessee, which is
indirectly owned by Robert and John Boykin, will enter into the Percentage
Leases with the Partnership and will be obligated to pay rent thereunder. The
Initial Lessee will acquire certain assets and assume certain liabilities of the
Initial Hotels, including the Franchise Agreements of the Initial Hotels. See
"Lessees -- The Initial Lessee" and "The Formation."
The Initial Lessee manages the Initial Hotels under the Percentage Leases.
See "Business and Properties -- Percentage Leases."
Employment Arrangements. The Company has entered into employment agreements
with, and granted certain options to, Robert W. Boykin, Raymond P. Heitland and
Mark L. Bishop. The agreement for Robert W. Boykin provides for an initial three
year term and the agreements for Mr. Heitland and Mr. Bishop provide for an
initial term of one year. See "Management -- Employment Contracts" and "--
Long-Term Incentive Plan."
Fees for Services and Other Transactions. The Initial Hotels paid a Boykin
Group Affiliate $148,000 and $143,000 for purchasing and design services
rendered for the years ended December 31, 1994 and 1995,
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<PAGE> 83
respectively. The Initial Hotels purchased hotel furnishings through a Boykin
Group Affiliate in the amounts of $1.8 million and $2.5 million for the year
ended December 31, 1994 and the year ended December 31, 1995, respectively.
These Boykin Group Affiliates will become subsidiaries of the Initial Lessee at
the time of the Offering, and these subsidiaries will perform such purchasing
and design services for the Initial Hotels without charge to the Company. See
"Business and Properties -- The Percentage Leases."
The Contributed Partnerships were indebted to Boykin Management and certain
other Boykin Group Affiliates in the aggregate amounts of $4.0 million and $3.8
million at December 31, 1995 and June 30, 1996, respectively, for management
fees, design fees, certain loan guarantee fees and loans payable, and certain
other amounts including reimbursable expenses.
Buffalo Property. William, Robert and John Boykin hold interests in a joint
venture formed to purchase, other than for hotel purposes, a six-acre parcel in
the immediate vicinity of the Buffalo Marriott Hotel. The Company and the joint
venture have entered into an agreement that provides for certain cross-easements
between the properties and provides that the land will contain specific deed
restrictions to prevent the development of any hotel thereon.
Relationship with Counsel. Albert T. Adams, a proposed director of the
Company, is a partner in Baker & Hostetler, which provides legal services to the
Boykin Group and various Boykin Group Affiliates and is serving as counsel to
the Company in connection with the Offering. See "Legal Matters."
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth certain information regarding the beneficial
ownership of Common Shares and Units by each director and proposed director of
the Company, by each named executive officer of the Company, by all directors,
officers and proposed directors and officers of the Company as a group, and by
each person who is expected to be the beneficial owner of 5% or more of the
outstanding Common Shares immediately following the completion of the Offering.
The table assumes that the Formation Transactions and the Offering are completed
and that the Underwriters' over-allotment option will not be exercised. Each
person named in the table has sole voting and investment power with respect to
all Common Shares or Units shown as beneficially owned by that person, except as
otherwise set forth in the notes to the table.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
NAME AND ADDRESS OF THE COMPANY
OF BENEFICIAL OWNER(1) UNITS (2) AFTER CONVERSION (5)
- ------------------------------------------------------------- --------- --------------------
<S> <C> <C>
Robert W. Boykin............................................. 653,582(3) 6.98%
Raymond P. Heitland.......................................... 9,682 *
Mark L. Bishop............................................... 0 0
Ivan J. Winfield............................................. 0 0
3901 Insworth Drive
Pepper Pike, Ohio 44124
Lee C. Howley, Jr............................................ 0 0
5430 Portage Drive
Vermilion, Ohio 44089
Frank E. Mosier.............................................. 0 0
1111 Superior Ave.
Suite 785
Cleveland, Ohio 44114
William N. Hulett III........................................ 0 0
6127 Chagrin River Road
Bentleyville, Ohio 44022
John E. Boykin............................................... 552,038(4) 5.89%
Albert T. Adams.............................................. 0 0
3200 National City Center
Cleveland, Ohio 44114
All directors and officers and proposed directors and
officers
of the Company as a group.................................. 1,215,302 12.98%
</TABLE>
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<PAGE> 84
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is Terminal
Tower, Suite 1500, 50 Public Square, Cleveland, Ohio 44113-2258.
(2) None of the persons listed will own any Common Shares immediately following
the completion of the Offering. All Units are exchangeable for Common Shares
at an exchange ratio of one Unit for each Common Share (subject to the
Company's right to elect to instead pay cash for those Units), but the
Boykin Group Affiliates and Boykin Associates who receive Units in
connection with the formation generally may not exchange those Units until
the third anniversary of the Offering. If all Units were exchanged for
Common Shares (without regard to the Ownership Limit) these shares would
constitute approximately 15.9% of the then outstanding Common Shares. Units
are subject to certain restrictions on transfer.
(3) Includes 435,077 Units held by other Boykin Group Affiliates. Does not
include options for 300,000 shares.
(4) Includes 372,866 Units held by other Boykin Group Affiliates.
(5) On a fully-diluted basis, assuming Units are exchanged for Common Shares at
the exchange rate of one Unit for each Common Share without regard to the
Ownership Limit. It is not anticipated that the Ownership Limit will be
waived.
CAPITAL STOCK OF THE COMPANY
GENERAL
The Company was formed as an Ohio corporation on the filing of its Articles
of Incorporation on February 8, 1996. The Company's Articles of Incorporation
authorize the issuance of 25 million Common Shares, without par value, of which
one share is issued and outstanding. In addition, up to 1 million Common Shares
have been reserved for issuance under the Company's Long-Term Incentive Plan and
an additional 25,000 Common Shares will be reserved for issuance on exercise of
options to be granted to the Independent Directors. Following completion of the
Offering, 7,875,000 million Common Shares will be issued and outstanding
(9,056,250 if the Underwriters' overallotment option is exercised in full).
There is no established trading market for the Common Shares. Application
will be made for the listing of the Common Shares on the New York Stock Exchange
under the symbol "BOY."
National City Bank, Cleveland, Ohio, will act as transfer agent and
registrar for the Common Shares.
The following description of the Company's capital shares and of certain
provisions of the Company's Articles of Incorporation is a summary of and is
qualified in its entirety by reference to the Articles of Incorporation, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
COMMON SHARES
Holders of the Company's Common Shares are entitled to receive dividends,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The holders of Common Shares, upon any liquidation,
dissolution or winding-up of the Company, are entitled to share ratably in any
assets remaining after payment in full of all liabilities of the Company and all
preferences of the holders of any outstanding preferred shares. The Common
Shares possess ordinary voting rights, each share entitling the holder thereof
to one vote. Holders of Common Shares do not have cumulative voting rights in
the election of directors and do not have preemptive rights. All of the
Company's Common Shares now outstanding are, and the Common Shares offered
hereby when issued and sold to the Underwriters in the manner described in this
Prospectus will be, fully paid and nonassessable.
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<PAGE> 85
PREFERRED SHARES
The Board of Directors is authorized to provide for the issuance of two
classes of preferred shares (collectively, the "Preferred Shares"), each in one
or more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights (other than voting rights) of each
series and the qualifications, limitations or restrictions thereon. An aggregate
of 5 million Preferred Shares are authorized. Because the Board of Directors has
the power to establish the preferences and rights of each series of Preferred
Shares, the Board of Directors may afford the holders of any series of Preferred
Shares preferences, powers and rights senior to the rights of holders of Common
Shares. The issuance of Preferred Shares could have the effect of delaying or
preventing a change in control of the Company. The Company has no present
intention to issue Preferred Shares.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares. Specifically,
not more than 50% in value of the Company's outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than the
first year of the Company's existence) or during a proportionate part of a
shorter taxable year, and the Company must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year (other than that first year)
or during a proportionate part of a shorter taxable year. See "Federal Income
Tax Considerations -- Requirements for Qualification." Because the Company
expects to qualify as a REIT, the Articles of Incorporation limit the
acquisition of shares of the Company's capital stock (the "Ownership Limit").
The Ownership Limit provides that, subject to certain exceptions set forth
in the Articles of Incorporation, no person may own, or be deemed to own, by
vote or value, by virtue of the applicable attribution provisions of the Code,
more than 9.0% of each class of the outstanding shares of the Company. The Board
of Directors may, but is not required to, waive the Ownership Limit if it
determines that greater ownership will not jeopardize the Company's status as a
REIT. As a condition of that waiver, the Board of Directors may require opinions
of counsel satisfactory to it and undertakings or representations from the
applicant with respect to preserving the REIT status of the Company.
If any purported transfer of capital shares of the Company or any other
event would otherwise result in any person or entity violating the Ownership
Limit or would cause the Company to be beneficially owned by fewer than 100
persons, that transfer will be void and of no force or effect as to the number
of shares in excess of the Ownership Limit, and the purported transferee (the
"Prohibited Transferee") will acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to shares in excess of the Ownership Limit (the "Prohibited Owner") will
cease to own any right or interest) in the excess shares. In addition, if any
purported transfer of shares of the Company or any other event would cause the
Company to become "closely held" under the Code or otherwise to fail to qualify
as a REIT under the Code, that transfer will be void and of no force or effect
as to the number of shares in excess of the number that could have been
transferred without that result, and the Prohibited Transferee will acquire no
right or interest (or, in the case of any event other than a transfer, the
Prohibited Owner will cease to own any right or interest) in the excess shares.
Also, if any purported transfer of shares of the Company or any other event
would otherwise cause the Company to own, or be deemed to own by virtue of the
applicable attribution provisions of the Code, 10% or more, by vote or value, of
the ownership interests in the Initial Lessee or in any sublessee, that transfer
or event will be void and of no force or effect as to the number of shares in
excess of the number that could have been transferred or affected by that event
without that result, and the Prohibited Transferee will acquire no right or
interest (or, in the case of any event other than a transfer, the Prohibited
Owner will cease to own any right or interest) in the excess shares.
Any excess shares arising from a prohibited transfer described above will
be transferred automatically to a trust, the beneficiary of which will be a
qualified charitable organization selected by the Company (the "Beneficiary").
The trustee of the trust, who will be designated by the Company and be
unaffiliated with the Company and any Prohibited Owner, will be empowered to
sell the excess shares to a qualified person or entity and to distribute to the
applicable Prohibited Transferee an amount equal to the lesser of the price paid
by the
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<PAGE> 86
Prohibited Transferee for those excess shares or the sale proceeds received for
those shares by the trust. The trustee will be empowered to sell any excess
shares resulting from any event other than a transfer, or from a transfer for no
consideration, to a qualified person or entity and distribute to the applicable
Prohibited Owner an amount equal to the lesser of the fair market value of those
excess shares on the date of the triggering event or the sale proceeds received
by the trust for those excess shares. Prior to a sale of any excess shares by
the trust, the trustee will be entitled to receive, in trust for the benefit of
the Beneficiary, all dividends and other distributions paid by the Company with
respect to those shares, and also will be entitled to exercise all voting rights
with respect to those shares.
All certificates representing shares of the Company will bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as may be required by
the Code or Treasury Regulations) of the outstanding shares of the Company must
file no later than January 30 of each year a written notice with the Company
containing the information specified in the Articles of Incorporation. In
addition, each shareholder will be required, upon demand, to disclose to the
Company in writing such information as the Company may request in order to
determine the effect, if any, of that shareholder's actual and constructive
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limit.
The Ownership Limit may have the effect of precluding an acquisition of
control of the Company without approval of the Board of Directors.
OHIO ANTI-TAKEOVER PROVISIONS
The Company has elected not to be subject to Ohio's "Merger Moratorium"
statute (Chapter 1704 of the Ohio Revised Code) or its "Control Share
Acquisition" act (Section 1701.831 of the Ohio Revised Code), in light of the
substantial share transfer restrictions included in the Company's Articles of
Incorporation. Section 1707.041 of the Ohio Revised Code, which regulates
certain "control bids" for Ohio corporations, does not contain an election
provision and remains applicable to the Company.
THE PARTNERSHIP
The following summary of the Partnership Agreement, and the descriptions of
certain provisions thereof set forth elsewhere in this Prospectus, is qualified
in its entirety by reference to the Partnership Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Partnership is an Ohio limited partnership. Pursuant to the Partnership
Agreement, the Company, as the sole general partner of the Partnership (the
"General Partner"), will have full, exclusive and complete responsibility and
discretion in the management and control of the Partnership, and the limited
partners of the Partnership (the "Limited Partners") will have no authority to
transact business for, or to participate in the management activities or
decisions of, the Partnership. However, any amendment to the Partnership
Agreement that would (i) seek to impose personal liability on the Limited
Partners; (ii) affect the Exchange Rights; or (iii) impose on the Limited
Partners any obligation to make additional contributions to the capital of the
Partnership, would require the consent of Limited Partners holding at least
66 2/3% of the limited partnership interests.
The Partnership has been formed to own the Initial Hotels and to own all
other properties acquired by the Company. Accordingly, the income and expenses
of the Company that will be reflected in the financial information to be
provided to the shareholders will be the income and expenses of the Partnership,
adjusted (on a pro forma basis) to deduct the minority interest of the Limited
Partners. Distributions from the Partnership will be made at the discretion of
the Company as the sole general partner of the Partnership. See "Distributions"
for a discussion of the factors relevant to the determination of those
distributions. All distributions from the Partnership will be made to the
Company and the Limited Partners concurrently, and
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<PAGE> 87
will be allocated to the Company, on the one hand, and to the Limited Partners,
on the other, on a pro rata basis by reference to their respective percentage
interests in the Partnership.
TRANSFERABILITY OF INTERESTS
The Company may not voluntarily withdraw from the Partnership or transfer
or assign its interest in the Partnership unless the transaction in which the
withdrawal or transfer occurs results in the Limited Partners receiving property
in an amount equal to the amount they would have received had they exercised
their Exchange Rights immediately prior to the transaction, or unless the
successor to the Company contributes substantially all of its assets to the
Partnership in return for an interest in the Partnership. With certain limited
exceptions, the Limited Partners may not transfer their interests in the
Partnership without the consent of the Company. The Company may not consent to
any transfer that would cause the Partnership to be treated as a corporation for
federal income tax purposes.
CAPITAL CONTRIBUTIONS
The Company will contribute or loan to the Partnership all of the net
proceeds of the Offering as its initial capital contribution or pursuant to the
Intercompany Convertible Note. The Limited Partners will contribute to the
Partnership the Limited Partners' proportionate ownership interests in the
Initial Hotels as their initial capital contributions. The value of each Limited
Partner's capital contribution will equal its pro rata share of the price paid
by the Partnership to acquire the Contributed Partnerships.
The Partnership Agreement provides that if the Partnership requires
additional funds at any time or from time to time in excess of funds available
to the Partnership from borrowings or capital contributions, the Company may
borrow those funds from a financial institution or other lender and lend those
funds to the Partnership on the same terms and conditions as are applicable to
the Company's borrowing of the funds. As an alternative to borrowing funds
required by the Partnership, the Company may contribute the amount of the
required funds as an additional capital contribution to the Partnership. If the
Company so contributes additional capital, the Company's partnership interest in
the Partnership will be increased on a proportionate basis based on the amount
of the additional capital contributions and the value of the Partnership at the
time of the contributions. If the Company issues Preferred Shares, it will
contribute the proceeds therefrom to the Partnership in exchange for Partnership
interests that have the same terms as those Preferred Shares. The partnership
interests of the Limited Partners will be correspondingly decreased or adjusted
in connection with any such contribution.
EXCHANGE RIGHTS
Pursuant to the Partnership Agreement, the Limited Partners will receive
the Exchange Rights, which will enable them to cause the Partnership to purchase
their Units for cash. The Exchange Rights may be exercised by Limited Partners
who are Boykin Group Affiliates or Boykin Associates at any time after the third
anniversary of the closing of the Offering, and by the Other Partners, who hold
an aggregate of 1.4% of the Units, at any time after the closing of the
Offering, in whole or in part. The amount of cash to be received by a Limited
Partner exercising exchange rights will be determined by mathematically
converting the Limited Partner's Units to a number of Common Shares at a
conversion rate of one Common Share for each Unit held by that Limited Partner
and then multiplying the resulting number of Common Shares by the average daily
market price of a Common Share for the ten (10) consecutive trading days
immediately preceding the date the Company receives the applicable notice of
exchange from that Limited Partner.
The Company may elect to assume and directly satisfy an Exchange Right by
paying cash to the Limited Partner or by delivering Common Shares for the
exchanged Units on a one-for-one basis. If the Company elects to pay cash in
satisfaction of an Exchange Right, the amount payable by the Company is due
within one year after the exercise of the right, subject to an interest charge
equal to the lower of the Company's current annual dividend rate or 8.0% per
annum. The number of shares into which Units are converted for purposes of
determining the cash payable on exercise of Exchange Rights will be adjusted on
the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions that otherwise would have the effect of diluting the
ownership interests of the Limited Partners or the shareholders of the Company.
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TAX MATTERS; PROFITS AND LOSSES
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Partnership and, as such, will have authority to make tax
elections under the Code on behalf of the Partnership.
Profit and loss of the Partnership generally will be allocated among the
partners in accordance with their respective interests in the Partnership,
except to the extent that the Partnership is required pursuant to Section 704(c)
of the Code to allocate depreciation deductions relating to, or gain on sale of,
the Initial Hotels in a different manner. See "Federal Income Tax
Considerations -- Tax Aspects of the Company's Investment in the Operating
Partnership -- Tax Allocations With Respect to the Properties."
OPERATIONS
The Partnership Agreement requires that the Partnership be operated in a
manner that will enable the Company to satisfy the requirements for being
classified as a REIT and to avoid any federal income tax liability.
DISTRIBUTIONS
The Partnership Agreement provides that the Partnership will make cash
distributions from cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of the Partnership's property
in connection with the liquidation of the Partnership) quarterly, in amounts
determined by the Company, in its sole discretion, to the partners in accordance
with their respective percentage interests in the Partnership. Upon liquidation
of the Partnership, after payment of, or adequate provision for, debts and
obligations of the Partnership, including any partner loans, any remaining
assets of the Partnership will be distributed to all partners with positive
capital accounts in accordance with their respective positive capital account
balances. If the Company has a negative balance in its capital account following
a liquidation of the Partnership, it will be obligated to contribute cash to the
Partnership equal to the negative balance in its capital account.
TERM
The Partnership will continue until December 31, 2050, or until sooner
dissolved on (i) the bankruptcy, dissolution or withdrawal of the Company
(unless the Limited Partners elect to continue the Partnership); (ii) the sale
or other disposition of all or substantially all the assets of the Partnership;
(iii) the redemption of all limited partnership interests in the Partnership
(other than those held by the Company, if any); or (iv) the election of the
General Partner.
SHARES AVAILABLE FOR FUTURE SALE
On the completion of the Offering, the Company will have 7,875,000 million
Common Shares outstanding (without taking into account any options granted to
employees or directors of the Company and assuming no exercise of the
Underwriters' overallotment option or exchange of Units). All of the Common
Shares issued in the Offering will be freely tradeable, by persons other than
"affiliates" of the Company, without restriction under the Securities Act of
1933 (the "Securities Act"). All of the outstanding Units will be "restricted"
securities within the meaning of Rule 144 under the Securities Act and may not
be sold under the Securities Act unless an exemption from registration is
available, including exemptions contained in Rule 144.
Prior to the date of this Prospectus, there has been no public market for
the Common Shares. Trading of the Common Shares is expected to commence
following the completion of the Offering. No prediction can be made as to the
effect, if any, that future sales of shares or the availability of shares for
future sale will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Shares (including shares issued on the exercise of
options), or the perception that such sales could occur, could adversely affect
the market price of the Common Shares. The holders of all of the Common Shares
and Units outstanding immediately prior to the Offering have agreed, subject to
certain exceptions, not to offer, sell, contract to sell
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or otherwise dispose of any Common Shares or Units for a period of one year
after the date of this Prospectus without the prior written consent of the
Representatives. See "Underwriting."
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the federal income tax considerations
that materially affect a prospective shareholder who is a U.S. citizen or
resident or a tax-exempt organization (including individual retirement
accounts). The discussion is general in nature and not exhaustive of all
possible tax considerations, nor does the discussion give a detailed description
of any state, local, or foreign tax considerations. The discussion does not
address all aspects of federal income tax law that may be relevant to a
prospective shareholder of the Company in light of his or her particular
circumstances or to certain types of shareholders (including insurance
companies, financial institutions or broker-dealers, and (except to the limited
extent discussed herein) foreign corporations and persons who are not citizens
or resident of the United States) subject to special treatment under the federal
income tax laws.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND EACH PROSPECTIVE SHAREHOLDER OF THE COMPANY IS ADVISED TO CONSULT WITH HIS
OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
GENERAL
The Company expects that it will be organized and will operate in such a
manner so as to qualify for taxation as a REIT under Sections 856 through 860 of
the Code commencing with its taxable year ending December 31, 1996 and the
Company intends to operate in such a manner in the future. No assurance can be
given, however, that the Company will operate in a manner so as to qualify or
remain qualified as a REIT.
Baker & Hostetler, counsel to the Company ("Counsel"), has rendered its
opinion, subject to certain assumptions and conditioned upon certain factual
representations made by the Company, that (i) the Company will be organized in
conformity with the requirements for qualification as a REIT under the Code and
that the method of operation of the Company and the Operating Partnership will
permit the Company to continue to so qualify for its current and future taxable
years; (ii) the Operating Partnership will be treated as a partnership for
federal income tax purposes; and (iii) the summary of federal income tax
considerations set forth in this Prospectus accurately summarizes the federal
income tax considerations that are likely to be material to a holder of Common
Shares. Unlike a tax ruling, an opinion of counsel is not binding on the IRS,
and no assurance can be given that the IRS will not challenge the status of the
Company as a REIT for federal income tax purposes. With respect to Counsel's
opinion relating to the qualification of the Company as a REIT, it should be
noted that the Company's continued qualification as a REIT in current and future
taxable years will depend upon whether the Company and the Operating Partnership
continue to meet the various qualification tests imposed under the Code
(discussed below). Counsel will not review compliance with these tests on a
periodic or continuing basis. Accordingly, no assurance can be given that the
actual results of the Company's operations for the current or future taxable
years will satisfy such requirements. See "Federal Income Tax Considerations --
Requirements for Qualification as a REIT -- Failure to Qualify."
The opinions and discussion herein are based upon the Code, as currently in
effect, applicable Treasury Regulations adopted thereunder, reported judicial
decisions, and IRS rulings, all as of the date hereof and certain factual
representations and assumptions made by the Company concerning the organization
and proposed operation of the Company. There can be no assurance, however, that
the legal authorities on which such opinions and this discussion are based will
not change, perhaps retroactively, that the Company's representations and
factual assumptions underlying this discussion will be accurate, or that there
will not be a change in circumstances of the Company that would affect such
opinions or this discussion. Accordingly, there can be no assurance that the IRS
will not challenge the conclusion of Counsel's opinions.
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TAXATION OF THE COMPANY AS A REIT
If the Company qualifies for taxation as a REIT and distributes to its
shareholders at least 95% of its REIT taxable income, it generally will not be
subject to federal corporate income tax on the portion of its ordinary income or
capital gain that is timely distributed to its shareholders. This treatment
substantially eliminates the "double taxation" (at the corporate and shareholder
levels) that generally results from investment in a corporation. If the Company
were to fail to qualify as a REIT, it would be taxed at rates applicable to
corporations on all of its income, whether or not distributed to its
shareholders. Even if the Company qualifies as a REIT, it may be subject to
federal income or excise tax as follows:
(i) The Company will be taxed at regular corporate rates on REIT
taxable income and net capital gains not distributed to its shareholders;
(ii) Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any;
(iii) If the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property,
other than foreclosure property, held primarily for sale to customers in
the ordinary course of business) such income will be subject to a 100% tax;
(iv) If the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the
75% or 95% test, multiplied by a fraction intended to reflect the Company's
profitability;
(v) If the Company should fail to distribute during each calendar year
at least the sum of (A) 85% of its REIT ordinary income for such year, (B)
95% of its REIT capital gain net income for such year and (C) any
undistributed taxable income from prior years, it would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed;
(vi) If the Company has (A) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property
acquired by the Company by foreclosure or otherwise on default on a loan
secured by the property) which is held primarily for sale to customers in
the ordinary course of business or (B) other nonqualifying income from
foreclosure property, it will be subject to tax on such income at the
highest corporate rate; and
(vii) If the Company acquires assets from a C corporation (i.e.,
generally a corporation subject to tax at the corporate level) in a
transaction in which the bases of the acquired assets in the Company's
hands are determined by reference to the bases of the assets (or any other
property) in the hands of the C corporation, and the Company recognizes net
gain on the disposition of such assets in any taxable year during the
10-year period (the "Restriction Period") beginning on the date on which
such assets were acquired by the Company then, pursuant to guidelines
issued by the IRS, the excess of the fair market value of such property at
the beginning of the applicable Restriction Period over the Company's
adjusted basis in such property as of the beginning of such Restriction
Period will be subject to a tax at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION AS A REIT
General. The Code defines a REIT as a corporation, trust or association:
(i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(iii) which would be taxable as a domestic corporation but for
Sections 856 through 859 of the Code;
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(iv) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(v) which has the calendar year as its taxable year;
(vi) the beneficial ownership of which is held by 100 or more persons;
(vii) during the last half of each taxable year not more than 50% in
value of the outstanding shares of which is owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
exempt entities);
(viii) which makes an election to be a REIT (or made such an election
in a previous taxable year that is still valid) and satisfies all relevant
filing and other administrative requirements that must be met in order to
maintain REIT status; and
(ix) which meets certain income and asset tests, described below.
Conditions (i) through (v), inclusive, must be met during the entire taxable
year and condition (vi) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. However, conditions (vi) and (vii) will not apply until after the first
taxable year for which an election is made to be taxed as a REIT. The Company's
taxable year will be the calendar year. Following the consummation of this
Offering, the Company will have satisfied the share ownership requirements set
forth in (vi) and (vii) above (respectively, the "100 shareholder requirement"
and "five or fewer requirement"). In order to ensure continuing compliance with
the share ownership requirements, the Company has placed certain restrictions on
the transfer of its Common Shares to prevent further concentration of share
ownership. See "Capital Stock of the Company -- Restrictions on Transfer."
Moreover, to evidence compliance with these requirements, the Company must
maintain records which disclose the actual ownership of its outstanding Common
Shares. In fulfilling its obligation to maintain these records, the Company
must, and will, demand written statements each year from the record holders of
designated percentages of its Common Shares disclosing the actual owners of such
Common Shares. A list of those persons failing or refusing to comply with such
demand must be maintained as a part of the Company's records. A shareholder
failing or refusing to comply with the Company's written demand must submit with
his or her tax return a similar statement and certain other information.
Asset Tests. In order for the Company to maintain its qualification as a
REIT, at the close of each quarter of its taxable year, it must satisfy three
tests relating to the nature of its assets:
(i) At least 75% of the value of the Company's total assets must be
represented by any combination of interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items, and
certain government securities.
(ii) Not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class.
(iii) Of the investments included in the 25% asset class, the value of
any one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets, and the Company may not own more than
10% of any one issuer's outstanding voting securities (excluding securities
of a qualified REIT subsidiary (as defined in the Code) or another REIT).
Where the Company owns an interest in a partnership, it will be treated for
purposes of the asset tests as owning a proportionate part of the partnership's
assets. See "-- Tax Aspects of the Company's Investment in the Operating
Partnership -- General." The Company's investment in the Initial Hotels through
its interest in the Operating Partnership will constitute qualified assets for
purposes of the 75% asset test. As such, the Company expects that more than 75%
of the value of its assets will be real estate assets.
The Company does not expect to hold any securities representing more than
10% of any one issuer's voting securities nor does the Company expect to hold
securities of any one issuer exceeding 5% of the value of the Company's gross
assets.
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If the Company inadvertently fails one or more of the asset tests at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status, provided that (i) it satisfied all of the asset tests at the close of a
preceding calendar quarter, and (ii) the discrepancy between the values of the
Company's assets and the standards imposed by the asset test either did not
exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition. If the condition described in
clause (ii) of the preceding sentence was not satisfied, the Company could still
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.
Income Tests. In order for the Company to maintain its qualification as a
REIT, it must satisfy three separate percentage tests relating to the source of
its gross income in each taxable year. For purposes of these tests, where the
Company invests in a partnership, the Company will be treated as receiving its
proportionate share of the gross income of the partnership, and such gross
income will retain the same character in the hands of the Company as it had in
the hands of the partnership. See "-- Tax Aspects of the Company's Investment in
the Operating Partnership -- General."
(i) The 75% Test. At least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from specified real estate sources, including "rents from
real property" and interest and certain other income earned from mortgages
on real property, gain from the sale of real property or mortgages (other
than in prohibited transactions) or income from qualified types of
temporary investments.
(ii) The 95% Test. At least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from the same items which qualify under the 75% income test
or from dividends, interest and gain from the sale or disposition of stock
or securities, or from any combination of the foregoing.
(iii) The 30% Test. Less than 30% of the Company's gross income
(including gross income from prohibited transactions) for each taxable year
must be derived from a gain in connection with the sale or other
disposition of stock or securities held for less than one year, property in
a prohibited transaction and real property held for less than four years
(other than involuntary conversions and foreclosure property).
Rents received by the Company will qualify as "rents from real property"
for purposes of the 75% and 95% income tests if the following requirements are
met.
(i) The amount of rent received must generally not be based in whole
or in part on the income or profits derived by any person from such
property. However, amounts received or accrued generally will not be
excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales, or if they
are based on the net income or profits of the tenant and the tenant derives
substantially all of its income with respect to such property from the
leasing or subleasing of substantially all of such property and such tenant
receives from subtenants only amounts which would be treated as rents from
real property if received directly by the Company.
(ii) Rents must not be received from a tenant in which the Company or
a direct or indirect owner of 10% or more of the Company, owns directly or
constructively a 10% or greater interest in the assets or net profits of
such tenant (a "Related Party Tenant").
(iii) The Company must not operate or manage its property or furnish
or render directly services to its tenants unless such services are of a
type that a tax-exempt organization can provide its tenants without causing
its rental income to be unrelated business taxable income under the Code
("Qualifying Services"). If such services are not Qualifying Services, such
services must be rendered by an "independent contractor" that is adequately
compensated and from whom the Company derives no income. Receipts for
services furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants of properties of a similar
class in the geographic market in which the Company's property is located
("Noncustomary Services") will not qualify as rents from real property.
(iv) Rent attributable to personal property leased in connection with
a lease of real property will not qualify as "rents from real property" if
such rent is greater than 15% of the total rent received under the lease.
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In order for the Minimum Rent and the Percentage Rent to constitute "rents
from real property," the Percentage Leases must be respected as true leases for
federal income tax purposes and not treated as service contracts, joint ventures
or some other type of arrangement. The determination of whether the Percentage
Leases are true leases depends on an analysis of all the surrounding facts and
circumstances. In making such a determination, courts have considered a variety
of factors, including the intent of the parties, the form of the agreement, and
the degree of control over the property that is retained by the property owner.
Code Section 7701(e) provides that a contract that purports to be a service
contract (or a partnership agreement) is treated instead as a lease of property
if the contract is properly treated as such, taking into account all relevant
factors, including whether or not (i) the service recipient is in physical
possession of the property; (ii) the service recipient controls the property;
(iii) the service recipient has a significant economic or possessory interest in
the property (e.g., the property's use is likely to be dedicated to the service
recipient for a substantial portion of the useful life of the property, the
recipient shares the risk that the property will decline in value, the recipient
shares in any appreciation in the value of the property, the recipient shares in
savings in the property's operating costs, or the recipient bears the risk of
damage to or loss of the property); (iv) the service provider does not bear any
risk of substantially diminished receipts or substantially increased
expenditures if there is nonperformance under the contract; (v) the service
provider does not use the property concurrently to provide significant services
to entities unrelated to the service recipient; and (vi) the total contract
price does not substantially exceed the rental value of the property for the
contract period. Since the determination whether a service contract should be
treated as a lease is inherently factual, the present or absence of any single
factor may not be dispositive in every case.
In rendering its opinion that the Company will qualify for taxation as a
REIT, Counsel has concluded that the Percentage Leases should be treated as true
leases for federal income tax purposes. Such conclusion is based, in part, on
the following facts: (i) the Operating Partnership and the Initial Lessee intend
for their relationship to be that of a lessor and lessee and such relationship
will be documented by lease agreements; (ii) the Initial Lessee will have the
right to exclusive possession and use and quiet enjoyment of the Initial Hotels
during the term of the Percentage Leases; (iii) the Initial Lessee will bear the
cost of, and be responsible for, day-to-day maintenance and repair of the
Initial Hotels, other than the cost of maintaining underground utilities and
structural repairs, and will dictate how the Initial Hotels are operated,
maintained and improved; (iv) the Initial Lessee will bear all of the costs and
expenses of operating the Initial Hotels (including the cost of any inventory
used in their operation) during the term of the Percentage Leases (other than
real property taxes, and the cost of replacement or refurbishment of furniture,
fixtures and equipment, to the extent such costs do not exceed the allowance of
such costs provided by the Operating Partnership under each Percentage Lease);
(v) the Initial Lessee will benefit from any savings in the costs of operating
the Initial Hotels during the term of the Percentage Leases; (vi) the Initial
Lessee will indemnify the Operating Partnership against all liabilities imposed
on the Operating Partnership during the term of the Percentage Leases by reason
of (A) injury to persons or damage to property occurring at the Initial Hotels
or (B) Initial Lessee's use, management, maintenance or repair of the Initial
Hotels; (vii) the Initial Lessee is obligated to pay substantial fixed rent for
the period of use of the Initial Hotels; and (viii) the Initial Lessee stands to
incur substantial losses (or reap substantial gains) depending on how
successfully it operates the Initial Hotels.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. Therefore, the
foregoing conclusions with respect to the relationship between the Operating
Partnership and the Initial Lessee is based upon all of the facts and
circumstances and upon rulings and judicial decisions involving situations that
are considered to be analogous. There can be no complete assurance that the IRS
will not successfully assert a contrary position. If the Percentage Leases are
recharacterized as service contracts or partnership agreements, rather than true
leases, part or all of the payments that the Operating Partnership receives from
Initial Lessee may not be considered rent or may not otherwise satisfy the
various requirements for qualification as "rents from real property." In that
case, the Company likely would not be able to satisfy either the 75% or 95%
income tests and, as a result, would lose its REIT status. See "-- Requirements
for Qualification as a REIT -- Income Tests."
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As noted above, in order for the Rents to qualify as "rents from real
property," the Percentage Rent must not be based in whole or in part on the
income or profits of any person. The Percentage Rent, however, will qualify as
"rents from real property" if it is based on percentages of receipts or sales
and the percentages (i) are fixed at the time the Percentage Leases are entered
into; (ii) are not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits; and
(iii) conforms with normal business practice. More generally, the Percentage
Rent will not qualify as "rents from real property" if, considering the
Percentage Leases and all the surrounding circumstances, the arrangement does
not conform with normal business practice, but is in reality used as a means of
basing the Percentage Rent on income or profits. Since the Percentage Rent is
based on fixed percentages of the gross revenues from the Initial Hotels that
are established in the Percentage Leases, and the Company has represented that
the percentages (i) will not be renegotiated during the terms of the Percentage
Leases in a manner that has the effect of basing the Percentage Rent on income
or profits; and (ii) conform with normal business practice, the Percentage Rent
should not be considered based in whole or in part on the income or profits of
any person. Furthermore, the Company has represented that, with respect to other
hotel properties that it acquires in the future, it will not charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage of gross revenues,
as described above).
Another requirement for the Rents to constitute "rents from real property"
is that the Rents attributable to personal property leased in connection with
the lease of the real property comprising an Initial Hotel must not be greater
than 15% of the Rents received under the Percentage Lease. The Rents
attributable to the personal property in an Initial Hotel is the amount that
bears the same ratio to total rent for the taxable year as the average of the
adjusted bases of the personal property in the Initial Hotel at the beginning
and at the end of the taxable year bears to the average of the aggregate
adjusted bases of both the real and personal property comprising the Initial
Hotel at the beginning and at the end of such taxable year (the "Adjusted Basis
Ratio"). Furthermore, the Company has represented that rents attributable to
personal property will not exceed 15% of the rents received under the Percentage
Lease.
A third requirement for qualifications of the Rents as "rents from real
property" is that the Company must not own, directly or constructively, 10% or
more of any tenant (the "10% Ownership Limitation"). Under the attribution rules
governing the 10% Ownership Test, the Company is considered to own any shares
owned by the Operating Partnership if partners in the Operating Partnership
collectively own 10% or more (by value) of the Company. The Partnership
Agreement provides that a redeeming Limited Partner will receive cash, rather
than Common Stock, if the acquisition of Common Stock by such Partner would
result in the Company being treated as owning, directly or constructively, 10%
or more of the Initial Lessee or any sublessee. However, notwithstanding such
restriction, because the Code's constructive ownership rules for purposes of the
10% Ownership Limitation are broad and it is not possible to continually monitor
direct and indirect ownership of all Company Shares, it is possible that the
Limited Partners of the Operating Partnership may at some time own, directly or
through attribution, 10% or more of such Shares, which would cause the Company
to fail the gross income requirements and thus lose its REIT status.
A fourth requirement for qualification of the Rents as "rents from real
property" is that the Company cannot furnish or render non-Qualifying Services
other than through an independent contractor from whom the Company itself does
not derive or receive any income. Although the Company does provide certain
management services, the Company has represented and warranted to Baker &
Hostetler that these services are usual and customary management services
provided by landlords in the geographic areas in which the Company owns
property, and that such services are not primarily for the convenience of its
residents. To the extent the provision of services would cause such
disqualification, the Company has represented that it will hire independent
contractors, from which the Company derives no income, to perform such services.
As described above, however, if the Percentage Leases are recharacterized as
service contracts, partnership agreements or some other form of arrangement, the
Rents likely would be disqualified as "rents from real property" because the
Company would be considered to furnish or render non-Qualifying Services to the
occupants of the Initial Hotels other than through an independent contractor
from whom the Company derives or receives no income.
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In summary, if the Rents do not qualify as "rents from real property"
because either (i) the Percentage Rent is based on income or profits of the
Initial Lessee; (ii) the Company owns, directly or constructively, 10% or more
of the Lessee or any sublessee; or (iii) the Company furnishes non-Qualifying
Services to the tenants of the Initial Hotels other than through a qualifying
independent contractor (or furnishes Non-Customary Services (whether or not
through an independent contractor) unless separately charged for by the
independent contractor), none of the Rents would qualify as "rents from real
property." In such event, the Company likely would lose its REIT status because
it would be unable to satisfy either the 75% or 95% income tests. See
"-- Requirements for Qualification as a REIT -- Income Tests."
Based on the foregoing, the Rents should qualify as "rents from real
property" for purposes of the 75% and 95% income tests. As described above, the
foregoing conclusions and Counsel's opinion as to the qualification of the
Company to be taxed as a REIT are based upon an analysis of all the facts and
circumstances and upon rulings and judicial decisions involving situations that
are considered to be analogous, as well as representations by the Company and
the Operating Partnership and assumptions that are described above and set out
in Counsel's opinion. Opinions of counsel are not binding upon the IRS or a
court. Accordingly, there can not be complete assurance that the IRS will not
assert successfully a contrary position and, therefore, prevent the Company from
qualifying for taxation as a REIT.
The interest accrued on the Intercompany Convertible Note by the Company
will be qualified income for purposes of the 75% test because the Intercompany
Convertible Note is secured by second mortgages on two of the Initial Hotels.
If the sum of the income realized by the Company (whether directly or
through its interest in the Operating Partnership) which does not satisfy the
requirements of the 75% and the 95% gross income tests (collectively,
"Non-Qualifying Income"), exceeds 5% of the company's gross income for any
taxable year, the company's status as a REIT would be jeopardized. The company
has represented that the amount of its Non-Qualifying Income will not exceed 5%
of the Company's annual gross income for any taxable year.
It is possible that, from time to time, the Company or the Operating
Partnership will enter into hedging transactions with respect to one or more of
its assets or liabilities. Any such hedging transactions could take a variety of
forms. If the Company or the Operating Partnership enters into an interest rate
swap or cap contract to hedge any variable rate indebtedness incurred to acquire
or carry real estate assets, any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not for the 75% gross income test. Furthermore, any such contract
would be considered a "security" for purposes of applying the 30% gross income
test. To the extent that the Company or the Operating Partnership hedges with
other types of financial instruments or in other situations, it may not be
entirely clear how the income from those transactions will be treated for
purposes of the various income tests that apply to REITs under the Code. The
Company intends to structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% income tests
for any taxable year, it may still qualify as a REIT in such year if (i) it
attaches a schedule of the source and nature of each item of its gross income to
its federal income tax return for such year; (ii) the inclusion of any incorrect
information in its return was not due to fraud with intent to evade tax; and
(iii) the Company's failure to meet such tests is due to reasonable cause and
not due to willful neglect. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. Even if these relief provisions apply, the Company will still be
subject to a tax imposed with respect to the excess net income. See "-- Taxation
of the Company as a REIT." No such relief is available for violations of the 30%
income test.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REITs net capital gain); and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
noncash income. In addition, if the Company disposes of any asset during its
Restriction Period, the Company will be required to distribute at least 95% of
the built-in gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to
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which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax on the undistributed amount at regular capital gains and ordinary
corporate tax rates. Moreover, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT ordinary income for
such year; (ii) 95% of its REIT net capital gain income for such year; and (iii)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the partnership agreement of
the Operating Partnership authorizes the Company, as general partner, to take
such steps as may be necessary to cause the Operating Partnership to distribute
to its partners an amount sufficient to permit the Company to meet these
distribution requirements. It is possible that the Company, from time to time,
may not have sufficient cash or other liquid assets to meet the 95% distribution
requirement due primarily to the expenditure of cash for nondeductible expenses
such as principal amortization or capital expenditures. In the event that such
timing differences occur, the Company may find it necessary to cause the
Operating Partnership to arrange for borrowings or liquidate some of its
investments in order to meet the annual distribution requirement. In order to
avoid any problem with the 95% distribution requirement, the Company will
closely monitor the relationship between its REIT taxable income and cash flow
and, if necessary, will borrow funds (or cause the Operating Partnership to
borrow funds) in order to satisfy the distribution requirements.
If the Company fails to satisfy the 95% distribution requirement as a
result of an adjustment to the Company's tax return by the IRS, the Company may
be permitted to remedy such a failure by paying a "deficiency dividend" (plus
applicable interest and penalties) within a specified time.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable corporate alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to shareholders in
any year in which the Company fails to qualify will not be deductible by the
Company, nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable to them as ordinary income, and, subject to certain limitations
of the Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be ineligible for qualification as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
General. The Company will hold a direct interest in the Operating
Partnership. In general, a partnership is not subject to federal income tax.
Rather, each partner includes in the partner's taxable income or loss its
allocable share of the partnership's items of income, gain, loss, deduction and
credit, without regard to whether the partner receives a distribution from the
partnership. The Company will include its proportionate share of the foregoing
items of the Operating Partnership for purposes of the various REIT income tests
and in the computation of its REIT taxable income. See "-- Requirements for
Qualification as a REIT -- Income Tests." Any resultant increase in the
Company's REIT taxable income will increase its distribution requirements (see
"-- Requirements for Qualification as a REIT -- Annual Distribution
Requirements"), but will not be subject to federal income tax in the hands of
the Company provided that such income is distributed by the Company to its
shareholders. Moreover, for purposes of the REIT asset tests (see "--
Requirements for Qualification as a REIT -- Asset Tests"), the Company will
include its proportionate share of assets held by the Operating Partnership.
Entity Classification. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge by
the IRS of the status of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for federal income tax purposes. If
the
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Operating Partnership was treated as an association, it would be taxable as a
corporation and therefore subject to an entity-level tax on its income. In such
a situation, the character of the Company's assets and items of gross income
would change, which would preclude the Company from satisfying the asset and
income tests (see "-- Requirements for Qualification as a REIT -- Asset Tests"
and "-- Income Tests"), and in turn would prevent the Company from qualifying as
a REIT. See "-- Requirements for Qualification as a REIT -- Failure to Qualify"
above for a discussion of the effect of the Company's failure to meet such tests
for a taxable year. The Company does not intend to request a ruling from the IRS
that the Operating Partnership will be treated as a partnership for federal
income tax purposes. Counsel has rendered its opinion, subject to certain
factual assumptions and representations of the Company and the Operating
Partnership, that the Operating Partnership will be treated for federal income
tax purposes as a partnership. Counsel's opinion is not binding on the IRS or
the courts.
Tax Allocations with Respect to the Properties. The Operating Partnership
initially will acquire a tax basis in each of the Initial Hotels equal to the
adjusted tax basis of such asset in the hands of the current ownership entities,
increased by any gain realized by the current ownership entities on the
transfer. For purposes of determining the percentage interests of the
contributing partners, the contributing partners will be credited with having
contributed an amount equal to the agreed value of the contributed assets. The
difference between the agreed value of a contributed asset and its adjusted tax
basis is referred to as the book-tax difference (the "Book-Tax Difference"). It
is expected that the agreed value of most of the Initial Hotels will
substantially exceed their tax basis, so that there will be substantial Book-Tax
Differences at the time of contribution. Pursuant to Section 704(c) of the Code,
income, gain, loss and deduction attributable to property contributed by a
partner in exchange for a partnership interest (such as the Initial Hotels),
must be allocated so that the contributing partner is charged with, or benefits
from, respectively, any Book-Tax Difference associated with the property at the
time of the contribution. Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic
arrangements among the partners. The partnership agreement of the Operating
Partnership will require such allocations to be made in a manner consistent
Section 704(c) of the Code.
In general, the Operating Partnership's Section 704(c) allocations allocate
to the Company the same amounts of depreciation deductions attributable to the
Initial Hotels and other assets and taxable gain or loss upon sale of such
assets as the Company would have received had it purchased its interest in such
assets at their agreed value. To accomplish this, the existing owners will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income (or less loss) on sale by the Operating Partnership of
the Initial Hotels than their allocations of depreciation deductions and income
or gain for book purposes. This will tend to eliminate the Book-Tax Difference
over the life of the Operating Partnership. However, the special allocation
rules of Section 704(c) do not always entirely rectify the Book-Tax Difference
on an annual basis or with respect to a specific taxable transaction such as a
sale. Thus, the carryover basis of the contributed assets in the hands of the
Operating Partnership in some cases may cause the Company to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of the Initial Hotels in excess of the economic or
book income allocated to it as a result of such sale. This might adversely
affect the Company's ability to distribute sufficient dividends to comply with
the REIT distribution requirements. See "-- Requirements for Qualification as a
REIT -- Annual Distribution Requirements." The foregoing principles also apply
in determining the earnings and profits of the Company for purposes of
determining the portion of distributions taxable as dividend income. See
"-- Taxation of the Company's Shareholders." The application of these rules over
time may result in a higher portion of distributions being taxed as dividends
than would have occurred had the Company purchased its interest in the Initial
Hotels at their agreed value.
Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences for
contributions of property so that a contributing partner receives the tax
benefits and burdens of any built-in gain or loss associated with contributed
property. The Operating Partnership currently intends to account for Book-Tax
Differences using the traditional method provided for in the regulations.
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With respect to any property purchased by the Operating Partnership
subsequent to the formation of the Company, such property will initially have a
tax basis equal to its purchase price and Section 704(c) of the Code will not
apply.
Basis in Partnership Interest. The Company's adjusted tax basis in its
partnership interest in the Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the
Partnership by the Company; (ii) will be increased by (A) its allocable share of
the Partnership's income and (B) its allocable share of indebtedness of the
Partnership; and (iii) will be reduced, but not below zero, by the Company's
allocable share of (a) the Partnership's loss and (B) the amount of cash
distributed to the Company and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of the Partnership.
If the allocation of the Company's distributive share of the Partnership's
loss would reduce the adjusted tax basis of the Company's partnership interest
in the Partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce the Company's
adjusted tax basis below zero. To the extent that the Partnership's
distributions, or any decrease in the Company's share of the indebtedness of the
Partnership (such decrease being considered a constructive cash distribution to
the partners), would reduce the Company's adjusted tax basis below zero, such
distributions (including such constructive distributions) constitute taxable
income to the Company. Such distributions and constructive distributions
normally will be characterized as capital gain, and, if the Company's
partnership interest in the Partnership has been held for longer than the
long-term capital gain holding period (currently one year), the distributions
and constructive distributions will constitute long-term capital gain.
Depreciation Deductions Available to the Partnership. Immediately after
the Offering, the Company will make a cash contribution to the Partnership in
exchange for an approximately 80.3% general partnership interest in the
Partnership (which interest will increase to 84.1% if the Intercompany
Convertible Note is converted). The Partnership will concurrently acquire all of
the equity interests in the Contributed Partnerships in exchange for
approximately $9.2 million in cash and issuance of Units representing
approximately 19.7% of the equity interests in the Partnership (15.9% if the
Intercompany Convertible Note is converted). The Partnership's initial basis in
the Initial Hotels for federal income tax purposes will be a carryover of the
basis of the Contributed Partnerships in the Initial Hotels on the date of such
transactions, increased by any gain recognized on the transfers to the
Partnership. The Partnership plans to depreciate, for federal income tax
purposes, the Initial Hotels and any depreciable hotel property which it may
acquire for cash in the future under ADS. Under ADS, the Partnership will
depreciate such building and improvements -- even those acquired with a
carryover basis -- over a new 40 year recovery period using a straight-line
method and a mid-month convention. The Partnership plans to use the modified
accelerated cost recovery system of depreciation ("MACRS") for subsequently
acquired furnishings and equipment. Under MACRS, the Partnership generally will
depreciate such furnishings and equipment over a seven-year recovery period
using a 200% declining balance method and a half-year convention. If, however,
the Partnership places more than 40% of its furnishings and equipment in service
during the last three months of a taxable year, a mid-quarter depreciation
convention must be used for the furnishings and equipment placed in service
during that year. The Partnership plans to use ADS for the depreciation of
subsequently acquired buildings and improvements. Under ADS, the Partnership
generally will depreciate such buildings and improvements over a 40-year
recovery period using a straight line method and a mid-month convention.
Sale of the Properties. Generally, any gain realized by a partnership on
the sale of assets held by the partnership for more than one year will be
long-term capital gain. However, under REIT rules, the Company's share of any
gain realized by the Operating Partnership on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of a trade or business ("dealer property") will be treated as income from
a prohibited transaction that is subject to a 100% penalty tax. See "-- Taxation
of the Company as a REIT." Under existing law, whether property is dealer
property is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. A safe harbor to avoid
classification as a prohibited transaction exists as to real estate assets held
for the production of rental income by a REIT for at least four years where in
any taxable year the REIT has made no more than seven sales of property, or, in
the alternative, the aggregate of the adjusted bases of all properties sold does
not exceed 10% of
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the adjusted bases of all of the REIT's properties during the year and the
expenditures includable in a property's basis made during the four-year period
prior to disposition do not exceed 30% of the property's net sale price. All
inventory required in the operation of the Initial Hotels will be purchased by
the Initial Lessee or its designee as required by the terms of the Percentage
Leases. Accordingly, the Company and the Operating Partnership believe that no
asset owned by the Company or the Operating Partnership is dealer property of
the Company or the Operating Partnership. Nevertheless, the Company and the
Operating Partnership will attempt to comply with the terms of the safe-harbor
provisions of the Code. Complete assurance cannot be given, however, that the
Company or the Operating Partnership can comply with the safe-harbor provisions
of the Code or avoid owning property that may be characterized as dealer
property.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such shareholders as ordinary income. Domestic shareholders generally
are shareholders who are (i) citizens or residents of the United States; (ii)
corporations, partnerships or other entities created in or organized under the
laws of the United States or any political subdivision thereof; or (iii) estates
or trusts the income of which is subject to United States federal income
taxation regardless of its source. Corporate shareholders will not be entitled
to the dividends received deduction. Any dividend declared by the Company in
October, November or December of any year payable to a shareholder of record on
a specific date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year.
Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the shareholder has held its shares. However, corporate shareholders may
be required to treat up to 20% of certain capital gain dividends as ordinary
income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed the
adjusted basis of a shareholder's Common Shares, they will be included in income
as long-term capital gain assuming the shares are a capital asset in the hands
of the shareholder and have been held for more than one year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. In general, a shareholder
will realize capital gain or loss on the disposition of Common Shares equal to
the difference between (a) the sales price for such shares and (b) the adjusted
tax basis of such shares. Gain or loss realized upon the sale or exchange of
Common Shares by a shareholder who has held such Common Shares for more than one
year (after applying certain holding period rules) will be treated as long-term
gain or loss, respectively, and otherwise will be treated as short-term capital
gain or loss. However, losses incurred upon a sale or exchange of Common Shares
by a shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be deemed a long-term capital loss to the
extent of any capital gain dividends received by the selling shareholder with
respect to such Common Shares.
Distributions from the Company and gain from the disposition of shares will
not be treated as passive activity income. Distributions from the Company (to
the extent they do not constitute a return of capital) will generally be treated
as investment income for purposes of the investment interest limitation. Gain
from the disposition of shares and capital gain dividends will not be treated as
investment income unless the taxpayer elects to have the gain taxed at ordinary
income rates.
Backup Withholding. The Company will report to its domestic shareholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such shareholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
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certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any shareholders who fail to
certify their nonforeign status to the Company.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and
profit-sharing trusts, individual retirement accounts and certain funded welfare
plan arrangements ("Exempt Organizations"), generally are exempt from federal
income taxation. However, they are subject to taxation on their unrelated
business taxable income ("UBTI"). While many investments in real estate generate
UBTI, the IRS has issued a published ruling that dividend distributions by a
REIT to an exempt employee pension trust do not constitute UBTI, provided that
the shares of the REIT are not otherwise used in an unrelated trade or business
of the exempt employee pension trust. Based on that ruling and on the intention
of the Company to invest its assets in a manner that will avoid the recognition
of UBTI by the Company, amounts distributed by the Company to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of the Common Stock with debt, a portion
of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefits associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. In addition, for taxable years beginning
on or after January 1, 1994, a pension trust that owns more than 10% of the
Company is required to treat a percentage of the dividends from the Company as
UBTI (the "UBTI Percentage") in certain circumstances. The UBTI Percentage is
the gross income derived from an unrelated trade or business (determined as if
the Company were a pension trust) divided by the gross income of the Company for
the year in which the dividends are paid. The UBTI rule applies only if (i) the
UBTI Percentage is at least 5%; (ii) the Company qualifies as a REIT by reason
of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding shares of the Company in proportion to
their actuarial interests in the pension trust; and (iii) either (A) one pension
trust owns more than 25% of the value of the Company's stock or (B) a group of
pension trusts individually holding more than 10% of the value of the Company's
stock collectively own more than 50% of the value of the Company's stock.
While an investment in the Company by an Exempt Organization generally is
not expected to result in UBTI except in the circumstances described in the
preceding paragraph, any gross UBTI that does arise from such an investment will
be combined with all other gross UBTI of the Exempt Organization for a taxable
year and reduced by all deductions attributable to the UBTI plus $1,000. Any
amount then remaining will constitute UBTI on which the Exempt Organization will
be subject to tax. If the gross income taken into account in computing UBTI
exceeds $1,000, the Exempt Organization is obligated to file a tax return for
such year on an IRS Form 990-T. Neither the Company, its Board of Directors, nor
any of its Affiliates expects to undertake the preparation or filing of IRS Form
990-T for any Exempt Organization in connection with an investment by such
Exempt Organization in the Common Stock. Generally, IRS Form 990-T must be filed
with the IRS by April 15 of the year following the year to which it relates.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
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It is currently anticipated that the Company will qualify as a
"domestically controlled REIT" (i.e., a REIT in which at all times during a
specified testing period less than 50% of the value of the shares is owned
directly or indirectly by Non-U.S. Shareholders) and therefore gain from the
sale of Common Shares by a Non-U.S. Shareholder would not be subject to United
States taxation unless such gain is treated as "effectively connected" with the
Non-U.S. Shareholder's United States trade or business.
Distributions that are not attributable to gain from the sale or exchange
by the Company of United States real property interests (and are not designated
as capital gain dividends) will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions generally will be subject to a United States
withholding tax equal to 30% of the gross amount of the distribution, subject to
reduction or elimination under an applicable tax treaty. However, if dividends
from the investment in the shares are treated as "effectively connected" with
the Non-U.S. Shareholder's conduct of a United States trade or business, such
dividends will be subject to regular U.S. income taxation (foreign corporations
may also be subject to the 30% branch profits tax). The Company expects to
withhold United States income tax at the rate of 30% on the gross amount of any
such dividends made to a Non-U.S. Shareholder unless: (i) a lower treaty rate
applies and the Non-U.S. Shareholder files certain information evidencing its
entitlement to such lower treaty rate; or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is "effectively
connected" income. Distributions which exceed current and accumulated earnings
and profits of the Company will not be taxable to the extent that they do not
exceed the adjusted basis of a shareholder's shares but, rather, will reduce
(but not below zero) the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's shares, they
generally will give rise to United States tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on gain from the sale or
disposition of his or her shares in the Company, as described above. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.
Distributions by the Company to a Non-U.S. Shareholder that are
attributable to gain from sales or exchanges by the Company of a United States
real property interest are subject to income and withholding tax under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions, if any, that are treated as gain
recognized from the sale of a United States real property interest, are taxed as
income "effectively connected" with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to the applicable alternative minimum tax and a
special alternative minimum tax for nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
The Company is required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by the Company as a capital gains
dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability. A refund may be available if the amount exceeds the Non-U.S.
Shareholder's federal tax liability.
OTHER TAX CONSIDERATIONS
State and Local Taxes. The company or its shareholders or both may be
subject to state, local or other taxation in various state, local or other
jurisdictions, including those in which they transact business or reside. The
tax treatment in such jurisdictions may differ from federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult with their own tax advisors regarding the effect of state, local and
other tax laws on an investment in the Common Shares of the Company.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit sharing, retirement, welfare or other
employee benefit plan ("Plan") subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), should consider the fiduciary
standards under ERISA in the context of the Plan's particular circumstances
before authorizing
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an investment of a portion of the Plan's assets in the Common Shares.
Accordingly, any such fiduciary should consider (i) whether the investment
satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA;
(ii) whether the investment is in accordance with the documents and instruments
governing the Plan as required by Section 404(a)(1)(D) of ERISA; and (iii)
whether the investment is prudent under ERISA. In addition to the imposition of
general fiduciary standards of investment prudence and diversification, ERISA,
and the corresponding provisions of the Code, prohibit a wide range of
transactions involving the assets of the Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA, "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary considering an investment in the Common Shares also should consider
whether the acquisition or the continued holding of the Common Shares might
constitute or give rise to a direct or indirect prohibited transaction.
The Department of Labor (the "DOL") has issued final regulations (the
"Regulations") as to what constitutes assets of an employee benefit plan under
ERISA. Under the Regulations, if a Plan acquires an equity interest in an
entity, which interest is neither a "publicly offered security" nor a security
issued by an investment company registered under the Investment Company Act of
1940, as amended, the Plan's assets would include, for purposes of the fiduciary
responsibility provisions of ERISA, both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The Regulations define a publicly offered security as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under the Exchange Act, or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the public offering occurred). The
Common Shares are being sold in an offering registered under the Securities Act
and will be registered under the Exchange Act.
The DOL Regulations provide that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control. The
Company expects the Common Shares to be "widely held" on completion of the
Offering.
The DOL Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulations further provide that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with the Offering, certain restrictions ordinarily will
not, alone or in combination, affect the finding that those securities are
"freely transferable." The Company believes that the restrictions imposed under
its Articles of Incorporation on the transfer of the Common Shares are limited
to the restrictions on transfer generally permitted under the DOL Regulations
and are not likely to result in the failure of the Common Shares to be "freely
transferable." The Company also believes that certain restrictions that apply to
the Common Shares to be held by the Company, or derived from contractual
arrangements requested by the Underwriters in connection with the Offering, are
unlikely to result in the failure of the Common Shares to be "freely
transferable." See "Shares Available for Future Sale" and "Underwriting." The
DOL Regulations only establish a presumption in favor of the finding of free
transferability, and, therefore, no assurance can be given that the DOL and the
U.S. Treasury Department will not reach a contrary conclusion.
Assuming that the Common Shares will be "widely held" and are "freely
transferable," the Company believes that the Common Shares will be publicly
offered securities for purposes of the Regulations and that the assets of the
Company will not be deemed to be "plan assets" of any Plan that invests in the
Common Shares.
96
<PAGE> 103
UNDERWRITING
The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc., Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., A.G.
Edwards & Sons, Inc., EVEREN Securities, Inc. and McDonald & Company Securities,
Inc. are serving as representatives, have severally agreed, subject to the terms
and conditions of the Underwriting Agreement (the "Underwriting Agreement") (the
form of which is filed as an exhibit to the Registration Statement (as defined)
of which this Prospectus is a part), to purchase from the Company and the
Company has agreed to sell to each Underwriter, the aggregate number of shares
of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Lehman Brothers Inc.....................................................
Alex. Brown & Sons Incorporated.........................................
Dean Witter Reynolds Inc................................................
A.G. Edwards & Sons, Inc................................................
EVEREN Securities, Inc..................................................
McDonald & Company Securities, Inc......................................
---------
Total...................................................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Common Shares are subject to certain other conditions
and that if any of the Common Shares are purchased by the Underwriters pursuant
to the Underwriting Agreement, all Common Shares agreed to be purchased by the
Underwriters pursuant to the Underwriting Agreement must be so purchased.
Although the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") exempt REITs from the conflict of interest provisions
thereof, the Underwriters have determined to conduct the Offering in accordance
with Rule 2720 of the Conduct Rules because an affiliate of Lehman Brothers Inc.
will receive more than ten percent of the net proceeds of the Offering in
repayment of currently outstanding indebtedness. In accordance with these
provisions, Lehman Brothers Inc. has agreed that the price at which the Common
Shares are to be distributed to the public shall be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards
described in the Rules of Fair Practice of the NASD. Dean Witter Reynolds Inc.
has agreed to act as the qualified independent underwriter in connection with
the Offering, has participated in the preparation of the Prospectus and the
Registration Statement of which this Prospectus forms a part, and has exercised
the usual standard of due diligence with respect thereto.
The Company has been advised that the Underwriters propose to offer the
Common Shares directly to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain selected dealers (who
may include the Underwriters) at such public offering price less a selling
concession not in excess of $ per share. The Underwriters may allow,
and the selected dealers may reallow, a concession not in excess of $
per share to certain other brokers and dealers. After the initial public
offering of the Common Shares, the concession to selected dealers and the
reallowances to other dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional Common Shares at the public offering price less the
aggregate underwriting discounts and commissions shown on the cover page of this
Prospectus solely to cover over-allotments, if any. The option may be exercised
at any time up to 30 days after the date of this Prospectus. To the extent that
the Underwriters exercise such option, the Underwriters will be committed
(subject to certain conditions) to purchase a number of option shares
proportionate to such Underwriter's initial commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
97
<PAGE> 104
The Company has applied to list the Common Shares for quotation on the New
York Stock Exchange under the symbol "BOY." In order to meet one of the
requirements for the listing of the Common Shares, the Underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
holders for a minimum of 1.1 million publicly-held shares and for an aggregate
market value of at least $40 million.
The Underwriters have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
The Company has agreed not to offer, sell or contract to sell, or otherwise
dispose of, or announce the offering of, any Common Shares, or any securities
convertible into, or exchangeable for, Common Shares, except the Common Shares
offered hereby, for a period of 180 days from and after the date of this
Prospectus without the prior written consent of Lehman Brothers Inc.
From time to time, certain of the Underwriters or their affiliates may
provide investment banking services to the Company. The Company will pay an
advisory fee equal to .5% of the gross proceeds of the Offering (including any
exercise of the Underwriters' over-allotment option) to Lehman Brothers Inc. for
advisory services in connection with the evaluation, analysis and structuring of
the Company's formation and the Offering. In connection with the Offering, an
affiliate of Lehman Brothers Inc. will be repaid mortgage loans in the principal
amount of $65.2 million made by it to certain Boykin Group Affiliates, and has
delivered a commitment to make the Credit Facility available to the Company. The
interest payable with respect to the mortgage loan repayment is less than it
would be if the repayment had not been made in connection with the Offering. See
"Use of Proceeds" and "The Company -- Business Objectives and
Strategies -- Financing Strategy."
Prior to this Offering there has been no public market for the Common
Shares. The initial public offering price for the Common Shares offered hereby
will be determined by negotiation between the Company and the Underwriters and
will be based on, among other things, the Initial Hotels' financial and
operating history and condition, the prospectus of the Company and its industry
in general, the management of the Company and the market prices of securities of
companies engaged in businesses similar to those of the Company.
EXPERTS
The Balance Sheet of Boykin Lodging Company as of June 30, 1996; the
Combined Financial Statements of the Initial Hotels (Excluding Lake Norman
Hotels) as of December 31, 1994 and 1995 and for each of the three years in the
period ended December 31, 1995 and the related financial statement schedule; the
Combined Financial Statements of the Lake Norman Hotels as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31, 1995;
and the Combined Statements of Net Assets of Boykin Management Company,
Purchasing Concepts, Inc. and Bopa Design Company as of June 30, 1995 and 1996
and the related Combined Statements of Revenues and Expenses for each of the
three years in the period ended June 30, 1996 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
LEGAL MATTERS
The validity of the Common Shares offered hereby as well as certain legal
matters described under "Federal Income Tax Considerations" will be passed upon
for the Company by Baker & Hostetler, Cleveland, Ohio, and certain legal matters
will be passed upon for the Underwriters by Willkie Farr & Gallagher, New York,
New York. Baker & Hostetler provides legal services to the Boykin Group and
various Boykin Group Affiliates. Albert T. Adams, a proposed director of the
Company, is a partner in Baker & Hostetler.
98
<PAGE> 105
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-11 under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Common Shares offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules, which may be obtained
from the Commission at its principal office in Washington, D.C. on payment of
the fees prescribed by the Commission. The Commission also maintains a Web site
(address http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
99
<PAGE> 106
GLOSSARY
Unless the context otherwise requires, the following capitalized terms have
the meanings set forth below for purposes of this Prospectus:
"ADR" means average daily room rate.
"ADS" means the alternative depreciation system under the Code.
"Affiliate" of any person means (i) any person who directly or indirectly
controls or is controlled by or is under common control with that person, (ii)
any other person who owns, beneficially, directly or indirectly, five percent
(5%) or more of the outstanding capital stock, shares or equity interests of
that person, or (iii) any officer, director, employee, partner or trustee of
that person or any person controlling, controlled by or under common control
with that person (excluding trustees and persons serving in similar capacities
who are not otherwise an Affiliate of that person). The term "person" means and
includes individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other entities and
governments and agencies and political subdivisions thereof. For purposes of
this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that person, through the
ownership of voting securities, partnership interests or other equity interests.
"AMT" means the alternative minimum tax.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company.
"Minimum Rent" means the fixed obligation of the Initial Lessee to pay a
sum certain in monthly rent under each of the Percentage Leases.
"Boykin Associates" means certain Boykin Group officers and employees other
than Robert W. Boykin and John E. Boykin, and certain former employees of the
Boykin Group.
"Boykin Group" means Boykin Management Company and its Affiliates.
"Boykin Group Affiliate" means Boykin Management Company or any Affiliate
of Boykin Management Company.
"Boykin Management" means Boykin Management Company.
"Capital Expenditures Fund" means the account required by the Percentage
Leases to be maintained by the Partnership to provide a reserve for capital
expenditures on the Initial Hotels.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Code of Regulations" means the Code of Regulations of the Company.
"Commission" means the United States Securities and Exchange Commission.
"Common Shares" means the Common Shares, without par value, of the Company.
"Company" means Boykin Lodging Company, an Ohio corporation, including,
when the context so requires, its subsidiaries (including the Partnership and
its subsidiaries).
"Consumer Price Index" means the "U.S. City Average, All Items" Consumer
Price Index for All Urban Consumers published by the Bureau of Labor Statistics
of the United States Department of Labor (Base: 1982-1984=100), or any successor
index thereto.
"Contributed Partnerships" means the various partnerships and limited
liability company that own the Initial Hotels.
100
<PAGE> 107
"Distributable Cash Flow" means Funds From Operations less scheduled
mortgage debt amortization payments and provisions for ongoing capitalized
improvements to the Hotels.
"Exchange Right" means the right of the holders of Units to exchange each
Unit for one Common Share.
"FF&E" means furnishings, fixtures and equipment of the Initial Hotels.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"Formation Transactions" means the principal transactions in connection
with the formation of the Company as a REIT, the formation of the Partnership
and the acquisition of the Initial Hotels by the Partnership.
"Franchise Agreements" means the existing franchise agreements relating to
the Initial Hotels.
"Funds From Operations" means income (loss) before minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains (losses) from debt restructuring and sales of property
(including furniture and equipment), plus real estate related depreciation and
amortization (excluding amortization of financing costs), and after adjustments
for unconsolidated partnerships and joint ventures.
"Independent Director" means a person who is (i) independent of management
of the Company, (ii) not employed by or an officer of the Company, (iii) not an
"affiliate" (as defined in Rule 405 under the Securities Act of 1933, as
amended) of the Company or of any subsidiary of the Company, and (iv) not a
person who acts on a regular basis as an individual or representative of an
organization serving as a professional advisor, legal counsel or consultant to
management if, in the opinion of the Board of Directors, the relationship is
material to the Company, that person, or the organization represented.
"Initial Hotels" means the nine hotel properties to be acquired by the
Partnership.
"Initial Lessee" means Boykin Management Company Limited Liability Company,
which will lease the Initial Hotels from the Partnership pursuant to the
Percentage Leases.
"Intercompany Convertible Note" means the $40 million loan from the Company
to the Partnership.
"IRS" means the United States Internal Revenue Service.
"Limited Partners" means the limited partners of the Partnership.
"Offering" means the offering of Common Shares of the Company pursuant to
this Prospectus.
"Other Partners" means the partners in the Contributed Partnerships who are
not Boykin Group Affiliates.
"Ownership Limit" means the beneficial ownership of 9.8% of the outstanding
Common Shares of the Company.
"Partnership" means Boykin Hotel Properties, L.P., a limited partnership
organized under the laws of the State of Ohio.
"Partnership Agreement" means the partnership agreement of the Partnership
as amended and restated.
"Percentage Leases" mean the operating leases between the Initial Lessee
and the Partnership pursuant to which the Initial Lessee leases the Initial
Hotels from the Partnership.
"Percentage Rent" means rent payable by the Initial Lessee pursuant to the
Percentage Leases based on percentages of room revenue, food revenue, and
beverage revenue.
101
<PAGE> 108
"Purchase Agreements" means the agreements between the Partnership and each
of the partners of the Contributed Partnerships pursuant to which the
Partnership will acquire the entire equity interest in the Contributed
Partnerships, which own the Initial Hotels.
"REIT" means a real estate investment trust as defined pursuant to Sections
856 through 860 of the Code.
"REIT requirements" means the requirements for qualifying as a REIT under
the Code and the Treasury Regulations.
"Related Party Limit" means the constructive ownership of more than 9.8% of
the outstanding Common Shares of the Company.
"Related Party Tenant" means a tenant that is owned, directly or
constructively, by a REIT or by an owner of 10% or more of a REIT.
"Representatives" means Lehman Brothers Inc., Alex. Brown & Sons
Incorporated, Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc., EVEREN
Securities, Inc. and McDonald & Company Securities, Inc.
"Rule 144" means the rule adopted by the Commission that permits holders of
restricted securities and affiliates of an issuer of securities, pursuant to
certain conditions and subject to certain restrictions, to sell publicly their
securities of the issuer without registration under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Total Market Capitalization" means the aggregate market value of the
Company's outstanding Common Shares and total long-term debt of the Company.
"Treasury Regulations" means the Income Tax Regulations promulgated under
the Code.
"UBTI" means unrelated business taxable income as defined in Section 512(a)
of the Code.
"Underwriters" means the Underwriters named in this Prospectus.
"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Underwriters.
"Units" means units of limited partnership interests in the Partnership.
102
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BOYKIN LODGING COMPANY:
Pro Forma (Unaudited)
Condensed Consolidated Statement of Income for the Year Ended December 31, 1995...... F-3
Condensed Consolidated Statement of Income for the Twelve Months Ended June 30,
1996................................................................................. F-4
Condensed Consolidated Statement of Income for the Six Months Ended June 30, 1995.... F-5
Condensed Consolidated Statement of Income for the Six Months Ended June 30, 1996.... F-6
Notes to the Pro Forma Condensed Consolidated Statements of Income................... F-7
Condensed Consolidated Balance Sheet as of June 30, 1996............................. F-8
Notes to Pro Forma Condensed Consolidated Balance Sheet.............................. F-9
Historical
Report of Independent Public Accountants............................................. F-11
Balance Sheet as of June 30, 1996.................................................... F-12
Notes to Balance Sheet............................................................... F-13
INITIAL LESSEE:
Pro Forma (Unaudited)
Condensed Combined Statement of Operations for the Year Ended December 31, 1995...... F-17
Condensed Combined Statement of Operations for the Twelve Months Ended June 30,
1996................................................................................. F-18
Condensed Combined Statement of Operations for the Six Months Ended June 30, 1995.... F-19
Condensed Combined Statement of Operations for the Six Months Ended June 30, 1996.... F-20
Notes to Pro Forma Condensed Combined Statements of Operations....................... F-21
Condensed Combined Balance Sheet as of June 30, 1996................................. F-23
Notes to Pro Forma Condensed Combined Balance Sheet.................................. F-24
INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS):
Historical
Report of Independent Public Accountants............................................. F-26
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996........... F-27
Combined Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995
and for the Six Months Ended June 30, 1995 and 1996................................ F-28
Combined Statements of Partners' Deficit for the Years Ended December 31, 1993, 1994
and 1995 and the Six Months Ended June 30, 1996...................................... F-29
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995
and for the Six Months Ended June 30, 1995 and 1996................................ F-30
Notes to Combined Financial Statements............................................... F-31
Schedule III -- Real Estate and Accumulated Depreciation............................. F-41
LAKE NORMAN HOTELS:
Historical
Report of Independent Public Accountants............................................. F-43
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996........... F-44
Combined Statements of Operations for the Years Ended December 31, 1993, 1994, 1995,
for the six months ended June 30, 1995, the period January 1 to February 7, 1996, the
period February 8 to June 30, 1996 and the Pro Forma six months ended June 30, 1995
and 1996............................................................................. F-45
Combined Statements of Partners' Equity for the Years Ended December 31, 1993, 1994
1995, for the period January 1 to February 7, 1996 and the period February 8 to June
30, 1996............................................................................. F-46
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994, 1995,
the six months ended June 30, 1995, the period January 1 to February 7, 1996 and the
period February 8 to June 30, 1996................................................... F-47
Notes to Combined Financial Statements............................................... F-48
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND BOPA DESIGN COMPANY:
Historical
Report of Independent Public Accountants............................................. F-53
Combined Statements of Net Assets as of March 31, 1995 and 1996 and June 30, 1996.... F-54
Combined Statements of Revenues and Expenses for the Years Ended March 31, 1994, 1995
and 1996 and the six months ended June 30, 1995 and 1996........................... F-55
Notes to Combined Financial Statements............................................... F-56
</TABLE>
F-1
<PAGE> 110
BOYKIN LODGING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995,
THE TWELVE MONTHS ENDED JUNE 30, 1996,
THE SIX MONTHS ENDED JUNE 30, 1995,
AND THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Company's unaudited Pro Forma Condensed Consolidated Statements of
Income for the year ended December 31, 1995, the twelve months ended June 30,
1996, and the six month periods ended June 30, 1995 and 1996 are presented as if
the consummation of the Formation Transactions had occurred as of January 1,
1995 and carried forward through each period presented. The unaudited Pro Forma
Condensed Consolidated Statement of Income for the twelve months ended June 30,
1996 is presented in conjunction with the analysis of the expected initial
distributions as set forth under the caption "Distribution Policy." Such pro
forma information is based in part upon the Pro Forma Combined Statements of
Operations of the Initial Lessee and the application of the net proceeds of the
Offering as set forth under the caption "Use of Proceeds." Such information
should be read in conjunction with the Pro Forma Combined Statements of
Operations of the Initial Lessee and the Combined Financial Statements of the
Initial Hotels listed in the Index to Financial Statements at page F-1 of this
Prospectus. In management's opinion, all adjustments necessary to reflect the
effects of the Formation Transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Income are not necessarily indicative of what actual results of operations of
the Company would have been assuming such transactions had been completed as of
the beginning of the periods presented, nor do they purport to represent the
results of operations for future periods. Further, the unaudited Pro Forma
Condensed Consolidated Statements of Income for the interim periods ended June
30, 1995 and 1996 are not necessarily indicative of the results of operations
for the full year.
F-2
<PAGE> 111
BOYKIN LODGING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $25,521(A) $25,521
---------- ----------- ---------
Depreciation................................................ -- 9,544(B) 9,544
Real estate and personal property taxes, property and
casualty insurance, and ground rent....................... -- 3,893(C) 3,893
General and administrative.................................. -- 1,450(D) 1,450
Minority interest........................................... -- 1,691(E) 1,691
---------
Total expenses and minority interest................... 16,578
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 8,943
========
NET INCOME PER COMMON SHARE................................. $ 1.14
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 7,875
========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Income.
F-3
<PAGE> 112
BOYKIN LODGING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $27,166(A) $27,166
---------- ----------- ---------
Depreciation................................................ -- 9,544(B) 9,544
Real estate and personal property taxes, property and
casualty insurance, and ground rent -- 3,935(C) 3,935
General and administrative.................................. -- 1,450(D) 1,450
Minority interest........................................... -- 1,946(E) 1,946
---------
Total expenses and minority interest................... 16,875
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $10,291
========
NET INCOME PER COMMON SHARE................................. $ 1.31
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 7,875
========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Income.
F-4
<PAGE> 113
BOYKIN LODGING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $12,277(A) $12,277
---------- ----------- ---------
Depreciation................................................ -- 4,772(B) 4,772
Real estate and personal property taxes, property and
casualty insurance, and ground rent....................... -- 1,973(C) 1,973
General and administrative.................................. -- 725(D) 725
Minority interest........................................... -- 764(E) 764
---------
Total expenses and minority interest................... 8,234
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 4,043
========
NET INCOME PER COMMON SHARE................................. $ 0.51
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 7,875
========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Income.
F-5
<PAGE> 114
BOYKIN LODGING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $13,922(A) $13,922
---------- ----------- ---------
Depreciation................................................ -- 4,772(B) 4,772
Real estate and personal property taxes, property and
casualty insurance, and ground rent....................... -- 2,015(C) 2,015
General and administrative.................................. -- 725(D) 725
Minority interest........................................... -- 1,019(E) 1,019
---------
Total expenses and minority interest................... 8,531
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 5,391
========
NET INCOME PER COMMON SHARE................................. $ 0.68
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 7,875
========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Income.
F-6
<PAGE> 115
BOYKIN LODGING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(A) Represents lease payments from the Initial Lessee to the Partnership
calculated on a pro forma basis by applying the rent provisions of the
Percentage Leases to the pro forma revenues of the Initial Hotels, as well
as an additional $725 of Percentage Lease payments required for the year
ended December 31, 1995 and the 12 months ended June 30, 1996 pursuant to
the rental interruption insurance provisions of the Percentage Lease
agreements. The rent formula utilized in computing the pro forma Percentage
Lease revenues includes for the calendar year 1995 an adjustment to reduce
the threshold revenue amounts in the Percentage Lease formulas by the 2.5%
increase in the Consumer Price Index for that year. See "The Initial
Lessee -- The Percentage Leases" for the Percentage Lease formulas.
(B) Represents depreciation of the Initial Hotel properties. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 30 years for buildings and improvements and 7 years for
furniture and equipment. These estimated useful lives are based on
management's knowledge of the properties and the hotel industry in general.
At June 30, 1996, the Company's pro forma investment in hotel properties, at
cost, consists of the following:
<TABLE>
<CAPTION>
CONTRIBUTED LAKE NORMAN
HOTELS HOTELS TOTAL
----------- ----------- --------
<S> <C> <C> <C>
Land.................................... $ 11,638 $ 1,517 $ 13,155
Buildings and improvements.............. 71,571 8,970 80,541
Furniture, fixtures and equipment....... 20,702 1,592 22,294
----------- ----------- --------
$ 103,911 $12,079 $115,990
======== ========== ========
</TABLE>
(C) Represents real estate and personal property taxes, property and casualty
insurance, and ground rent expense to be paid by the Partnership. Such
amounts were derived from historical amounts paid by the Initial Hotels.
Historical real estate tax expense has been increased on a pro forma basis
by $200 per annum due to estimated reassessments of the property values
resulting from the Formation Transactions of the Initial Hotels.
(D) Represents general and administrative expenses to be paid by the
Partnership. These amounts are based on historical general and
administrative expenses, the employment contracts discussed in "Management
-- Executive Compensation" and "Management -- Employment Contracts," as well
as probable 1996 expenses.
<TABLE>
<S> <C>
Salaries and wages.................................. $ 745
Professional fees................................... 150
Directors' and officers' insurance.................. 250
Directors' fees and expenses........................ 100
Other operating expenses............................ 205
------
$1,450
======
</TABLE>
(E) Calculated at 15.9% of the income of the Partnership.
F-7
<PAGE> 116
BOYKIN LODGING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented
as if the consummation of the Formation Transactions and the application of the
net proceeds of the Offering as set forth under the caption "Use of Proceeds"
had occurred on June 30, 1996. Such pro forma information is based in part upon
the combined balance sheets of the Initial Hotels. It should be read in
conjunction with the financial statements listed in the Index to Financial
Statements at page F-1 of this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
This unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of June 30, 1996, nor does it
purport to represent the future financial position of the Company.
<TABLE>
<CAPTION>
HISTORICAL (A)
--------------------
COMBINED LAKE
CONTRIBUTED NORMAN PRO FORMA PRO
HOTELS HOTELS ADJUSTMENTS FORMA
-------- -------- --------- --------
<S> <C> <C> <C> <C>
ASSETS
INVESTMENT IN HOTEL PROPERTIES, net............ $ 68,204 $ 9,438 $ 38,348(B) $115,990
CASH AND CASH EQUIVALENTS...................... 3,847 359 353(C) 4,559
ACCOUNTS RECEIVABLE, net....................... 4,307 216 (4,523)(D) --
INVENTORIES, PREPAID EXPENSES AND OTHER
ASSETS....................................... 4,823 48 (4,526)(D) 345
DEFERRED EXPENSES, net......................... 2,240 404 (2,644)(E) --
-------- -------- --------- --------
Total assets.............................. $ 83,421 $ 10,465 $ 27,008 $120,894
======== ======== ========= ========
LIABILITIES AND EQUITY
MORTGAGE NOTES PAYABLE......................... $123,726 $ 9,618 $(133,344)(F) $ --
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
LIABILITIES.................................. 9,162 391 (7,562)(D) 1,991
ADVANCES FROM AND ACCRUED INTEREST DUE TO
PARTNERS..................................... 7,725 -- (7,725)(G) --
MINORITY INTEREST IN PARTNERSHIP............... -- -- 18,906(H) 18,906
-------- -------- --------- --------
Total liabilities......................... 140,613 10,009 (129,725) 20,897
-------- -------- --------- --------
EQUITY:
Combined accumulated equity (deficit)........ (57,192) 456 56,736(I) --
Common stock and capital surplus............. -- -- 106,815(J) 106,815
Retained earnings............................ -- -- (6,818)(K) (6,818)
-------- -------- --------- --------
Total equity.............................. (57,192) 456 156,733 99,997
-------- -------- --------- --------
Total liabilities and equity.............. $ 83,421 $ 10,465 $ 27,008 $120,894
======== ======== ========= ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Balance Sheet.
F-8
<PAGE> 117
BOYKIN LODGING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
(A) Reflects the historical combined balance sheets as of June 30, 1996 of the
Initial Hotels.
(B) Increase in investment in hotel properties attributable to the application
of purchase accounting to those properties in which persons not affiliated
with the Boykin Group exchanged their interests for Units of the Partnership
or cash, and persons affiliated with the Boykin Group exchanged their
interests for cash. In addition, reflects the payment of transfer taxes and
other direct costs of acquisition as an increase to the investment in hotel
properties.
<TABLE>
<CAPTION>
CONTRIBUTED LAKE NORMAN
HOTELS HOTELS TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Cash purchase price............................. $ 9,151 $ -- $ 9,151(a)
Value of Units issued........................... 891 1,911 2,802(b)
Transfer taxes and other direct costs of
acquisition................................... 1,249 31 1,280(c)
Historical capital account deficit of
nonaffiliated persons in Initial Hotels....... 24,416 699 25,115(d)
----------- ----------- -------
Purchase accounting writeup $35,707 $ 2,641 $38,348
======== ========== =======
</TABLE>
The exchanges of ownership interests by Boykin Group Affiliates for Units
in the Partnership do not result in adjustments to historical basis as such
transactions are between entities under common control.
(C) Net decrease reflects the following proposed transactions:
<TABLE>
<S> <C>
Proceeds of the Offering............................................. $ 173,250(e)
Expenses of the Offering............................................. (14,329)(f)
Retirement of mortgage notes payable (See (F))....................... (133,344)
Prepayment penalties and other fees on retirement of mortgage notes
payable............................................................ (4,508)(g)
Retirement of partner advances and accrued interest (See (G))........ (7,725)
Cash purchase price of hotel property acquisitions................... (9,151)(a)
Payment of transfer taxes and other direct costs of acquiring Initial
Hotels............................................................. (1,280)(c)
Reimbursements to (from) the Partnership for prorated expenses:
Prepaid expenses................................................... (345)(h)
Accrued expenses................................................... 1,991(i)
Cash and cash equivalents not being purchased........................ (4,206)(j)
---------
$ 353
=========
</TABLE>
(D) Decrease reflects assets and liabilities of the Initial Hotels which are not
being purchased.
(E) Decrease reflects deferred expenses not being purchased by the Company and
the writeoff of deferred financing costs in conjunction with the repayment
of mortgage notes payable of the Initial Hotels.
<TABLE>
<S> <C>
Deferred expenses not being purchased by the Company....................... $ (334)(k)
Write-off of deferred financing costs...................................... (2,310)(l)
-------
$(2,644)
=======
</TABLE>
(F) Decrease reflects the repayment of historical mortgage notes payable of the
Initial Hotels with a portion of the proceeds from the Offering.
(G) Decrease reflects the repayment of partner advances and accrued interest
thereon with a portion of the proceeds of the Offering.
F-9
<PAGE> 118
BOYKIN LODGING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1996
(H) Represents the recognition of minority interest in the Partnership that will
not be owned by the Company. Adjustment reflects the following:
<TABLE>
<S> <C>
Value of Units issued to nonaffiliated persons.................. $ 2,802(b)
Minority interest applicable to affiliated persons.............. 16,104(m)
-------
$18,906
=======
</TABLE>
The manner in which the value assigned to minority interest was determined
is as follows:
<TABLE>
<S> <C>
Total equity of the Partnership................................ $118,903
Minority interest percentage................................... 15.9%
--------
$ 18,906
========
</TABLE>
(I) Adjustment reflects the following:
<TABLE>
<S> <C>
Historical capital account deficit of nonaffiliated persons.......... $ 25,115(d)
Assets and liabilities of the Initial Hotels not purchased:
Cash and cash equivalents.......................................... (4,206)(j)
Accounts receivable (See (D))...................................... (4,523)
Inventories, prepaid expenses and other assets (See (D))........... (4,526)
Deferred expenses, net............................................. (334)(k)
Accounts payable, accrued expenses and other liabilities (See
(D))............................................................ 7,562
Reimbursements to (from) the Partnership for prorated expenses:
Prepaid expenses................................................... (345)(h)
Accrued expenses................................................... 1,991(i)
Recognition of minority interest in the Partnership applicable to
affiliated persons................................................. (16,104)(m)
Transfer of balance to common stock.................................. 52,106(n)
--------
$ 56,736
========
</TABLE>
(J) Net increase reflects the following proposed transactions:
<TABLE>
<S> <C>
Proceeds of the Offering............................................. $173,250(e)
Expenses of the Offering............................................. (14,329)(f)
Transfer of balance from combined equity of the Initial Hotels....... (52,106)(n)
--------
$106,815
========
</TABLE>
(K) Reflects the payment of prepayment penalties and other fees and the writeoff
of deferred financing costs in conjunction with the repayment of the
mortgage notes payable of the Initial Hotels with a portion of the proceeds
from the Offering.
<TABLE>
<S> <C>
Prepayment penalties and other fees........... $4,508(g)
Writeoff of deferred financing costs.......... 2,310(l)
------
$6,818
======
</TABLE>
F-10
<PAGE> 119
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO BOYKIN LODGING COMPANY:
We have audited the accompanying balance sheet of Boykin Lodging Company
(an Ohio corporation) as of June 30, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Boykin Lodging Company as of June
30, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
July 25, 1996.
F-11
<PAGE> 120
BOYKIN LODGING COMPANY
BALANCE SHEET
JUNE 30, 1996
ASSETS
<TABLE>
<S> <C>
CASH..................................................................... $100
====
STOCKHOLDERS' EQUITY
PREFERRED SHARES, without par value, 5,000,000 shares authorized, no
shares issued and outstanding.......................................... $ --
COMMON SHARES, without par value, 25,000,000 shares authorized, 1 share
issued and outstanding................................................. --
ADDITIONAL PAID-IN CAPITAL............................................... 100
----
Total stockholders' equity $100
====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-12
<PAGE> 121
BOYKIN LODGING COMPANY
NOTES TO BALANCE SHEET
AS OF JUNE 30, 1996
1. ORGANIZATION AND BASIS OF BALANCE SHEET PRESENTATION:
Boykin Lodging Company (the Company) was incorporated February 8, 1996 to
acquire equity interests in existing hotel properties and to selectively
consider the development of new hotels. The Company expects to qualify as a real
estate investment trust for federal income tax purposes. The Company intends to
offer for sale 7,875,000 shares of common stock in an initial public offering
(the Offering). The Company has had no operations during the period from
inception through June 30, 1996.
Upon completion of the Offering, the Company will contribute substantially
all of the net proceeds of the Offering to Boykin Hotel Properties, L.P., a
limited partnership (the Partnership) in exchange for an equity interest in the
Partnership and will provide a $40 million Intercompany Convertible Note (the
Note) to the Partnership. The Note will mature on the fifth anniversary of the
closing of the Offering. Interest on the Note will accrue at a rate equal to
% per annum, increasing to % per annum on the third anniversary of
the completion of the Offering, and will be payable quarterly. The Note may be
prepaid in full, but not in part, at any time. The Company will have the right
to convert the Note after the second anniversary of the completion of the
Offering, and prior to maturity and in advance of any proposed prepayment by the
Partnership, into additional equity interests in the Partnership at face value
based on the initial offering price of the Company's Common Shares (and assuming
that the value of one Partnership Unit equals the value of one Common Share). On
conversion of the Note, the Company will receive an additional equity interest
in the Partnership of 3.8%. Assuming conversion of the Note, the Company will
have an 84.1% equity interest in the Partnership. The Company will be the sole
general partner of the Partnership. The Note will be secured by mortgages on
certain of the Initial Hotels, defined below. The Partnership will use a
substantial portion of the proceeds from the Company and will issue limited
partnership interests representing approximately 15.9% (after conversion of the
Note) of the Partnership to acquire nine hotel properties (the Initial Hotels)
from various entities, to finance certain capital improvements, and for general
working capital purposes. The Partnership will lease the Initial Hotels to
Boykin Management Company Limited Liability Company (the Initial Lessee)
pursuant to leases which contain provisions for rent based on the revenues of
the Initial Hotels (the Percentage Leases). Each Percentage Lease obligates the
Initial Lessee to pay rent equal to the greater of the minimum rent or a
percentage rent based on the gross revenues of each Initial Hotel. The Initial
Lessee will hold the franchise agreement for each Initial Hotel.
Pursuant to the Partnership Agreement, the limited partners of the
Partnership will receive Exchange Rights, which will enable them to cause the
Company to pay cash for their interests in the Partnership, or at the Company's
election, to exchange common shares for such interests. The Exchange Rights may
be exercised in whole or in part. The number of Common Shares initially issuable
to the limited partners upon exercise of the Exchange Rights is 1,490,000. The
number of shares issuable upon exercise of the Exchange Rights will be adjusted
upon the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions, which otherwise would have the effect of diluting the
ownership interests of the limited partners or the shareholders of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Distributions
The Company intends to make regular quarterly distribution which are
dependent upon receipt of distributions from the Partnership.
Acquisitions of Initial Hotels
In accounting for the acquisitions of the Initial Hotels discussed in Note
1, purchase accounting will be applied to those hotel properties in which (i)
non-affiliated persons exchange their interests for Units of the Partnership or
cash, or (ii) affiliated persons exchange their interests for cash
consideration. The exchange of
F-13
<PAGE> 122
BOYKIN LODGING COMPANY
NOTES TO BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1996
ownership interests by affiliated persons for Units of the Partnership will not
result in purchase accounting adjustments to historical basis as such
transactions will be between entities under common control.
3. DESCRIPTION OF CAPITAL STOCK:
Common Shares
Holders of the Company's Common Shares are entitled to receive dividends,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The holders of Common Shares, upon any liquidation,
dissolution or winding-up of the Company, are entitled to share ratably in any
assets remaining after payment in full of all liabilities of the Company and all
preferences of the holders of any outstanding preferred shares. The Common
Shares possess ordinary voting rights, each share entitling the holder thereof
to one vote. Holders of Common Shares do not have cumulative voting rights in
the election of directors and do not have preemptive rights.
Preferred Shares
The Board of Directors is authorized to provide for the issuance of two
classes of preferred shares (collectively, the Preferred Shares), each in one or
more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights (other than voting rights) of each
series and the qualifications, limitations or restrictions thereon. An aggregate
of five million Preferred Shares are authorized. Because the Board of Directors
has the power to establish the preferences and rights of each series of
Preferred Shares, the Board of Directors may afford the holders of any series of
Preferred Shares preferences, powers and rights senior to the rights of holders
of Common Shares. The issuance of Preferred Shares could have the effect of
delaying or preventing a change in control of the Company. The Company has no
present intention to issue Preferred Shares.
4. EMPLOYEE BENEFITS:
Long-Term Incentive Plan
Grants of incentive or nonqualified share options, restricted shares,
deferred shares, share purchase rights and share appreciation rights in tandem
with options, or any combination thereof, may be made under the plan. Eligible
employees of the Company may participate in the long-term incentive plan.
Members of the Compensation Committee are not eligible to participate in the
long-term incentive plan. The Company has reserved 1,000,000 Common Shares for
issuance under the plan. Upon the Closing, Robert W. Boykin, Raymond P. Heitland
and Mark L. Bishop will be granted options to purchase 250,000, 75,000 and
75,000 shares, respectively, under the long-term incentive plan. These grants
will be made at the initial public offering price. The Company will follow the
disclosure option in Statement of Financial Accounting Standards No. 123 and
accordingly no expense will be recognized for these options.
The long-term incentive plan provides for vesting, exercise or forfeiture
of rights granted under the long-term incentive plan on retirement, death,
disability, termination of employment or a change of control. The Board of
Directors may modify, suspend or terminate the long-term incentive plan as long
as it does not impair the rights thereunder of any participant. Under applicable
law, the holders of Common Shares must approve any increase in the maximum
number of shares reserved for issuance under the long-term incentive plan, any
change in the classes of employees eligible to participate in the long-term
incentive plan and any material increase in the benefits accruing to
participants.
F-14
<PAGE> 123
BOYKIN LODGING COMPANY
NOTES TO BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1996
Compensation of Directors
Each independent director will receive an option for 5,000 Common Shares
exercisable at the initial public offering price of the Common Shares. These
options will vest fully within the first two years of issuance and will have a
term of ten years.
Employment Contracts
The Company will enter into an employment contract with Robert W. Boykin,
the Company's Chairman of the Board, President and Chief Executive Officer, at
an initial annual base compensation of $250,000. The employment contract with
Mr. Boykin provides for an initial three year term that is automatically
extended for an additional year at the end of each year of the agreement,
subject to the right of either party to terminate the agreement by giving two
years' prior notice. In addition, the Company will enter into employment
contracts with two other executive officers at an aggregate annual base
compensation of $290,000. These contracts provide for an initial one year term
that is automatically extended for an additional year at the end of each year of
the agreement, subject to the right of either party to terminate the agreement
by giving six months' prior notice.
In addition, each employment contract provides for the payment of a bonus
based upon specified percentages of annual base salary in the event that
specified operating results are achieved.
F-15
<PAGE> 124
INITIAL LESSEE
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
The Initial Lessee's unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1995, the twelve months ended June
30, 1996, and the six month periods ended June 30, 1995 and 1996, respectively,
are presented as if the consummation of the Formation Transactions had occurred
as of January 1, 1995 and carried forward through each period presented. The
unaudited Pro Forma Condensed Combined Statement of Operations for the twelve
months ended June 30, 1996 is presented in conjunction with the analysis of the
expected initial distributions as set forth under the caption "Distribution
Policy." Such pro forma information is based upon the combined statements of
operations of the Initial Hotels and the combined statements of revenues and
expenses of Boykin Management Company, Purchasing Concepts, Inc. and Bopa Design
Company. It should be read in conjunction with the financial statements listed
in the Index to Financial Statements at page F-1 of this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of the
Formation Transactions have been made. The Initial Lessee will be structured as
a pass through entity for income tax purposes and, accordingly, no provision for
income taxes has been provided.
These unaudited Pro Forma Condensed Combined Statements of Operations are
not necessarily indicative of what the actual results of operations of the
Initial Lessee would have been assuming that the Formation Transactions had been
completed as of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods. Further, the unaudited
Pro Forma Condensed Combined Statement of Operations for the interim periods
ended June 30, 1995 and 1996 are not necessarily indicative of the results of
operations for the full year.
F-16
<PAGE> 125
INITIAL LESSEE
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
(A) (B) INITIAL PRO
(A) LAKE ADJUSTMENTS HOTELS (C) FORMA
CONTRIBUTED NORMAN TO CONFORM COMBINED INITIAL PRO FORMA INITIAL
HOTELS HOTELS YEAR-ENDS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue..................... $ 50,730 $ 3,764 $ 291 $54,785 $ -- $ -- $54,785
Food and beverage revenue........ 22,984 -- 59 23,043 -- 600(D) 23,643
Other revenue -- Initial
Hotels......................... 4,490 124 29 4,643 -- -- 4,643
Other revenue -- Initial
Lessee......................... -- -- -- -- 8,737 (6,686)(E) 2,051
---------- -------- ---------- --------- -------- ---------- --------
Total revenues................. 78,204 3,888 379 82,471 8,737 (6,086) 85,122
---------- -------- ---------- --------- -------- ---------- --------
EXPENSES:
Departmental expenses of Initial
Hotels:
Rooms.......................... 11,896 1,025 48 12,969 -- (65)(F) 12,904
Food and beverage.............. 16,597 -- (57) 16,540 -- 500(G) 17,040
Other.......................... 2,313 78 15 2,406 -- -- 2,406
Cost of goods sold of Initial
Lessee......................... -- -- -- -- 3,720 (2,466)(H) 1,254
General and administrative....... 6,832 368 23 7,223 2,733 (603)(I) 9,353
Advertising and promotion........ 3,253 194 (2) 3,445 -- -- 3,445
Utilities........................ 3,245 207 19 3,471 -- -- 3,471
Management fees.................. 3,280 115 20 3,415 -- (3,415)(J) --
Franchisor royalties and other
charges........................ 3,813 271 30 4,114 -- -- 4,114
Repairs and maintenance.......... 3,771 182 (5) 3,948 -- -- 3,948
Real estate and personal property
taxes, property and casualty
insurance, and ground rent..... 3,579 106 8 3,693 105 (3,693)(K) 105
Interest expense................. 14,169 415 7 14,591 170 (14,761)(L) --
Depreciation and amortization.... 6,545 466 -- 7,011 85 (6,996)(M) 100
Unallocated business interruption
income......................... (474) -- -- (474) -- -- (474 )
Gain on property insurance
recovery....................... (670) -- -- (670) -- 670(N) --
Other............................ 103 (3 ) 39 139 -- 50(O) 189
Percentage Lease payments........ -- -- -- -- -- 25,521(P) 25,521
---------- -------- ---------- --------- -------- ---------- --------
Total expenses............ 78,252 3,424 145 81,821 6,813 (5,258) 83,376
---------- -------- ---------- --------- -------- ---------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS............................ $ (48) $ 464 $ 234 $ 650 $ 1,924 $ (828) $ 1,746
=========== ========= =========== ========== ========= =========== =========
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
F-17
<PAGE> 126
INITIAL LESSEE
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
(A) INITIAL PRO
(A) LAKE HOTELS (C) PRO FORMA
CONTRIBUTED NORMAN COMBINED INITIAL FORMA INITIAL
HOTELS HOTELS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue............................... $ 53,235 $ 4,063 $ 57,298 $ -- $ -- $57,298
Food and beverage revenue.................. 23,395 223 23,618 -- 362 (D) 23,980
Other revenue -- Initial Hotels............ 4,626 134 4,760 -- -- 4,760
Other revenue -- Initial Lessee............ -- -- -- 8,700 (6,430)(E) 2,270
---------- -------- ---------- --------- -------- --------
Total revenues........................... 81,256 4,420 85,676 8,700 (6,068) 88,308
---------- -------- ---------- --------- -------- --------
EXPENSES:
Departmental expenses of
Initial Hotels:
Rooms.................................... 12,415 1,019 13,434 -- (55)(F) 13,379
Food and beverage........................ 16,788 220 17,008 -- 300 (G) 17,308
Other.................................... 2,377 82 2,459 -- -- 2,459
Cost of goods sold of Initial Lessee....... -- -- -- 3,528 (2,090)(H) 1,438
General and administrative................. 6,987 402 7,389 2,896 (651)(I) 9,634
Advertising and promotion.................. 3,385 196 3,581 -- -- 3,581
Utilities.................................. 3,312 208 3,520 -- -- 3,520
Management fees............................ 3,537 147 3,684 -- (3,684)(J) --
Franchisor royalties and other charges..... 4,182 287 4,469 -- -- 4,469
Repairs and maintenance.................... 3,773 213 3,986 -- -- 3,986
Real estate and personal property taxes,
property and casualty insurance, and
ground rent.............................. 3,632 103 3,735 101 (3,735)(K) 101
Interest expense........................... 15,091 415 15,506 150 (15,656)(L) --
Depreciation and amortization.............. 7,083 466 7,549 86 (7,529)(M) 106
Unallocated business interruption income... (474) -- (474) -- -- (474)
Gain on property insurance recovery........ (670) -- (670) -- 670(N) --
Other...................................... 180 (1) 179 (4) 71(O) 246
Percentage Lease payments.................. -- -- -- -- 27,166(P) 27,166
---------- -------- ---------- --------- -------- --------
Total expenses........................... 81,598 3,757 85,355 6,757 (5,193) 86,919
---------- -------- ---------- --------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..... $ (342) $ 663 $ 321 $ 1,943 $ (875) $ 1,389
=========== ========= =========== ========== ========= =========
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
F-18
<PAGE> 127
INITIAL LESSEE
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
(A) INITIAL PRO
(A) LAKE HOTELS (A) PRO FORMA
CONTRIBUTED NORMAN COMBINED INITIAL FORMA INITIAL
HOTELS HOTELS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue............................... $ 25,631 $ 1,767 $ 27,398 $ -- $ -- $27,398
Food and beverage revenue.................. 11,411 -- 11,411 -- 300 (D) 11,711
Other revenue -- Initial Hotels............ 2,159 78 2,237 -- -- 2,237
Other revenue -- Initial Lessee............ -- -- -- 4,389 (3,347) (E) 1,042
---------- -------- ---------- --------- -------- --------
Total revenues........................... 39,201 1,845 41,046 4,389 (3,047) 42,388
---------- -------- ---------- --------- -------- --------
EXPENSES:
Departmental expenses of Initial Hotels:
Rooms.................................... 5,886 495 6,381 -- (24) (F) 6,357
Food and beverage........................ 8,103 -- 8,103 -- 250 (G) 8,353
Other.................................... 1,126 45 1,171 -- -- 1,171
Cost of goods sold of Initial Lessee....... -- -- -- 2,025 (1,514) (H) 511
General and administrative................. 3,436 200 3,636 1,330 (298) (I) 4,668
Advertising and promotion.................. 1,597 77 1,674 -- -- 1,674
Utilities.................................. 1,625 98 1,723 -- -- 1,723
Management fees............................ 1,551 111 1,662 -- (1,662) (J) --
Franchisor royalties and other charges..... 1,797 127 1,924 -- -- 1,924
Repairs and maintenance.................... 1,910 91 2,001 -- -- 2,001
Real estate and personal property taxes,
property and casualty insurance, and
ground rent.............................. 1,818 55 1,873 58 (1,873) (K) 58
Interest expense........................... 6,452 759 7,211 91 (7,302) (L) --
Depreciation and amortization.............. 2,990 289 3,279 40 (3,272) (M) 47
Other...................................... 130 -- 130 13 (29) (O) 114
Percentage Lease payments.................. -- -- -- -- 12,277 (P) 12,277
---------- -------- ---------- --------- -------- --------
Total expenses........................... 38,421 2,347 40,768 3,557 (3,447) 40,878
---------- -------- ---------- --------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..... $ 780 $ (502) $ 278 $ 832 $ 398 $ 1,510
=========== ========= =========== ========== ========= =========
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
F-19
<PAGE> 128
INITIAL LESSEE
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
(A) INITIAL PRO
(A) LAKE HOTELS (A) PRO FORMA
CONTRIBUTED NORMAN COMBINED INITIAL FORMA INITIAL
HOTELS HOTELS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue............................... $ 27,845 $ 2,066 $ 29,911 $ -- $ -- $29,911
Food and beverage revenue.................. 11,763 223 11,986 -- 62 (D) 12,048
Other revenue -- Initial Hotels............ 2,266 88 2,354 -- -- 2,354
Other revenue -- Initial Lessee............ -- -- -- 4,678 (3,323) (E) 1,355
---------- -------- ---------- --------- -------- --------
Total revenues........................... 41,874 2,377 44,251 4,678 (3,261) 45,668
---------- -------- ---------- --------- -------- --------
EXPENSES:
Departmental expenses of Initial Hotels:
Rooms.................................... 6,357 489 6,846 -- (13) (F) 6,833
Food and beverage........................ 8,351 220 8,571 -- 50 (G) 8,621
Other.................................... 1,175 49 1,224 -- -- 1,224
Cost of goods sold of Initial Lessee....... -- -- -- 1,894 (1,138) (H) 756
General and administrative................. 3,568 234 3,802 1,586 (346) (I) 5,042
Advertising and promotion.................. 1,731 79 1,810 -- -- 1,810
Utilities.................................. 1,673 99 1,772 -- -- 1,772
Management fees............................ 1,788 143 1,931 -- (1,931) (J) --
Franchisor royalties and other charges..... 2,136 143 2,279 -- -- 2,279
Repairs and maintenance.................... 1,917 122 2,039 -- -- 2,039
Real estate and personal property taxes,
property and casualty insurance, and
ground rent.............................. 1,863 52 1,915 62 (1,915) (K) 62
Interest expense........................... 7,367 759 8,126 62 (8,188) (L) --
Depreciation and amortization.............. 3,528 289 3,817 40 (3,804) (M) 53
Other...................................... 168 2 170 2 (8) (O) 164
Percentage Lease payments.................. -- -- -- -- 13,922 (P) 13,922
---------- -------- ---------- --------- -------- --------
Total expenses........................... 41,622 2,680 44,302 3,646 (3,371) 44,577
---------- -------- ---------- --------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..... $ 252 $ (303) $ (51) $ 1,032 $ 110 $ 1,091
=========== ========= =========== ========== ========= =========
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
F-20
<PAGE> 129
INITIAL LESSEE
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
(A) Derived from the historical combined financial statements of the Initial
Hotels for the period presented.
(B) Conforms the operating results of the Initial Hotel having a September 30
fiscal year-end to a December 31, 1995 year-end by adding the operating
results of that Initial Hotel for the period October 1 to December 31, 1995
and subtracting the operating results of that Initial Hotel for the
corresponding interim period of the prior year.
(C) For the year ended December 31, 1995, includes the operating results of
Boykin Management Company (BMC) for the year ended March 31, 1996 and the
operating results of Purchasing Concepts, Inc. (PCI) and Bopa Design
Company (Spectrum Services) for the year ended December 31, 1995. Such
amounts are derived from the historical combined statement of revenues and
expenses of BMC, PCI and Spectrum Services. In the opinion of management,
the effect of nonconforming period ends is not material. For the twelve
months ended June 30, 1996, and the six month periods ended June 30, 1995
and 1996, the period ends of BMC, PCI and Spectrum Services have been
combined using the same months and periods. In preparing the pro forma
statement of operations of the Initial Lessee for the twelve months ended
June 30, 1996, the period end of BMC has been conformed to June 30, 1996 by
adding its historical operating results for the three-month period April 1
to June 30, 1996 to its historical fiscal year-end operating results for
the fiscal year ended March 31, 1996 and then subtracting its historical
operating results for the three-month period April 1 to June 30, 1995.
(D) From August 1993 until February 1996, the catering, meeting, lounge and
restaurant facilities of the Lake Norman Holiday Inn were operated by a
third-party operator. In February 1996, when a Boykin Affiliate purchased
the hotel facility, it also purchased the food and beverage business assets
of this operator. This adjustment represents the approximate food and
beverage revenues of this operator for the period indicated, based upon
actual historical revenue information obtained by the Company.
(E) Reflects the elimination of management fees charged to the Initial Hotels
by BMC, the elimination of intercompany sales from PCI and Spectrum
Services to the Initial Hotels, and the elimination of interest income
earned by BMC on the advances due from Boykin Columbus Joint Venture; such
advances will be retired in connection with the Formation Transactions.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE 30,
DECEMBER 31, 30, ------------------
1995 1996 1995 1996
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Management fees charged to Initial Hotels... $ (3,600) $(3,736) $(1,521) $(1,889)
Intercompany sales to Initial Hotels:
PCI.................................... (136) (134) (64) (62)
Spectrum Services...................... (2,683) (2,274) (1,647) (1,238)
Interest income on advances to Boykin
Columbus
Joint Venture.......................... (267) (286) (115) (134)
------------ ------------- ------- -------
($ 6,686) $(6,430) $(3,347) $(3,323)
========== =========== ======= =======
</TABLE>
(F) Prior to February 1996, the Lake Norman Hotels provided complimentary
breakfasts to their guests. In February 1996, when a Boykin Affiliate
purchased the Lake Norman Hotels, the practice of providing complimentary
breakfasts was terminated at one of the Lake Norman Hotels. This adjustment
eliminates the historical expense associated with the complimentary
breakfasts at that hotel.
(G) Reflects operating costs associated with the food and beverage operations
discussed in (D).
(H) Reflects the cost of sales related to the Spectrum Services revenues
eliminated in (E).
F-21
<PAGE> 130
(I) Decrease reflects (i) the elimination of expenses related to the PCI
revenues eliminated in (E), and (ii) the elimination of estimated general
and administrative expenses of BMC which will be incurred by the
Partnership. The expenses to be incurred by the Partnership primarily
relate to administrative salaries.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE 30,
DECEMBER 31, 30, ------------------
1995 1996 1995 1996
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Expenses recorded by Initial Hotels
in connection with purchases
from PCI.................................. $ (136) $ (134) $ (64) $ (62)
General and administrative expenses
of BMC to be incurred by the
Partnership............................... (467) (517) (234) (284)
------------ ------------- ------- -------
$ (603) $ (651) $ (298) $ (346)
========== =========== ======= =======
</TABLE>
(J) Reflects the elimination of management fee expense of the Initial Hotels
related to the management fee revenues eliminated in (E).
(K) Reflects the elimination of real estate and personal property taxes,
property and casualty insurance, and ground rent expenses to be paid by the
Partnership.
(L) Reflects the elimination of (i) mortgage interest expense of the Initial
Hotels due to the expected repayment of such debt with a portion of the
proceeds from the Offering, and (ii) interest expense on note payable
obligations of BMC which are expected to be retired in connection with the
formation and capitalization of the Initial Lessee.
(M) Reflects the elimination of depreciation expense related to the investments
in hotel properties of the Initial Hotels which are to be acquired by the
Partnership.
(N) Reflects the elimination of the gain recognized on property insurance
recovery. As the Company will own the Initial Hotel properties, the Initial
Lessee will not realize or incur such gains or losses.
(O) Reflects the elimination of miscellaneous items of nonoperating income and
expense which will not be earned or incurred by the Initial Lessee. The pro
forma adjustments consist of the following:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE 30,
DECEMBER 31, 30, ------------------
1995 1996 1995 1996
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Interest income earned by Initial Hotels.... $ 192 $ 194 $ 89 $ 91
Expenses incurred by Initial Hotels in
connection with a prior attempted public
offering and sale of assets............... (51) (36) (51) (36)
Gain (loss) on fixed asset disposals........ 7 1 (10) (16)
Other non-recurring charges................. (98) (88) (57) (47)
------------ ------------- ------- -------
$ 50 $ 71 $ (29) $ (8)
========== =========== ======= =======
</TABLE>
(P) Represents lease payments calculated on a pro forma basis by applying the
rent provisions of the Percentage Leases to the pro forma room, food and
beverage and other revenues of the Initial Hotels as well as an additional
$725 of Percentage Lease payments required pursuant to the rental
interruption insurance provisions of the Percentage Lease agreements for
the year ended December 31, 1995 and the 12 months ended June 30, 1996. The
rent formula utilized in computing the pro forma Percentage Lease expense
includes for the calendar year 1995 an adjustment to reduce the threshold
revenue amounts in the Percentage Lease formulas by the 2.5% increase in
the Consumer Price Index for that year. See "Business and Properties" for
the Percentage Lease formulas.
F-22
<PAGE> 131
INITIAL LESSEE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
The unaudited Pro Forma Condensed Combined Balance Sheet is presented as if
the consummation of the Formation Transactions (as they relate to the formation
of the Initial Lessee) had occurred on June 30, 1996. Such pro forma information
is based in part upon the Pro Forma Condensed Consolidated Balance Sheet of the
Company, the combined balance sheets of the Initial Hotels, and the combined
statement of net assets of Boykin Management Company, Purchasing Concepts, Inc.,
and Bopa Design Company, all as of June 30, 1996. It should be read in
conjunction with the financial statements listed in the Index to Financial
Statements at page F-1 of this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of the Formation Transactions have
been made.
This unaudited Pro Forma Condensed Combined Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming the Formation Transactions had been completed as of June 30, 1996, nor
does it purport to represent the future financial position of the Initial
Lessee.
<TABLE>
<CAPTION>
(A) (B) (B) HISTORICAL
INITIAL CONTRIBUTED LAKE NORMAN AS PRO FORMA
LESSEE HOTELS HOTELS COMBINED ADJUSTMENTS PRO FORMA
------- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CASH AND EQUIVALENTS................. $ 2,605 $ 3,847 $ 359 $ 6,811 $ (2,978)(C) $ 3,833
ACCOUNTS RECEIVABLE.................. 5,482 4,307 216 10,005 (4,201)(D) 5,804
INVENTORIES, PREPAIDS AND OTHER
ASSETS............................. 149 4,498 28 4,675 (3,551)(E) 1,124
PROPERTY AND EQUIPMENT, net.......... 334 -- -- 334 -- 334
DEFERRED FRANCHISE FEES AND OTHER
DEFERRED COSTS..................... -- 86 248 334 -- 334
------- ----------- ----- ---------- ----------- ---------
Total assets................. $ 8,570 $12,738 $ 851 $ 22,159 $ (10,730) $11,429
====== =========== ============= ========= ============ ==========
LIABILITIES AND EQUITY
NOTES PAYABLE........................ $ 1,495 $ -- $ -- $ 1,495 $ (1,495)(F) $ --
ACCOUNTS PAYABLE, ACCRUED EXPENSES
AND OTHER LIABILITIES.............. 2,056 7,213 344 9,613 (1,184)(G) 8,429
EQUITY............................... 5,019 5,525 507 11,051 (8,051)(H) 3,000
------- ----------- ----- ---------- ----------- ---------
Total liabilities and
equity..................... $ 8,570 $12,738 $ 851 $ 22,159 $ (10,730) $11,429
====== =========== ============= ========= ============ ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Balance Sheet.
F-23
<PAGE> 132
INITIAL LESSEE
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
(A) Initial Lessee balance sheet data was derived from the unaudited combined
statement of net assets of Boykin Management Company, Purchasing Concepts,
Inc. and Bopa Design Company as of the date indicated, included elsewhere
in this Prospectus. See the Index to Financial Statements included on page
F-1 of this Prospectus.
(B) Amounts are derived from the Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1996 of the Company, and the related notes thereto, and
reflect the historical balances of the Initial Lessee and the Initial
Hotels less those assets and liabilities contributed to or assumed by the
Company. See the Index to Financial Statements included on page F-1 of this
Prospectus.
(C) Reflects the following sources and uses of cash:
<TABLE>
<S> <C>
Reclassification of escrow cash (See (E))............................ $ 3,551
Payment to the Company for prorated expenses......................... (1,646)(a)
Distributions to shareholders........................................ (2,019)(b)
Retire BMC notes payable (See (F))................................... (1,495)
Distributions to partners prior to transfer of working capital to
Initial Lessee:
Boykin Partnerships................................................ (3,906)(c)
Lake Norman Hotels................................................. (480)(c)
Collection of note receivable due from affiliate..................... 3,017(d)
-------
$(2,978)
=======
</TABLE>
(D) Reflects the collection of the advances and accrued interest due to the
Initial Lessee from Boykin Columbus Joint Venture (BCJV), the elimination
of management and design fees due to the Initial Lessee from the Initial
Hotels and the elimination of amounts due to the Initial Hotels from the
Initial Lessee.
<TABLE>
<S> <C>
Advances and accrued interest due from BCJV.......................... $(3,017)(d)
Management fees due from Initial Hotels to the Initial Lessee........ (908)(e)
Design fees due from Initial Hotels to the Initial Lessee............ (157)(f)
Amounts due to the Initial Hotels from Initial Lessee................ (119)(g)
-------
$(4,201)
=======
</TABLE>
(E) As the mortgage debt and real estate will be sold to the Partnership, the
Initial Lessee will not be required to maintain escrow cash accounts. This
adjustment transfers the former restricted escrow fund to available cash.
(F) Reflects the repayment of BMC's bank debt with available cash.
(G) Reflects the elimination of management and design fees payable to the
Initial Lessee by the Initial Hotels, and the elimination of miscellaneous
amounts due to the Initial Hotels from the Initial Lessee.
<TABLE>
<S> <C>
Management fees due to the Initial Lessee from the Initial Hotels.... $ (908)(e)
Design fees due to the Initial Lessee from the Initial Hotels........ (157)(f)
Amounts due to the Initial Lessee from the Initial Hotels............ (119)(g)
-------
$(1,184)
=======
</TABLE>
F-24
<PAGE> 133
(H) Reflects the following:
<TABLE>
<S> <C>
Payment to the Partnership for prorated expenses of the Initial
Hotels............................................................. $(1,646)(a)
Distributions to partners/shareholders by contributed entities:
Initial Hotels..................................................... (4,386)(c)
BMC................................................................ (2,019)(b)
-------
$(8,051)
=======
</TABLE>
As stated in "Lessees -- Initial Lessee," the Initial Lessee will have a
minimum net worth of $3,000 upon completion of the Formation Transactions.
It is the intention of the Initial Lessee that, to the extent cash is
available, the Initial Hotels and BMC will make cash distributions to
their respective partners and shareholders, as applicable, such that the
aggregate net assets to be transferred by these entities to the Initial
Lessee at closing will result in the Initial Lessee having an initial net
worth of $3,000.
F-25
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Boykin Management Company:
We have audited the accompanying combined balance sheets of the Initial
Hotels (excluding Lake Norman Hotels), as defined in Note 1 to the combined
financial statements, as of December 31, 1994 and 1995, and the related combined
statements of operations, partners' deficit and cash flows for each of the three
years in the period ended December 31, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Initial Hotels
(excluding Lake Norman Hotels), as of December 31, 1994 and 1995, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and included on page F-41 of this Prospectus is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 2, 1996.
F-26
<PAGE> 135
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1995
-------- -------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
INVESTMENTS IN HOTEL PROPERTIES, at cost:
Land..................................................... $ 7,382 $ 7,382 $ 7,382
Buildings and improvements............................... 78,948 89,371 89,895
Furniture and equipment.................................. 31,228 36,099 36,892
Construction in progress................................. 951 1,036 389
-------- -------- -----------
118,509 133,888 134,558
Less- Accumulated depreciation........................... 59,982 63,311 66,354
-------- -------- -----------
Net investment in hotel properties....................... 58,527 70,577 68,204
CASH AND CASH EQUIVALENTS.................................. 3,996 2,909 3,847
ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts
of $64 and $34 at December 31, 1994 and 1995,
respectively, and $20 at June 30, 1996................... 2,820 2,369 3,525
INSURANCE CLAIM RECEIVABLE................................. -- 913 663
RECEIVABLES FROM AFFILIATE................................. 7 129 119
INVENTORIES................................................ 460 480 456
PREPAIDS AND OTHER ASSETS.................................. 587 788 816
CASH HELD IN ESCROW........................................ 1,896 2,607 3,551
DEFERRED EXPENSES, net..................................... 395 2,560 2,240
-------- -------- -----------
$ 68,688 $ 83,332 $ 83,421
======== ======== ===========
LIABILITIES AND PARTNERS' DEFICIT
MORTGAGE NOTES PAYABLE..................................... $111,788 $122,203 $ 123,726
ADVANCES FROM AND ACCRUED INTEREST DUE TO PARTNERS......... 15,198 7,751 7,725
ACCOUNTS PAYABLE:
Trade.................................................... 1,746 1,490 1,876
Affiliate................................................ 221 75 --
Management fees to related party......................... 498 943 808
Bank overdraft........................................... 1,435 1,402 757
ACCRUED EXPENSES AND OTHER LIABILITIES..................... 4,999 5,728 5,721
COMMITMENTS AND CONTINGENCIES..............................
-------- -------- -----------
135,885 139,592 140,613
PARTNERS' DEFICIT.......................................... (67,197) (56,260) (57,192)
-------- -------- -----------
$ 68,688 $ 83,332 $ 83,421
======== ======== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-27
<PAGE> 136
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM HOTEL OPERATIONS:
Room revenue.......................... $45,753 $48,652 $50,730 $25,631 $27,845
Food and beverage revenue............. 22,357 22,811 22,984 11,411 11,763
Other revenue......................... 3,977 4,092 4,490 2,159 2,266
------- ------- ------- ------- -------
Total revenues..................... 72,087 75,555 78,204 39,201 41,874
------- ------- ------- ------- -------
EXPENSES:
Departmental expenses --
Rooms.............................. 11,268 11,869 11,896 5,886 6,357
Food and beverage.................. 16,833 16,924 16,597 8,103 8,351
Other.............................. 2,125 1,986 2,313 1,126 1,175
General and administrative............ 6,848 6,906 6,832 3,436 3,568
Advertising and promotion............. 3,407 3,191 3,253 1,597 1,731
Utilities............................. 3,251 3,346 3,245 1,625 1,673
Management fees to related party...... 2,693 2,882 3,280 1,551 1,788
Franchisor royalties and other
charges............................ 3,308 2,952 3,813 1,797 2,136
Repairs and maintenance............... 3,429 3,728 3,771 1,910 1,917
Real estate and personal property
taxes, insurance and rent.......... 3,112 3,329 3,579 1,818 1,863
Interest expense...................... 11,411 11,324 13,430 6,079 6,993
Interest expense on partner
advances........................... 964 1,073 739 373 374
Depreciation and amortization......... 5,822 5,690 6,545 2,990 3,528
Unallocated business interruption
insurance income................... -- -- (474) -- --
Gain on property insurance recovery... -- -- (670) -- --
Other................................. 80 183 103 130 168
------- ------- ------- ------- -------
Total expenses..................... 74,551 75,383 78,252 38,421 41,622
------- ------- ------- ------- -------
Income (loss) before extraordinary
item............................. (2,464) 172 (48) 780 252
EXTRAORDINARY ITEM -- GAIN (LOSS) ON
EARLY EXTINGUISHMENT OF DEBT.......... -- -- 556 556 (1,315)
------- ------- ------- ------- -------
NET INCOME (LOSS)....................... $(2,464) $ 172 $ 508 1,336 (1,063)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-28
<PAGE> 137
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
COMBINED
PARTNERS'
(DEFICIT)
--------
<S> <C>
BALANCE, DECEMBER 31, 1992................................... $(64,458)
Net loss................................................... (2,464 )
Capital contributions...................................... 775
Cash distributions......................................... (648 )
--------
BALANCE, DECEMBER 31, 1993................................... (66,795 )
Net income................................................. 172
Cash distributions......................................... (574 )
--------
BALANCE, DECEMBER 31, 1994................................... (67,197 )
Net income................................................. 508
Capital contributions...................................... 7,811
Cash distributions......................................... (2,015 )
Redemption of partnership interests, net of $9,357
aggregate cash redemption payments...................... 4,633
--------
BALANCE, DECEMBER 31, 1995................................... (56,260 )
Net loss (unaudited)....................................... (1,063 )
Capital contributions (unaudited).......................... 800
Cash distributions (unaudited)............................. (600 )
Net loss of Pacific Ohio Partners for the period October 1,
1995 to December 31, 1995 excluded from these statements
(unaudited)............................................. (69 )
--------
BALANCE, JUNE 30, 1996 (UNAUDITED)........................... $(57,192)
=========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-29
<PAGE> 138
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $(2,464) $ 172 $ 508 $ 1,336 $ (1,063)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities --
Net income (loss) of Pacific Ohio Partners for the periods
October 1 to December 31, 1994 and 1995, respectively,
excluded from the combined statements of operations........ -- -- -- 16 (69)
Depreciation and amortization expense........................ 5,888 5,756 7,645 3,409 5,089
Deferred interest expense on partner advances................ 871 989 705 353 374
Extraordinary loss (gain) on early extinguishment of debt.... -- -- (556) (556) 1,315
Gain on property insurance recovery.......................... -- -- (670) -- --
Changes in assets and liabilities --
Receivables................................................ (319) 155 (264) (383) (896)
Inventories, prepaids and other assets..................... (161) 311 (221) (159) (4)
Cash held in escrow........................................ (206) 61 (711) 266 (944)
Accounts payable, accrued expenses and other liabilities... 114 256 739 1,571 (476)
------- ------- -------- -------- --------
Net cash provided by operating activities............. 3,723 7,700 7,175 5,853 3,326
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to hotel properties, net............ (2,771) (4,746) (5,366) (2,006) (1,546)
Property insurance proceeds received, net...................... -- -- 1,122 -- --
------- ------- -------- -------- --------
Net cash used for investing activities................ (2,771) (4,746) (4,244) (2,006) (1,546)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable................... $ (673) $ (872) $(54,082) $(53,900) $(42,087)
Proceeds from refinancing of mortgage debt..................... -- -- 66,250 66,250 41,673
Payment of debt prepayment premium and debt issuance costs..... (51) -- (4,473) (4,203) (228)
Payments on advances from partners............................. (38) (42) (529) (529) (400)
Capital contributions.......................................... 775 -- 188 188 800
Cash distributions paid........................................ (648) (574) (2,015) (1,736) (600)
Redemptions of partnership interests........................... -- -- (9,357) (9,357) --
------- ------- -------- -------- --------
Net cash used for financing activities................ (635) (1,488) (4,018) (3,287) (842)
------- ------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................... 317 1,466 (1,087) 560 938
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 2,213 2,530 3,996 3,996 2,909
------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 2,530 $ 3,996 $ 2,909 $ 4,556 $ 3,847
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................... $11,424 $11,499 $ 12,056 $ 5,415 $ 6,451
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Contributions of partner advances to capital................. $ -- $ -- $ 7,623 $ 7,623 $ --
Mortgage principal forgiven.................................. -- -- 2,335 2,335 --
Prepayment penalty financed with additional borrowing........ -- -- -- -- 1,246
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-30
<PAGE> 139
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1995 AND 1996
AND FOR THE PERIODS THEN ENDED ARE UNAUDITED)
1. BASIS OF PRESENTATION:
The Initial Hotels excluding Lake Norman Hotels consist of the following
full-service hotels:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTY NAME LOCATION ROOMS
------------------------------------------ --------------------- ---------
<S> <C> <C>
Berkeley Marina Marriott.................. Berkeley, California 373
Buffalo Marriott.......................... Buffalo, New York 356
Cleveland Airport Marriott................ Cleveland, Ohio 375
Cleveland Marriott East................... Beachwood, Ohio 403
Columbus North Marriott................... Columbus, Ohio 300
Melbourne Quality Suites.................. Melbourne, Florida 208
Radisson Inn Sanibel Gateway.............. Ft. Myers, Florida 157
</TABLE>
Boykin Management Company (BMC) was involved in the development of each of
the above hotels and has managed all of the Initial Hotels excluding the Lake
Norman Hotels since their respective inceptions. The hotels are owned by
partnerships (Boykin Partnerships) in which the shareholders of The Boykin
Company (TBC), BMC's parent company, and certain officers and employees of BMC
(collectively, BMC Affiliates) have significant direct and indirect ownership
interests.
As of December 31, 1995, the Boykin Partnerships are owned as follows:
<TABLE>
<CAPTION>
PARTNERSHIP
INTEREST
------------------
BMC THIRD
AFFILIATES PARTY
---------- -----
<S> <C> <C>
Berkeley Marina Associates, L.P. (BMLP)................. 100% 0%
Buffalo Hotel Joint Venture (BHJV)...................... 50% 50%
Pacific Ohio Partners (POP)............................. 100% 0%
Beachwood Hotel Joint Venture (Beachwood)............... 35% 65%
Columbus Hotel Joint Venture (CHJV)..................... 50% 50%
Melbourne Oceanfront Hotel Associates (MOHA)............ 100% 0%
Fort Myers Hotel Partnership (FMHP)..................... 100% 0%
</TABLE>
The Lake Norman Hotels consist of a Hampton Inn and a Holiday Inn, both
located in Charlotte, North Carolina. The Lake Norman Hotels, together with the
hotels owned by the Boykin Partnerships, are the Initial Hotels.
Boykin Lodging Company, Inc. is a recently organized Ohio corporation which
has been established to acquire equity interests in existing hotel properties
and to consider selectively the development of new hotels. Boykin Lodging
Company will use the proceeds from a proposed initial public offering to acquire
the general partnership interest, representing an 84.1% equity interest, in
Boykin Hotel Properties, L.P., an Ohio limited partnership (the Partnership). It
is proposed that the partners and shareholders of the entities owning the
Initial Hotels will contribute their respective partnership interests to the
Partnership in exchange for cash and partnership interests. The Partnership will
use a portion of the proceeds from the sale of the general partnership interest
to Boykin Lodging Company to retire mortgage indebtedness encumbering the
Initial
F-31
<PAGE> 140
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Hotel properties. All of the Initial Hotels will be leased to Boykin Management
Company Limited Liability Company (the Initial Lessee) pursuant to operating
leases which contain provisions for rent based on the revenues of the Initial
Hotels. The Initial Lessee is an affiliate of BMC.
Management believes that these combined financial statements result in a
more meaningful presentation of the Initial Hotel businesses excluding the Lake
Norman Hotels to be acquired by the Partnership and thus appropriately reflect
the historical financial position and results of operations of the predecessor
of the Initial Lessee. All significant intercompany balances and transactions
have been eliminated. The Lake Norman Hotels have been excluded from the
accompanying combined financial statements as they were not owned or managed by
BMC Affiliates until February 8, 1996.
Interim Unaudited Financial Information
The combined financial statements as of and for the six months ended June
30, 1995 and 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair representation of the combined financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Periods
For annual reporting purposes, all of the Boykin Partnerships except POP
have been included in the accompanying combined financial statements based on a
December 31 year-end. The accompanying combined financial statements as of
December 31, 1993, 1994 and 1995 include the accounts of POP as of September 30,
1993, 1994 and 1995.
In order to show comparable operations during the interim periods ended
June 30, 1995 and 1996, POP's operating results were adjusted to exclude the
three month periods October 1 to December 31, 1994 and 1995. The total revenues
of POP excluded from the combined statements of operations for the six month
periods ended June 30, 1995 and 1996 were $2,950 and $3,328, respectively, and
total net income (loss) excluded was $16 and $(69), respectively.
In the opinion of management, the effect of nonconforming period ends is
not material to the combined financial statements.
Hotel Properties
Hotel properties are stated at cost. Depreciation is computed using
primarily the straight-line method based upon the following estimated useful
lives:
Buildings and improvements 7-40 years
Furniture and equipment 3-20 years
For the year ended December 31, 1995, the Boykin Partnerships adopted
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, the partners and management of the Boykin Partnerships review
the hotel properties for impairment when events or changes in circumstances
indicate the carrying amounts of the hotel properties may not be recoverable.
When such conditions exist, management estimates the future cash flows from
operations and disposition of the hotel properties. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount to the related hotel property's
estimated fair market value would be recorded and an impairment loss would be
recognized. No such impairment losses were recognized in connection with the
adoption of SFAS No. 121.
F-32
<PAGE> 141
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in the determination of net income or
loss.
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.
Inventories
Inventories consisting primarily of food and beverages and gift store
merchandise are stated at the lower of first-in, first-out cost or market.
Cash Held in Escrow
Cash held in escrow consists of amounts for real estate taxes remitted to
the lenders which hold the mortgages on the hotel facilities and amounts
deposited for the replacement of hotel real and personal property pursuant to
the terms of certain mortgage and franchise agreements.
Deferred Expenses
Deferred expenses consist of initial franchise fees and deferred loan
costs. Amortization of initial franchise fees is computed on a straightline
basis over the terms of the franchise agreements while deferred loan costs are
amortized over the terms of the related loan agreements. The amortization of
deferred loan costs of $66, $66, $519, $99 and $457 for the years ended December
31, 1993, 1994 and 1995 and the six month periods ended June 30, 1995 and 1996,
respectively, is included in interest expense in the accompanying combined
statements of operations. Accumulated amortization of deferred expenses was $620
and $1,002 at December 31, 1994 and 1995, respectively, and $1,075 at June 30,
1996.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible. Such losses have
been within management's expectations.
Income Taxes
The Boykin Partnerships are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners must
take income or loss of the Boykin Partnerships into consideration when filing
their respective tax returns.
Management's Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-33
<PAGE> 142
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
3. MORTGAGE NOTES PAYABLE:
Mortgage notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Notes payable to an investment banking firm in variable
monthly installments of interest at a specified
incremental rate over 30 day LIBOR; semiannual payments
of principal equal to a specified percentage of cash
flow, as defined; remaining unpaid principal due June
1, 1998; secured by real and personal property of FHMP,
MOHA, POP and BMLP (collectively, the Borrowers) having
an aggregate net book value of $45,632 at December 31,
1995. See Note (a) below............................... $ -- $ 66,250 $ 66,250
</TABLE>
<TABLE>
<S> <C> <C> <C>
Accrued "additional interest" on above notes at 6%. See
Note (a) below......................................... -- 583 1,274
Mortgage note payable to a life insurance company in
monthly installments of interest only (Fixed Interest)
at a rate of 8% through April 1995, 9% from May 1995
through January 2000 and 10% from February 2000 through
October 2004; the unpaid principal due October 2004;
collateralized by real and personal property having a
net book value of $9,156 at December 31, 1995; requires
an escrow reserve of 4% of revenues for the replacement
or refurbishment of furniture, fixtures and equipment.
See Note (b) below..................................... 13,697 13,697 13,697
Mortgage notes payable to a life insurance company in
monthly installments of interest only at a blended rate
of 11.25%; the unpaid principal due in full May 1,
1996; collateralized by certain real and personal
property having a net book value of $5,630 at December
31, 1995; the partners of Beachwood have severally
guaranteed $3,000 until the net annual income, as
defined, of the property reaches $3,848 before debt
service but after capital reserves of 3% of gross
revenues. See Note (c) below........................... 28,500 28,500 --
Mortgage note payable to a life insurance company, in
monthly installments of principal and interest (at
11.25%) of $151 until June 2001, at which time the
remaining unpaid principal balance of approximately
$10,910 is due; additional interest equal to 5% of
gross annual room income, as defined, in excess of a
base of $5,125 per year is required; additional
interest payments of approximately $164, $165 and $181
were required for the years ended December 31, 1993,
1994 and 1995, respectively; collateralized by certain
real and personal property having a net book value of
$10,159 at December 31, 1995. See Note (c) below....... $ 13,480 $ 13,173 $ --
</TABLE>
F-34
<PAGE> 143
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Mortgage notes payable to a life insurance company in
aggregate monthly installments of principal and
interest of $493 collateralized by certain real and
personal property having an aggregate net book value of
$15,789 at December 31, 1995. See Note (c) below....... -- -- 42,505
Mortgage note payable to a bank in monthly installments
of $225, including interest at 9.77%. See Note (d)
below.................................................. 24,937 -- --
Mortgage note payable to a bank in monthly installments
of $104, including interest at 9%. See Note (d)
below.................................................. 12,303 -- --
Mortgage note payable to a bank in monthly installments
of principal and interest of $27; the effective
interest rate was 4.77%. See Note (d) below............ 6,484 -- --
Mortgage note payable to a life insurance company, in
monthly installments of principal and interest (at
10.875%) of $123. See Note (d) below................... 12,387 -- --
-------- -------- --------
$111,788 $122,203 $123,726
======== ======== ========
</TABLE>
- ---------------
(a) The interest rate floats as follows:
Until June 1, 1997, 4.25% over 30 day LIBOR
From then until June 1, 1998, 4.50% over 30 day LIBOR
Thereafter (if applicable) 5.00% over 30 day LIBOR
In addition, a service fee of .06% of the outstanding balance is required.
At December 31, 1995 and June 30, 1996, the interest rate was approximately
10%.
Under certain conditions, the Borrowers can elect an interest deferral
option whereby monthly payments of interest would be based on an interest
rate not to exceed 10%. However, the excess of interest based on the normal
interest rate over the deferral rate would be added to the principal
balance.
Semiannual principal payments are required equal to 50% of "cash flow," as
defined. The percentage increases to 100% after June 1, 1998 or if the
interest deferral option is elected. Such payments are to be applied first
to accrued and unpaid interest on deferred interest, next to deferred
interest, with the remainder to be applied to the outstanding principal
balance.
If certain conditions are met, the Borrowers can extend the initial maturity
date by a maximum of twelve months. To extend the maturity date, the
Borrowers must pay a fee equal to 1% of the then outstanding principal
balance.
In general, the notes are nonrecourse. However, in certain limited defined
circumstances, the lender would have recourse to the Borrowers and certain
BMC Affiliates.
The loan agreement contains restrictive covenants with respect to, among
other things, property maintenance and insurance, payment of taxes, property
transfers and maintenance of specified debt service coverage ratios. The
Borrowers were in compliance with the loan covenants at December 31, 1995
and June 30, 1996. Monthly escrow deposits are also required to be made to
fund repayments of furniture and fixtures reserves and property taxes.
The payment of "additional interest" is required upon maturity or repayment
in full of the notes. Such amount to be paid is equal to the product of
$66,250 multiplied by (i) 4.75% until June 1, 1996;
F-35
<PAGE> 144
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(ii) 5.25% until June 1, 1997, (iii) 6% thereafter. Under certain
conditions, the rate at which such additional interest is to be calculated
can be reduced. Management estimates that the additional interest to be paid
will be computed at 3% if the proposed initial public offering discussed in
Note 1 is completed. The "additional interest" is being charged to interest
expense utilizing the effective interest rate method over the contractual
term of the notes. Such amount was $583 for the year ended December 31, 1995
and $691 for the six-month period ended June 30, 1996.
(b) Commencing April 1996, the note requires the payment of additional interest
based on annual net cash flow (Net Cash Flow Interest), as defined. The
effect of Net Cash Flow Interest is to increase the effective interest rate
on the obligation to 11% per annum. For the year ended December 31, 1995 and
the six-month periods ended June 30, 1995 and 1996, $308, $154 and $137,
respectively, have been provided for the payment of Net Cash Flow Interest.
Upon the occurrence of a casualty, a taking, a transfer or maturity, all as
defined, additional interest based on the property's appreciation in value
will also be payable. In the event of prepayment, CHJV must pay an amount
which brings the lender's yield for the period from origination to
prepayment date to 12.75%, compounded monthly, inclusive of Fixed Interest
and Net Cash Flow Interest.
The mortgage agreement contains covenants which, among other restrictions,
limit CHJV's capacity to incur additional debt or sell assets; limit the
ability of partners of CHJV to sell or transfer their respective ownership
interests; require the property to be managed by BMC; and require CHJV to
make annual deposits into an escrow account for the replacement of
furnishings. As of December 31, 1995 and June 30, 1996, CHJV was in
compliance with such covenants.
(c) On January 29, 1996, the BHJV and Beachwood mortgage notes payable were
refinanced with the proceeds of new mortgage notes from the same lender. The
new notes carry an interest rate of 8.69% and have a five-year term. Monthly
payments of principal and interest of $116 and $251 are required for the new
BHJV and Beachwood mortgage notes payable, respectively, with the remaining
unpaid principal amounts due at maturity.
Additionally, the payment of the prepayment penalty on the previous BHJV
mortgage note was financed by the proceeds of a second mortgage note in the
amount of $1,246. The second note carries interest at the rate of 8.54% and
fully amortizes over five years with monthly payments of principal and
interest of $26.
The notes require monthly deposits for taxes and furniture and fixtures
replacement. The prepayment penalty for the notes is calculated based upon
yield maintenance formulas.
The new BHJV and Beachwood mortgage notes contain cross collateralization
and cross default provisions.
(d) These mortgage notes payable were refinanced in May 1995. See (a) for
discussion of the terms of the new mortgage notes.
Aggregate scheduled annual principal payments for the above mortgage notes
payable (reflecting the terms of the BHJV and Beachwood subsequent refinancings
discussed above, but excluding the BHJV second mortgage note) including the
"additional interest" discussed in (a) at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------------- --------
<S> <C>
1996................................................. $ 1,551
1997................................................. 1,751
1998................................................. 69,415
1999................................................. 1,035
2000................................................. 1,129
Thereafter........................................... 50,714
--------
$125,595
========
</TABLE>
F-36
<PAGE> 145
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
All of the outstanding debt is expected to be repaid from the proceeds of
the proposed initial public offering discussed in Note 1.
Debt Extinguishment
In May 1995, FMHP, MOHA, POP and BMLP refinanced their respective existing
mortgage indebtedness, realizing a net extraordinary gain of $556 on the early
extinguishment of debt. The net extraordinary gain was related to the
forgiveness of $2,335 of principal due on the FMHP mortgage reduced by the
payment of prepayment premiums and the writeoff of unamortized deferred
financing costs on the POP and BMLP mortgages. In addition to retiring existing
indebtedness, the refinancing proceeds were used to redeem partnership interests
held by non-BMC Affiliate partners of BMLP, MOHA and POP (Note 7).
The refinancing and concurrent payment of a prepayment penalty on the BHJV
note resulted in an extraordinary loss due to the early extinguishment of debt
in the amount of $1,315 for the six-month period ended June 30, 1996.
4. UNUSUAL ITEM -- PROPERTY DAMAGE FROM HURRICANE:
On August 2, 1995, certain hotel property of MOHA was damaged by
wind-driven rain associated with hurricane Erin. The damage led to the temporary
closure of the hotel until restoration of the damaged property took place. The
temporary closure reduced the available room nights for the year ended December
31, 1995 by 20,430 rooms, or 27% of the otherwise available room nights.
Management estimates that the temporary closure resulted in $1,261 in lost
revenue, and $1,093 in lost net income.
MOHA has made a business interruption insurance claim for reimbursement of
the lost net income. Included in the combined statement of operations for the
year ended December 31, 1995 is $1,093 of income related to this claim. This
income has been offset against departmental expenses and various other expense
categories in the aggregate amounts of $178 and $441, respectively.
In addition, MOHA has made a property insurance claim for the damage to
hotel property. The difference between the proceeds to be received from this
claim and the net book value of the damaged property is reflected in the
combined statement of operations as an unusual gain on property insurance
recovery. The costs of replacing and renovating the damaged property have been
capitalized as additions to hotel property in the accompanying combined balance
sheet.
MOHA has a $913 insurance claim receivable at December 31, 1995 ($663 at
June 30, 1996). The receivable at December 31, 1995 is comprised of $320 for
property damage and $593 for business interruption. MOHA has submitted its
claims to its insurance carrier, and believes that the claims are in accordance
with the terms of the related insurance policies.
5. RELATED PARTY TRANSACTIONS:
A substantial portion of the hotels' management and accounting functions
are performed by BMC, for a fee computed as specified in each hotel's management
agreement. The base management fee is based on percentages of hotel revenues of
3% or 3.5%. In addition, if specified operating results are achieved, an
incentive fee is due to BMC. The management agreements with BMC expire at
various dates through September 30, 2010.
Certain other costs relating to purchasing and design services are incurred
by an affiliate of BMC and billed to the hotels. Such purchases approximated
$133, $148, $143, $47 and $50 for the years ended December 31, 1993, 1994 and
1995 and the six-month periods ended June 30, 1995 and 1996, respectively.
Furthermore, the hotels made purchases of hotel furnishings through an affiliate
of BMC. These purchases
F-37
<PAGE> 146
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
amounted to approximately $1,701, $1,823, $2,531, $666 and $698 for the years
ended December 31, 1993, 1994, and 1995 and the six-month periods ended June 30,
1995 and 1996, respectively.
Receivables from and payables to affiliates represent amounts due from or
to BMC and its affiliates applicable to insurance charges and various other
items. Included in accounts payable to affiliates at December 31, 1994 is $171
due from FMHP to BMC for loan guarantee fees related to the FMHP mortgage which
was refinanced in May 1995. The fees due were paid in 1995.
Until October 1994, the hotels maintained a "fully insured program under a
Minimum Premium Contract" for various insurance benefits offered to enrolled
employees under an insurance plan which included other entities affiliated with
BMC. The hotels provided a pro-rata share of expense required by the plan which
was based upon enrolled employees at each hotel. The total amount of such shared
expenses billed to the hotels approximated $1,617 and $1,176 for 1993 and 1994,
respectively. In October 1994, the plan was terminated and replaced with a
fully-insured plan which requires the payment of monthly premiums.
6. ADVANCES FROM PARTNERS:
Partner advances consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Advances from partners used to complete construction and
to fund operation, bearing interest at 10% per annum.
Note (a)............................................... $ 2,637 $ 2,637 $ 2,637
</TABLE>
<TABLE>
<S> <C> <C> <C>
Unsecured notes payable to partners, with interest at
bank prime rate. Note (b).............................. 4,790 -- --
Second mortgage note payable to a partner in monthly
installments of principal and interest (at 10.25%) of
$8. Note (c)........................................... 529 -- --
Accrued interest payable on advances from partners. Note
(b).................................................... 7,242 5,114 5,088
-------- -------- --------
$ 15,198 $ 7,751 $ 7,725
======== ======== ========
</TABLE>
- ---------------
(a) Repayment of the loans and related accrued interest is determined by the net
cash flow, as defined, of CHJV, in accordance with the priority of payments
outlined in the partnership agreement. In February 1996, CHJV made a $400
payment of interest to the partners on their advances.
(b) In connection with the refinancing discussed in Note 3 and the change in
ownership discussed in Note 7, principal and interest aggregating $7,623
were contributed to the capital of MOHA in May 1995.
(c) In connection with the refinancing discussed in Note 3, retired in May 1995.
Total interest expense on partner advances was $964, $1,073 and $739 for
the years ended December 31, 1993, 1994 and 1995, respectively, and $373 and
$374 for the six-month periods ended June 30, 1995 and 1996, respectively.
7. CHANGES IN OWNERSHIP:
In May 1995, in connection with the refinancing discussed in Note 3, MOHA,
BMLP and POP redeemed their respective partnership interests held by non-BMC
Affiliates and BMC Affiliates were admitted as new partners. In addition, FMHP
redeemed its partnership interest held by BMLP. As a result of the redemptions,
BMC Affiliates own 100% of these partnerships. The aggregate cash redemption
price paid to non-BMC Affiliates was $9,357. For each partnership, the
difference between the redemption price paid and the related capital account
balances of the partners redeemed was recorded as an adjustment of the carrying
value of the respective investments in hotel properties of MOHA, FMHP, BMLP and
POP.
F-38
<PAGE> 147
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
The purchase accounting adjustment recorded, which was equal to the cash
paid to redeem the partnership interests plus the deficit capital account
balances of the redeemed partners at the time of the redemptions, was an
aggregate increase in the carrying value of the investments in hotel property as
follows:
<TABLE>
<S> <C>
Buildings and improvements................... $10,230
Furniture and equipment...................... 3,760
--------
$13,990
=======
</TABLE>
Following is pro forma data assuming that the redemptions of the non-BMC
affiliates discussed above and the related refinancing discussed in Note 3 had
occurred at the beginning of 1995. The pro forma adjustments to historical
operating results are (i) to increase depreciation expense for the effect of the
purchase accounting adjustments to the carrying values of investments in hotel
properties; (ii) to adjust management fee expense for FMHP, MOHA, BMLP and POP
to 4.5% of hotel revenues as required by the terms of the refinancing; and,
(iii) to increase interest expense to reflect the terms of the new mortgage debt
and the amortization of related deferred financing costs.
<TABLE>
<CAPTION>
UNAUDITED
---------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1995
------------ ------------
<S> <C> <C>
Total revenues............................... $ 78,204 $ 39,201
Loss before extraordinary item............... $ (2,016) $ (904)
Net loss..................................... $ (1,460) $ (348)
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
Claims and Legal Matters
Certain of the hotels are involved in claims and legal matters incidental
to their businesses. In the opinion of management, the ultimate resolution of
these matters will not have a material impact on the financial position or
results of operations of the hotels.
Franchise Agreements
Under the terms of hotel franchise agreements, annual payments for
franchise royalties and reservation and advertising services are due from the
hotels. For six of the hotels, fees are computed based upon percentages of gross
room revenues. At December 31, 1995, the franchise royalty fees payable by the
hotels ranged from 3% to 5% of room revenues while the fees for advertising
services ranged from .8% to 3.5%. Effective January 1, 1996, the royalty fee to
be paid by BMLP increased by 2% of room revenues. For MOHA, the payment is a
flat fee ranging from $6 per month in 1994 to $12 per month in 1998; in 1999 and
thereafter, the fee at MOHA will be at 6% of gross room revenues. The franchise
agreements expire at various dates through 2014.
During 1992, CHJV amended and extended its franchise agreement. Under the
terms of the amended agreement, no fee was due during 1992; franchise fees
commenced in August 1993 at a reduced percentage of room revenues, increasing
gradually through 1997.
In January 1994, MOHA executed an amended franchise agreement. The amended
agreement provided for the forgiveness of $600 of unpaid fees accrued under the
original franchise agreement through December 31, 1993. Such amount is reflected
as a reduction of franchisor royalties and other charges for 1994.
The franchise agreements contain provisions whereby the franchisor would be
entitled to additional payments in the event the franchisees would terminate the
franchise agreements prior to maturity.
F-39
<PAGE> 148
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Other
As a result of the proposed initial public offering discussed in Note 1 and
the resulting prepayment of the mortgage notes payable, prepayment penalties of
approximately $3,340 will be due upon closing. See Note 3 for a discussion of
additional interest payment requirements with respect to certain of the mortgage
notes.
The land on which the Berkeley Marina Marriott is located is leased under
an operating lease agreement expiring in 2033 which can be extended to 2051. The
lease requires minimum annual rentals of $100, and percentage rentals based on
hotel revenues. BMLP is responsible for all taxes, insurance and maintenance on
the property. Rental expense charged to operations for the land lease were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Minimum rent................................ $100 $100 $100 $ 50 $ 50
Percentage rent............................. 521 550 584 288 318
---- ---- ---- ---- ----
$621 $650 $684 $338 $368
==== ==== ==== ==== ====
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995 and June 30, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash Equivalents
Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
Long-Term Debt
Management estimates that the fair values of mortgage and other long-term
debt approximate carrying values based upon the hotels' effective borrowing rate
for issuance of debt with similar terms and remaining maturities.
F-40
<PAGE> 149
INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
AMOUNTS AT
WHICH
COSTS CAPITALIZED CARRIED AT
SUBSEQUENT TO ACQUISITION(D) CLOSE OF
INITIAL COST PERIOD
----------------------------- ----------------------------- ------------
BUILDINGS BUILDINGS
AND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Berkeley Marina Marriott,
Berkeley, California
(BMLP).................... $ 29,292 $ -- $ 5,013 $ -- $ 14,720 $ --
Buffalo Marriott,
Buffalo, New York........... 13,173 733 13,016 -- 1,149 733
Cleveland Airport Marriott,
Cleveland, Ohio (POP)....... 19,459 1,175 9,340 -- 8,038 1,175
Cleveland Marriott East,
Beachwood, Ohio............. 28,500 836 4,561 -- 6,465 836
Columbus North Marriott,
Columbus, Ohio.............. 13,697 828 11,829 -- 1,190 828
Melbourne Quality Suites,
Melbourne, Florida (MOHA)... 13,131 761 7,475 2,331 2,555 3,092
Radisson Inn Sanibel Gateway,
Ft. Myers, Florida (FMHP)... 4,951 718 4,023 -- (3) 718
------------ ------ ------------ ------ ------------ ------
Total......................... $122,203 $ 5,051 $ 55,257 $ 2,331 $ 34,114 $ 7,382
============= ====== ============ ====== ============ ======
<CAPTION>
ACCUMULATED
DEPRECIATION NET BOOK
BUILDINGS VALUE
BUILDINGS AND BUILDINGS
AND TOTAL IMPROVEMENTS AND DATE OF DATE OF
DESCRIPTION IMPROVEMENTS (A)(C) (B) IMPROVEMENTS CONSTRUCTION ACQUISITION
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Berkeley Marina Marriott,
Berkeley, California
(BMLP).................... $ 19,733 19,733 $ 9,088 $ 10,645 1972 N/A
Buffalo Marriott,
Buffalo, New York........... 14,165 14,898 7,095 7,070 1981 N/A
Cleveland Airport Marriott,
Cleveland, Ohio (POP)....... 17,378 18,553 5,263 12,115 1970 N/A
Cleveland Marriott East,
Beachwood, Ohio............. 11,026 11,862 8,041 2,985 1977 N/A
Columbus North Marriott,
Columbus, Ohio.............. 13,019 13,847 6,437 6,582 1981 N/A
Melbourne Quality Suites,
Melbourne, Florida (MOHA)... 10,030 13,122 2,459 7,571 1986 N/A
Radisson Inn Sanibel Gateway,
Ft. Myers, Florida (FMHP)... 4,020 4,738 1,419 2,601 1986 N/A
------------ ------------ ------------ ------------
Total......................... $ 89,371 96,753 $ 39,802 $ 49,569
============ ======= ============ ============
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN INCOME
STATEMENT IS
DESCRIPTION COMPUTED
- ------------------------------ --------------
<S> <C>
Berkeley Marina Marriott,
Berkeley, California
(BMLP).................... 7-30 years
Buffalo Marriott,
Buffalo, New York........... 10-30 years
Cleveland Airport Marriott,
Cleveland, Ohio (POP)....... 7-30 years
Cleveland Marriott East,
Beachwood, Ohio............. 10-40 years
Columbus North Marriott,
Columbus, Ohio.............. 7-30 years
Melbourne Quality Suites,
Melbourne, Florida (MOHA)... 7-30 years
Radisson Inn Sanibel Gateway,
Ft. Myers, Florida (FMHP)... 7-30 years
Total.........................
</TABLE>
F-41
<PAGE> 150
(a) Reconciliation of land, buildings and improvements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............... $84,816 $84,983 $86,330
Additions--improvements...................... 167 1,419 1,099
Retirements.................................. -- (72) (906)
Adjustments of basis resulting from partner
redemptions (see (d) below)................ -- -- 10,230
------- ------- -------
Balance at end of period..................... $84,983 $86,330 $96,753
======= ======= =======
</TABLE>
(b) Reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............... $30,871 $33,803 $36,728
Depreciation expense......................... 2,932 2,992 3,333
Retirements.................................. -- (67) (259)
------- ------- -------
Balance at end of period..................... $33,803 $36,728 $39,802
======= ======= =======
</TABLE>
(c) Aggregate cost for federal income tax reporting purposes at December
31, 1995 is as follows:
<TABLE>
<S> <C>
Land......................................... $ 8,309
Buildings and improvements................... 93,443
--------
$101,752
========
</TABLE>
(d) Includes the effect of purchase accounting adjustments recorded in 1995
in connection with the redemptions of certain partners of BMLP, POP, FMHP and
MOHA discussed in Note 7 to the combined financial statements. Such adjustments
were as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
BUILDINGS AND
IMPROVEMENTS
-------------------
<S> <C>
BMLP......................................... $ 2,866
POP.......................................... 5,977
FMHP......................................... (433)
MOHA......................................... 1,820
----------
$10,230
==================
</TABLE>
F-42
<PAGE> 151
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO BOYKIN LODGING COMPANY:
We have audited the accompanying combined balance sheets of the Lake Norman
Hotels (as defined in Note 1 to the financial statements) as of December 31,
1994 and 1995, and the related combined statements of operations, partners'
equity and cash flows for each of the three years in the period ended December
31, 1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Lake Norman
Hotels as of December 31, 1994 and 1995, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
April 5, 1996.
F-43
<PAGE> 152
LAKE NORMAN HOTELS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------ ------ -----------
<S> <C> <C> <C>
ASSETS
INVESTMENTS IN HOTEL PROPERTIES, at cost:
Land........................................................ $ 788 $ 788 $ 1,190
Buildings and improvements.................................. 6,178 6,190 7,088
Furniture and equipment..................................... 2,279 2,578 1,351
------ ------ -----------
9,245 9,556 9,629
Less- Accumulated depreciation.............................. 3,357 3,817 191
------ ------ -----------
Net investments in hotel properties......................... 5,888 5,739 9,438
CASH AND CASH EQUIVALENTS..................................... 397 343 359
ACCOUNTS RECEIVABLE........................................... 90 82 216
DEFERRED EXPENSES, net........................................ 67 57 404
PREPAIDS AND OTHER ASSETS..................................... 10 8 48
------ ------ -----------
$6,452 $6,229 $10,465
====== ====== ===========
LIABILITIES AND PARTNERS' EQUITY
MORTGAGE NOTES PAYABLE........................................ $5,318 $5,057 $ 9,618
ACCOUNTS PAYABLE:
Trade....................................................... 43 30 84
Management fees............................................. 7 7 83
ACCRUED EXPENSES AND OTHER LIABILITIES........................ 190 197 224
COMMITMENTS AND CONTINGENCIES.................................
------ ------ -----------
5,558 5,291 10,009
PARTNERS' EQUITY.............................................. 894 938 456
------ ------ -----------
$6,452 $6,229 $10,465
====== ====== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-44
<PAGE> 153
LAKE NORMAN HOTELS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
-------------------------------------------------------------
1996
------------------------- PRO FORMA
SIX JANUARY 1, FEBRUARY SIX MONTHS ENDED
MONTHS TO 8,
DECEMBER 31, ENDED FEBRUARY TO JUNE 30,
---------------------------- JUNE 30, 7, JUNE 30, -----------------
1993 1994 1995 1995 1996 1996 1995 1996
------ ------ ------ --------- ---------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HOTEL REVENUES:
Room revenue........... $2,764 $3,200 $3,764 $ 1,767 $ 339 $1,727 $1,767 $2,066
Food and beverage
revenue............. 300 -- -- -- -- 223 -- 223
Other revenue.......... 149 153 124 78 15 73 78 88
------ ------ ------ --------- ---------- ---------- ------ ------
Total revenues...... 3,213 3,353 3,888 1,845 354 2,023 1,845 2,377
------ ------ ------ --------- ---------- ---------- ------ ------
EXPENSES:
Departmental expenses--
Rooms............... 676 831 1,025 495 91 398 495 489
Food and beverage... 346 -- -- -- -- 220 -- 220
Other............... 63 63 78 45 9 40 45 49
General and
administrative...... 332 311 368 200 48 186 200 234
Advertising and
promotion........... 176 193 194 77 15 64 77 79
Utilities.............. 193 206 207 98 21 78 98 99
Management fees........ 84 98 115 54 10 121 111 143
Franchisor royalties
and other charges... 193 242 271 127 19 124 127 143
Repairs and
maintenance......... 165 160 182 91 18 104 91 122
Real estate and
personal property
taxes, insurance and
rent................ 129 96 106 55 10 42 55 52
Interest expense....... 289 326 415 217 37 582 759 759
Depreciation and
amortization........ 576 523 466 289 57 212 289 289
Other.................. (3) (8) (3) -- -- 2 -- 2
------ ------ ------ --------- ---------- ---------- ------ ------
Total expenses...... 3,219 3,041 3,424 1,748 335 2,173 2,347 2,680
------ ------ ------ --------- ---------- ---------- ------ ------
NET INCOME (LOSS)........ $ (6) $ 312 $ 464 $ 97 $ 19 $ (150) $ (502) $ (303)
====== ====== ====== ========= ========== ========== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-45
<PAGE> 154
LAKE NORMAN HOTELS
COMBINED STATEMENTS OF PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
COMBINED
PARTNERS'
EQUITY
--------
<S> <C>
BALANCE, DECEMBER 31, 1992................................... $ 988
Net loss................................................... (6)
--------
BALANCE, DECEMBER 31, 1993................................... 982
Net income................................................. 312
Cash distributions......................................... (400)
--------
BALANCE, DECEMBER 31, 1994................................... 894
Net income................................................. 464
Cash distributions......................................... (420)
--------
BALANCE, DECEMBER 31, 1995................................... 938
Net income, January 1, to February 7, 1996 (unaudited)..... 19
--------
BALANCE, FEBRUARY 7, 1996 (unaudited)........................ $ 957
=========
- -------------------------------------------------------------------------
BALANCE FEBRUARY 7, 1996 (unaudited)......................... $ -
Capital contributions (unaudited).......................... 606
Net loss, February 8, to June 30, 1996 (unaudited)......... (150)
--------
BALANCE, JUNE 30, 1996 (unaudited)........................... $ 456
=========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-46
<PAGE> 155
LAKE NORMAN HOTELS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------------------------
SIX
MONTHS JANUARY 1, FEBRUARY 8,
DECEMBER 31, ENDED TO TO
------------------------- JUNE 30, FEBRUARY 7, JUNE 30,
1993 1994 1995 1995 1996 1996
----- ----- ----- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (6) $ 312 $ 464 $ 97 $ 19 $ (150)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities --
Depreciation and amortization expense... 583 529 472 292 60 361
Payments for franchise fees and other
deferred costs........................ -- -- -- -- -- (155)
Changes in assets and liabilities --
Accounts receivable................... (32) (14) 8 (38) 58 (216)
Inventories, prepaids and other
assets............................. 14 6 -- 2 (2) (48)
Accounts payable, accrued expenses and
other liabilities.................. (82) (29) (6) 9 (177) 391
----- ----- ----- --------- ----------- -----------
Net cash provided by (used for)
operating activities........... 477 804 938 362 (42) 183
----- ----- ----- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets of Lake Norman
Hotels................................ -- -- -- -- -- (9,719)
Improvements and additions to hotel
properties, net....................... (30) (129) (311) (247) (25) (26)
----- ----- ----- --------- ----------- -----------
Net cash used for investing
activities....................... (30) (129) (311) (247) (25) (9,745)
----- ----- ----- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings...... -- -- -- -- -- 9,500
Principal payments on mortgage notes
payable............................... (265) (277) (261) (125) (38) (14)
Capital contributions................... -- -- -- -- -- 606
Distributions paid...................... -- (400) (420) (315) -- --
Payments for deferred financing costs... -- -- -- -- -- (171)
----- ----- ----- --------- ----------- -----------
Net cash provided by (used for)
financing activities............. (265) (677) (681) (440) (38) 9,921
----- ----- ----- --------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..... $ 182 $ (2) $ (54) $(325) $(105) $ 359
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................... 217 399 397 397 343 --
----- ----- ----- --------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $ 399 $ 397 $ 343 $ 72 $ 238 $ 359
====== ====== ====== ========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid........................... $ 283 $ 337 $ 415 $ 214 $ 67 $ 436
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-47
<PAGE> 156
LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1995 AND 1996
AND FOR THE PERIODS THEN ENDED ARE UNAUDITED)
1. BASIS OF PRESENTATION:
Organization
The Lake Norman Hotels consist of the following hotels:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTY NAME OWNER LOCATION ROOMS
- ------------- --------------------- ------------------------ ---------
<S> <C> <C> <C>
Holiday Inn Norman Associates Charlotte, North Carolina 119
Hampton Inn Norman Associates II Charlotte, North Carolina 117
</TABLE>
Belmont Land and Investment Company, DMC Properties, Inc. and CLT
Development Corp. each hold a one-third interest in both Norman Associates and
Norman Associates II.
In February 1996, B.B.G., I, L.L.C. (BBG), owned 46% by certain
shareholders of The Boykin Company and 54% by a third party, acquired the Lake
Norman Hotels for $9,721 from Norman Associates and Norman Associates II.
Basis of Presentation
Boykin Lodging Company is a recently organized Ohio corporation which has
been established to acquire equity interests in existing hotel properties and to
consider selectively the development of new hotels. Boykin Lodging Company will
use the proceeds from a proposed initial public offering to acquire the general
partnership interest, representing an 84.1% equity interest, in Boykin Hotel
Properties, L.P., an Ohio limited partnership (the Partnership). It is proposed
that the shareholders of BBG will contribute their interests in the Lake Norman
Hotels to the Partnership in exchange for partnership interests. The Partnership
will use a portion of the proceeds from the sale of the general partnership
interest to Boykin Lodging Company to retire mortgage indebtedness encumbering
the Lake Norman Hotels.
The accompanying combined financial statements are prepared on the accrual
basis of accounting and include the accounts of the Lake Norman Hotels using
their historical cost basis. All significant intercompany balances and
transactions have been eliminated.
Management believes that these combined financial statements result in a
more meaningful presentation of the Lake Norman Hotel businesses to be acquired
by the Partnership and thus appropriately reflect the historical financial
position and results of operations.
Interim Unaudited Financial Information
The combined financial statements for the six months ended June 30, 1995
and the periods January 1, to February 7, 1996 (period prior to acquisition by
BBG) and February 8, to June 30, 1996 (period after acquisition by BBG) are
unaudited. In the opinion of management, all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the combined
financial statements for these interim periods have been included. The results
of interim periods are not necessarily indicative of the results to be obtained
for a full year.
The unaudited pro forma data for the six-month periods ended June 30, 1995
and 1996 reflect pro forma operating results assuming that BBG had acquired the
Lake Norman Hotels as of the beginning of the respective accounting periods. The
primary pro forma adjustments to historical operating results are (i) to
increase interest expense to reflect the terms of the acquisition debt; (ii) to
increase depreciation expense for the effect of the purchase accounting writeup
of the investments in hotel properties; and (iii) to increase management fee
expense to 6% of hotel revenues as discussed in Note 5.
F-48
<PAGE> 157
LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Periods
For annual reporting purposes, the Lake Norman Hotels have been included in
the accompanying combined financial statements based on a December 31 year-end.
Investments in Hotel Properties
Hotel properties are stated at cost. Depreciation is computed using
accelerated and straight-line methods based upon the following estimated useful
lives:
Buildings and improvements 10-39 years
Furniture and equipment 5-7 years
For the year ended December 31, 1995, the Lake Norman Hotels adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, the partners and management of the Lake Norman Hotels review the
hotel properties for impairment when events or changes in circumstances indicate
the carrying amount of the hotel properties may not be recoverable. When such
conditions exist, management estimates the future cash flows from operations and
disposition of the hotel properties. If the estimated undiscounted future cash
flows are less than the carrying amount of the asset, an adjustment to the
related estimated fair market value would be recorded and an impairment loss
would be recognized. No such impairment losses have been recognized.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in the determination of net income.
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.
Deferred Expenses
Deferred expenses consist primarily of deferred loan costs, which are
amortized over the terms of the related loan agreements and deferred franchise
fees which are amortized over the terms of the related franchise agreements. The
amortization of deferred loan costs of $7, $7 and $7 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $3, $1 and $14 for the
six-month period ended June 30, 1995, the period January 1, to February 7, 1996
and the period February 8, to June 30, 1996, respectively, has been included in
interest expense in the accompanying combined statements of operations.
Accumulated amortization of deferred expenses was $59, $69 and $39 at December
31, 1994 and 1995, and June 30, 1996, respectively.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible. Such losses have
been within management's expectations.
Income Taxes
The Lake Norman Hotels are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners must
take income or loss of the Lake Norman Hotels into consideration when filing
their respective tax returns.
F-49
<PAGE> 158
LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Management's Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITION BY BBG:
On February 8, 1996, BBG acquired certain assets of the Lake Norman Hotels
from Norman Associates and Norman Associates II in exchange for aggregate cash
consideration of $9,721. The purchase price allocation was as follows:
<TABLE>
<S> <C>
Land............................................. $1,190
Buildings and improvements....................... 7,088
Furniture and equipment.......................... 1,327
Other assets..................................... 116
------
$9,721
======
</TABLE>
BBG funded the purchase price with mortgage debt borrowings of $9,500 and
contributed capital. Norman Associates and Norman Associates II used a portion
of the sales proceeds to retire the mortgage notes encumbering the properties.
BBG also acquired certain food and beverage assets from the operator of those
facilities and canceled the lease (see Note 6).
4. MORTGAGE NOTES PAYABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
First mortgage note payable in monthly installments of
principal and interest of $77; interest is at 2.75% above
the prime rate, with a floor of 11.5% and a ceiling of 17%;
matures February 2001, at which time the remaining
principal is due; secured by the real and personal property
of the Lake Norman Hotels. See (a) below................... $ -- $ -- $ 7,791
Second mortgage note payable in monthly installments of
principal and interest of $23; interest is at 4.5% above
the prime rate, with a floor of 13.25% and a ceiling of
17%; matures February 2001, at which time the remaining
principal is due; secured by a second mortgage interest in
the real and personal property of the Lake Norman Hotels.
See (a) below.............................................. -- -- 1,695
Accrued fees on the above notes. See (b) below............... -- -- 132
Mortgage note payable to a bank in monthly installments of
principal of $16 plus accrued interest; matures in May 1996
at which time the remaining principal and accrued interest
are due. The interest rate is adjustable and was 7.6% and
7.4% at December 31, 1994 and 1995, respectively. The note
is collateralized by certain real and personal property
having a net book value of $2,789 at December 31, 1995 and
is guaranteed by the partners of Norman Associates......... 2,742 2,552 --
</TABLE>
F-50
<PAGE> 159
LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Mortgage note payable to a bank in monthly installments of
principal and interest at the rate of .25% over the bank's
prime rate or 1.75% over the 30, 60 or 90 day LIBOR rate,
with a floor of 5% and a ceiling of 11.25% through December
31, 1996 and 12.25% through December 31, 1997. The interest
rate at December 31, 1995 was 7.7%. The fixed monthly
payment of principal and interest is adjusted and updated
semi-annually for interest rate changes. The unpaid
principal and interest is due in full December 31, 1997.
The note is collateralized by certain real and personal
property having a net book value of $2,950 at December 31,
1995 and is guaranteed by the partners of Norman Associates
II......................................................... 2,576 2,505 --
------ ------ ---------
$5,318 $5,057 $ 9,618
====== ====== ========
</TABLE>
- ---------------
(a) $600 of the first mortgage note and the full amount of the second mortgage
note are guaranteed on a joint and several basis by the shareholders of BBG.
(b) The payment of commitment fees and other financing fees is required upon
maturity or repayment in full of the notes. The aggregate amount of the fees
to be paid increases from $337 if repayment occurs within the first loan
year to $910 if the notes are retired at the maturity date. Management
estimates that the additional interest to be paid will be $337 if the
proposed initial public offering discussed in Note 1 is completed. The
additional interest is being charged to interest expense over a one-year
period due to the anticipated retirement of the notes within one year. For
the period ended June 30, 1996, $132 of additional interest was provided.
Aggregate scheduled annual principal payments for the above notes as of March
31, 1996, excluding the additional interest discussed in (b), are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------------------- ------
<S> <C>
1996................................. $ 59
1997................................. 98
1998................................. 112
1999................................. 127
2000................................. 144
2001................................. 8,946
------
$9,486
======
</TABLE>
5. COMMITMENTS:
Franchise Agreements
Under the terms of hotel franchise agreements expiring in 2007 and 2010
with respect to the Holiday Inn and Hampton Inn, respectively, annual payments
for franchise royalties and reservation and advertising services are due from
the Lake Norman Hotels. Franchisor royalties and marketing contributions are
computed based upon percentages (ranging from 5.5% to 7%) of gross room revenue.
The franchise agreements contain provisions whereby the franchisors would
be entitled to additional payments in the event the franchisees would terminate
the franchise agreement prior to maturity.
F-51
<PAGE> 160
LAKE NORMAN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Management Agreements
Prior to February 8, 1996, the Lake Norman Hotels were operated under
management agreements which provided for a management fee of 3% of gross
revenues in exchange for management services. Effective February 8, 1996, Boykin
Management Company (BMC) assumed management responsibilities for the Lake Norman
Hotels. The management agreements with BMC require the payment of a management
fee equal to 5% of hotel revenues. The management agreements with BMC expire
December 31, 1999. BBG also pays a 1% asset management fee to an affiliate of
the third-party owner.
Other
As a result of the proposed initial public offering discussed in Note 1 and
the resulting prepayment of the Lake Norman Hotels' mortgage notes payable,
prepayment penalties of approximately $234 will be due upon closing. See Note 4
for a discussion of commitment fees and other financing fee payment requirements
with respect to the mortgage notes payable.
6. HOLIDAY INN RESTAURANT:
Consistent with the franchise agreement, the Holiday Inn must maintain a
restaurant on the premises. In August 1993, the hotel ceased operation of the
restaurant, lounge and meeting/catering facilities and entered into a lease with
a third party to continue to maintain the food and beverage operation. The
five-year lease provided for a base rent of $5 per month plus a percentage rent
based on the gross revenues of the restaurant. In August 1994, the hotel waived
the base rent and in May 1995 the percentage rent was also waived. In February
1996, the lease was terminated in connection with the sale of the hotel to BBG.
BBG also acquired the assets and business of the operator at the same time of
its purchase of the hotel. See Note 3 for discussion of the sale. Rental income
of $49, $43 and $6 in 1993, 1994 and 1995, respectively, is included in other
revenue in the accompanying combined statements of operations.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995 and June 30, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash Equivalents
Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
Long-Term Debt
Management estimates that the fair value of mortgage debt approximates
carrying value based upon the Lake Norman Hotels' effective borrowing rate for
issuance of debt with similar terms and remaining maturities.
F-52
<PAGE> 161
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Boykin Management Company, Purchasing Concepts, Inc.
and Bopa Design Company:
We have audited the accompanying combined statements of net assets of
Boykin Management Company (an Ohio corporation), Purchasing Concepts, Inc. (an
Ohio corporation) and Bopa Design Company (an Ohio corporation) as of March 31,
1995 and 1996 and the related combined statements of revenues and expenses for
each of the three years in the period ended March 31, 1996. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared to present the
combined net assets of Boykin Management Company, Purchasing Concepts, Inc. and
Bopa Design Company which are to be merged into or contributed to subsidiaries
of Boykin Management Company, Ltd. pursuant to the formation transactions
referred to in Note 2 and the related combined revenues and expenses of such
businesses. These combined financial statements are not intended to be a
complete presentation of the combined assets, liabilities, revenues and expenses
of Boykin Management Company, Purchasing Concepts, Inc. and Bopa Design Company.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined net assets of Boykin Management Company,
Purchasing Concepts, Inc. and Bopa Design Company as of March 31, 1995 and 1996,
to be merged into or contributed to subsidiaries of Boykin Management Company,
Ltd. pursuant to the formation transactions referred to in Note 2, and the
revenues and expenses related to such net assets for each of the three years in
the period ended March 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
April 30, 1996.
F-53
<PAGE> 162
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
COMBINED STATEMENTS OF NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
---------------- JUNE 30,
1995 1996 1996
------ ------ -----------
<S> <C> <C> <C>
(UNAUDITED)
CASH AND CASH EQUIVALENTS..................................... $ 828 $2,322 $ 2,605
MANAGEMENT FEES AND OTHER RECEIVABLES DUE FROM:
Affiliates.................................................. 3,759 3,997 4,082
Other....................................................... 159 386 1,400
DESIGN COSTS IN EXCESS OF BILLINGS............................ 994 -- --
PROPERTY AND EQUIPMENT, net................................... 243 324 334
PREPAID EXPENSES, DEPOSITS AND OTHER ASSETS................... 12 124 149
------ ------ -----------
Total assets........................................ 5,995 7,153 8,570
------ ------ -----------
ACCOUNTS PAYABLE:
Affiliates.................................................. 182 92 229
Other....................................................... 233 373 170
ADVANCE BILLINGS FOR DESIGN SERVICES.......................... 1,490 161 296
ACCRUED PAYROLL............................................... 179 179 216
OTHER ACCRUED EXPENSES........................................ 222 484 1,145
NOTES PAYABLE................................................. 1,845 1,570 1,495
COMMITMENTS AND CONTINGENCIES.................................
------ ------ -----------
Total liabilities................................... 4,151 2,859 3,551
------ ------ -----------
NET ASSETS.................................................... $1,844 $4,294 $ 5,019
====== ====== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-54
<PAGE> 163
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
COMBINED STATEMENTS OF REVENUES AND EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------------- ----------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Management fees--
Affiliates................................... $2,877 $3,231 $3,817 $1,647 $1,935
Other........................................ 468 359 337 159 427
Design and other fees--
Affiliates................................... 1,769 1,612 2,819 1,711 1,300
Other........................................ 965 1,611 1,212 639 727
Interest income--
Affiliates................................... 253 243 268 118 153
Other........................................ 10 48 109 39 59
Other........................................... -- 157 175 76 77
------ ------ ------ ------ ------
Total revenues.......................... 6,342 7,261 8,737 4,389 4,678
------ ------ ------ ------ ------
EXPENSES:
Cost of sales and operating expenses............ 2,893 2,821 3,720 2,025 1,894
Selling, general and administrative expenses.... 2,276 2,502 2,733 1,330 1,586
Depreciation and amortization expense........... 76 78 85 40 40
Rent............................................ 115 119 105 58 62
Interest........................................ 166 181 170 91 62
Expenses associated with attempted public
offering..................................... -- 1,335 -- -- --
Other, net...................................... 17 8 -- 13 2
------ ------ ------ ------ ------
Total expenses.......................... 5,543 7,044 6,813 3,557 3,646
------ ------ ------ ------ ------
REVENUES IN EXCESS OF EXPENSES.................... $ 799 $ 217 $1,924 $ 832 $1,032
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-55
<PAGE> 164
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(AMOUNTS AND DISCLOSURES FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1995 AND 1996 ARE UNAUDITED)
1. DESCRIPTION OF BUSINESSES:
Boykin Management Company (BMC), a wholly owned subsidiary of The Boykin
Company (TBC), and certain of its subsidiaries manage and operate full and
limited service hotels located throughout the United States pursuant to
management agreements. See Note 4 for further discussion of the management
agreements. Purchasing Concepts, Inc. (PCI), related to TBC through common
ownership, provides national purchasing services to hotels and restaurants. Bopa
Design Company (doing business as Spectrum Services), a wholly owned subsidiary
of TBC since January 1, 1996, provides interior design services to hotels and
other businesses. Certain of the hotels managed by BMC and served by PCI and
Spectrum Services are related to BMC, PCI and Spectrum Services through common
ownership.
2. BASIS OF PRESENTATION:
Pursuant to certain currently contemplated formation transactions, BMC and
Spectrum Services will merge into subsidiaries of Boykin Management Company
Limited Liability Company (BMCL), a newly formed Ohio Limited Liability Company.
Prior to such mergers, BMC and Spectrum Services will transfer certain assets
and liabilities to TBC pursuant to an Assignment and Assumption Agreement. In
addition, PCI will contribute its assets to a subsidiary of BMCL and that
subsidiary will assume PCI's liabilities.
BMCL and its subsidiaries will act as the successors to the businesses of
BMC, PCI and Spectrum Services and as the lessee of certain hotels affiliated
with TBC which are to be acquired by Boykin Hotel Properties, L.P., a
partnership in which Boykin Lodging Company, will be the general partner.
The accompanying financial statements present on a historical combined
basis the net assets of BMC, PCI and Spectrum Services to be merged into or
contributed to BMCL and its subsidiaries and the related revenues and expenses
of such businesses. Assets, liabilities, revenues and expenses of BMC, PCI and
Spectrum Services which are not to be merged into or contributed to BMCL and its
subsidiaries have been excluded from the accompanying financial statements.
Accordingly, the accompanying financial statements are not intended to be a
complete presentation of the combined assets, liabilities, revenues and expenses
of BMC, PCI and Spectrum Services (collectively, the Combined Entities).
BMC has a March 31 fiscal year-end, whereas PCI and Spectrum Services
utilize calendar year-ends. The accompanying audited financial statements
combine the accounts of BMC as of March 31, 1995 and 1996 and for each of the
three years in the period ended March 31, 1996 with the accounts of PCI and
Spectrum Services as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, respectively. Such combined periods
are referred to as the years ended March 31, 1994, 1995 and 1996. The
accompanying unaudited financial statements combine the accounts of BMC, PCI and
Spectrum Services as of June 30, 1996 and for the six-month interim periods
ended June 30, 1995 and 1996.
As BMCL, BMC, PCI and Spectrum Services are related through common
ownership there will be no purchase accounting adjustments to the historical
carrying values of the assets and liabilities of BMC, PCI and Spectrum Services
upon merger into or contribution to the subsidiaries of BMCL.
3. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared on the accrual
basis of accounting. All significant intercompany balances and transactions have
been eliminated.
F-56
<PAGE> 165
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less when purchased are considered to be cash equivalents.
Income Taxes
Income tax attributes of the Combined Entities are not being assumed by
BMCL or its subsidiaries. As such, the accompanying combined statements of net
assets include no accrued or deferred income tax liabilities nor any future tax
benefits. The accompanying combined statements of revenues and expenses do not
reflect any federal income tax provisions as BMCL and its subsidiaries will be
formed as passthrough entities for tax purposes.
The taxable income of BMC is included in the consolidated federal income
tax return of its parent company, TBC. PCI and Spectrum Services are S
Corporations for federal income tax reporting purposes.
Property and Equipment, Net
Property and equipment, net is comprised of the following:
<TABLE>
<CAPTION>
AT MARCH 31,
------------ JUNE 30,
1995 1996 1996
---- ---- --------
<S> <C> <C> <C>
Leasehold improvements..................................... $124 $124 $128
Furniture and equipment.................................... 487 607 639
---- ---- --------
611 731 767
Less--Accumulated depreciation and amortization............ (368) (407) (433)
---- ---- --------
$243 $324 $334
==== ==== =======
</TABLE>
Property and equipment are stated at cost. Depreciation is computed using
the straight-line and declining balance methods based upon the following
estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements....................... 7-10 years
Furniture and equipment...................... 3-10 years
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts and the gain or loss is included in the statement of revenues and
expenses.
Management's Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. REVENUES:
BMC has management agreements with several entities to manage the
operations of hotels and restaurants. Generally, BMC receives a fee based upon
percentages of revenues. In certain management contracts, BMC is entitled to
additional incentive fees in the event the managed property achieves specified
operating results. Certain contracts also include limitations on management
fees, or restrict payment of earned
F-57
<PAGE> 166
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
fees to BMC based upon the defined cash flow of the related property. PCI
provides national purchasing services to hotels and restaurants and Spectrum
Services provides interior design services to hotels and other businesses.
Revenue is recognized as earned pursuant to the terms of hotel management
agreements with respect to BMC, and as the services of PCI and Spectrum Services
are rendered. Ongoing credit evaluations are performed and an allowance for
potential credit losses is provided against the portion of accounts receivable
which is estimated to be uncollectible. Such losses have been within
management's expectations.
Revenues from affiliates in the accompanying combined statements of
revenues and expenses represent revenues earned by the Combined Entities on
goods or services provided to various hotel properties in which the respective
owners of the Combined Entities or their affiliates have direct or indirect
ownership interests.
Other revenues consist of the following for the periods presented:
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED MARCH ENDED
31, JUNE 30,
------------------- ----------
1994 1995 1996 1995 1996
--- ---- ---- --- ---
<S> <C> <C> <C> <C> <C>
Telephone commissions....................................... $-- $153 $123 $76 $64
Development fees............................................ -- -- 36 -- 5
Consulting fees............................................. -- -- 16 -- 8
Miscellaneous............................................... -- 4 -- -- --
--- ---- ---- --- ---
$-- $157 $175 $76 $77
=== ==== ==== === ===
</TABLE>
None of the above items resulted from related party transactions.
5. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
SIX
MONTHS
MARCH 31, ENDED
---------------- JUNE 30,
1995 1996 1996
------ ------ --------
<S> <C> <C> <C>
Installment note payable to a bank in quarterly installments of
$75, plus interest at prime plus 1/2%; last installment due
September 1, 1999; guaranteed by TBC and certain TBC
shareholders..................................................... $ -- $ 925 $ 850
$1,000,000 line of credit with a bank, due on demand; bearing
interest at prime; guaranteed by TBC and certain TBC
shareholders..................................................... -- 645 645
Term notes payable to a bank due January 1996 bearing interest at
prime
plus 1%.......................................................... 1,845 -- --
------ ------ --------
$1,845 $1,570 $1,495
====== ====== =======
</TABLE>
Aggregate scheduled annual principal payments for the above notes payable
at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
- --------------------------------------------- ------
<S> <C>
1997......................................... $ 870
1998......................................... 300
1999......................................... 300
2000......................................... 100
------
$1,570
=======
</TABLE>
F-58
<PAGE> 167
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
6. COMMITMENTS AND CONTINGENCIES:
BMC is a guarantor of the mortgage debt (only in the event certain
specified limited events occur) of the following entities:
<TABLE>
<CAPTION>
DEBT OUTSTANDING
MARCH 31,
BORROWER 1996
----------------------------------------------------------------- ----------------
<S> <C>
Melbourne Oceanfront Hotel Associates............................ $ 13,000
Fort Myers Hotel Partnership..................................... 4,900
Berkeley Marina Associates Limited Partnership................... 29,000
Pacific Ohio Partners............................................ 19,350
</TABLE>
In October 1992, BMC entered into a five-year lease agreement for office
space. The lease provides for two, three-year renewal options. The annual rent
is $126. As an incentive to enter into the lease, BMC received a $70 payment
from the lessor which is being recognized as a reduction of rent expense on a
straight-line basis over the five-year lease term.
The Combined Entities are involved in claims and legal matters incidental
to their businesses. In the opinion of management of the Combined Entities, the
ultimate resolution of these matters will not have a material impact on the
financial position or the results of operations of the Combined Entities.
7. RELATED PARTY TRANSACTIONS:
Management fees and other receivables due from affiliates are comprised of
the following at March 31, 1995 and 1996:
<TABLE>
<CAPTION>
MARCH 31, JUNE
---------------- 30,
1995 1996 1996
------ ------ ------
<S> <C> <C> <C>
Management fees receivable.......................................... $ 409 $ 797 $ 908
Design fees receivable.............................................. 12 65 157
Loans and interest receivable from Boykin Columbus Joint Venture.... 2,670 2,941 3,017
Loans receivable from shareholders.................................. 340 -- --
Loan guarantee fee receivable....................................... 171 -- --
Other (reimbursable expenses, etc.)................................. 157 194 --
------ ------ ------
$3,759 $3,997 $4,082
====== ====== ======
</TABLE>
In general, the above amounts are due from partnerships or joint ventures
in which certain owners and officers of PCI, Spectrum Services or TBC, have
ownership interests. These partnerships or joint ventures own hotel properties
which are managed by BMC.
The shareholders of TBC, certain of their family members and certain
officers of BMC are material partners in Boykin Columbus Joint Venture. BMC
advanced funds to Boykin Columbus Joint Venture in connection with the
construction of a Marriott hotel in Columbus, Ohio and to fund operating
deficits of that hotel. The loans receivable from Boykin Columbus Joint Venture
bear interest at 10% per annum. Interest income earned on the loans to Boykin
Columbus Joint Venture was $220, $230 and $260 in 1994, 1995 and 1996,
respectively, and $115 and $134 for each of the six month periods ended June 30,
1995 and 1996, respectively.
F-59
<PAGE> 168
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
BMC guaranteed the mortgage debt of Fort Myers Hotel Partnership until such
debt was refinanced in May 1995. Included in interest income from affiliates for
both 1994 and 1995 was $33 of fee revenue related to the guarantee. No guarantee
fee was earned in 1996.
Included in other receivables at June 30, 1996 is $875 of costs incurred to
date by BMC in connection with the initial public offering of the stock of
Boykin Lodging Company. Upon completion of the offering, BMC will be reimbursed
for such costs incurred from the offering proceeds received by Boykin Lodging
Company.
Accounts payable to affiliates are comprised of property insurance retro
premium adjustments and telephone commissions received by BMC and payable to the
various affiliated hotels at the respective statement dates.
Advance billings for design services are related primarily to billings to
affiliates.
Included in other accrued expenses at June 30, 1996 is $700 of costs
accrued in connection with the Boykin Lodging Company initial public offering
discussed above.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
March 31, 1996 and June 30, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodology may have a material
effect on the estimated fair value amounts.
Cash Equivalents
Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
Loans and Interest Receivable
Management estimates that the fair value of the loans and interest
receivable from Boykin Columbus Joint Venture (BCJV) approximates carrying value
based upon the discounted expected cash flows at an interest rate commensurate
with the creditworthiness of BCJV.
Notes Payable
Management estimates that the fair values of notes payable approximate
carrying values based upon BMC's effective borrowing rate for issuance of debt
with similar terms and remaining maturities.
F-60
<PAGE> 169
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the Offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
---------------------------
SUMMARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 18
The Company........................... 29
Lessees............................... 34
Use of Proceeds....................... 36
Distribution Policy................... 37
Capitalization........................ 39
Dilution.............................. 40
Selected Financial Information........ 41
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 47
Business and Properties............... 53
Policies and Objectives with Respect
to Certain Activities............... 67
The Formation......................... 69
Management............................ 71
Certain Transactions.................. 77
Principal Shareholders of the
Company............................. 78
Capital Stock of the Company.......... 79
The Partnership....................... 81
Shares Available for Future Sale...... 83
Federal Income Tax Considerations..... 83
ERISA Considerations.................. 96
Underwriting.......................... 98
Experts............................... 99
Legal Matters......................... 99
Additional Information................ 100
Glossary.............................. 101
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
7,875,000 COMMON SHARES
[LOGO]
BOYKIN LODGING
COMPANY
COMMON SHARES
---------------------------
PROSPECTUS
, 1996
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
EVEREN SECURITIES, INC.
MCDONALD & COMPANY
SECURITIES, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 170
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities offered hereby. Except for the SEC
registration fee, the NASD filing fee and the NYSE listing fee, all amounts are
estimates.
<TABLE>
<S> <C>
SEC registration fee..................................................... $ 68,697
NASD filing fee.......................................................... 20,424
NYSE listing fee......................................................... 98,600
Accounting fees and expenses............................................. 685,000
*Legal fees and expenses.................................................
*Blue Sky fees and expenses (including counsel fees).....................
*Printing and engraving expenses.........................................
*Transfer agent's and registrar's fees and expenses......................
*Miscellaneous expenses..................................................
--------
Total.................................................................... $
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 31. SALES TO SPECIAL PARTIES
On March 15, 1996, following the incorporation and in connection with the
organization of the Registrant, one of the Registrant's Common Shares was issued
to Raymond P. Heitland for $100.00 in cash. This transaction was effected in
reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the "Act").
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
On March 15, 1996, following the incorporation and in connection with the
organization of the Registrant, one of the Registrant's Common Shares was issued
to Raymond P. Heitland for $100.00 in cash. This transaction was effected in
reliance on the exemption from registration afforded by Section 4(2) of the Act.
The Partnership entered into binding contracts on May 22, 1996 (136,364
Units), May 24, 1996 (9,682 Units), June 17, 1996 (127,379 Units) and June 18,
1996 (1,216,575 Units) to issue a total of 1,490,000 Units to 20 general
partners of the Contributed Partnerships at the closing of the Offering. These
transactions were effected pursuant to Section 4(2) of the Act.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ohio Revised Code (the "Code") authorizes Ohio corporations to
indemnify officers and directors from liability if the officer or director acted
in good faith and in a manner reasonably believed by the officer or director to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal actions, if the officer or director had no reason to believe his
action was unlawful. In the case of an action by or on behalf of a corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation.
II-1
<PAGE> 171
The indemnification authorized under Ohio law is not exclusive and is in
addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.
The Registrant's Code of Regulations provides for the indemnification of
directors and officers of the Registrant to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Registrant, for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director of the Registrant upon the receipt of an undertaking to repay
such amount unless it is ultimately determined that the director is entitled to
indemnification.
The Registrant is seeking to obtain an insurance policy which will insure
the officers and directors of the Registrant from any claim arising out of an
alleged wrongful act by such persons in their respective capacities as officers
and directors of the Registrant.
Reference is made to Section of the Underwriting Agreement, a copy of
which is filed herewith as Exhibit 1, for information concerning indemnification
arrangements among the Registrant and the Underwriters.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
See page F-1 of the Prospectus for a list of the financial statements
included as part of the Prospectus.
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated Code of Regulations of the Company
*4.1 Specimen Share Certificate
5.1 Form of opinion of Baker & Hostetler regarding the legality of the Common Shares
being registered
8.1 Form of opinion of Baker & Hostetler regarding certain Federal income tax matters
*10.1 Limited Partnership Agreement of the Partnership
10.2 Form of Registration Rights Agreement
10.3 1996 Long Term Incentive Plan
10.4 Directors' Deferred Compensation Plan
*10.5 Employment Agreement between the Company and Robert W. Boykin
*10.6 Employment Agreement between the Company and Raymond P. Heitland
*10.7 Employment Agreement between the Company and Mark L. Bishop.
10.8 Form of Percentage Lease Agreement
*10.9 Intercompany Convertible Note
</TABLE>
II-2
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
*10.10 Agreements with General Partners of the Contributed Partnerships
10.11 Form of Noncompetition Agreement
*10.12 Alignment of Interests Agreement
23.1 Consents of Arthur Andersen LLP (included at page II-5)
23.2 Consents of Baker & Hostetler (included in their opinions to be filed as Exhibit 5.1
and 8.1)
23.3 Director Consents
*24.1 Power of Attorney
</TABLE>
- ---------------
* To be filed by amendment
ITEM 36. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 173
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON THE 14th
DAY OF AUGUST, 1996.
BOYKIN LODGING COMPANY
By: /s/ ROBERT W. BOYKIN
------------------------------------
Robert W. Boykin,
Chairman, President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON
THE DAY OF AUGUST, 1996 IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
/s/ ROBERT W. BOYKIN Chairman, President, Chief Executive August 14, 1996
- ------------------------------------- Officer and Director (Principal
Robert W. BOYKIN Executive Officer)
Boykin
/s/ RAYMOND P. HEITLAND Chief Financial Officer and Director August 14, 1996
- ------------------------------------- (Principal Financial and Accounting
Raymond P. Heitland Officer)
</TABLE>
II-4
<PAGE> 174
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement (Registration Statement File No. 333-6341).
ARTHUR ANDERSEN LLP
August 13, 1996,
Cleveland, Ohio.
II-5
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BOYKIN LODGING COMPANY
FIRST: The name of the corporation shall be Boykin Lodging Company (the
"Corporation").
SECOND: The place in the State of Ohio where the principal office of
the Corporation is located is Cleveland, Cuyahoga County.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code.
FOURTH: The authorized number of shares of the Corporation is
30,000,000, consisting of 25,000,000 Common Shares, without par value
(hereinafter called "Common Shares"), 3,000,000 Class A Cumulative Preferred
Shares, without par value (hereinafter called "Cumulative Preferred Shares"),
and 2,000,000 Class A Noncumulative Preferred Shares, without par value
(hereinafter called "Noncumulative Preferred Shares").
DIVISION A: PREFERRED SHARES
I. THE CLASS A CUMULATIVE PREFERRED SHARES. The Cumulative Preferred
Shares shall have the following express terms:
Section 1. SERIES. The Cumulative Preferred Shares may be
issued from time to time in one or more series. All Cumulative Preferred Shares
shall be of equal rank and shall be identical, except in respect of the matters
that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series,
except as to the dates from which dividends shall accrue and be cumulative. All
Cumulative Preferred Shares shall rank on a parity with the Noncumulative
Preferred Shares and shall be identical to all Noncumulative Preferred Shares
except (1) in respect of the matters that may be fixed by the Board of Directors
as provided in clauses (a) through (i), inclusive, of this Section 1 and (2)
only dividends on Cumulative Preferred Shares shall be cumulative as set forth
herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
of Items III and IV of this Division, which provisions shall apply to all
Cumulative Preferred Shares, the Board of Directors hereby is authorized to
cause such shares to be issued in one or more series and with respect to each
such series to determine and fix prior to the issuance thereof (and thereafter,
to the extent provided in clause (b) of this Section) the following:
(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series, which
number the Board of Directors may (except when otherwise provided in the
creation of the series) increase or decrease from time to time before or after
the issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including the
means by which such rates may be established;
(d) The date or dates from which dividends shall accrue and be
cumulative and the dates on which and the period or periods for which dividends,
if declared, shall be payable, including the means by which such dates and
periods may be established;
(e) The redemption rights and price or prices, if any, for
shares of the series;
<PAGE> 2
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth elsewhere in
these Amended and Restated Articles of Incorporation) on the issuance of shares
of the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time amendments to
the Amended and Restated Articles of Incorporation, as amended, fixing, with
respect to each such series, the matters described in clauses (a) through (i),
both inclusive, of this Section and is authorized to take such actions with
respect thereto as may be required by law in order to effect such amendments.
Section 2. DIVIDENDS.
(a) The holders of Cumulative Preferred Shares of each series,
in preference to the holders of Common Shares and of any other class of shares
ranking junior to the Cumulative Preferred Shares, shall be entitled to receive
out of any funds legally available therefor, when and as declared by the Board
of Directors, dividends in cash at the rate or rates for such series fixed in
accordance with the provisions of Section 1 above and no more, payable on the
dates fixed for such series. Such dividends shall accrue and be cumulative, in
the case of shares of each particular series, from and after the date or dates
fixed with respect to such series. Any dividend payment made on the Cumulative
Preferred Shares shall first be credited against the earliest accrued but unpaid
dividends on such Cumulative Preferred Shares. No dividends shall be paid upon
or declared or set apart for any series of the Cumulative Preferred Shares for
any dividend period unless at the same time (i) a like proportionate dividend
for the dividend periods terminating on the same or any earlier date, ratably in
proportion to the respective annual dividend rates fixed therefor, shall have
been paid upon or declared or set apart for all Cumulative Preferred Shares of
all series then issued and outstanding and entitled to receive such dividend and
(ii) the dividends payable for the dividend periods terminating on the same or
any earlier date (but only with respect to the then current dividend period),
ratably in proportion to the respective dividend rates fixed therefor, shall
have been paid upon or declared or set apart for all Noncumulative Preferred
Shares then issued and outstanding and entitled to receive such dividends.
(b) So long as any Cumulative Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common Shares or other
shares ranking junior to the Cumulative Preferred Shares, shall be paid or
declared or any distribution be made, except as aforesaid, in respect of the
Common Shares or any other shares ranking junior to the Cumulative Preferred
Shares, nor shall any Common Shares or any other shares ranking junior to the
Cumulative Preferred Shares be purchased, retired or otherwise acquired by the
Corporation, except out of the proceeds of the sale of Common Shares or other
shares of the Corporation ranking junior to the Cumulative Preferred Shares
received by the Corporation subsequent to the date of first issuance of
Cumulative Preferred Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative
Preferred Shares, including the full dividends for all current dividend periods,
shall have been declared and paid or a sum sufficient for payment thereof set
apart;
(2) All unpaid dividends on Noncumulative Preferred
Shares for the then current dividend period shall have been declared and paid or
a sum sufficient for payment therefor set apart; and
-2-
<PAGE> 3
(3) There shall be no arrearages with respect to the
redemption of Cumulative Preferred Shares or Noncumulative Preferred Shares of
any series from any sinking fund provided for shares of such series in
accordance with Section 1 of this Division A.I or Section 1 of Division A.II.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption, retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Cumulative Preferred Shares shall be inapplicable to (i) any
payments in lieu of issuance of fractional shares thereof, whether upon any
merger, conversion, stock dividend or otherwise, (ii) the conversion of
Cumulative Preferred Shares or Noncumulative Preferred Shares into Common
Shares, and (iii) the exercise by the Corporation of its rights pursuant to
Division C or any similar provision hereafter contained in these Amended and
Restated Articles of Incorporation with respect to any other class or series of
shares hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Internal
Revenue Code), any portion (the "Capital Gains Amount") of the dividends paid or
made available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to holders of the Cumulative Preferred Shares shall be the amount that
the total dividends paid or made available to the holders of the Cumulative
Preferred Shares for the year bears to the Total Dividends.
Section 3. REDEMPTION.
(a) Subject to the express terms of each series of Cumulative
Preferred Shares, the Corporation:
(1) May, from time to time at the option of the Board
of Directors, redeem all or any part of any redeemable series of Cumulative
Preferred Shares at the time outstanding at the applicable redemption price for
such series fixed in accordance with Section 1 of this Division A.I.; and
(2) Shall, from time to time, make such redemptions
of each series of Cumulative Preferred Shares as may be required to fulfill the
requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with Section 1 of
this Division A.I.;
and shall in each case pay all accrued and unpaid dividends to the redemption
date.
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of the Cumulative Preferred Shares to
be redeemed at their respective addresses then appearing on the books of the
Corporation, not less than 30 days nor more than 60 days prior to the date fixed
for such redemption, or such other time prior thereto as the Board of Directors
shall fix for any series pursuant to Section 1 of this Division prior to the
issuance thereof. At any time after notice as provided above has been deposited
in the mail, the Corporation may deposit the aggregate redemption price of
Cumulative Preferred Shares to be redeemed, together with accrued and unpaid
dividends thereon to the redemption date, with any bank or trust company in
Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000, named in such notice and direct that there be paid to the
respective holders of the Cumulative Preferred Shares so to be redeemed amounts
equal to the redemption price of the Cumulative Preferred Shares so to be
redeemed, together with such accrued and unpaid dividends thereon, on surrender
of the share certificate or certificates held by such holders; and upon the
deposit of such notice in the mail and the making of such deposit of money with
such bank or trust company, such holders shall cease to be shareholders with
respect to such shares; and from and after the time such notice shall have been
so deposited and such deposit of money shall have been so made, such holders
shall have no rights or claim against the Corporation with respect to such
shares, except only the right to receive such money from such bank or trust
company without interest or to exercise before the redemption date any unexpired
privilege of conversion. If less than all of the outstanding Cumulative
Preferred Shares are to be redeemed, the Corporation shall select by lot the
shares so to be redeemed in such manner as shall be prescribed by the Board of
Directors.
-3-
<PAGE> 4
(2) If the holders of Cumulative Preferred Shares
which have been called for redemption shall not within six years after such
deposit claim the amount deposited for the redemption thereof, any such bank or
trust company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company and the Corporation shall be
relieved of all responsibility in respect thereof and to such holders.
(c) Any Cumulative Preferred Shares which are (1) redeemed by
the Corporation pursuant to this Section, (2) purchased and delivered in
satisfaction of any sinking fund requirement provided for shares of such series,
(3) converted in accordance with the express terms thereof, or (4) otherwise
acquired by the Corporation, shall resume the status of authorized but unissued
Cumulative Preferred Shares without serial designation.
(d) Except in connection with the exercise of the
Corporation's rights pursuant to Division C or any similar provisions hereafter
contained in these Amended and Restated Articles of Incorporation, the
Corporation may not purchase or redeem (for sinking fund purposes or otherwise)
less than all of the Cumulative Preferred Shares then outstanding except in
accordance with a purchase offer made to all holders of record of Cumulative
Preferred Shares, unless all dividends on all Cumulative Preferred Shares then
outstanding for all previous and current dividend periods shall have been
declared and paid or funds therefor set apart and all accrued sinking fund
obligations applicable thereto shall have been complied with.
Section 4. LIQUIDATION.
(a) (1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Cumulative Preferred Shares of any series shall be entitled to
receive in full out of the assets of the Corporation, including its capital,
before any amount shall be paid or distributed among the holders of the Common
Shares or any other shares ranking junior to the Cumulative Preferred Shares,
the amounts fixed with respect to shares of such series in accordance with
Section 1 of this Division A.I., plus an amount equal to all dividends accrued
and unpaid thereon to the date of payment of the amount due pursuant to such
liquidation, dissolution or winding up of the affairs of the Corporation. If the
net assets of the Corporation legally available therefor are insufficient to
permit the payment upon all outstanding Cumulative Preferred Shares and
Noncumulative Preferred Shares of the full preferential amount to which they are
respectively entitled, then such net assets shall be distributed ratably upon
all outstanding Cumulative Preferred Shares and Noncumulative Preferred Shares
in proportion to the full preferential amount to which each such share is
entitled.
(2) After payment to the holders of Cumulative
Preferred Shares of the full preferential amounts as aforesaid, the holders of
Cumulative Preferred Shares, as such, shall have no right or claim to any of the
remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or
with any other Corporation, the merger of any other Corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for purposes of this Section.
Section 5. VOTING.
(a) The holders of Cumulative Preferred Shares shall have no
voting rights, except as provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in
default in the payment of dividends on any series of Cumulative Preferred Shares
at the time outstanding, whether or not earned or declared, for a number of
dividend payment periods (whether or not consecutive) which in the aggregate
contain at least 540 days, the holders of all series of Cumulative Preferred
Shares, voting separately as a class, shall be entitled to elect, as herein
provided, two members of the Board of Directors of the Corporation; but the
holders of the Cumulative Preferred Shares shall not exercise such special class
voting rights except at meetings of such
-4-
<PAGE> 5
shareholders for the election of directors at which the holders of not less than
50% of the Cumulative Preferred Shares are present in person or by proxy; and
the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on the Cumulative Preferred Shares then outstanding shall have been
paid or declared and a sum sufficient for the payment thereof set aside for
payment, whereupon the holders of the Cumulative Preferred Shares shall be
divested of their special class voting rights in respect of subsequent elections
of directors, subject to the revesting of such special class voting rights in
the event above specified in this paragraph.
(2) On a dividend payment default entitling holders
of Cumulative Preferred Shares to elect two directors as specified in paragraph
(1) of this Subsection, a special meeting of such holders for the purpose of
electing such directors shall be called by the Secretary of the Corporation upon
written request of, or may be called by, the holders of record of at least 10%
of the Cumulative Preferred Shares with respect to which such default exists and
notice thereof shall be given in the same manner as that required for the annual
meeting of shareholders; but the Corporation shall not be required to call such
special meeting if the annual meeting of shareholders shall be called to be held
within 90 days after the date of receipt of the foregoing written request from
the holders of Cumulative Preferred Shares. At any meeting at which the holders
of Cumulative Preferred Shares shall be entitled to elect directors, holders of
50% of the Cumulative Preferred Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of
such shares so present at any such meeting at which there shall be such a quorum
shall be sufficient to elect the members of the Board of Directors which the
holders of Cumulative Preferred Shares are entitled to elect as herein provided.
Notwithstanding any provision of these Articles of Incorporation or the Code of
Regulations of the Corporation or any action taken by the holders of any class
of shares fixing the number of directors of the Corporation, the two directors
who may be elected by the holders of Cumulative Preferred Shares pursuant to
this Subsection shall serve in addition to any other directors then in office or
proposed to be elected otherwise than pursuant to this Subsection. Nothing in
this Subsection shall prevent any change otherwise permitted in the total number
of or classifications of directors of the Corporation nor require the
resignation of any director elected otherwise than pursuant to this Subsection.
Notwithstanding any classification of the other directors of the Corporation,
the two directors elected by the holders of Cumulative Preferred Shares shall be
elected annually for terms expiring at the next succeeding annual meeting of
shareholders.
(3) Upon any divesting of the special class voting
rights of the holders of the Cumulative Preferred Shares in respect of elections
of directors as provided in this Subsection, the terms of office of all
directors then in office elected by such holders shall terminate immediately
thereupon. If the office of any director elected by such holders voting as a
class becomes vacant by reason of death, resignation, removal from office or
otherwise, the remaining director elected by such holders voting as a class may
elect a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred.
(c) The affirmative vote of the holders of at least two-thirds
of the Cumulative Preferred Shares at the time outstanding, voting separately as
a class, given in person or by proxy either in writing or at a meeting called
for the purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of Cumulative Preferred Shares which are set forth
in these Amended and Restated Articles of Incorporation; but neither an
amendment of these Amended and Restated Articles of Incorporation so as to
authorize, create or change the authorized or outstanding number of Cumulative
Preferred Shares or of any shares ranking on a parity with or junior to the
Cumulative Preferred Shares nor an amendment of the Code of Regulations so as to
change the number or classification of directors of the Corporation shall be
deemed to affect adversely and materially preferences or voting or other rights
of the holders of Cumulative Preferred Shares; or
(2) The authorization, creation or increase in the
authorized number of any shares, or of any security convertible into shares, in
either case ranking prior to such Cumulative Preferred Shares.
-5-
<PAGE> 6
(d) If, and only to the extent, that (1) Cumulative Preferred
Shares are issued in more than one series and (2) Ohio law permits the holders
of a series of a class of shares to vote separately as a class, the affirmative
vote of the holders of at least two-thirds of each series of Cumulative
Preferred Shares at the time outstanding, voting separately as a class, given in
person or by proxy either in writing or at a meeting called for the purpose of
voting on such matters, shall be required for any amendment, alteration or
repeal, whether by merger, consolidation or otherwise, of any of the provisions
of these Amended and Restated Articles of Incorporation or of the Code of
Regulations of the Corporation which affects adversely and materially the
preferences or voting or other rights of the holders of such series which are
set forth in these Amended and Restated Articles of Incorporation; but neither
an amendment of these Amended and Restated Articles of Incorporation, so as to
authorize, create or change the authorized or outstanding number of Cumulative
Preferred Shares or of any shares ranking on a parity with or junior to the
Cumulative Preferred Shares nor an amendment of the Code of Regulations so as to
change the number or classification of directors of the Corporation, shall be
deemed to affect adversely and materially the preferences or voting or other
rights of the holders of such series.
II. THE CLASS A NONCUMULATIVE PREFERRED SHARES. The Noncumulative
Preferred Shares shall have the following express terms:
Section 1. SERIES. The Noncumulative Preferred Shares may be
issued from time to time in one or more series. All Noncumulative Preferred
Shares shall be of equal rank and shall be identical, except in respect of the
matters that may be fixed by the Board of Directors as hereinafter provided, and
each share of a series shall be identical with all other shares of such series,
except as to the dates on which and the periods for which dividends may be
payable. All Noncumulative Preferred Shares shall rank on a parity with the
Cumulative Preferred Shares and shall be identical to all Cumulative Preferred
Shares except (1) in respect of the matters that may be fixed by the Board of
Directors as provided in clauses (a) through (i), inclusive, of this Section 1
and (2) only dividends on the Cumulative Preferred Shares are cumulative as set
forth in Division A.I. herein. Subject to the provisions of Sections 2 through
5, both inclusive, and of Items III and IV of this Division, which provisions
shall apply to all Noncumulative Preferred Shares, the Board of Directors hereby
is authorized to cause such shares to be issued in one or more series and with
respect to each such series to determine and fix prior to the issuance thereof
(and thereafter, to the extent provided in clause (b) of this Section) the
following:
(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series, which
number the Board of Directors may (except when otherwise provided in the
creation of the series) increase or decrease from time to time before or after
the issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including the
means by which such rates may be established;
(d) The dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which such
dates and periods may be established;
(e) The redemption rights and price or prices, if any, for
shares of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
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(i) Restrictions (in addition to those set forth elsewhere in
these Amended and Restated Articles of Incorporation) on the issuance of shares
of the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time amendments to
the Amended and Restated Articles of Incorporation, as amended, fixing, with
respect to each such series, the matters described in clauses (a) through (i),
both inclusive, of this Section and is authorized to take such actions with
respect thereto as may be required by law in order to effect such amendments.
Section 2. DIVIDENDS.
(a) The holders of Noncumulative Preferred Shares of each
series, in preference to the holders of Common Shares and of any other class of
shares ranking junior to the Noncumulative Preferred Shares, shall be entitled
to receive out of any funds legally available therefor, if, when and as declared
by the Board of Directors, dividends in cash at the rate or rates for such
series fixed in accordance with the provisions of Section 1 above and no more,
payable on the dates fixed for such series. Such dividends shall accrue, in the
case of shares of each particular series, from and after the date or dates fixed
with respect to such series; provided, however, that if the Board of Directors
fails to declare a dividend payable on a dividend payment date on any
Noncumulative Preferred Shares, the holders of the Noncumulative Preferred
Shares shall have no right to receive a dividend in respect of the dividend
period ending on such dividend payment date, and the Corporation shall have no
obligation to pay the dividend accrued for such period, whether or not dividends
on such Noncumulative Preferred Shares are declared payable on any future
dividend payment date. Any dividend payment made on the Noncumulative Preferred
Shares shall first be credited against the earliest declared but unpaid dividend
on such Noncumulative Preferred Shares. No dividends shall be paid upon or
declared or set apart for any series of the Noncumulative Preferred Shares for
any dividend period unless at the same time (i) a like proportionate dividend
for the then current dividend period, ratably in proportion to the respective
annual dividend rates fixed therefor, shall have been paid upon or declared or
set apart for all Noncumulative Preferred Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date, ratably in
proportion to the respective dividend rates fixed therefor, shall have been paid
upon or declared and set apart for all Cumulative Preferred Shares then issued
and outstanding and entitled to receive such dividends.
(b) So long as any Noncumulative Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common Shares or other
shares ranking junior to the Noncumulative Preferred Shares, shall be paid or
declared or any distribution be made, except as aforesaid, in respect of the
Common Shares or any other shares ranking junior to the Noncumulative Preferred
Shares, nor shall any Common Shares or any other shares ranking junior to the
Noncumulative Preferred Shares be purchased, retired or otherwise acquired by
the Corporation, except out of the proceeds of the sale of Common Shares or
other shares of the Corporation ranking junior to the Noncumulative Preferred
Shares received by the Corporation subsequent to the date of first issuance of
Noncumulative Preferred Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative
Preferred Shares, including the full dividends for all current dividend periods,
shall have been declared and paid or a sum sufficient for payment thereof set
apart;
(2) All unpaid dividends on Noncumulative Preferred
Shares for the then current dividend period shall have been declared and paid or
a sum sufficient for payment therefor set apart; and
(3) There shall be no arrearages with respect to the
redemption of Cumulative Preferred Shares or Noncumulative Preferred Shares of
any series from any sinking fund provided for shares of such series in
accordance with the provisions of Section 1 of this Division A.II or Section 1
of Division A.I.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption, retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Noncumulative Preferred Shares shall be inapplicable to (i) any
payments in lieu of issuance
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of fractional shares thereof, whether upon any merger, conversion, stock
dividend or otherwise, (ii) the conversion of Cumulative Preferred Shares or
Noncumulative Preferred Shares into Common Shares, and (iii) the exercise by the
Corporation of its rights pursuant to Division C or any similar provisions
hereafter contained in these Amended and Restated Articles of Incorporation with
respect to any other class or series of shares hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Internal
Revenue Code), any portion (the "Capital Gains Amount") of the dividends paid or
made available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to holders of the Noncumulative Preferred Shares shall be the amount
that the total dividends paid or made available to the holders of the
Noncumulative Preferred Shares for the year bears to the Total Dividends.
Section 3. REDEMPTION.
(a) Subject to the express terms of each series, the
Corporation:
(1) May, from time to time at the option of the Board
of Directors, redeem all or any part of any redeemable series of Noncumulative
Preferred Shares at the time outstanding at the applicable redemption price for
such series fixed in accordance with Section 1 of this Division A.II.; and
(2) Shall, from time to time, make such redemptions
of each series of Noncumulative Preferred Shares as may be required to fulfill
the requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with Section 1 of
this Division A.II.;
and shall in each case pay all unpaid dividends for the then current dividend
period to the redemption date.
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of the Noncumulative Preferred Shares
to be redeemed at their respective addresses then appearing on the books of the
Corporation, not less than 30 days nor more than 60 days prior to the date fixed
for such redemption, or such other time prior thereto as the Board of Directors
shall fix for any series pursuant to Section 1 of this Division prior to the
issuance thereof. At any time after notice as provided above has been deposited
in the mail, the Corporation may deposit the aggregate redemption price of
Noncumulative Preferred Shares to be redeemed, together with unpaid dividends
thereon for the then current dividend period to the redemption date, with any
bank or trust company in Cleveland, Ohio, or New York, New York, having capital
and surplus of not less than $100,000,000, named in such notice and direct that
there be paid to the respective holders of the Noncumulative Preferred Shares so
to be redeemed amounts equal to the redemption price of the Noncumulative
Preferred Shares so to be redeemed together with such accrued and unpaid
dividends thereon for the then current dividend period, on surrender of the
share certificate or certificates held by such holders; and upon the deposit of
such notice in the mail and the making of such deposit of money with such bank
or trust company, such holders shall cease to be shareholders with respect to
such shares; and from and after the time such notice shall have been so
deposited and such deposit of money shall have been so made, such holders shall
have no rights or claim against the Corporation with respect to such shares,
except only the right to receive such money from such bank or trust company
without interest or to exercise before the redemption date any unexpired
privilege of conversion. If less than all of the outstanding Noncumulative
Preferred Shares are to be redeemed, the Corporation shall select by lot the
shares so to be redeemed in such manner as shall be prescribed by the Board of
Directors.
(2) If the holders of Noncumulative Preferred Shares
which have been called for redemption shall not within six years after such
deposit claim the amount deposited for the redemption thereof, any such bank or
trust company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company and the Corporation shall be
relieved of all responsibility in respect thereof and to such holders.
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(c) Any Noncumulative Preferred Shares which are (1) redeemed
by the Corporation pursuant to this Section, (2) purchased and delivered in
satisfaction of any sinking fund requirement provided for shares of such series,
(3) converted in accordance with the express terms thereof, or (4) otherwise
acquired by the Corporation, shall resume the status of authorized but unissued
Noncumulative Preferred Shares without serial designation.
(d) Except in connection with the exercise of the
Corporation's rights pursuant to Division C or any similar provisions hereafter
contained in these Amended and Restated Articles of Incorporation, the
Corporation may not purchase or redeem (for sinking fund purposes or otherwise)
less than all of the Noncumulative Preferred Shares then outstanding except in
accordance with a purchase offer made to all holders of record of Noncumulative
Preferred Shares, unless all unpaid dividends on all Noncumulative Preferred
Shares then outstanding shall have been paid or funds therefor set apart and all
accrued sinking fund obligations applicable thereto shall have been complied
with.
Section 4. LIQUIDATION.
(a) (1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Noncumulative Preferred Shares of any series shall be entitled to
receive in full out of the assets of the Corporation, including its capital,
before any amount shall be paid or distributed among the holders of the Common
Shares or any other shares ranking junior to the Noncumulative Preferred Shares,
the amounts fixed with respect to shares of such series in accordance with
Section 1 of this Division A.II., plus an amount equal to all dividends declared
and unpaid thereon. If the net assets of the Corporation legally available
therefor are insufficient to permit the payment upon all outstanding Cumulative
Preferred Shares and Noncumulative Preferred Shares of the full preferential
amount to which they are respectively entitled, then such net assets shall be
distributed ratably upon all outstanding Cumulative Preferred Shares and
Noncumulative Preferred Shares in proportion to the full preferential amount to
which each such share is entitled.
(2) After payment to the holders of Noncumulative
Preferred Shares of the full preferential amounts as aforesaid, the holders of
Noncumulative Preferred Shares, as such, shall have no right or claim to any of
the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or
with any other Corporation, the merger of any other Corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for purposes of this Section.
Section 5. VOTING.
(a) The holders of Noncumulative Preferred Shares shall have
no voting rights, except as provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall not have
fully paid, or shall not have declared and set aside a sum sufficient for the
payment of, dividends on any series of Noncumulative Preferred Shares at the
time outstanding, for a number of dividend payment periods (whether or not
consecutive) which in the aggregate contain at least 540 days, the holders of
all series of such Noncumulative Preferred Shares, voting separately as a class,
shall be entitled to elect, as herein provided, two members of the Board of
Directors of the Corporation; but the holders of the Noncumulative Preferred
Shares shall not exercise such special class voting rights except at meetings of
such shareholders for the election of directors at which the holders of not less
than 50% of the Noncumulative Preferred Shares are present in person or by
proxy; and the special class voting rights provided for in this paragraph when
the same shall have become vested shall remain so vested until the Corporation
shall have fully paid, or shall have set aside a sum sufficient for the payment
of, dividends on such Noncumulative Preferred Shares then outstanding for a
number of consecutive dividend payment periods which in the aggregate contain at
least 360 days, whereupon the holders of the Noncumulative Preferred Shares
shall be
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divested of their special class voting rights in respect of subsequent elections
of directors, subject to the revesting of such special class voting rights in
the event above specified in this paragraph.
(2) On an event entitling holders of Noncumulative
Preferred Shares to elect two directors as specified in paragraph (1) of this
Subsection, a special meeting of such holders for the purpose of electing such
directors shall be called by the Secretary of the Corporation upon written
request of, or may be called by, the holders of record of at least 10% of the
Noncumulative Preferred Shares of the affected series and notice thereof shall
be given in the same manner as that required for the annual meeting of
shareholders; but the Corporation shall not be required to call such special
meeting if the annual meeting of shareholders shall be called to be held within
90 days after the date of receipt of the foregoing written request from the
holders of Noncumulative Preferred Shares. At any meeting at which the holders
of Noncumulative Preferred Shares shall be entitled to elect directors, holders
of 50% of the Noncumulative Preferred Shares, present in person or by proxy,
shall be sufficient to constitute a quorum, and the vote of the holders of a
majority of such shares so present at any such meeting at which there shall be
such a quorum shall be sufficient to elect the members of the Board of Directors
which the holders of Noncumulative Preferred Shares are entitled to elect as
herein provided. Notwithstanding any provision of these Amended and Restated
Articles of Incorporation or the Code of Regulations of the Corporation or any
action taken by the holders of any class of shares fixing the number of
directors of the Corporation, the two directors who may be elected by the
holders of Noncumulative Preferred Shares pursuant to this Subsection shall
serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation nor require the resignation of
any director elected otherwise than pursuant to this Subsection. Notwithstanding
any classification of the other directors of the Corporation, the two directors
elected by the holders of Noncumulative Preferred Shares shall be elected
annually for terms expiring at the next succeeding annual meeting of
shareholders.
(3) Upon any divesting of the special class voting
rights of the holders of the Noncumulative Preferred Shares in respect of
elections of directors as provided in this Subsection, the terms of office of
all directors then in office elected by such holders shall terminate immediately
thereupon. If the office of any director elected by such holders voting as a
class becomes vacant by reason of death, resignation, removal from office or
otherwise, the remaining director elected by such holders voting as a class may
elect a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred.
(c) The affirmative vote of the holders of at least two-thirds
of the Noncumulative Preferred Shares at the time outstanding, voting separately
as a class, given in person or by proxy either in writing or at a meeting called
for the purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of Noncumulative Preferred Shares which are set
forth in these Amended and Restated Articles of Incorporation; but neither an
amendment of these Amended and Restated Articles of Incorporation so as to
authorize, create or change the authorized or outstanding number of
Noncumulative Preferred Shares or of any shares ranking on a parity with or
junior to the Noncumulative Preferred Shares nor an amendment of the Code of
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially preferences or
voting or other rights of the holders of Noncumulative Preferred Shares; or
(2) The authorization, creation or increase in the
authorized number of any shares, or any security convertible into shares, in
either case ranking prior to such Noncumulative Preferred Shares.
(d) If, and only to the extent, that (1) Noncumulative
Preferred Shares are issued in more than one series and (2) Ohio law permits the
holders of a series of a class of shares to vote separately as a class, the
affirmative vote of the holders of at least two-thirds of each series of the
Noncumulative Preferred Shares at the time outstanding, voting separately as a
class, given in person or by proxy either in writing or at a meeting called
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for the purpose of voting on such matters, shall be required for any amendment,
alteration or repeal, whether by merger, consolidation or otherwise, of any of
the provisions of these Amended and Restated Articles of Incorporation or of the
Code of Regulations of the Corporation which affects adversely and materially
the preferences or voting or other rights of the holders of such series which
are set forth in these Amended and Restated Articles of Incorporation; but
neither an amendment of these Amended and Restated Articles of Incorporation, so
as to authorize, create or change the authorized or outstanding number of
Noncumulative Preferred Shares or of any shares remaining on a parity with or
junior to the Noncumulative Preferred Shares nor an amendment of the Code of
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially preferences or
voting or other rights of the holders of such series.
III. DEFINITIONS. For the purposes of this Division:
(a) Whenever reference is made to shares "ranking prior to"
Cumulative Preferred Shares or Noncumulative Preferred Shares, such reference
shall mean all shares of the Corporation in respect of which the rights of the
holders thereof as to the payment of dividends or as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation are given preference over the rights of the
holders of Cumulative Preferred Shares or Noncumulative Preferred Shares, as the
case may be;
(b) Whenever reference is made to shares "on a parity with"
Cumulative Preferred Shares or Noncumulative Preferred Shares, such reference
shall mean all shares of the Corporation in respect of which the rights of the
holders thereof as to the payment of dividends or as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation rank equally (except as to the amounts fixed
therefor) with the rights of the holders of Cumulative Preferred Shares or
Noncumulative Preferred Shares, as the case may be; and
(c) Whenever reference is made to shares "ranking junior to"
Cumulative Preferred Shares or Noncumulative Preferred Shares, such reference
shall mean all shares of the Corporation other than those defined under
Subsections (a) and (b) of this Section as shares "ranking prior to" or "on a
parity with" Cumulative Preferred Shares or Noncumulative Preferred Shares, as
the case may be.
IV. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT. The Cumulative
Preferred Shares and the Noncumulative Preferred Shares are subject to the
restrictions on transfer set forth with respect to those shares in Division C of
this Article FOURTH.
DIVISION B: COMMON SHARES
The Common Shares are subject to the express terms of the Cumulative
Preferred Shares and any series thereof and to the express terms of the
Noncumulative Preferred Shares and any series thereof, and have the following
express terms:
Section 1. DIVIDEND RIGHTS. The holders of Common Shares shall
be entitled to receive, when, as and if declared by the Board of Directors of
the Corporation, out of the assets of the Corporation which are by law available
therefor, dividends or distributions payable in cash, in property or in
securities of the Corporation.
Section 2. RIGHTS UPON LIQUIDATION. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each holder of Common Shares
shall be entitled to receive, ratably with each other holder of Common Shares,
that portion of the assets of the Corporation available for distribution to its
holders of Common Shares as the number of Common Shares held by such holder
bears to the total number of Common Shares then outstanding.
Section 3. VOTING RIGHTS. The holders of Common Shares shall
be entitled to vote on all matters presented to the shareholders of the
Corporation (except any matter expressly reserved in these Amended
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and Restated Articles of Incorporation to holders of shares other than Common
Shares), and shall be entitled to one vote for each Common Share entitled to
vote thereon.
Section 4. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT.
The Common Shares are subject to the restrictions on transfer set forth with
respect to those shares in Division C of this Article FOURTH.
DIVISION C: RESTRICTIONS ON TRANSFER OF PREFERRED SHARES
AND COMMON SHARES
I. RESTRICTIONS ON TRANSFER.
Section 1. DEFINITIONS. For purposes of this Division C of
this Article FOURTH, the following terms shall have the following meanings set
forth below:
"Beneficial Ownership" shall mean ownership of Equity Shares
by a Person who would be treated as an owner of such Equity Shares either
directly or indirectly through the application of Section 544 of the Internal
Revenue Code, as modified by Section 856(h)(1)(B) of the Internal Revenue Code.
The terms "Beneficial Owner," "Beneficially Owns," and "Beneficially Owned"
shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or
more organizations described in each of Section 170(b)(1)(A) (other than clause
(vii) or (viii) thereof) and Section 170(c)(2) of the Internal Revenue Code that
are named by the Corporation as the beneficiary or beneficiaries of such Trust,
in accordance with Section (1) of Division C.II. hereof.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Boykin Hotel Properties, L.P. Agreement" shall mean the
Amended and Restated Agreement of Limited Partnership of Boykin Hotel
Properties, L.P., an Ohio limited partnership.
"Constructive Ownership" shall mean ownership of Equity Shares
by a Person who would be treated as an owner of such Equity Shares either
directly or indirectly through the application of Section 318 of the Internal
Revenue Code, as modified by Section 856(d)(5) of the Internal Revenue Code. The
terms "Constructive Owner," "Constructively Owns," and "Constructively Owned"
shall have correlative meanings.
"Equity Shares" shall mean Cumulative Preferred Shares,
Noncumulative Preferred Shares and Common Shares of the Corporation. The term
"Equity Shares" shall include all Cumulative Preferred Shares, Noncumulative
Preferred Shares and Common Shares of the Corporation that are held as
Shares-in-Trust in accordance with this Division C of this Article FOURTH.
"Initial Public Offering" means the sale of Common Shares
pursuant to the Corporation's first effective registration statement for Common
Shares filed under the Securities Act of 1933, as amended.
"Market Price" on any date shall mean the average of the
Closing Price for the five consecutive Trading Days ending on such date. The
"Closing Price" on any date shall mean the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the applicable Equity
Shares are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which
those Equity Shares are listed or admitted to trading or, if those Equity Shares
are not listed or admitted to trading on any national securities exchange, the
last quoted price, or if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if such
system is no longer in use, the principal other automated quotations system that
may then be in use or, if the shares of Equity Shares are not quoted by any such
organization, the
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average of the closing bid and asked prices as furnished by a professional
market maker making a market in those Equity Shares selected by the Board of
Directors.
"Non-Transfer Event" shall mean an event other than a
purported Transfer that would cause any Person to Beneficially Own or
Constructively Own Equity Shares in excess of the Ownership Limit, including,
but not limited to, the issuance, granting of any option or entering into of any
agreement for the sale, transfer or other disposition of Equity Shares or the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Equity Shares.
"Ownership Limit" shall mean 9% of the number of outstanding
shares of any class of Equity Shares.
"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with this Division C.
"Person" shall mean an individual, corporation, partnership,
estate, trust, a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Internal Revenue
Code, association, private foundation within the meaning of Section 509(a) of
the Internal Revenue Code, joint stock company or other entity and also includes
a "group" as that term is used for purposes of Section 12(d)(3) of the
Securities Exchange Act of 1934, as amended.
"Prohibited Owner" shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who, but for this Division C of this
Article FOURTH, would own record title to Equity Shares.
"Redemption Rights" shall mean the rights granted under the
Boykin Hotel Properties, L.P. Agreement to the limited partners to exchange,
under certain circumstances, their limited partnership interests for cash (or,
at the option of the Corporation, for Common Shares).
"Restriction Termination Date" shall mean the first day after
the date of the Initial Public Offering on which the Board of Directors
determines that it is no longer in the best interests of the Corporation to
attempt to, or continue to, qualify as a REIT.
"Shares-in-Trust" shall mean any Equity Shares designated as
Shares-in-Trust pursuant to this Division C.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the applicable Equity Shares are listed or admitted
to trading is open for the transaction of business or, if those Equity Shares
are not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of Equity Shares, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether by
operation of law or otherwise. "Transfer" (as a verb) shall have the correlative
meaning.
"Trust" shall mean any separate trust created pursuant to this
Division C for the exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with
both the Corporation and any Prohibited Owner, such Trustee to be designated by
the Corporation to act as trustee of any Trust, or any successor trustee
thereof.
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Section 2. RESTRICTION ON TRANSFERS AND NON-TRANSFER EVENT.
(a) Except as set forth in Section 7 below and subject to
Section 8 below, from the date of the Initial Public Offering to the Restriction
Termination Date, (i) no Person shall Beneficially Own or Constructively Own
outstanding Equity Shares in excess of the Ownership Limit, but any Transfer or
Non-Transfer Event that, if effective, would result in any Person Beneficially
Owning or Constructively Owning outstanding Equity Shares in excess of the
Ownership Limit shall be void AB INITIO as to the Transfer or Non-Transfer Event
affecting that number of Equity Shares which would be otherwise Beneficially
Owned or Constructively Owned by such Person in excess of the Ownership Limit
and the intended transferee shall acquire no rights in such excess Equity
Shares.
(b) Except as set forth in Section 7 below, from the date of
the Initial Public Offering to the Restriction Termination Date, any Transfer or
Non-Transfer Event that, if effective, would result in any class of Equity
Shares being beneficially owned by fewer than 100 Persons (determined without
reference to any rules of attribution) shall be void AB INITIO as to the
Transfer or Non-Transfer Event affecting that number of shares which would be
otherwise beneficially owned (determined without reference to any rules of
attribution) by the transferee, and the intended transferee shall acquire no
rights in such Equity Shares.
(c) From the date of the Initial Public Offering to the
Restriction Termination Date, any Transfer of or Non-Transfer Event affecting
Equity Shares that, if effective, would result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Internal Revenue Code shall be
void AB INITIO as to the Transfer of or Non-Transfer Event affecting that number
of Equity Shares which would cause the Corporation to be "closely held" within
the meaning of Section 856(h) of the Internal Revenue Code, and the intended
transferee shall acquire no rights in such Equity Shares.
(d) From the date of the Initial Public Offering to the
Restriction Termination Date, any Transfer of or Non-Transfer Event affecting
Equity Shares that, if effective, would cause the Corporation to Constructively
Own 10% or more of the ownership interests in a tenant of the real property of
the Corporation or of any direct or indirect subsidiary of the Corporation (a
"Subsidiary"), within the meaning of Section 856(d)(2)(B) of the Internal
Revenue Code, shall be void AB INITIO as to the Transfer of or Non-Transfer
Event affecting that number of Equity Shares which would cause the Corporation
to Constructively Own 10% or more of the ownership interests in a tenant of the
Corporation's or of a Subsidiary's real property, within the meaning of Section
856(d)(2)(B) of the Internal Revenue Code, and the intended transferee shall
acquire no rights in such excess Equity Shares.
Section 3. TRANSFER TO TRUST.
(a) If, notwithstanding the other provisions contained in this
Division C, at any time after the Initial Public Offering and prior to the
Restriction Termination Date there is a purported Transfer or Non-Transfer Event
such that any Person would either Beneficially Own or Constructively Own Equity
Shares in excess of the Ownership Limit, then, (i) except as set forth in
Section 7 below, the purported transferee shall acquire no right or interest
(or, in the case of a Non-Transfer Event, the Person holding record title to the
Equity Shares Beneficially Owned or Constructively Owned by such Beneficial
Owner or Constructive Owner, shall cease to own any right or interest) in such
number of Equity Shares which would cause such Beneficial Owner or Constructive
Owner to Beneficially Own or Constructively Own Equity Shares in excess of the
Ownership Limit, (ii) such number of Equity Shares in excess of the Ownership
Limit (rounded up to the nearest whole share) shall be designated
Shares-in-Trust and, in accordance with this Division C, transferred
automatically by operation of the terms of this Section IV.C.I.3. to a Trust to
be held in accordance with this Division C, and (iii) the Prohibited Owner shall
submit such number of Equity Shares to the Corporation for registration in the
name of the Trustee. Such transfer to a Trust and the designation of shares as
Shares-in-Trust shall be effective as of the close of business on the business
day prior to the date of the Transfer or Non-Transfer Event, as the case may be.
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<PAGE> 15
(b) If, notwithstanding the other provisions contained in this
Division C, at any time after the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer or Non-Transfer
Event that, if effective, would (i) result in any class of the Equity Shares
being beneficially owned by fewer than 100 Persons (determined without reference
to any rules of attribution), (ii) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Internal Revenue Code, or
(iii) cause the Corporation to Constructively Own 10% or more of the ownership
interests in a tenant of the Corporation's or of a Subsidiary's real property,
within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code, then
(x) the purported transferee shall not acquire any right or interest (or, in the
case of a Non-Transfer Event, the Person holding record title to the Equity
Shares with respect to which such Non-Transfer Event occurred, shall cease to
own any right or interest) in such number of Equity Shares, the ownership of
which by such purported transferee or record holder would (A) result in any
class of Equity Shares being beneficially owned by fewer than 100 Persons
(determined without reference to any rules of attribution), (B) result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Internal Revenue Code, or (C) cause the Corporation to Constructively Own 10% or
more of the ownership interests in a tenant of the Corporation's or of a
Subsidiary's real property, within the meaning of Section 856(d)(2)(B) of the
Internal Revenue Code, (y) such number of Equity Shares (rounded up to the
nearest whole share) shall be designated Shares-in-Trust and, in accordance with
this Division C, transferred automatically by operation of the terms of this
Section IV.C.I.3. to a Trust to be held in accordance with this Division C, and
(z) the Prohibited Owner shall submit such number of Equity Shares to the
Corporation for registration in the name of the Trustee. Such transfer to a
Trust and the designation of shares as Shares-in-Trust shall be effective as of
the close of business on the business day prior to the date of the Transfer or
Non-Transfer Event, as the case may be.
Section 4. REMEDIES FOR BREACH. If the Corporation, or its
designee, shall at any time determine in good faith that a Transfer or
Non-Transfer Event has taken place in violation of this Division C or that a
Person intends to acquire or has attempted to acquire Beneficial Ownership or
Constructive Ownership of any Equity Shares in violation of this Division C, the
Corporation shall take such action as it considers advisable to refuse to give
effect to or to prevent such Transfer or Non-Transfer Event or acquisition,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Corporation or instituting proceedings to enjoin such Transfer or
Non-Transfer Event or acquisition.
Section 5. NOTICE OF RESTRICTED TRANSFER. Any Person who
acquires or attempts to acquire Equity Shares in violation of this Division C,
or any Person who owned Equity Shares that were transferred to a Trust pursuant
to this Division C, shall immediately give written notice to the Corporation of
such event and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such event
on the Corporation's status as a REIT.
Section 6. OWNERS REQUIRED TO PROVIDE INFORMATION. From the
date of the Initial Public Offering to the Restriction Termination Date:
(a) Every Beneficial Owner or Constructive Owner of more than
5%, or such lower percentage as is specified pursuant to regulations issued
under the Internal Revenue Code, of the outstanding shares of any class of
shares of the Corporation shall, within 30 days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the name and
address of such Beneficial Owner or Constructive Owner, the number of Equity
Shares Beneficially Owned or Constructively Owned, and a description of how such
shares are held.
(b) Each Person who is a Beneficial Owner or Constructive
Owner of Equity Shares and each Person (including the shareholder of record) who
is holding Equity Shares for a Beneficial Owner or Constructive Owner shall
provide to the Corporation a written statement or affidavit stating such
information as the Corporation may request in order to determine the
Corporation's status as a REIT and to ensure compliance with the Ownership Limit
as applicable.
Section 7. EXCEPTIONS. The Ownership Limit shall not apply to
the acquisition of Equity Shares by an underwriter that participates in a public
offering of such shares for a period of 90 days following
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<PAGE> 16
the purchase by such underwriter of such shares. In addition, the Board of
Directors, upon receipt of a ruling from the Internal Revenue Service or an
opinion of counsel, in either case to the effect that the Corporation's status
as a REIT would not be jeopardized thereby, may allow a Person to own a certain
amount in excess of the Ownership Limit if (i) the Board of Directors obtains
such representations and undertakings from such Person as are reasonably
necessary to ascertain that no Person's Beneficial Ownership or Constructive
Ownership of Equity Shares could result in the REIT (a) losing its REIT status
for federal income tax purposes, or (b) being "related" to any tenant or lessee
under the REIT rules of the Internal Revenue Code, and (ii) such Person agrees
in writing that any violation or attempted violation that could cause such a
result will cause a transfer to a Trust of Equity Shares pursuant to this
Division C.
Section 8. NEW YORK STOCK EXCHANGE TRANSACTIONS.
Notwithstanding any provision contained herein to the contrary, nothing in these
Amended and Restated Articles of Incorporation shall preclude the settlement of
any transaction entered into through the facilities of the New York Stock
Exchange.
II. SHARES-IN-TRUST.
Section 1. TRUST. Any Equity Shares transferred to a Trust and
designated Shares-in-Trust pursuant to this Division C shall be held for the
exclusive benefit of the Beneficiary. The Corporation shall name a Beneficiary
for each Trust within five days after the Corporation first has actual notice of
the existence thereof. Any transfer to a Trust, and designation of Equity Shares
as Shares-in-Trust, shall be effective as of the close of business on the
business day prior to the date of the Transfer or Non-Transfer Event that
results in the transfer to the Trust. Shares-in-Trust shall continue to
constitute issued and outstanding Equity Shares of the Corporation and shall be
entitled to the same rights and privileges as are all other issued and
outstanding Equity Shares of the same class and series. When transferred to a
Permitted Transferee in accordance with this Division C, such Shares-in-Trust
shall cease to be designated as Shares-in-Trust.
Section 2. DIVIDEND RIGHTS. The Trust, as record holder of
Shares-in-Trust, shall be entitled to receive all dividends and distributions
declared by the Board of Directors on such Shares-in-Trust and shall hold such
dividends and distributions in trust for the benefit of the Beneficiary. The
Prohibited Owner with respect to Shares-in-Trust shall repay to the Trust the
amount of any dividends or distributions received by it that (i) are
attributable to those Shares-in-Trust and (ii) the record date of which was on
or after the date that such shares became Shares-in-Trust. The Corporation shall
take all measures that it determines reasonably necessary to recover the amount
of any such dividend or distribution paid to a Prohibited Owner, including, if
necessary, withholding any portion of future dividends or distributions payable
on Equity Shares Beneficially Owned or Constructively Owned by the Person who,
but for the provisions of this Division C, would Constructively Own or
Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable
following the Corporation's receipt or withholding thereof, shall pay over to
the Trust for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
Section 3. RIGHTS UPON LIQUIDATION. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each holder of Shares-in-Trust
shall be entitled to receive, ratably with each other holder of Equity Shares of
the same class or series, that portion of the assets of the Corporation which is
available for distribution to the holders of such class and series of Equity
Shares. The Trust shall distribute to the Prohibited Owner the amounts received
upon such liquidation, dissolution, or winding up, or distribution; PROVIDED,
HOWEVER, that the Prohibited Owner shall not be entitled to receive amounts
pursuant to this Division C in excess of, in the case of a purported Transfer in
which the Prohibited Owner gave value for Equity Shares and which Transfer
resulted in the transfer of the shares to the Trust, the price per share, if
any, such Prohibited Owner paid for the Equity Shares and, in the case of a
Non-Transfer Event or Transfer in which the Prohibited Owner did not give value
for such shares (E.G., if the shares were received through a gift or devise) and
which Non-Transfer Event or Transfer, as the case may be, resulted in the
transfer of shares to the Trust, the price per share equal to the Market Price
on the date of such Non-Transfer Event or Transfer. Any remaining amount in such
Trust shall be distributed to the Beneficiary.
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<PAGE> 17
Section 4. VOTING RIGHTS. The Trustee shall be entitled to
vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of Equity
Shares prior to the discovery by the Corporation that the Equity Shares are
Shares-in-Trust shall, so far as is practicable under applicable law, be
rescinded and shall be void AB INITIO with respect to such Shares-in-Trust and
the Prohibited Owner shall be deemed to have given, as of the close of business
on the business day prior to the date of the Transfer or Non-Transfer Event that
results in the transfer to the Trust of Equity Shares pursuant to this Division
C, an irrevocable proxy to the Trustee to vote the Shares-in-Trust in the manner
in which the Trustee, in its sole and absolute discretion, considers advisable.
Section 5. DESIGNATION OF PERMITTED TRANSFEREE. The Trustee
shall have the exclusive and absolute right to designate a Permitted Transferee
of any Shares-in-Trust. In an orderly fashion so as not to materially adversely
affect the Market Price of the Shares-in-Trust, the Trustee shall designate a
Person as Permitted Transferee, so long as (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or private
sale) the Shares-in-Trust and (ii) the Permitted Transferee so designated can
acquire such Shares-in-Trust without such acquisition resulting in a transfer to
a Trust and the redesignation of such Equity Shares as Shares-in-Trust. Upon the
designation by the Trustee of a Permitted Transferee, the Trustee shall (i)
cause to be transferred to the Permitted Transferee that number of
Shares-inTrust acquired by the Permitted Transferee, (ii) cause to be recorded
on the books of the Corporation that the Permitted Transferee is the holder of
record of such number of Equity Shares, (iii) cause the Shares-in-Trust to be
canceled, and (iv) distribute to the Beneficiary any and all amounts held by the
Trustee with respect to the Shares-in-Trust after making any payment to the
Prohibited Owner required under Sections IV.C.II.3. and IV.C.II.6.
Section 6. COMPENSATION TO RECORD HOLDER OF EQUITY SHARES THAT
BECOME SHARES-IN-TRUST. Any Prohibited Owner shall be entitled (following
designation of Equity Shares proposed or purported to be held by that Prohibited
Owner as Shares-in-Trust and subsequent designation of a Permitted Transferee or
the Trustee's acceptance of an offer to purchase such shares) to receive from
the Trustee following the sale or other disposition of such Shares-in-Trust the
lesser of (i) in the case of (a) a purported Transfer in which the Prohibited
Owner gave value for Equity Shares and which Transfer resulted in the transfer
of the shares to the Trust, the price per share, if any, such Prohibited Owner
paid for the Equity Shares, or (b) a Non-Transfer Event or Transfer in which the
Prohibited Owner did not give value for such shares (E.G., if the shares were
received through a gift or devise) and which Non-Transfer Event or Transfer, as
the case may be, resulted in the transfer of shares to the Trust, the price per
share equal to the Market Price on the date of such Non-Transfer Event or
Transfer, and (ii) the price per share received by the Trustee from the sale or
other disposition of such Shares-in-Trust. Any amounts received by the Trustee
in respect of such Shares-in-Trust and in excess of such amounts to be paid to
the Prohibited Owner shall be distributed to the Beneficiary. Each Beneficiary
and Prohibited Owner waive any and all claims that they may have against the
Trustee and the Trust arising out of the disposition of Shares-in-Trust, except
for claims arising out of the gross negligence or willful misconduct of, or any
failure to make payments in accordance with this Division C, by such Trustee or
the Corporation.
Section 7. PURCHASE RIGHT IN SHARES-IN-TRUST. Shares-in-Trust
shall be considered to have been offered for sale to the Corporation, or its
designee, on the date of the event that created such Shares-in-Trust status at a
price per share equal to the lesser of (i) the price per share in the event that
created such Shares-in-Trust status (or, in the case of a devise, gift or
Non-Transfer Event, the Market Price at the time of such devise, gift or
Non-Transfer Event) and (ii) the Market Price on the date the Corporation, or
its designee, accepts such offer. The Corporation shall have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
event which created such Shares-in-Trust status and (ii) the date the
Corporation determines in good faith that an event occurred that created such
Shares-in-Trust status, if the Corporation does not receive a notice of such
event.
III. REMEDIES NOT LIMITED. Subject to Article I, Sections 7 and 8,
nothing contained in this Division C shall limit the authority of the
Corporation to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its shareholders by preservation of
the Corporation's status as a REIT and to ensure compliance with the Ownership
Limit.
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<PAGE> 18
IV. AMBIGUITY. In the case of any ambiguity in the application of any
provision of this Division C, including any definition contained herein, the
Board of Directors shall have the power to determine the application of that
provision.
V. LEGEND. Each certificate for Equity Shares shall bear the following
legend:
"The [Common Shares or Cumulative Preferred Shares or
Noncumulative Preferred Shares] represented by this certificate are
subject to restrictions on transfer for the purpose of the
Corporation's maintenance of its status as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code").
No Person may (i) Beneficially Own or Constructively Own Common Shares
in excess of 9% of the number of outstanding Common Shares, (ii)
Beneficially Own or Constructively Own shares of any class or series of
Preferred Shares in excess of 9% of the number of outstanding shares of
that class or series of Preferred Shares, (iii) beneficially own Equity
Shares that would result in the Equity Shares being beneficially owned
by fewer than 100 Persons (determined without reference to any rules of
attribution), (iv) Beneficially Own Equity Shares that would result in
the Corporation being "closely held" under Section 856(h) of the Code,
or (v) Constructively Own Equity Shares that would cause the
Corporation to Constructively Own 10% or more of the ownership
interests in a tenant of the Corporation's or of a Subsidiary's real
property, within the meaning of Section 856(d)(2)(B) of the Code. Each
holder of Equity Shares is required to furnish the Corporation such
information as the Corporation may request pursuant to Section 6 of the
Corporation's Amended and Restated Articles of Incorporation. Any
Person who attempts to Beneficially Own or Constructively Own Equity
Shares in excess of the above limitations must immediately notify the
Corporation in writing. If those restrictions are violated, the Equity
Shares represented hereby in excess of those limitations will be
transferred automatically by operation of the Corporation's Amended and
Restated Articles of Incorporation to a Trust and will be designated
Shares-in-Trust. All capitalized terms in this legend have the meanings
defined in the Corporation's Amended and Restated Articles of
Incorporation, as they may be amended from time to time, a copy of
which, including the restrictions on transfer, will be sent without
charge to each shareholder who so requests."
VI. SEVERABILITY. Each provision of this Article FOURTH shall be
several, and an adverse determination as to any such provision shall in no way
affect the validity of any other provision.
FIFTH: At all times following the consummation of the Initial Public
Offering (as defined in Article FOURTH), at least a majority of the members of
the Board of Directors shall, except as may result from a vacancy or vacancies
therein, be Independent Directors. An "Independent Director" shall mean a person
who is (i) independent of management of the Corporation, (ii) not employed by or
an officer of the Corporation, (iii) not an "affiliate" (as defined in Rule 405
under the Securities Act of 1933, as amended) of the Corporation or of any
Subsidiary of the Corporation, and (iv) not a person who acts on a regular basis
as an individual or representative of an organization serving as a professional
advisor, legal counsel or consultant to management if, in the opinion of the
Board of Directors, the relationship is material to the Corporation, that
person, or the organization represented. Any determination to be made by the
Board of Directors in connection with any matter presenting a conflict of
interest for any officer of the Corporation or any director of the Corporation
who is not an Independent Director shall be made by the Independent Directors.
SIXTH: No holder of shares of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase shares of
any class, now or hereafter authorized, or to subscribe for or purchase
securities convertible into or exchangeable for shares of the Corporation or to
which shall be attached or appertain any warrants or rights entitling the holder
thereof to subscribe for or purchase shares, except such rights of subscription
or purchase, if any, for such considerations and upon such terms and conditions
as its Board of Directors from time to time may determine.
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<PAGE> 19
SEVENTH: Notwithstanding any provision of Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code, or any successor statutes now or hereafter
in force, requiring for the authorization or taking of any action the vote or
consent of the holders of shares entitling them to exercise two-thirds or any
other proportion of the voting power of the Corporation or of any class or
classes of shares thereof, such action, unless otherwise expressly required by
law or these Amended and Restated Articles of Incorporation, may be authorized
or taken by the vote or consent of the holders of shares entitling them to
exercise a majority of the voting power of the Corporation or of such class or
classes of shares thereof.
EIGHTH: To the extent permitted by law, the Corporation, by action of
its Board of Directors, may purchase or otherwise acquire shares of any class
issued by it at such times, for such consideration and upon such terms and
conditions as its Board of Directors may determine.
NINTH: No person who is serving or has served as a director of the
Corporation shall be personally liable to the Corporation or any of its
shareholders for monetary damages for breach of any fiduciary duty of such
person as a director by reason of any act or omission of such person as a
director; but the foregoing provision shall not eliminate or limit the liability
of any person (a) for any breach of such person's duty of loyalty as a director
to the Corporation or its shareholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under Section 1701.95 of the Ohio Revised Code, (d) for any transaction from
which such person derived any improper personal benefit, or (e) to the extent
that such liability may not be limited or eliminated by virtue of Section
1701.13 of the Ohio Revised Code or any successor section or statute. Any repeal
or modification of this Article NINTH by the shareholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
TENTH: Section 1701.831 of the Ohio Revised Code shall not apply to the
Corporation.
ELEVENTH: Chapter 1704 of the Ohio Revised Code shall not apply to the
Corporation.
TWELFTH: If any provision (or portion thereof) of these Amended and
Restated Articles of Incorporation shall be found to be invalid, prohibited, or
unenforceable for any reason, the remaining provisions (or portions thereof) of
these Amended and Restated Articles of Incorporation shall remain in full force
and effect, and shall be construed as if such invalid, prohibited, or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of the Corporation and its shareholders that
each such remaining provision (or portion thereof) of these Amended and Restated
Articles of Incorporation remain, to the fullest extent permitted by law,
applicable and enforceable as to all shareholders, notwithstanding any such
finding.
THIRTEENTH: No shareholder of the Corporation may cumulate his voting
power in the election of directors.
FOURTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Amended and Restated Articles of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation.
FIFTEENTH: These Amended and Restated Articles of Incorporation shall
take the place of and supersede the Corporation's existing Articles of
Incorporation.
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<PAGE> 1
Exhibit 3.2
CODE OF REGULATIONS
OF
BOYKIN LODGING COMPANY
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETINGS. The annual meeting of shareholders
shall be held at such time and on such date as may be fixed by the Board of
Directors and stated in the notice of the meeting, for the election of
directors, the consideration of reports to be laid before such meeting and the
transaction of such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders shall be called upon the written request of the president, the
directors by action at a meeting, a majority of the directors acting without a
meeting, or of the holders of shares entitling them to exercise twenty-five
percent (25%) of the voting power of the Corporation entitled to vote thereat.
Calls for such meetings shall specify the purposes thereof. No business other
than that specified in the call shall be considered at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each shareholder of
record entitled to vote at or entitled to notice of the meeting, not more than
sixty (60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the shareholder at his address as the same
appears upon the records of the Corporation. Any shareholder, either before or
after any meeting, may waive any notice required to be given by law or under
these Regulations.
Section 4. PLACE OF MEETINGS. Meetings of shareholders shall
be held at the principal office of the Corporation unless the Board of Directors
determines that a meeting shall be held at some other place within or without
the State of Ohio and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling them to
exercise a majority of the voting power of the Corporation entitled to vote at
any meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business to be considered at such meeting; provided, however,
that no action required by law or by the Articles of Incorporation or these
Regulations to be authorized or taken by the holders of a designated proportion
of the shares of any particular class or of each class may be authorized or
taken by a lesser proportion. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time, until a quorum shall be present.
Section 6. RECORD DATE. The Board of Directors may fix a
record date for any lawful purpose, including without limiting the generality of
the foregoing, the determination of shareholders entitled to (i) receive notice
of or to vote at any meeting, (ii) receive payment of any dividend or
distribution, (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to any
contract right with respect thereto, or (iv) participate in the execution of
written consents, waivers or releases. Said record date shall not be more than
sixty (60) days preceding the date of such meeting, the date fixed for the
payment of any dividend or distribution or the date fixed for the receipt or the
exercise of rights, as the case may be.
If a record date shall not be fixed, the record date for the
determination of shareholders who are entitled to notice of, or who are entitled
to vote at, a meeting of shareholders, shall be the close of business
<PAGE> 2
on the date next preceding the day on which notice is given, or the close of
business on the date next preceding the day on which the meeting is held, as the
case may be.
Section 7. PROXIES. A person who is entitled to attend a
shareholders' meeting, to vote thereat, or to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person.
ARTICLE II
DIRECTORS
Section 1. NUMBER OF DIRECTORS. Until changed in accordance
with the provisions of this section (or as otherwise provided in the
Corporation's Articles of Incorporation, as amended from time to time), the
number of directors of the Corporation, none of whom need be shareholders, shall
be seven (7). The number of directors may be fixed or changed (but in no case
shall the number be fewer than three (3) or more than fifteen (15)) at any
annual meeting or at any special meeting called for that purpose by the
affirmative vote of the holders of shares entitling them to exercise a majority
of the voting power of the Corporation on such proposal.
Section 2. ELECTION OF DIRECTORS. Directors shall be elected
at the annual meeting of shareholders, but when the annual meeting is not held
or directors are not elected thereat, they may be elected at a special meeting
called and held for that purpose. Such election shall be by ballot whenever
requested by any shareholder entitled to vote at such election; but, unless such
request is made, the election may be conducted in any manner approved at such
meeting.
At each meeting of shareholders for the election of directors,
the persons receiving the greatest number of votes shall be directors.
Section 3. TERM OF OFFICE. Each director shall hold office
until the annual meeting next succeeding his election and until his successor is
elected and qualified, or until his earlier resignation, removal from office or
death.
Section 4. REMOVAL. All the directors or any individual
director may be removed from office, without assigning any cause, by the vote of
the holders of a majority of the voting power entitling them to elect directors
in place of those to be removed, provided that unless all the directors are
removed, no individual director shall be removed in case the votes of a
sufficient number of shares are cast against his removal which, if cumulatively
voted at an election of all the directors would be sufficient to elect at least
one director. In case of any such removal, a new director may be elected at the
same meeting for the unexpired term of each director removed.
Section 5. VACANCIES. Vacancies in the Board of Directors may
be filled by a majority vote of the remaining directors until an election to
fill such vacancies is had. Shareholders entitled to elect directors shall have
the right to fill any vacancy in the board (whether the same has been
temporarily filled by the remaining directors or not) at any meeting of the
shareholders called for that purpose, and any directors elected at any such
meeting of shareholders shall serve until the next annual election of directors
and until their successors are elected and qualified.
Section 6. QUORUM AND TRANSACTION OF BUSINESS. A majority of
the whole authorized number of directors shall constitute a quorum for the
transaction of business, except that a majority of the directors in office shall
constitute a quorum for filling a vacancy on the board. Whenever less than a
quorum is present at the time and place appointed for any meeting of the board,
a majority of those present may adjourn the meeting
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<PAGE> 3
from time to time until a quorum shall be present. The act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board.
Section 7. ANNUAL MEETING. Annual meetings of the Board of
Directors shall be held immediately following annual meetings of the
shareholders, or as soon thereafter as is practicable. If no annual meeting of
the shareholders is held, or if directors are not elected thereat, then the
annual meeting of the Board of Directors shall be held immediately following any
special meeting of the shareholders at which directors are elected, or as soon
thereafter as is practicable. If such annual meeting of directors is held
immediately following a meeting of the shareholders, it shall be held at the
same place at which such shareholders' meeting was held.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places, within or without the State of
Ohio, as the Board of Directors may, by resolution or by-law, from time to time,
determine. The secretary shall give notice of each such resolution or by-law to
any director who was not present at the time the same was adopted, but no
further notice of such regular meeting need be given.
Section 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman of the board, the president, any vice
president, or any two members of the Board of Directors, and shall be held at
such times and places, within or without the State of Ohio, as may be specified
in such call.
Section 10. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of
the time and place of each annual or special meeting shall be given to each
director by the secretary or by the person or persons calling such meeting. Such
notice need not specify the purpose or purposes of the meeting and may be given
in any manner or method and at such time so that the director receiving it may
have reasonable opportunity to participate in the meeting. Such notice shall, in
all events, be deemed to have been properly and duly given if mailed at least
forty-eight (48) hours prior to the meeting and directed to the residence of
each director as shown upon the secretary's records and, in the event of a
meeting to be held through the use of communications equipment, if the notice
sets forth the telephone number at which each director may be reached for
purposes of participation in the meeting as shown upon the secretary's records
and states that the secretary must be notified if a director desires to be
reached at a different telephone number. The giving of notice shall be deemed to
have been waived by any director who shall participate in such meeting and may
be waived, in a writing, by any director either before or after such meeting.
Section 11. COMPENSATION. The directors, as such, shall be
entitled to receive such reasonable compensation for their services as may be
fixed from time to time by resolution of the board, and expenses of attendance,
if any, may be allowed for attendance at each annual, regular or special meeting
of the board. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of the executive committee or of any standing or
special committee may by resolution of the board be allowed such compensation
for their services as the board may deem reasonable, and additional compensation
may be allowed to directors for special services rendered.
Section 12. BY-LAWS. For the government of its actions, the
Board of Directors may adopt by-laws consistent with the Articles of
Incorporation and these Regulations.
ARTICLE III
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may
from time to time, by resolution passed by a majority of the whole board, create
an executive committee of three or more directors, the members of which shall be
elected by the Board of Directors to serve during the pleasure of the board. If
the
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<PAGE> 4
Board of Directors does not designate a chairman of the executive committee, the
executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the Board of
Directors, possess and may exercise all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors. The executive committee shall keep full records and accounts of its
proceedings and transactions. All action by the executive committee shall be
reported to the Board of Directors at its meeting next succeeding such action
and shall be subject to control, revision and alteration by the Board of
Directors, provided that no rights of third persons shall be prejudicially
affected thereby. Vacancies in the executive committee shall be filled by the
directors, and the directors may appoint one or more directors as alternate
members of the committee who may take the place of any absent member or members
at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the
provisions of these Regulations, the executive committee shall fix its own rules
of procedure and shall meet as provided by such rules or by resolutions of the
Board of Directors, and it shall also meet at the call of the president, the
chairman of the executive committee or any two members of the committee. Unless
otherwise provided by such rules or by such resolutions, the provisions of
Section 10 of Article II relating to the notice required to be given of meetings
of the Board of Directors shall also apply to meetings of the executive
committee. A majority of the executive committee shall be necessary to
constitute a quorum. The executive committee may act in a writing, or by
telephone with written confirmation, without a meeting, but no action by writing
of the executive committee shall be effective unless concurred in by all members
of the committee.
Section 3. AUDIT COMMITTEE. The Audit Committee shall consist
of three "Independent Directors" (as defined in the Corporation's Amended and
Restated Articles of Incorporation, as they may be amended from time to time)
and otherwise shall operate under rules set forth in Sections 1 and 2 of this
Article III for an executive committee. The Audit Committee shall make
recommendations concerning the engagement of independent public accountants,
review with the independent public accounts the plans and results of the audit
engagement, approve professional services provided by the independent public
accountants, review the independence of the independent public accountants,
consider the range of audit and nonaudit fees, review the independent public
accountants' letter of comments and management's responses, review the adequacy
of the Company's internal accounting controls, and review major accounting or
reporting changes contemplated or made.
Section 4. COMPENSATION COMMITTEE. The Compensation Committee
shall consist of three Independent Directors and otherwise shall operate under
rules set forth in Sections 1 and 2 of this Article III for an executive
committee. The Compensation Committee shall determine compensation for senior
management, advise the Board of Directors on the adoption and administration of
employee benefit and compensation plans, and administer the Company's Long-Term
Incentive Plan.
Section 5. OTHER COMMITTEES. The Board of Directors may by
resolution provide for such other standing or special committees as it deems
desirable, and discontinue the same at pleasure. Each such committee shall have
such powers and perform such duties, not inconsistent with law, as may be
delegated to it by the Board of Directors. The provisions of Section 1 and
Section 2 of this Article shall govern the appointment and action of such
committees so far as the same are consistent with such appointment and unless
otherwise provided by the Board of Directors. Vacancies in such committees shall
be filled by the Board of Directors or as the Board of Directors may provide.
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<PAGE> 5
ARTICLE IV
OFFICERS
Section 1. GENERAL PROVISIONS. The Board of Directors shall
elect a president, such number of vice presidents as the board may from time to
time determine, a secretary and a treasurer and, in its discretion, a chairman
of the Board of Directors. The Board of Directors may from time to time create
such offices and appoint such other officers, subordinate officers and assistant
officers as it may determine. The president, any vice president who succeeds to
the office of the president, and the chairman of the board shall be, but the
other officers need not be, chosen from among the members of the Board of
Directors. Any two of such offices, other than that of president and vice
president, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation
shall hold office during the pleasure of the Board of Directors, and, unless
sooner removed by the Board of Directors, until the organization meeting of the
Board of Directors following the date of their election and until their
successors are chosen and qualified. The Board of Directors may remove any
officer at any time, with or without cause. A vacancy in any office, however
created, shall be filled by the Board of Directors.
ARTICLE V
DUTIES OF OFFICERS
Section 1. CHAIRMAN OF THE BOARD. The chairman of the board,
if one be elected, shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may be prescribed by the Board of
Directors.
Section 2. PRESIDENT. The president shall be the chief
executive officer of the Corporation and shall exercise supervision over the
business of the Corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall preside at all meetings of
shareholders, and, in the absence of the chairman of the board, or if a chairman
of the board shall not have been elected, shall also preside at meetings of the
Board of Directors. He shall have authority to sign all certificates for shares
and all deeds, mortgages, bonds, agreements, notes, and other instruments
requiring his signature; and shall have all the powers and duties prescribed by
Chapter 1701 of the Revised Code of Ohio and such others as the Board of
Directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall have
such powers and duties as may from time to time be assigned to them by the Board
of Directors or the president. At the request of the president, or in the case
of his absence or disability, the vice president designated by the president (or
in the absence of such designation, the vice president designated by the board)
shall perform all the duties of the president and, when so acting, shall have
all the powers of the president. The authority of vice presidents to sign in the
name of the Corporation certificates for shares and deeds, mortgages, bonds,
agreements, notes and other instruments shall be coordinate with like authority
of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all
the proceedings of the shareholders and Board of Directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of shareholders and directors; shall produce on request at each
meeting of shareholders a certified list of shareholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or
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by the Board of Directors; and, in general, shall perform all duties incident to
the office of secretary and such other duties as may from time to time be
assigned to him by the Board of Directors or the president.
Section 5. TREASURER. The treasurer shall have general
supervision of all finances; he shall receive and have in charge all money,
bills, notes, deeds, leases, mortgages and similar property belonging to the
Corporation, and shall do with the same as may from time to time be required by
the Board of Directors. He shall cause to be kept adequate and correct accounts
of the business transactions of the Corporation, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, stated capital and
shares, together with such other accounts as may be required, and upon the
expiration of his term of office shall turn over to his successor or to the
Board of Directors all property, books, papers and money of the Corporation in
his hands; and shall have such other powers and duties as may from time to time
be assigned to him by the Board of Directors or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. The Board of
Directors may appoint such assistant and subordinate officers as it may deem
desirable. Each such officer shall hold office during the pleasure of the Board
of Directors, and perform such duties as the Board of Directors or the president
may prescribe.
The Board of Directors may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their authority
and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence
of any officer of the Corporation, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
being, the powers or duties, or any of them, of such officer to any other
officer or to any director.
ARTICLE VI
TRANSACTIONS WITH CERTAIN AFFILIATES
Following the consummation of the sale of Common Shares,
without par value, of the Corporation pursuant to the Corporation's first
effective registration statement for such shares filed under the Securities Act
of 1933, as amended (the "Securities Act"), the Corporation shall not, nor shall
it permit its subsidiaries to, (i) lend money to, or borrow money from, any
employee of the Corporation or any "affiliate" (as defined in Rule 405 under the
Securities Act) other than Boykin Hotel Properties, L.P., or (ii) enter into any
other transaction or agreement with any such affiliate, unless such other
transaction is approved by a majority of the Directors of the Corporation who
are "Independent Directors" (as defined in the Corporation's Articles of
Incorporation). The Independent Directors shall make all determinations to be
made on behalf of the Corporation with respect to the relationships or
opportunities that represent a conflict of interest for any officer or director
of the Corporation as such.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 1. INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party, to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, other
than an action by or in the right of the Corporation, by reason of the fact that
he is or was a director or officer of the Corporation, or is
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<PAGE> 7
or was serving at the request of the Corporation as a director, trustee,
officer, employee, or agent of another corporation, domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party, or is threatened
to be made a party to any threatened, pending, or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless, and only to the extent that the Court of Common
Pleas, or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Common Pleas or such court shall
deem proper.
Section 3. INDEMNIFICATION AS MATTER OF RIGHT. To the extent
that a director, trustee, officer, employee, or agent has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred to in
Section 1 or 2 of this Article VII, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection therewith.
Section 4. DETERMINATION OF CONDUCT. Any indemnification under
Sections 1 and 2 of this Article VII, unless ordered by a court, shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, trustee, officer, employee, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 and 2 of this Article VII. Such determination
shall be made (a) by a majority vote of a quorum consisting of directors of the
Corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel, other than an attorney or a firm having
associated with it an attorney who has been retained by or who has performed
services for the Corporation or any person to be indemnified within the past
five years, or (c) by the shareholders or (d) by the Court of Common Pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under Section 4(a) or by
independent legal counsel under Section 4(b) of this Article VII shall be
promptly communicated to the person who threatened or brought the action or
suit, by or in the right of the Corporation under Section 2 of this Article VII,
and within ten days after receipt of such notification, such person shall have
the right to petition the Court of Common Pleas or the court in which such
action or suit was brought to review the reasonableness of such determination.
Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses, including
attorneys' fees, incurred in defending any action, suit, or proceeding referred
to in Sections 1 or 2 of this Article VII, may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding as
authorized by the directors
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<PAGE> 8
in the specific case upon receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay such amount, unless it
shall ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this Article VII.
Section 6. NONEXCLUSIVITY. The indemnification provided by
this Article VII shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under the Articles of
Incorporation or the Code of Regulations or any agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office and
shall continue as to a person who has ceased to be a director, trustee, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 7. LIABILITY INSURANCE. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII or
of Chapter 1701 of the Ohio Revised Code.
ARTICLE VIII
CERTIFICATES FOR SHARES
Section 1. FORM AND EXECUTION. Certificates for shares,
certifying the number of fully paid shares owned, shall be issued to each
shareholder in such form as shall be approved by the Board of Directors. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary or the treasurer or an assistant treasurer;
provided, however, that if such certificates are countersigned by a transfer
agent and/or registrar, the signatures of any of said officers and the seal of
the Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers, who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of a transfer agent or
registrar, shall nevertheless be conclusively deemed to have been adopted by the
Corporation by the use and delivery thereof and shall be as effective in all
respects as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. TRANSFER AND REGISTRATION OF CERTIFICATES. The
Board of Directors shall have authority to make such rules and regulations, not
inconsistent with law, the Articles of Incorporation or this Code of
Regulations, as it deems expedient concerning the issuance, transfer and
registration of certificates for shares and the shares represented thereby.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of that fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances satisfactory to the Corporation and to all transfer agents and
registrars of the class of shares represented by the certificate against any and
all losses, damages, costs, expenses
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<PAGE> 9
or liabilities to which they or any of them may be subjected by reason of the
issue and delivery of such new certificate or certificates or in respect of the
original certificate.
Section 4. REGISTERED SHAREHOLDERS. A person in whose name
shares are of record on the books of the Corporation shall conclusively be
deemed the unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor any
transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31,
of each year, or on such other date as may be fixed from time to time by the
Board of Directors.
ARTICLE X
SEAL
The Board of Directors may provide a suitable seal containing
the name of the Corporation. If deemed advisable by the Board of Directors,
duplicate seals may be provided and kept for the purposes of the Corporation.
ARTICLE XI
AMENDMENTS
This Code of Regulations may be amended, or new regulations
may be adopted, at any meeting of shareholders called for such purpose by the
affirmative vote of, or without a meeting by the written consent of, the holders
of shares entitling them to exercise a majority of the voting power of the
Corporation on such proposal.
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<PAGE> 1
EXHIBIT 5.1
621-0200
August ___, 1996
Boykin Lodging Company
Terminal Tower
Suite 1500
50 Public Square
Cleveland, Ohio 44113
Gentlemen:
As counsel for Boykin Lodging Company, an Ohio corporation
(the "Company"), we are familiar with the Company's Registration Statement on
Form S-11, as amended (the "Registration Statement"), first filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
on June 19, 1996, with respect to 9,056,250 of the Company's Common Shares,
without par value (the "Common Shares"), including 7,875,000 Common Shares to be
sold to the underwriters (the "Firm Shares") and an additional 1,181,250 Common
Shares subject to an over-allotment option granted to the underwriters by the
Company (the "Additional Shares").
In connection with the foregoing, we have examined (a) the
Amended and Restated Articles of Incorporation and the Code of Regulations of
the Company, (b) the proposed form of Underwriting Agreement filed as an exhibit
to the Registration Statement (the "Underwriting Agreement") with respect to the
Common Shares, and (c) such records of the corporate proceedings of the Company
and such other documents as we deemed necessary to render this opinion.
Based upon such examination, we are of the opinion that:
1. The Company is a corporation duly organized and
validly existing under the laws of the state of Ohio.
2. The Firm Shares and the Additional Shares to be sold
by the Company have been duly authorized and, when
issued and sold pursuant to the duly executed
Underwriting Agreement (in substantially the form
filed as an exhibit to the Registration Statement)
and in the manner
<PAGE> 2
Boykin Lodging Company
August __, 1996
Page 2
contemplated by the Registration Statement, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and the reference to us under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement.
Very truly yours,
<PAGE> 1
Exhibit 8.1
[BAKER & HOSTETLER LETTERHEAD]
August ___, 1996
Boykin Lodging Company
Terminal Tower, Suite 1500
50 Public Square
Cleveland, Ohio 44113
Ladies and Gentlemen:
We have acted as counsel to Boykin Lodging Company, an Ohio corporation
(the "Company"), in connection with the preparation of a registration statement
(the "Registration Statement") filed with the Securities and Exchange commission
on August ___, 1996 (No. ___-___), as amended through the date hereof, with
respect to the offering and sale (the "Offering") of up to 9,056,250 common
shares, no par value, of the Company, the Company's contribution of
substantially all of the net proceeds of the Offering to Boykin Hotel
Properties, L.P., an Ohio limited partnership (the "Operating Partnership"), in
exchange for a general partnership interest in the Operating Partnership and a
note convertible into general partnership interests in the Operating
Partnership. You have requested our opinion on certain federal income tax
matters in connection with the Offering.
The Operating Partnership intends to acquire equity interests in
certain existing hotels and associated personal property (the "Initial Hotels").
The Operating Partnership will lease each of the Initial Hotels to Boykin
Management Company Limited Liability Company ("BMCL"), an Ohio limited liability
company (the "Lessee"), pursuant to substantially similar operating leases (the
"Percentage Leases"). BMCL will operate the Initial Hotels under the Percentage
Leases.
In connection with the opinions rendered below, we have examined the
following:
1. the Company's Amended and Restated Articles of Incorporation, as
filed with the Secretary of State of Ohio;
2. the Company's Code of Regulations;
3. the Registration Statement, including the prospectus contained as
part of the Registration Statement (the "Prospectus");
4. the Amended and Restated Agreement of Limited Partnership of the
Operating Partnership;
<PAGE> 2
5. the Percentage Leases between the Operating Partnership and the
Lessee; and
6. such other documents as we have deemed necessary or appropriate for
purposes of this opinion.
In connection with the opinions rendered below, we have assumed
generally that:
1. each of the documents referred to above has been duly authorized,
executed, and delivered; is authentic, if an original, or is accurate, if a
copy; and has not been amended;
2. during its short 1996 taxable year ending December 31, 1996 and
subsequent taxable years, the Company will operate in such a manner that will
make the representations contained in the Representation Letter, dated August
___, 1996 and executed by a duly appointed officer of the Company (the
"Representation Letter"), true for such years;
3. the Company will not make any amendments to its organizational
documents or the Operating Partnership Agreement after the date of this opinion
that would affect the Company's qualification as a real estate investment trust
(a "REIT") for any taxable year; and
4. each Limited Partner has full power, authority, and legal right to
enter into and perform the terms of the Operating Partnership Agreement and the
transactions contemplated thereby.
In connection with the opinions rendered below, we also have relied
upon the correctness of the representations contained in the Representation
Letter.
For purposes of our opinions, we made no independent investigation of
the facts contained in the documents and assumptions set forth above, the
representations set forth in the Representation Letter, or the Prospectus. No
facts have come to our attention, however, that would cause us to question the
accuracy and completeness of such facts or documents in a material way.
In addition, to the extent that any of the representations provided to
us in the Representation Letter are with respect to matters set forth in the
Internal Revenue Code of 1986, as amended (the "Code"), or the Treasury
regulations thereunder (the "Regulations"), we have reviewed with the
individuals making such representation the relevant portion of the Code and the
applicable Regulations and are reasonably satisfied that such individuals
understand such provisions and are capable of making such representations.
Based on the documents and assumptions set forth above, the
representations set forth in the Representation Letter, and the discussion in
the Prospectus under the caption "Federal Income Tax Considerations" (which is
incorporated herein by reference), we are of the opinion that:
(a) commencing with the Company's short taxable year ending
December 31, 1996, the Company will qualify to be taxed as a REIT
pursuant to sections 856 through 860 of the Code, and the Company's
proposed method of operation will
<PAGE> 3
enable it to meet the requirements for qualification and taxation as a
REIT under the Code;
(b) the descriptions of the law and the legal conclusions
contained in the Prospectus under the caption "Federal Income Tax
Considerations" are correct in all material respects, and the
discussion contained therein fairly summarizes the federal tax
considerations that are material to a holder of the Common Shares; and
(c) the Operating Partnership will be treated for federal
income tax purposes as a partnership and not as an association taxable
as corporation or as a publicly traded partnership.
We will not review on a continuing basis the Company's compliance with the
documents or assumptions set forth above, or the representations set forth in
the Representation Letter. Accordingly, no assurance can be given that the
actual results of the Company's operations for any given taxable year will
satisfy the requirements for qualification and taxation as a REIT.
The foregoing opinions are based on current provisions of the Code and
the Regulations, published administrative interpretations thereof, and published
court decisions. The Internal Revenue Service has not issued Regulations or
administrative interpretations with respect to various provisions of the Code
relating to REIT qualification. No assurance can be given that the law will not
change in a way that will prevent the Company from qualifying as a REIT, or the
Operating Partnership from being classified as a partnership for federal income
tax purposes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to Baker & Hostetler
under the captions "Federal Income Tax Considerations" and "Legal Matters" in
the Prospectus.
The foregoing opinions are limited to the federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or to any issues arising under the tax laws of any state or
locality. We undertake no obligation to update the opinions expressed herein
after the date of this letter. This opinion letter is solely for the information
and use of the addressees, and may not be relied upon for any purpose by any
other person without our express written consent.
Very truly yours,
<PAGE> 1
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of _____________, 1996, is by and among Boykin Lodging Company, an Ohio
corporation (the "Company"), and the individuals and entities listed on Exhibit
A attached hereto (such individuals and entities collectively, the "Holders" and
each individually, a "Holder").
W I T N E S S E T H :
WHEREAS, the Holders were direct or indirect beneficial owners
of nine partnerships, the equity interests in which were transferred to an Ohio
limited partnership of which the Company is the sole general partner (the "Reit
Partnership"); and
WHEREAS, the Holders agreed to transfer such interests in part
in consideration of the Company entering into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS. As used in this Agreement:
a. "Affiliate" of a Person means (i) with respect to
a Person which is a natural person, such Person's spouse and lineal descendants
and any trust or other fiduciary solely for the benefit of such individual or
such individual's spouse or lineal descendants, (ii) with respect to a Person
that is a corporation, the shareholders of such Person on the date hereof, (iii)
with respect to a Person that is a partnership, the partners of such Person on
the date hereof, (iv) with respect to a Person that is an estate, the
beneficiaries of such Person on the date hereof, or (v) any other Person
controlling, controlled by, or under common control with such Person.
b. "Commission" means the Securities and Exchange
Commission.
c. "Common Shares" means the common shares, without
par value, of the Company.
d. "Initial Public Offering" means the sale of Common
Shares pursuant to the Company's first effective registration statement for such
shares filed under the Securities Act.
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e. "Person" means a natural person, a partnership, a
corporation, an association, a joint stock company, a trust, an estate, a joint
venture, an unincorporated organization or other entity or a governmental entity
or any department, agency or political subdivision of any thereof.
f. "Registrable Shares" means, at any particular time
at which notice has been given pursuant to Section 2(a) hereunder, any of the
following which are held by any Holder, any Affiliate of a Holder, or any
Affiliate of an Affiliate of a Holder: (i) shares of Common Shares which are
held by any Holder immediately upon the consummation of the Initial Public
Offering or for which Units are exchangeable by any Holder, (ii) shares of
Common Shares acquired pursuant to or acquirable upon the exercise of options
outstanding immediately upon completion of the Initial Public Offering (other
than options granted pursuant to the Company's 1996 Long Term Incentive Plan),
(iii) shares of Common Shares issued pursuant to a dividend reinvestment plan
adopted by the Company, (iv) shares of Common Shares then outstanding which were
issued as, or upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of other
Registrable Shares, (v) shares of Common Shares then issuable upon conversion or
exercise of other securities which were issued as a dividend or other
distribution with respect to or in replacement of other Registrable Shares, and
(vi) any equity securities of the Company issued or issuable with respect to the
securities referred to in clauses (i) through (v) by way of a share dividend or
share split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. For purposes of this Agreement, a
Person will be deemed to be a holder of Registrable Shares, and those shares
will be deemed held by that Person, when such Person has the unqualified right
to acquire such Registrable Shares (by conversion, exchange or otherwise, but
disregarding any restrictions imposed by law upon the exercise of such right),
whether or not such acquisition has actually been effected.
g. "Registration Expenses" has the meaning ascribed
to it in Section 6 of this Agreement.
h. "Securities Act" means the Securities Act of 1933,
as amended.
i. "Units" means limited partnership interests in the
Reit Partnership.
2. PIGGYBACK REGISTRATIONS.
a. RIGHT TO PIGGYBACK. Subject to the remaining
provisions of this Section 2, following the Initial Public Offering, whenever
the Company proposes to register its Common
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Shares under the Securities Act (other than a registration on Form S-4 or S-8)
(a "Piggyback Registration"), the Company will give written notice to all
holders of Registrable Shares of its intention to effect such a registration and
will include in such registration all Registrable Shares with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice. The Company is not required to give
any Person more than three opportunities to have Registrable Shares included in
a Piggyback Registration.
b. PRIORITY ON PRIMARY REGISTRATION. If a Piggyback
Registration is an underwritten primary offering on behalf of the Company, and
the managing underwriters for the Offering advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will include in such registration (i) FIRST, the securities the Company proposes
to sell, (ii) SECOND, the Registrable Shares requested to be included in such
registration which in the opinion of such underwriters can be sold, prorated
among the holders of such Registrable Shares who request that Registrable Shares
be included in such offering, on the basis of the number of Registrable Shares
owned or deemed to be owned by such holders, with further successive PRO RATA
allocations, if any such holder has requested the registration of less than all
such Registrable Shares such holder is so entitled to register, among such
holders (other than the holder who requested less than all such Registrable
Shares such holder is so entitled to register), and (iii) THIRD, other
securities requested to be included in such registration.
c. PRIORITY ON SECONDARY REGISTRATIONS. If a
Piggyback Registration is an underwritten secondary offering on behalf of
holders of the Company's securities other than holders of Registrable Shares,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Company will include
in such registration (i) FIRST, the securities included therein held by the
holders other than holders of Registrable Shares, (ii) SECOND, the Registrable
Shares requested to be included in such registration which in such opinion of
such underwriters can be sold, prorated among the holders of such Registrable
Shares on the basis of the number of Registrable Shares owned or deemed to be
owned by such holders, with further successive PRO RATA allocations among the
holders of Registrable Shares if any holder of Registrable Shares has requested
the registration of less than all such Registrable Shares such holder is so
entitled to register, and (iii) THIRD, other securities requested to be included
in such registration.
3. HOLDBACK AGREEMENTS. Each of the holders of Registrable
Shares agrees not to effect any public sale or
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distribution of equity securities of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, during the seven days
prior to, and the 90-day period beginning on the effective date of, any
underwritten Piggyback Registration (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
4. REGISTRATION PROCEDURES. Whenever the holders of
Registrable Shares have requested that any Registrable Shares be registered
pursuant to this Agreement, the Company will endeavor to effect the registration
of such Registrable Shares in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
a. Prepare and file with the Commission a
registration statement with respect to such Registrable Shares and endeavor to
cause such registration statement to become and remain effective for such
period, not to exceed six months, as may be reasonably necessary to effect the
sale of such securities;
b. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than six months and comply with the
provisions of the Securities Act applicable to the Company with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by sellers thereof
set forth in such registration statement;
c. Furnish to each seller of Registrable Shares and
the underwriters of the securities being registered such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller or underwriters may
reasonably request in order to facilitate the disposition of the Registrable
Shares owned by such seller or the sale of such securities by such underwriters;
d. Endeavor to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such seller
(provided, however, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4(d), (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
such jurisdiction);
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e. Cause all such Registrable Shares to be listed on
each securities exchange or market trading system on which similar securities
issued by the Company are then listed;
f. Provide a transfer agent and registrar for all
such Registrable Shares not later than the effective date of such registration
statement;
g. Enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Shares being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Shares (including, without limitation, effecting
a stock split or a combination of shares);
h. Make available at reasonable times for inspection
by sellers of Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
i. Notify each seller of such Registrable Shares,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
j. Notify each seller of such Registrable Shares of
any request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
k. Prepare and file with the Commission, promptly
upon the request of any seller of such Registrable Shares, any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel selected by the holders of a majority of the Registrable Shares being
registered, is reasonably required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of Registrable Shares
by such seller;
l. Prepare and promptly file with the Commission and
promptly notify each seller of such Registrable Shares of the filing of such
amendment or supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating
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to such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading;
m. Advise each seller of such Registrable Shares,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission or any state authority or agency
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purpose and promptly use all reasonable
efforts to prevent the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
n. At the request of any underwriter in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement: (i) an opinion of counsel, addressed to the
underwriters, covering such matters as such underwriters may reasonably request;
and (ii) a letter or letters from the independent certified public accountants
of the Company addressed to the underwriters, covering such matters as such
underwriters and sellers may reasonably request, in which letters such
accountants shall state, without limiting the generality of the foregoing, that
they are independent certified public accountants within the meaning of the
Securities Act and that in the opinion of such accountants the financial
statements and other financial data of the Company included in the registration
statement, the prospectus, or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the Commission.
5. REGISTRATION EXPENSES.
a. All expenses incident to the Company's performance
of or compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and its independent certified public
accountants, underwriters (excluding discounts and commissions attributable to
the Registrable Shares included in such registration) and other Persons retained
by the Company (all such expenses being herein called "Registration Expenses"),
will be borne by the Company. In addition, the Company will pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance
obtained by the Company and the expenses and fees for listing the securities to
be
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registered on each securities exchange on which any shares of Common Shares are
then listed.
b. In connection with each Piggyback Registration
effected pursuant to this Agreement, the Company will reimburse the holders of
Registrable Shares covered by such registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the
Registrable Shares.
6. INDEMNIFICATION.
a. The Company agrees to indemnify each seller of
Registrable Shares, its officers and directors and each Person who controls such
seller (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses (including, without limitation, attorneys'
fees except as limited by Section 6(c)) caused by any untrue or alleged untrue
statement of a material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such seller or any underwriter expressly for use therein or by such
seller's or underwriter's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such seller or underwriter with a sufficient number of
copies of the same. In connection with an underwritten offering, the Company
will indemnify such underwriters, their officers and directors and each Person
who controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of sellers of
Registrable Shares. The reimbursements required by this Section 6(a) will be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
b. In connection with any registration statement in
which a seller of Registrable Shares is participating, each such seller will
furnish to the Company in writing such information,
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questionnaires and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the
fullest extent permitted by law, will indemnify the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
(including, without limitation, attorneys' fees except as limited by Section
6(c)) resulting from any untrue statement of a material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
seller; provided that the obligation to indemnify will be several, not joint and
several, among such sellers of Registrable Shares, and the liability of each
such seller of Registrable Shares will be in proportion to and be limited to the
net amount received by such seller from the sale of Registrable Shares pursuant
to such registration statement.
c. Any Person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
d. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities. The Company also agrees to make such provisions as are reasonably
requested by any indemnified party for contribution to such party in the event
the Company's indemnification is unavailable for any reason.
7. COMPLIANCE WITH RULE 144. At the request of any holder who
proposes to sell securities in compliance with Rule 144 of the Commission, the
Company will (i) forthwith furnish to such
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holder a written statement of its compliance with the filing requirements of the
Commission as set forth in Rule 144 as such rule may be amended from time to
time and (ii) make available to the public and such holders such information as
will enable the holders to make sales pursuant to Rule 144.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all question-
naires, powers of attorney, custody agreements, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
9. NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Shares in this Agreement.
10. REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement, and
to exercise all other rights granted by law.
11. AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the Company and the holders of a
majority of the Registrable Shares. Any waiver, permit, consent or approval of
any kind or character on the part of any such holders of any provision or
condition of this Agreement must be made in writing and will be effective only
to the extent specifically set forth in writing.
12. SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of any Holder are also
for the benefit of, and enforceable by, any subsequent holder of Registrable
Shares who acquired those Registrable Shares directly or indirectly from that
Holder (other than in an offering registered under the Securities Act) and
consents in writing to be bound by this Agreement.
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13. FINAL AGREEMENT. This Agreement constitutes the final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
14. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
15. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
16. NOTICES. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other addresses as shall be given by notice delivered
hereunder, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after mailing, if mailed, or one business day
after delivery to the courier, if delivered by overnight courier service:
IF TO THE HOLDERS OF REGISTRABLE SHARES, at their addresses
set forth on the stock record books of the Company;
with a copy to:
Albert T. Adams
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
If to the Company, to:
Boykin Lodging Company
Attn: Robert W. Boykin, President
Terminal Tower, Suite 15600
50 Public Square
Cleveland, Ohio 44113-2258
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with a copy to:
Albert T. Adams
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
17. GOVERNING LAW. The validity, meaning and effect of this
Agreement shall be determined in accordance with the laws of the State of Ohio
applicable to contracts made and to be performed in that state without giving
effect to the principles of conflicts of laws thereof.
18. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and the Company.
19. TERM. This Agreement will expire ten years from the date
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, as of the day and year first set forth
above.
BOYKIN LODGING COMPANY,
an Ohio corporation
By:________________________________
[THE HOLDERS]
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EXHIBIT A
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The Holders
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EXHIBIT 10.3
BOYKIN LODGING COMPANY
LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Boykin Lodging Company Long-Term Incentive Plan (the
"Plan") is to enable Boykin Lodging Company (the "Company") to attract, retain
and reward key employees of the Company and of its Affiliates and to strengthen
the mutuality of interests between such key employees and the Company's
shareholders by offering such key employees equity or equity-based incentives.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity (other than the Company and its
Subsidiaries) that is designated by the Board as a participating employer
under the Plan.
(b) "Award" means any award of Stock options, Restricted Shares,
Deferred Shares, Share Purchase Rights, Share Appreciation Rights or Other
Share-Based Awards under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" has the meaning set forth in Section 11(b).
(e) "Change in Control Price" has the meaning set-forth in Section
11(d).
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(g) "Committee" means the Committee referred to in Section 2 of the
Plan.
(h) "Company" means Boykin Lodging Company, an Ohio corporation, or
any successor corporation.
(i) "Deferred Shares" means an award of the right to receive Shares
at the end of a specified period granted pursuant to Section 7.
(j) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
<PAGE> 2
(k) "Disinterested Person" has the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission
(the "Commission") under the Exchange Act, or any successor definition
adopted by the Commission.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the mean between the
highest and lowest quoted selling price, regular way, of the Shares on such
date on the New York Stock Exchange or, if no such sale of the Shares
occurs on the New York Stock Exchange on such date, then such mean price on
the next preceding day on which the Shares were traded. If the Shares are
no longer traded on the New York Stock Exchange, then the Fair Market Value
of the Shares shall be determined by the Committee in good faith.
(n) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning of Section
422 of the Code or any successor section thereto.
(o) "Non-Qualified Stock Option", means any Stock Option that is not
an Incentive Stock Option.
(p) "Other Share-Based Award" means an award granted pursuant to
Section 10 that is valued, in whole or in part, by reference to, or is
otherwise based on, Shares.
(q) "Outside Director" has the meaning set forth in Section 162(m) of
the Code and the regulations promulgated thereunder.
(r) "Plan" means the Boykin Lodging Company Long-Term Incentive Plan,
as amended from time to time.
(s) "Potential Change in Control" has the meaning set forth in
Section 11(c).
(t) "Restricted Shares" means an award of shares that is granted
pursuant to Section 6 and is subject to restrictions.
(u) "Section 16 Participant", means a participant under the Plan who
is then subject to Section 16 of the Exchange Act.
(v) "Shares" mean, the common shares, without par value, of the
Company.
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(w) "Share Appreciation Right" means an award of a right to receive
an amount from the Company that is granted pursuant to Section 9.
(x) "Stock Option" or "Option" means any option to purchase Shares
(including Restricted Shares and Deferred Shares, if the Committee so
determines) that is granted Pursuant to Section 5.
(y) "Share Purchase Right" means an award of the right to purchase
Shares that is granted pursuant to Section 8.
(z) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee of the
Board (the "Committee"). The Committee shall consist of three directors of the
Company, all of whom shall be Disinterested Persons and Outside Directors. Such
directors shall be appointed by the Board and shall serve as the Committee at
the pleasure of the Board. The functions of the Committee specified in the
Plan shall be exercised by the Board if and to the extent that no Committee
exists which has the authority to so administer the Plan.
The Committee shall have full power to interpret and administer the
Plan and full authority to select the individuals to whom Awards will be
granted and to determine the type and amount of Awards to be granted to each
participant, the consideration, if any, to be paid for Such Awards, the timing
of such Awards, the terms and conditions of Awards granted under the Plan and
the terms and conditions of the related agreements which will be entered into
with participants. As to the selection of and grant of Awards to participants
who are not Section 16 participants, the Committee may delegate its
responsibilities to members of the Company's management consistent with
applicable law.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
Award issued under the Plan (and any agreements relating thereto); to direct
employees of the Company or other advisors to prepare such materials or perform
such analyses as the Committee deems necessary or appropriate; and otherwise to
supervise the administration of the Plan.
Any interpretation and administration of the Plan by the Committee, and
all actions and determinations of the Committee, shall be final, binding and
conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all
participants in the Plan, their
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respective legal representatives, successors and assigns, and all persons
claiming under or through any of them. No member of the Board or of the
Committee shall incur any liability for any action taken or omitted, or any
determination made, in good faith in connection with the Plan.
SECTION 3. SHARES SUBJECT TO THE PLAN.
(a) Aggregate Shares Subject to the Plan. Subject to adjustment as
provided below in Section 3(c), the total number of Shares reserved and
available for Awards under the Plan is 1,000,000. Any Shares issued
hereunder may consist, in whole or in part, of authorized and unissued
shares or treasury shares.
(b) Forfeiture or Termination of Awards of Shares. If any Shares
subject to any Award granted hereunder are forfeited or an Award otherwise
terminates or expires without the issuance of Shares, the Shares subject to
such Award shall again be available for distribution in connection with
future Awards under the Plan as set forth in Section 3(a), unless the
participant who had been awarded such forfeited Shares or the expired or
terminated Award has theretofore received dividends or other benefits of
ownership with respect to such Shares. For purposes hereof, a participant
shall not be deemed to have received a benefit of ownership with respect to
such Shares by the exercise of voting rights or the accumulation of
dividends which are not realized because of the forfeiture of such Shares
or the expiration or termination of the related Award without issuance of
such Shares.
(c) Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split, combination of
shares or other change in corporate structure of the Company affecting the
Shares, such substitution or adjustment shall be made in the aggregate
number of Shares reserved for issuance under the Plan, in the number and
option price of shares subject to outstanding options granted under the
Plan, in the number and purchase price of shares subject to outstanding
Share Purchase Rights granted under the Plan, and in the number of shares
subject to Restricted Share Awards, Deferred Share Awards and any other
outstanding Awards granted under the Plan as may be approved by the
Committee, in its sole discretion; provided that the number of shares
subject to any Award shall always be a whole number.
(d) Annual Award Limit. No Participant may be granted Stock Options
or Awards under the Plan with respect to an aggregate of more than 250,000
Shares (subject to adjustment as provided in Section 3(c) hereof) during
any calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its Subsidiaries
and Affiliates, if any, who are responsible for or contribute to the
management, growth or
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profitability of the business of the Company or its Subsidiaries or Affiliates,
if any, are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS.
(a) Grant. Stock Options may be granted alone, in addition to or in
tandem with other Awards granted under the Plan or cash awards made outside
the Plan. The Committee shall determine the individuals to whom, and the
time or times at which, grants of Stock Options will be made, the number of
Shares purchasable under each Stock Option and the other terms and
conditions of the Stock Option in addition to those set forth in Sections
5(b) and 5(c). Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types which shall be
indicated on their face: (i) Incentive Stock Options and (ii) Non-
Qualified Stock Options. Subject to Section 5(c) hereof, the Committee
shall have the authority to grant to any participant incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options.
(b) Terms and Conditions. Options granted under the Plan shall be
evidenced by Option Agreements, shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
(1) Option Price. The option price per share of Shares
purchasable under a Non-Qualified Stock Option or an Incentive Stock
Option shall be determined by the Committee at the time of grant and
shall be not less than 100% of the Fair Market Value of the Shares at
the date of grant (or, with respect to an incentive stock option, 110%
of the Fair Market Value of the Shares at the date of grant in the case
of a participant who at the date of grant owns Shares possessing more
than ten percent of the total combined voting power of all classes of
stock of the Company or its parent or Subsidiary corporations (as
determined under Section 424(d), (e) and (f) of the Code)).
(2) Option Term. The term of each Stock Option shall be fixed
by the Committee and may not exceed ten years from the date the Option
is granted (or, with respect to an Incentive Stock Options, five years
in the case of a participant who at the date of grant owns Shares
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or subsidiary
corporations (as determined under Section 424(d), (e) and (f) of the
Code)).
(3) Exercise. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined
by the
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Committee at or after grant; provided, however, that, except as provided
in Section 5(b)(6) and Section 11, unless otherwise determined by the
Committee at or after grant, no Stock Option shall be exercisable prior
to six months and one day following the date of grant. If any Stock
Option is exercisable only in installments or only after specified
exercise dates, the Committee may waive, in whole on in part, such
installment exercise provisions, and may accelerate any exercise date or
dates, at any time at or after grant based on such factors as the
Committee shall determine, in its sole discretion.
(4) Method of Exercise. Subject to any installment exercise
provisions that apply with respect to such Stock Option, and the six
month and one day holding period set forth in Section 5(b)(3), Stock
Options may be exercised in whole or in part, at any time during the
option period, by giving to the Company written notice of exercise
specifying the number of Shares on the date the option is exercised.
Such notice shall be accompanied by payment in full of the
option price of the Shares for which the Option is exercised, in cash or
Shares or by check or such other instrument as the Committee may accept.
The value of each such Share surrendered or withheld shall be 100% of
the Fair Market Value of the Shares on the date the option is exercised.
No Shares shall be issued pursuant to an exercise of an Option
until full payment has been made. A participant shall not have rights
to dividends or any other rights of a shareholder with respect to any
Shares subject to an Option unless and until the participant has given
written notice of exercise, has paid in full for such Shares, has given,
if requested, the representation described in Section 14(a) and such
Shares have been issued to him.
(5) Non-Transferability of Options. No Stock Option shall be
transferable by the participant other than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the participant's lifetime, only by the Participant or, subject
to Sections 5(b)(3) and 5(c), by the participant's authorized legal
representative if the participant is unable to exercise an option as a
result of the participant's Disability; provided, however, that if so
provided in the instrument evidencing the Option, the Committee may
permit any optionee to transfer the Option during his lifetime to one or
more members of his family, or to one or more trusts for the benefit of
one or more members of his family, provided that no consideration is
paid for the transfer and that such transfer would not result in the
loss of any exemption under Rule 16b-3 for any Option that the Committee
does not permit to be so transferred. The transferee of an Option shall
be subject to all restrictions, terms, and conditions applicable to the
Option prior to its transfer, except that the Option shall not be
further transferable inter vivos by the
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transferee. The Committee may impose on any transferable Option and on
the Common Shares to be issued upon the exercise of the Option such
limitations and conditions as the Committee deems appropriate.
(6) Termination by Death. Subject to Section 5(c), if any
participant's employment by the Company or any Subsidiary or Affiliate
terminates by reason of death, any Stock Option held by such Participant
may thereafter be exercised, to the extent such Option was exercisable
at the time of death or would have become exercisable within one year
from the time of death had the participant continued to fulfill all
conditions of the Option during such period (or on such accelerated
basis as the Committee may determine at or after grant), by the estate
of the participant (acting through its fiduciary), for a period of one
year (or such other period as the Committee may specify at or grant)
from the date of such death. The balance of the Stock Option shall be
forfeited.
(7) Termination by Reason of Disability. Subject to Sections
5(b)(3) and 5(c), if a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any Stock
Option held by such participant may hereafter be exercised, to the
extent such Option was exercisable at the time of termination or would
have become exercisable within one year from the time of termination had
the participant continued to fulfill all conditions of the Option during
such period (or on such accelerated basis as the Committee may determine
at or after grant), by the participant or by the participant's duly
authorized legal representative if the participant is unable to exercise
the Option as a result of the participant's Disability, for a period of
one year (or such other period as the Committee may specify at or after
grant), from the date of such termination of employment; provided,
however, that in no event may any such Option be exercised prior to six
months and one day from the date of grant; and provided, further, that
if the participant dies within such one-year period (or such other
period as the Committee shall specify at or after grant), any
unexercised Stock Option held by such participant shall thereafter be
exercisable by the estate of the participant (acting though its
fiduciary) to the same extent to which it was exercisable at the time of
death for a period of one year from the date of such termination of
employment. The balance of the Stock Option shall be forfeited.
(8) Other Termination. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option, if a
participant's employment by the Company or any Subsidiary or Affiliate
is terminated for any reason other than death or Disability, all Stock
Options held by such participant shall thereupon terminate 90 days after
the date of such termination.
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<PAGE> 8
(c) Incentive Stock Options. Notwithstanding Sections
5(b)(6) and (7), an Incentive Stock Option shall be exercisable by (i) a
participant's authorized legal representative (if the participant is
unable to exercise the Incentive Stock Option as a result of the
participant's Disability) only if, and to the extent, permitted by
Section 422 of the Code and Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder and (ii) by the participant's
estate, in the case of death, or authorized legal representative, in the
case of Disability, no later than 10 years from the date the Incentive
Stock Option was granted (in addition to any other restrictions or
limitations which may apply). Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without the
consent of the participants affected, to disqualify any Incentive Stock
Option under such Section 422 or any successor section thereto.
(d) Buyout Provisions. The Committee may at any time buy
out for a payment in cash, Shares, Deferred Shares or Restricted Shares
an option previously granted, based on such terms and conditions as the
Committee shall establish and agree upon with the participant, provided
that no such transaction involving a Section 16 participant shall be
structured or effected in a manner that would violate, or result in any
liability on the part of the participant under, Section 16 of the
Exchange Act or the rules and regulations promulgated thereunder.
SECTION 6. RESTRICTED SHARES.
(a) Grant. Restricted Shares may be issued alone, in
addition to or in tandem with other Awards under the Plan or cash awards
made outside of the Plan. The Committee shall determine the individuals
to whom, and the time or times at which, grants of Restricted Shares
will be made, the number of Restricted Shares to be awarded to each
Participant, the price (if any) to be paid by the participant (subject
to Section 6(b)), the date or dates upon which Restricted Share Awards
will vest and the period or periods within which such Restricted Share
Awards may be subject to forfeiture, and the other terms and conditions
of such Awards in addition to those set forth in Section 6(b).
The Committee may condition the grant of Restricted Shares upon
the attainment of specified performance goals or such other factors as
the Committee may determine in its sole discretion.
(b) Terms and Conditions. Restricted Shares awarded under
the Plan shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall deem desirable.
A Participant who receives a Restricted Share Award shall not have any
rights with respect to such Award, unless and until such
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<PAGE> 9
participant has executed an agreement evidencing the Award in the form
approved from time to time by the Committee and has delivered a fully
executed copy thereof to the Company, and has otherwise complied with
the applicable terms and conditions of such Award.
(1) The purchase price (if any) for Restricted Shares
shall be determined by the Committee at the time of grant.
(2) Awards of Restricted Shares must be accepted by
executing a Restricted Share Award agreement and paying any price
required under Section 6(b)(1).
(3) Each participant receiving a Restricted Share
Award shall be issued a stock certificate in respect of such
Restricted Shares. Such certificate shall be registered in the
name of such participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to
such Award.
(4) The Committee shall require that the stock
certificates evidencing such Restricted Shares be held in custody
by the Company until the restrictions thereon shall have lapsed,
and that, as a condition of any Restricted Shares Award the
Participant shall have delivered to the Company a stock power,
endorsed in blank, relating to the Shares covered by such Award.
(5) Subject to the provisions of this Plan and the
Restricted Share Award agreement, during a period set by the
committee commencing with the date of such Award (the
"Restriction Period"), the participant shall not be permitted to
sell, transfer, pledge, assign or otherwise encumber the
Restricted Shares awarded under the Plan. The Restriction Period
shall not be less than [three years] in duration ("Minimum
Restricted Period"). Subject to these limitations and the Minimum
Restriction Period requirement, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions, in
whole or in part, based on service, performance or such other
factors and criteria as the Committee may determine, in its sole
discretion.
(6) Except as provided in this Section 6(b)(6),
Section 6(b)(5) and Section 6(b)(7) the participant shall have,
with respect to the Restricted Shares awarded, all of the rights
of a shareholder of the Company, including the right to vote the
Shares, and the right to receive any dividends. The Committee,
in its sole discretion, as determined at the time of award, may
permit or require the payment of cash dividends to be deferred
and, if the Committee so determines, reinvested, subject to
Section 14(f), in additional Restricted Shares to the extent
Shares are available under Section 3, or otherwise reinvested.
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Unless the Committee or Board determines otherwise, share
dividends issued with respect to Restricted Shares shall be
treated as additional Restricted Shares that are subject to the
same restrictions and other terms and conditions that apply to
the Shares with respect to which such dividends are issued.
(7) No Restricted Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(8) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Restricted Shares held by such participant shall thereupon vest
and all restrictions thereon shall lapse, to the extent such
Restricted Shares would have become vested or no longer subject
to restriction within one year from the time of death had the
participant continued to fulfill all of the conditions of the
Restricted Share Award during such period (or on such accelerated
basis as the Committee may determine at or after grant). The
balance of the Restricted Shares shall be forfeited.
(9) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of Disability,
any Restricted Shares held by such participant shall thereupon
vest and all restrictions thereon shall lapse, to the extent such
Restricted Shares would have become vested or no longer subject
to restriction within one year from the time of termination had
the participant continued to fulfill all of the conditions of the
Restricted Share Award during such period (or on such accelerated
basis as the Committee may determine at or after grant), subject
in all cases to the Minimum Restriction Period requirement. The
balance of the Restricted Shares shall be forfeited.
(10) Unless otherwise determined by the Committee at
or after the time of granting any Restricted Shares, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, the Restricted Shares held by such participant which
are unvested or subject to restriction at the time of termination
shall thereupon be forfeited.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide in its sole
discretion for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Shares to the recipient of
a Restricted Share Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
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SECTION 7. DEFERRED SHARES.
(a) Grant. Deferred Shares may be awarded alone, in addition
to or in tandem other Awards granted under the Plan or cash awards made
outside the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, Deferred Shares shall be awarded,
the number of Deferred Shares to be awarded to any participant, the
duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the Shares will be deferred, and the
other terms and conditions of the Award in addition to those set forth
in Section 7(b).
The Committee may condition the grant of Deferred Shares upon
the attainment of specified performance goals or such other factors as
the Committee shall determine, in its sole discretion.
(b) Terms and Conditions. Deferred Share Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee considers desirable:
(1) The purchase price for Deferred Shares shall be
determined at the time of grant by the Committee. Subject to the
provisions of the Plan and the Award agreement referred to in
Section 7(b)(9), Deferred Share Awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or the
Elective Deferral Period referred to in Section 7(b)(8), when
applicable), stock certificates shall be delivered to the
participant, or his legal representative, for the shares covered
by the Deferred Share Award. The Deferral period applicable to
any Deferred Share Award shall not be less than six months and
one day ("Minimum Deferral Period").
(2) Unless otherwise determined by the Committee at grant,
amounts equal to any dividends declared during the Deferral
Period with respect to the number of Shares covered by a Deferred
Share Award will be paid to the participant currently, or
deferred and deemed to be reinvested in additional Deferred
Shares, or otherwise reinvested, all as determined at or after
the time of the Award by the Committee, in its sole discretion.
(3) No Deferred Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(4) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any
Deferred Shares awarded to by such participant shall thereafter
vest and all restrictions thereon shall lapse, to the extent such
Deferred Shares would have become vested or no longer subject to
restriction within one year from the time of death had the
participant
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continued to fulfill all of the conditions of the Deferred Share
Award during such period (or on such accelerated basis as the
Committee may determine at or after grant). The balance of the
Deferred Shares shall be forfeited.
(5) If a participants employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any
Deferred Shares awarded to such participant shall thereafter vest
and all restrictions thereon shall lapse, to the extent such
Deferred Shares would have become vested or no longer subject to
restriction within one year from the time of termination had the
participant continued to fulfill all of the conditions of the
Deferred Shares Award during such period (or on such accelerated
basis as the Committee may determined at or after grant), subject
in all cases to the Minimum Deferral Period requirement. The
balance of the Deferred Shares shall be forfeited.
(6) Unless otherwise determined by the Committee at or
after the time of granting any Deferred Share Award, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, all Deferred Shares held by such participant which
are unvested or subject to restriction shall thereupon be
forfeited.
(7) Based on service, performance or such other factors or
criteria as the Committee may determine, the Committee may, at or
after grant, accelerate the vesting of all or any part of any
Deferred Share Award or waive a portion of the Deferral Period
for all or any part of such Award, subject in all cases to the
Minimum Deferral Period requirement.
(8) A participant may elect to further defer receipt of a
Deferred Share Award (or an installment of an Award) for a
specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's
approval and the terms of this Section 7 and such other terms as
are determined by the Committee, all in its sole discretion.
Subject to any exceptions approved by the Committee, such
election must be made at least 12 months prior to completion of
the Deferral Period for such Deferred Share Award (or such
installment).
(9) Each such Award shall be confirmed by, and subject to
the terms of, a Deferred Share Award agreement evidencing the
Award in the form approved from time to time by the Committee.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the Participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed to
guarantee a minimum value, payable in cash or Shares to the
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recipient of a Deferred Share Award, subject to such performance, future
service, deferral and other terms and conditions as may be specified by
the Committee.
SECTION 8. SHARE PURCHASE RIGHTS.
(a) Grant. Share Purchase Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside the Plan. The committee shall determine the
individuals to whom, and the time or times at which, grants of Share
Purchase Rights will be made, the number of Shares which may be
purchased pursuant to Share Purchase Rights, and the other terms and
conditions of the Share Purchase Rights in addition to those set forth
in Section 8(b). The Shares subject to the Share Purchase Rights may be
purchased at the Fair Market Value of such Shares on the date of grant;
Subject to Section 8(b) hereof, the Committee may also impose
such deferral, forfeiture or other terms and conditions as it shall
determine, in its sole discretion, on such Share Purchase Rights or the
exercise thereof.
Each Share Purchase Right Award shall be confirmed by, and be
subject to the terms of, a Share Purchase Rights Agreement which shall
be in form approved by the Committee.
(b) Terms and Conditions. Share Purchase Rights may contain
such additional terms and conditions not inconsistent with the terms of
the Plan as the Committee shall deem desirable, and shall generally be
exercisable for such period as shall be determined by the Committee.
However, Share Purchase Rights granted to Section 16 participants shall
not become exercisable earlier than six months and one day after the
grant date. Share Purchase Rights shall not be transferable by a
participant other than by will or by the laws of descent and
distribution.
SECTION 9. SHARE APPRECIATION RIGHTS.
(a) Grant. Share Appreciation Rights may be granted in
connection with all or any part of an Option, either concurrently with
the grant of the Option or, if the Option is a Non-Qualified Stock
Option, by an amendment to the Option at any time thereafter during the
term of the Option. Share Appreciation Rights may be exercised in whole
or in part at such times under such conditions as may be specified by
the Committee in the participant's Option Agreement.
(b) Terms and Conditions. The following terms and conditions
will apply to all Share Appreciation Rights:
(1) Share Appreciation Rights shall entitle the
participant, upon exercise of all or any part of the Share
Appreciation Rights, to surrender to
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the Company unexercised that portion of the underlying Option
relating to the same number of Shares as is covered by the Share
Appreciation Rights (or the portion of the Share Appreciation
Rights so exercised) and to receive in exchange from the Company
an amount (paid as provided in Section 9(b)(5)) equal to the
excess of (x) the Fair Market Value, on the date of exercise, of
the Shares covered by the surrendered portion of the underlying
Option over (y) the exercise price of the Shares covered by the
surrendered portion of the underlying Option. The Committee may
limit the amount that the participant will be entitled to receive
upon surrender of a Share Appreciation Right.
(2) Upon the exercise of the Share Appreciation Right
and surrender of the related portion of the underlying Option,
the Option, to the extent surrendered, will not thereafter be
exercisable. The underlying Option may provide that such Share
Appreciation Rights will be payable solely in cash. The terms of
the underlying Option shall provide a method by which an
alternative fair market value of the Shares on the date of
exercise shall be calculated based on one of the following: (x)
the closing price of the Shares on the national exchange on which
they are then traded on the business day immediately preceding
the day of exercise; (y) the highest closing price of the Shares
on the national exchange on which they have been traded, during
the 90 days immediately preceding the Change in Control; or (z)
the greater of (x) and (y).
(3) In addition to any further conditions upon
exercise that may be imposed by the Committee, the Share
Appreciation Rights shall be exercisable only to the extent that
the related Option is exercisable, except that in no event will a
Share Appreciation Right held by a Section 16 Participant be
exercisable within the first six months after it is awarded even
though the related Option is or becomes exercisable, and each
Share Appreciation Right will expire no later than the date on
which the related Option expires. A Share Appreciation Right may
only be exercised at a time when the Fair Market Value of the
Shares covered by the Share Appreciation Right exceeds the
exercise price of the Shares covered by the underlying Option.
No Share Appreciation Right held by a Section 16 Participant
shall be exercisable by its terms within the first six months
after it is granted, and a Section 16 Participant may only
exercise a Share Appreciation Right during a period beginning on
the third business day and ending on the twelfth business day
following the release for publication of quarterly or annual
summary statements of the Company's sales and earnings.
(4) Share Appreciation Rights may be exercised by the
participant's giving written notice of the exercise to the
Company, stating the number of Share Appreciation Rights he has
elected to exercise and surrendering the portion of the
underlying Option relating to the same number of Shares as the
number of Share Appreciation Rights elected to be exercised.
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(5) The manner in which the Company's obligation
arising upon the exercise of the Share Appreciation Right will be
paid will be determined by the Committee and shall be set forth
in the participant's Option Agreement. The Committee may provide
for payment in Shares or cash, or a fixed combination of Shares
or cash, or the Committee may reserve the right to determine the
manner of payment at the time the Share Appreciation Right is
exercised. Shares issued upon the exercise of a Share
Appreciation Right will be valued at their Fair Market Value on
the date of exercise.
SECTION 10. OTHER SHARE-BASED AWARDS.
(a) Grant. Other Awards of Shares and other Awards that are
valued, in whole or in part, by reference to, or are otherwise based on,
Shares, including, without limitation, performance shares, convertible
preferred shares, convertible debentures, exchangeable securities and
Share Awards or options valued by reference to Book Value or subsidiary
performance, may be granted alone, in addition to or in tandem with
other Awards granted under the Plan or cash awards made outside of the
Plan.
At the time the Shares or Other Share-Based Award is granted, the
Committee shall determine the individuals to whom and the time or times
at which such Shares or other Share-Based Awards shall be awarded, the
number of Shares to be used in computing an Award or which are to be
awarded pursuant to such Awards, the consideration, if any, to be paid
for such Shares or other Share-Based Awards, and all other terms and
conditions of the Awards in addition to those set forth in Section
10(b).
The provisions of other Share-Based Awards need not be the same
with respect to each participant.
(b) Terms and Conditions. Other Share-Based Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable.
(1) Subject to the provisions of this Plan and the
Award agreement referred to in Section 10(b)(5) below, Shares
awarded or subject to Awards made under this Section 10 may not
be sold, assigned, transferred, pledged or otherwise encumbered
prior to the date on which the Shares are issued, or, if later,
the date on which any applicable restriction, performance,
holding or deferral period or requirement is satisfied or lapses.
All Shares or Other Share-Based Awards granted under this Section
10 shall be subject to a minimum holding period (including any
applicable restriction, performance
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and/or deferral periods) of six months and one day ("Minimum
Holding Period").
(2) Subject to the provisions of this Plan and the
Award agreement and unless otherwise determined by the Committee
at the time of grant, the recipient of an Other Share-Based Award
shall be entitled to receive, currently or on a deferred basis,
interest or dividends or interest or dividend equivalents with
respect to the number of Shares covered by the Award, as
determined at the time of the Award by the Committee, in its sole
discretion, and the Committee may provide that such amounts (if
any) shall be deemed to have been reinvested in additional Shares
or otherwise reinvested.
(3) Subject to the Minimum Holding Period, any Other
Share-Based Award and any Shares covered by any such Award shall
vest or be forfeited to the extent, at the times and subject to
the conditions, if any, provided in the Award agreement, as
determined by the Committee, in its sole discretion.
(4) In the event of the participant's Disability or
death, or in cases of special circumstances, the Committee may,
in its sole discretion, waive, in whole or in part, any or all of
the remaining limitations imposed hereunder or under any related
Award agreement with respect to any part of all of any Award
under this Section 10, provided that the Minimum Holding Period
requirement may not be waived, except in case of a participant's
death.
(5) Each Award shall be confirmed by, and subject to
the terms of, an agreement or other instrument evidencing the
Award in the form approved from time to time by the Committee,
the Company and the participant.
(6) Shares (including securities convertible into
Shares) issued on a bonus basis under this Section 10 shall be
issued for no cash consideration. Shares (including securities
convertible into Shares) purchased pursuant to a purchase right
awarded under this Section 10 shall bear a price of at least 85%
of the Fair Market Value of the Shares on the date of grant. The
purchase price of such Shares, and of any Other Share-Based Award
granted hereunder, or the formula by which such price is to be
determined, shall be fixed by the Committee at the time of grant.
(7) In the event that any "derivative security", as
defined in Rule 16a-1(c) (or any successor thereof) promulgated
by the Securities and Exchange Commission under Section 16 of the
Exchange Act, is awarded pursuant to this Section 10 to any
Section 16 participant, such derivative security shall not be
transferrable other than by will or by the laws of descent and
distribution.
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<PAGE> 17
SECTION 11. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. At any time during the 365 days
commencing with the date of either (1) a "Change in Control" as defined
in Section 11(b) or (2) a "Potential Change in Control" as defined in
Section 11(c), a majority of the "Continuing Directors" as defined in
Section 11(e) (or one of the two Continuing Directors if only two
Continuing Directors are then serving on the Board of Directors or the
sole Continuing Director if only one Continuing Director is then serving
on the Board of Directors) may cause the following provisions to take
effect as stated and as of the date set forth in a Written Action (the
"Written Action") adopted to that effect (that date, the "Accelerated
Vesting Date") and if there are no Continuing Directors, the following
provisions will automatically take effect:
(1) Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(2) Any Share Appreciation Rights shall become immediately
exercisable;
(3) The restrictions applicable to any Restricted Shares,
Deferred Shares Awards, Share Purchase Rights Awards and Other
Share Based Awards shall lapse and such shares and awards shall
be deemed fully vested; and
(4) The value of all outstanding Awards, in each case to
the extent vested, shall, unless otherwise determined by the
Committee in its sole discretion at or after grant but prior to
any Change in Control or Potential Change in Control, be paid to
the participant in cash in exchange for the surrender of those
Awards on the basis of the "Change in Control Price" as defined
in Section 11(d) as of the Accelerated Vesting Date;
but the provisions of Sections 11(a)(1) through (3) shall not apply with
respect to Awards granted to any Section 16 Participant which have been
held by such participant for less than six months and one day as of the
Accelerated Vesting Date.
(b) Definition of Change in Control. For purposes of
Section 11(a), a "Change in Control" means the occurrence of any of the
following: (i) the Board or shareholders of the Company approve a
consolidation or merger that results in the shareholders of the Company
immediately prior to the transaction giving rise to the consolidation or
merger owning less than 50% of the total combined voting power of all
classes of stock entitled to vote of the surviving entity immediately
after the consummation of the transaction giving rise to the merger or
consolidation; (ii) the Board or shareholders of the Company approve the
sale of substantially all of the assets of the Company or the
liquidation or dissolution of the Company; (iii) any person or other
entity (other than the Company or a Subsidiary or any Company
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<PAGE> 18
employee benefit plan (including any trustee of any such plan acting in
its capacity as trustee)) purchases any Shares (or securities
convertible into Shares) pursuant to a tender or exchange offer without
the prior consent of the Board of Directors, or becomes the beneficial
owner of securities of the Company representing 25% or more of the
voting power of the Company's outstanding securities; or (iv) during any
two-year period, individuals who at the beginning of such period
constitute the entire Board of Directors cease to constitute a majority
of the Board of Directors, unless the election or the nomination for
election of each new director is approved by at least two-thirds of the
directors then still in office who were directors at the beginning of
that period.
(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of
any one of the following:
(1) The approval by the shareholders of the Company of
an agreement by the Company, the consummation of which would
result in a Change in Control of the Company as defined in
Section 11(b); or
(2) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the
Company or a Subsidiary or any Company employee benefit plan
(including any trustee of any such plan acting in its capacity as
trustee)) of securities of the Company representing 15% or more
of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to the
effect that a Potential Change in Control of the Company has
occurred for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 11,
"Change in Control Price", means the greater of: (a) the highest price
per share paid in any transaction reported on the New York Stock
Exchange Composite Index (or, if the Shares are not then traded on the
New York Stock Exchange, the highest price paid as reported for any
national exchange on which the Shares are then traded) or paid or
offered in any bona fide transaction related to a Change in Control or
Potential Change in Control of the Company, at any time during the
60-day period immediately preceding the occurrence of the Change in
Control (or, when applicable, the occurrence of the Potential Change in
Control event), and (b) the highest price per share paid in any
transaction reported on the New York Stock Exchange Composite Index (or,
if the Shares are not then traded on the New York Stock Exchange, the
highest price paid as reported for any national exchange on which the
Shares are then traded), at any time during the 60-day period
immediately preceding the date on which the Continuing Directors execute
a Written Action relating to that Change in Control or Potential Change
in Control, in each case as determined by the Committee.
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<PAGE> 19
(e) Definition of Continuing Director. For purposes of this
Section 11, a "Continuing Director" means an individual who was a member
of the Board of Directors immediately prior to the date of a Change in
Control or a Potential Change in Control and is a member of the Board of
Directors at the time a Written Action relating to that Change in
Control or Potential Change in Control is taken.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend, alter or
discontinue the Plan, but no such amendment, alteration or discontinuation
shall be made which would impair the rights of a participant under an Award
theretofore granted, without the participant's consent. The Company shall
submit to the shareholders of the Company for their approval any amendments to
the Plan which are required by Section 16 of the Exchange Act or the rules and
regulations thereunder, or Section 162(m) of the Code, to be approved by the
shareholders.
The Committee may at any time, in its sole discretion, amend the terms
of any Award, but no such amendment shall be made which would impair the rights
of a participant under an Award theretofore granted, without the participant's
consent; nor shall any such amendment be made which would make the applicable
exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any
Section 16 participant holding the Award without the participant's consent.
Subject to the above provisions, the Board shall have all necessary
authority to amend the Plan to make into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each Participant acquiring
Shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that the participant is acquiring the Shares
without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall
be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under
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<PAGE> 20
the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Shares is then
listed, and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be put on any certificates
for such shares to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan, nor its operation,
nor any document describing, implementing or referring to the Plan, or
any part thereof, shall confer upon any participant under the Plan any
right to continue in the employ, or as a director, of the Company or any
Subsidiary or Affiliate, or shall in any way affect the right and power
of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, of any participant under the Plan
at any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a
participant between the Company and its Subsidiaries and Affiliates
shall not be deemed a termination of employment.
(e) No later than the date as of which an amount first
becomes includable in the gross income of the participant for federal
income tax purposes with respect to any award under the Plan, the
Participant shall pay to the Company, or make arrangements satisfactory
to the Committee regarding the payment, of, any federal, state or local
taxes or other items of any kind required by law to be withheld with
respect to such amount. Subject to the following sentence, unless
otherwise determined by the Committee, withholding obligations may be
settled with Shares, including unrestricted Shares previously owned by
the participant or Shares that are part of the Award that gives rise to
the withholding requirement. Notwithstanding the foregoing, any
election by a Section 16 participant to settle such tax withholding
obligation with Shares that is part of such Award shall be subject to
approval by the Committee, in its sole discretion. The obligations of
the Company under the Plan shall be conditional on such payment or
arrangements and the Company and its Subsidiaries and Affiliates shall,
to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
(f) The actual or deemed reinvestment of dividends or
dividend equivalents in additional Restricted Shares (or in Deferred
Shares or other types of Awards) at the time of any dividend payment
shall only be permissible if sufficient Shares are
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<PAGE> 21
available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options, Share Purchase Rights and other Plan
Awards).
(g) The Plan, all Awards made and actions taken thereunder and
any agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to
the Plan shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect
to each participant.
SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on June 18, 1996 and is subject to
approval by the holders of the Company's outstanding Shares, in accordance with
applicable law. The Plan will become effective on the date of such approval.
SECTION 16. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after July 31,
2006, but Awards granted prior to such date may extend beyond that date.
-21-
<PAGE> 1
EXHIBIT 10.4
DIRECTORS' DEFERRED COMPENSATION PLAN
BOYKIN LODGING COMPANY (the "Company") desires to establish a Directors'
Deferred Compensation Plan (the "Plan") to assist it in attracting and retaining
persons of competence and stature to serve as outside directors by giving them
the option of deferring receipt of the fees payable to them by the Company for
their services as directors.
Therefore, the Company hereby adopts the Plan as hereinafter set forth:
1. EFFECTIVE DATE. The Plan shall apply to all elections to defer made
after its adoption and shall be applicable to all director's fees payable with
respect to periods commencing with the Company's fiscal quarter which begins
October 1, 1996.
2. PARTICIPATION. Each director of the Company (a) who is duly elected to
the Company's Board of Directors and (b) who receives fees for services as a
director, may elect to defer receipt of fees otherwise payable to him, as
provided for in the Plan. Each such director who elects to defer fees shall be a
Participant in the Plan.
3. ADMINISTRATION. The Company's Board of Directors appoints
____________________________________________________, directors and/or officers
of the Company who are not eligible to become Participants, to act as the
Administrators of the Plan ("Administrators"). They shall serve at the pleasure
of the Board of Directors and shall administer, construe and interpret the Plan.
The Administrators shall not be liable for any act done or determination made in
good faith. The Board of Directors shall have the power to designate additional
or replacement Administrators at its discretion.
4. DEFERRALS.
(a) DEFERRAL ELECTION. Prior to January 1 of each year, any eligible
director may file with the Company and/or the Administrators of the Plan, an
election
<PAGE> 2
in writing to participate in the Plan for that year or for that year and
succeeding years. Each director who first becomes eligible to participate after
the date of the adoption of this Plan may make an election for the portion of
the year in which he first became eligible with respect to fees for services to
be rendered after the date of such election. When a deferral election is filed,
no fees will be paid for services so designated for that year (or portion
thereof) or for that year and for succeeding years. If an election has been
filed to participate in the Plan for succeeding years and a Participant wishes
to discontinue deferral, an election to terminate participation in the Plan for
any year must be filed prior to January 1 of that year.
(b) ACCOUNTING. Appropriate records shall be maintained by the Company
("Deferral Accounts") which shall list and reflect each Participant's credits
and valuations. The Company shall credit to each Participant's Deferral Account
an amount equivalent to the fees that would have been paid to him if he had not
elected to participate in the Plan. The credit shall be made on the date on
which the fee would have been paid absent a deferral election. No funds shall be
segregated into the Deferral Account of Participants; said accounts shall
represent a general unsecured obligation of the Company.
(c) VALUATION. Until the first distribution to a Participant, amounts
credited to a Deferral Account of such Participant shall be increased or
decreased as measured by the market value of the Company's Common Shares plus
the value of dividends or other distributions on the Company's Common Shares.
Each amount credited to a Deferral Account shall be assigned a number of Share
Units (including fractions of a Share) determined by dividing the amount
credited to the Deferral Account,
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<PAGE> 3
whether in lieu of payment of fees for service as a director or as a
dividend or other distribution attributable to such Share Units, by the
fair market value of a share of the Company's Common Shares on the date
of credit. Fair market value shall be the mean between the high and low
selling price of a share of the Company's Common Shares on the New York
Stock Exchange on the concerned date or, if no sales occurred on such
date, on the most recent preceding date on which sales occurred. Each
Share Unit shall have the value of a Common Share of the Company. The
number of Share Units shall be adjusted to reflect stock splits, stock
dividends or other capital adjustments effected without receipt of
consideration by the Company.
5. DISTRIBUTION. A Participant shall elect in writing, at the time he makes
each deferral election under subparagraph 4(a), the date on which distribution
of the credits to his Deferral Account to which the deferral election relates
shall commence and the method of distribution, as permitted hereunder. Payment
shall commence not earlier than the January 1 following the year in which the
Participant attains age 55, and not later than the January 1 following the year
in which the Participant attains age 72. Commencing immediately prior to the
first distribution to a Participant and continuing thereafter, amounts credited
to the Deferral Account of such Participant shall be credited with interest,
compounded quarterly, calculated at a rate per annum equal to the prime rate of
interest as published in the Wall Street Journal in effect on the first day of
each fiscal quarter of the Company. Payment may be made in one lump sum, or five
or ten equal annual installments of the Deferral Account balance allocated to
such installment payments determined as of the December 31 immediately preceding
commencement of distribution, with each payment accompanied by any interest
credited during the period preceding payment of the installment. The time of and
method of distribution of
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<PAGE> 4
benefits may vary with each separate election, but each election shall be
irrevocable. The Deferral Accounts do not represent rights to acquire the
Company's Common Shares; payment shall only be made in cash.
6. DEATH OR DISABILITY.
(a) In the event a Participant's service is terminated by reason of
death or disability prior to the distribution of any portion of his
benefits, the Company shall, within ninety (90) days of the date of service
termination, commence distribution of benefits to the Participant (or to
the beneficiary or beneficiaries in the event of death). Distribution shall
be made in accordance with the method of distribution elected by the
Participant pursuant to paragraph 5 hereof. In the event a Participant's
death or disability occurs after distribution of benefits hereunder has
begun, the Company shall continue to make distributions to the Participant
(or to the beneficiary or beneficiaries in the event of death) in
accordance with the methods of distribution elected by the Participant
pursuant to paragraph 5 hereof.
(b) Each Participant shall have the right to designate one or more
beneficiaries to receive distributions in the event of Participant's death
by filing with the Company a beneficiary designation on a form provided.
The designated beneficiary or beneficiaries may be changed by a Participant
at any time prior to his death by the delivery to the Company of a new
beneficiary designation form. If no beneficiary shall have been designated,
or if no designated beneficiary shall survive the Participant,
distributions pursuant to this provision shall be made to the Participant's
estate.
7. ASSIGNMENT AND ALIENATION OF BENEFITS. The right of each Participant to
any account, benefit or payment hereunder shall not, to the extent permitted by
law, be subject in
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<PAGE> 5
any manner to attachment or other legal process for the debts of such
Participant; and no account, benefit or payment shall be subject to
anticipation, alienation, sale, transfer, assignment or encumbrance.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may
amend or terminate this Plan at any time and from time to time. Any amendment or
termination of this Plan shall not affect the rights of a Participant accrued
prior thereto without his written consent.
9. TAXES. The Company shall not be responsible for the tax consequences
under federal, state or local law of any election made by any Participant under
the Plan. All payments under the Plan shall be subject to withholding and
reporting requirements to the extent permitted by applicable law.
10. APPLICABLE LAW. This Plan shall be interpreted under the laws of the
State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its President this ____ day of _____________, 1996.
BOYKIN LODGING COMPANY
By: ____________________________
Robert W. Boykin, President
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<PAGE> 1
EXHIBIT 10.8
FORM
PERCENTAGE LEASE AGREEMENT
DATED AS OF _______________, 1996
BETWEEN
BOYKIN HOTEL PROPERTIES, L.P.
AS LESSOR
AND BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY
AS LESSEE
<PAGE> 2
TABLE OF CONTENTS
Page
PERCENTAGE LEASE AGREEMENT........................................... 1
ARTICLE I............................................................ 1
1.1 Leased Property.................................... 1
1.2 Term............................................... 2
ARTICLE II........................................................... 2
ARTICLE III..........................................................13
3.1 Rent...............................................13
3.2 Payment of Percentage Rent.........................15
3.3 Confirmation of Percentage Rent....................16
3.4 Additional Charges.................................17
3.5 Conversion of Property.............................18
3.6 Annual Revenue Projections.........................18
3.7 Annual Capital Expenditures Budget.................18
3.8 Capital Expenditure Fund...........................19
3.9 Application of Capital Expenditure Fund............19
ARTICLE IV...........................................................22
4.1 Payment of Taxes and Impositions...................22
4.2 Utility Charges....................................23
4.3 Insurance Premiums.................................23
ARTICLE V............................................................24
No Termination, Abatement, Etc..............................24
ARTICLE VI...........................................................24
6.1 Ownership of the Leased Property...................24
6.2 Lessee's Personal Property.........................24
6.3 Lessor's Lien......................................25
ARTICLE VII..........................................................25
7.1 Condition of the Leased Property...................25
7.2 Use of the Leased Property.........................26
7.3 Lessor to Grant Easements, Etc.....................28
7.4 Compliance with Ground Lease.......................28
ARTICLE VIII.........................................................29
8.1 Compliance with Legal, Insurance Requirements,
Lessor's Insurance and Tax Obligations.............29
8.2 Legal Requirements Covenants.......................29
8.3 Environmental Covenants............................30
ARTICLE IX...........................................................32
9.1 Maintenance and Repair.............................32
9.2 Encroachments, Restrictions, Etc...................33
ARTICLE X............................................................34
10.1 Alterations...........................................34
10.2 Salvage...............................................34
10.3 Joint Use Agreements..................................34
ARTICLE XI...........................................................35
Liens ...................................................35
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Page
----
ARTICLE XII............................................................ 35
Permitted Contests............................................ 35
ARTICLE XIII........................................................... 36
13.1 General Insurance Requirements.......................... 36
13.2 Full Replacement Cost................................... 38
13.3 Waiver of Subrogation................................... 38
13.4 Waiver of Coinsurance................................... 38
13.5 Form Satisfactory, Etc.................................. 39
13.6 Increase in Limits...................................... 39
13.7 Blanket Policy.......................................... 39
13.8 No Separate Insurance................................... 39
13.9 Reports of Insurance Claims............................. 40
13.10 Failure to Obtain Insurance............................ 40
ARTICLE XIV............................................................ 40
14.1 Insurance Proceeds...................................... 40
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance........................ 41
14.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance.................... 42
14.4 Lessee's Personal Property.............................. 42
14.5 Abatement of Rent....................................... 42
14.6 Damage Near End of Term................................. 42
14.7 Waiver.................................................. 42
ARTICLE XV............................................................. 42
15.1 Parties' Rights and Obligations......................... 42
15.2 Total Taking............................................ 43
15.3 Allocation of Award..................................... 43
15.4 Partial Taking.......................................... 43
15.5 Temporary Taking........................................ 44
ARTICLE XVI............................................................ 44
16.1 Events of Default....................................... 44
16.2 Remedies................................................ 46
16.3 Waiver.................................................. 49
16.4 Application of Funds.................................... 50
16.5 Surrender............................................... 50
16.6 Waiver.................................................. 50
ARTICLE XVII........................................................... 50
ARTICLE XVIII.......................................................... 51
ARTICLE XIX............................................................ 51
19.1 REIT Compliance......................................... 51
19.2 Sublease Lessee Limitation.............................. 52
19.3 Lessee Ownership Limitation............................. 52
19.4 Lessee Officer and Employee Limitation.................. 52
19.5 Payments to Affiliates of Lessee........................ 52
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<PAGE> 4
Page
----
19.6 Third-Party Management Activities..................... 53
ARTICLE XX............................................................... 53
Holding Over.................................................... 53
ARTICLE XXI.............................................................. 53
Risk of Loss.................................................... 53
ARTICLE XXII............................................................. 53
Indemnification................................................. 54
ARTICLE XXIII............................................................ 55
23.1 Subletting and Assignment................................. 55
23.2 Attornment................................................ 55
23.3 Management Agreement...................................... 55
ARTICLE XXIV............................................................. 56
24.1 Officers' Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants........... 56
24.2 Lessee's Financial Covenants.............................. 57
ARTICLE XXV.............................................................. 57
Books and Records; Lessor's Right to Inspect.................... 57
ARTICLE XXVI............................................................. 58
No Waiver....................................................... 58
ARTICLE XXVII............................................................ 58
Remedies Cumulative............................................. 58
ARTICLE XXVIII........................................................... 58
Acceptance of Surrender......................................... 58
ARTICLE XXIX............................................................. 58
No Merger of Title.............................................. 58
ARTICLE XXX.............................................................. 58
Conveyance by Lessor............................................ 59
ARTICLE XXXI............................................................. 59
Quiet Enjoyment................................................. 59
ARTICLE XXXII............................................................ 59
Notices ....................................................... 59
ARTICLE XXXIII........................................................... 60
33.1 Lessor May Grant Liens, Subordination..................... 60
33.2 Lessee's Right to Cure.................................... 62
33.3 Breach by Lessor.......................................... 62
33.4 Lessee's Cooperation...................................... 62
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<PAGE> 5
Page
----
ARTICLE XXXIV................................................ 63
34.1 Miscellaneous................................. 63
34.2 Transition Procedures......................... 63
34.3 Change of Franchise........................... 64
34.4 Waiver of Presentment, Etc.................... 64
ARTICLE XXXV................................................. 64
Memorandum of Lease................................. 64
ARTICLE XXXVI................................................ 65
Lessor's Option to Purchase Assets of Lessee........ 65
ARTICLE XXXVII............................................... 65
Lessor's Option to Terminate Lease.................. 65
ARTICLE XXXVIII.............................................. 66
Compliance with Franchise Agreement................. 66
ARTICLE XXXIX................................................ 66
Lessor's Limitation on Liability.................... 66
[ARTICLE XXXX. . . . . . . . . . . . . . . . . . . . . . . . 66
Condition]
EXHIBIT A
Description of the Land [and the Ground Lease]
EXHIBIT B
All Space Leases
EXHIBIT C
Initial FF&E
EXHIBIT D
Description of Facility
EXHIBIT E
Capital Expenditures
EXHIBIT F
Exceptions to Ownership/Ownership Interests
EXHIBIT G
Other Hotels & Operations
-iv-
<PAGE> 6
PERCENTAGE LEASE AGREEMENT
--------------------------
THIS PERCENTAGE LEASE AGREEMENT (this "Lease"), made as of the ____day
of ______________, 1996, by and between Boykin Hotel Properties, L.P., an Ohio
limited partnership ("Lessor"), and Boykin Management Company Limited Liability
Company, an Ohio limited liability company ("Lessee"), provides as follows:
W I T N E S S E T H:
--------------------
Lessor has acquired or will acquire the "Leased Property" (as
hereinafter defined) located at _________________ and 8 other hotel properties
and is entering into 8 similar leases with Lessee covering such other hotel
properties, together with such other similar leases which Lessor and Lessee
(and/or their affiliates) may hereafter enter into (the "Percentage Leases").
In furtherance of the consummation of such series of transactions,
Lessor and Lessee wish to enter into this Lease.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions hereinafter stated, does hereby rent and lease
unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased
Property.
ARTICLE I
---------
1.1 LEASED PROPERTY. The "Leased Property" is comprised of
Lessor's interest in the following: [NOTE: EACH INDIVIDUAL LEASE WILL BE
TAILORED TO THE RELEVANT PROPERTY AND CIRCUMSTANCES.]
(a) the land [OR GROUND LEASEHOLD INTEREST] described in
Exhibit A attached hereto and incorporated herein by reference
(the "Land");
(b) all buildings, structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings, structures and other improvements
presently situated upon the Land (collectively, the "Leased Improvements"),
including the Facility;
(c) all easements, rights and appurtenances relating
to the Land and to the Leased Improvements;
(d) [NOTE: NONE OF THE FOLLOWING SHOULD BE INCLUDED
IN THE DEFINITION OF FF&E] all equipment, machinery, fixtures,
and other items of property required or incidental to the use of
<PAGE> 7
the Leased Improvements as a hotel, including all components thereof, now and
hereafter permanently affixed to or incorporated in the Leased Improvements,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which to the greatest extent permitted by law are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto (collectively,
the "Fixtures");
(e) all existing leases of space within the Leased Property
(including any security deposits or collateral held by Lessor pursuant thereto),
which space leases are listed on Exhibit B attached hereto and incorporated by
reference; and
(f) all contract rights, trade names, logos and other
intangible property of Lessor with respect to the operation of the existing
hotel business conducted on the Leased Property, including without limitation,
all rights relating to the Franchise Agreement.
(g) the furniture, fixtures and equipment listed or referred
to on Exhibit C attached hereto and incorporated by reference.
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL CURRENT
AND FUTURE COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS (NOT
LIMITED TO ITEMS OF RECORD) INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE
LIEN OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND
INCLUDING OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED
PROPERTY OR BY AN ACCURATE SURVEY THEREOF.
1.2 TERM. The term of the Lease (the "Term") shall commence on the date
that Lessor acquires the Leased Premises (the "Commencement Date") and shall end
on , unless sooner terminated in accordance with the provisions hereof.
ARTICLE II
----------
DEFINITIONS. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined
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herein have the meanings assigned to them in accordance with generally accepted
accounting principles as are at the time applicable, (c) all references in this
Lease to designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Lease and (d) the
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Lease as a whole and not to any particular Article, Section or other
subdivision:
ADDITIONAL CHARGES. As defined in Section 3.4.
AFFILIATE. As used in this Lease the term "Affiliate" of a Person shall
mean (a) any Person that, directly or indirectly, controls or is controlled by
or is under common control with such Person, (b) any other Person that owns,
beneficially, directly or indirectly, five percent (5%) or more of the
outstanding capital stock, shares or equity interests of such Person, or (c) any
officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
ALIGNMENT OF INTEREST AGREEMENT. As defined in Section
24.2.
AUDITED CONSOLIDATED FINANCIALS. Consolidated Financials
audited by a firm of independent certified public accountants
acceptable to Lessor in its sole discretion.
AWARD. Compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation.
BASE RATE. The rate of interest announced publicly by National City
Bank, in Cleveland, Ohio, from time to time, as such bank's base rate. If no
such rate is announced or if such rate is discontinued, then such other rate as
Lessor may reasonably designate.
BASE RENT. The annual sum of $ ______________, payable in advance in
equal, consecutive monthly installments, on or before the tenth (10th) day of
each calendar month of the Term; provided however, that the first monthly
payment of Base Rent shall be payable on the Commencement Date and that the
first and last monthly payments of Base Rent shall be prorated as to any partial
month (subject to adjustment as provided in Sections 14.5, 15.2, 15.4, and
15.5).
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BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which national banks in the City of Cleveland, Ohio, or in the
municipality wherein the Leased Property is located, are closed.
CAPITAL EXPENDITURES. As defined in Section 3.7.
CERCLA. The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
CODE. The Internal Revenue Code of 1986, as amended.
COMMENCEMENT DATE. As defined in Section 1.2.
CONDEMNATION. A Taking resulting from (1) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a Condemnor,
and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are pending.
CONDEMNOR. Any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.
CONSOLIDATED FINANCIALS. For any fiscal year (or other period for which
such statements are prepared) for Lessee and its consolidated subsidiaries, a
statement of financial position as of such fiscal year (or other period) end
date and statements of operations, cash flows and retained earnings for the
fiscal year (or other period) then ended, all in comparative form, together with
notes thereto, prepared in accordance with generally accepted accounting
principles.
CONSOLIDATED NET WORTH. The sum of consolidated
shareholders' equity of Lessee and any consolidated subsidiaries
as shown on the most recent Audited Consolidated Financials.
CONSUMER PRICE INDEX. The "U.S. City Average, All Items" Consumer Price
Index for All Urban Consumers published by the Bureau of Labor Statistics of the
United States Department of Labor (Base: 1982-1984=100), or any successor index
thereto. If (i) a significant change is made in the number or nature (or both)
of items used in determining the Consumer Price Index, or (ii) the Consumer
Price Index shall be discontinued for any reason, the Lessor shall request that
the Bureau of Labor Statistics furnish a new index comparable to the Consumer
Price Index, together with information which will make possible a conversion to
the new index in computing the adjusted Base Rent hereunder. If for any reason
the Bureau of Labor Statistics does not furnish an index and such information,
the parties will instead mutually select, accept and use such other index or
comparable statistic on the cost of living in Washington, D.C. that is computed
and published by an agency of the United States or a responsible financial
periodical of recognized authority.
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DATE OF TAKING. The date the Condemnor has the right to
possession of the property being condemned.
ENCUMBRANCE. As defined in Article XXXIV.
ENVIRONMENTAL AUTHORITY. Any federal, state, local or foreign
department, agency or other body or component of any Government that
administers, oversees or enforces any Environmental Laws.
ENVIRONMENTAL LAWS. All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees, injunctions and duties under the common law relating to occupational
health and safety, the protection of human health, and pollution of the indoor
and outdoor environment (including without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), including without
limitation laws and regulations relating to emissions, discharges, Releases or
threatened Releases of Hazardous Materials or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials. Environmental Laws include, but
are not limited to, CERCLA, EPCRA, FIFRA, RCRA, SARA and TSCA.
ENVIRONMENTAL LIABILITY. Either of an Identified
Environmental Liability or an Unidentified Environmental
Liability.
EPCRA. The Emergency Planning and Community Right to Know
Act, as amended.
EVENT OF DEFAULT. As defined in Section 16.1.
FACILITY. The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property which shall be included in the Leased Improvements. The Facility is
more particularly described on Exhibit D attached hereto and incorporated by
reference.
FIFRA. The Federal Insecticide, Fungicide, and Rodenticide
Act, as amended.
FISCAL YEAR. The 12-month period from January 1 to
December 31.
FIXTURES. As defined in Section 1.1.
FOOD AND BEVERAGE REVENUES. Gross revenues, receipts and income of any
kind (whether on a cash or credit basis) paid, collected or accrued and derived
directly or indirectly by Lessee from: (i) the sale, for on-site consumption at
the Leased Property or through off-site catering services, of food and
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nonalcoholic beverages, including sales attributable to guest rooms, banquet
rooms, meeting rooms, the restaurant, the lounge, the bar and other similar
rooms; (ii) the sale of wine, beer, liquor or other alcoholic beverages,
including sales attributable to the restaurant, the bar, the lounge, guest
rooms, meeting rooms, banquet rooms, off-site catering or any location at the
Leased Property; (iii) cover charges and audio-visual rental charges related to
banquet, ballroom or meeting room events; and (iv) banquet and meeting room
revenues, including room rental charges from such banquet and meeting rooms.
Such revenues shall not include the following:
(a) Room and Other Revenues as defined below;
(b) Any gratuities or service charges added to a
customer's bill or statement in lieu of a gratuity, which gratuity or
charge Lessee is obligated to pay to or which was paid directly to an
employee;
(c) Customary and reasonable credits, rebates, refunds
or negative adjustments to guests;
(d) Sales taxes and any additional taxes imposed on
the sale of alcoholic beverages;
(e) Amounts attributable to customary and reasonable
allowances, give aways and promotions; and
(f) Sales transactions related to a lounge provided
for the use of guests staying in rooms located on the
concierge level of the Facility.
FRANCHISE AGREEMENT. The franchise agreement or license agreement
currently in effect with Franchisor, and any amendments, replacements or
extensions thereof or other agreements relating thereto hereafter implemented
with the prior approval of Lessor, under which the Facility is operated.
FRANCHISOR. [Marriott] or such other national hotel
franchisor approved by Lessor in accordance with Section 34.3.
GOVERNMENT. The United States of America, any state, county,
municipality, local government, district or territory thereof, any foreign
nation, any state, district, department, territory or other political division
thereof, or any administrative agency, board, commission, bureau or political
subdivision of any of the foregoing.
GROUND LEASE. The ground lease between Lessor and
_____________________, executed with respect to the Land.
GROUND RENT. All rent payable by Lessor as sublessee with
respect to the Ground Lease.
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HAZARDOUS MATERIALS. All chemicals, pollutants,
contaminants, wastes and toxic substances, including without
limitation:
(a) Solid or hazardous waste, as defined in RCRA or in
any Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in
any Environmental Law;
(c) Toxic substances, as defined in TSCA or in any
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as
defined in FIFRA or in any Environmental Law; and
(e) Gasoline or any other petroleum product or
byproduct, polychlorinated biphenols, asbestos, radon and
urea formaldehyde.
IDENTIFIED ENVIRONMENTAL LIABILITIES. Any and all obligations to pay
the amount of any judgment or settlement, the cost of complying with any
settlement, judgment or order for injunctive or other equitable relief, the cost
of compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses, consultants and experts, and costs of investigation and preparation
for defense of any claim or any Proceeding, regardless of whether such
Proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Lessor, Lessee, any Predecessor, the Leased
Property or any property used therein and arising out of any of the matters
disclosed in the report of Law Environmental, dated , 19 , a copy of
which has been delivered and examined by Lessee prior to the execution of
this Lease.
IMPOSITIONS. Collectively, all taxes (including, without limitation,
all personal property, sales and use (including sales, rent or occupancy taxes
on Rent), single business, gross receipts, transaction, privilege, rent or
similar taxes as the same relate to or are imposed upon Lessee, its personal
property or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term), water, sewer or other rents and
charges, excises, tax inspection, authorization and similar fees and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property or the business conducted thereon by Lessee (including all
interest and penalties
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<PAGE> 13
thereon caused by any failure in payment by Lessee), which at any time prior to,
during or with respect to the Term may be assessed or imposed on or with respect
to or be a lien upon (a) Lessor's interest in the Leased Property, (b) the
Leased Property, or any part thereof or any rent therefrom or any estate, right,
title or interest therein, or (c) any occupancy, operation, use or possession
of, or sales from, or activity conducted on or in connection with the Leased
Property, or the leasing or use of the Leased Property or any part thereof by
Lessee. Notwithstanding the foregoing, Impositions shall not include (1) any
Real Estate Taxes on the Leased Property, (2) any personal property taxes on
Lessor's personal property, (3) any tax based on net income (whether denominated
as an income, franchise or capital stock or other tax) imposed on Lessor or any
other Person other than Lessee and Affiliates of Lessee, (4) any net revenue tax
of Lessor or any other Person (other than Lessee or an Affiliate of Lessee), (5)
any tax imposed with respect to the sale, exchange or other disposition by
Lessor of any Leased Property or the proceeds thereof, or (6) any single
business, gross receipts (other than a tax on any rent received by Lessor from
Lessee), transaction, privilege or similar taxes as the same relate to or are
imposed upon Lessor, except to the extent that any tax, assessment, tax levy or
charge that Lessee is obligated to pay pursuant to the first sentence of this
definition, and that is in effect any time during the Term hereof, is totally or
partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1) through (6) is levied, assessed or imposed expressly in lieu thereof.
INDEMNIFIED ENVIRONMENTAL LIABILITY. As defined in Section
8.3.
INDEMNIFIED PARTY; INDEMNITEE. Either of a Lessee
Indemnified Party or a Lessor Indemnified Party.
INDEMNIFYING PARTY. Any party obligated to indemnify an
Indemnified Party pursuant to Section 8.3 or Article XXII.
INSURANCE REQUIREMENTS. All terms of any insurance policy required by
this Lease, any Franchisor or any Legal Requirement, and all requirements of the
issuer of any such policy as to such policy and/or the Leased Property.
INVENTORY. All inventories, supplies, guest supplies, food and beverage
inventory, and consumable merchandise used in connection with the operation of
the Facility, but excluding all such items to the extent owned by
concessionaires, tenants, subtenants, licensees or other Persons occupying all
or a portion of the Leased Property as permitted by this Lease.
LAND. As defined in Section 1.1(a).
LEASE. This Lease.
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LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in
Section 1.1.
LEGAL REQUIREMENTS. All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use or alteration thereof (whether by Lessee or otherwise),
whether or not hereafter enacted and in force, including (a) all Environmental
Laws, and (b) any laws, rules or regulations that may (1) require repairs,
modifications or alterations in or to the Leased Property or (2) in any way
adversely affect the use and enjoyment thereof; and all permits, licenses and
authorizations and regulations relating thereto and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of record or
known to Lessee (other than encumbrances hereafter created by Lessor without the
consent of Lessee), at any time in force affecting the Leased Property.
LENDING INSTITUTION. Any insurance company, investment banking company,
credit company, federally insured commercial or savings bank, national banking
association, savings and loan association, employees welfare, pension or
retirement fund or system, corporate profit sharing or pension trust, college or
university, or real estate investment trust, including any corporation qualified
to be treated for federal tax purposes as a real estate investment trust, such
trust having a net worth of at least $10,000,000 and REMIC conduit lenders.
LESSEE. The Lessee designated on this Lease and its
permitted successors and assigns.
LESSEE INDEMNIFIED PARTY. Lessee and (i) any Affiliate of Lessee, (ii)
any Person against whom any liability may be asserted as a result of a direct or
indirect ownership interest (including a shareholder's interest) in Lessee;
(iii) the officers, directors, shareholders, employees, agents and
representatives of Lessee; and (iv) the respective heirs, personal
representatives, successors and assigns of any of the foregoing Persons.
LESSEE'S PERSONAL PROPERTY. As defined in Section 6.2.
LESSOR. The Lessor designated on this Lease and its
successors and assigns.
LESSOR INDEMNIFIED PARTY. Lessor and (i) any Affiliate of Lessor; (ii)
any Person against whom any liability may be asserted as a result of a direct or
indirect ownership interest (including an interest as a partner) in Lessor;
(iii) the employees, agents and representatives of Lessor; (iv) Boykin Lodging
Trust, Inc., its officers, directors, shareholders,
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employees and agents; and (v) the respective heirs, personal representatives,
successors and assigns of any of the foregoing Persons.
NOTICE. A notice given pursuant to Article XXXII.
OFFICER'S CERTIFICATE. A certificate of Lessee in form and substance
reasonably acceptable to Lessor signed by the chief operating officer and the
chief financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.
OVERDUE RATE. On any date, a rate equal to the Base Rate plus 5% per
annum, but in no event greater than the maximum rate then permitted under
applicable law.
PARTIAL FISCAL YEAR. Any portion of a Fiscal Year which
falls during the Term hereof.
PAYMENT DATE. Any due date for the payment of any
installment of Rent.
PERCENTAGE RENT. As defined in Section 3.1(b).
PERSON. Any individual, corporation, general or limited partnership,
limited liability company, limited liability partnership, stock company or
association, joint venture, association, company, trust, bank, trust company,
land trust, business trust, or other entity and government and agency and
political subdivision thereof.
PREDECESSOR. Any Person whose liabilities arising under any
Environmental Law relating to the Leased Property have or may
have been retained or assumed by Lessee, either contractually or
by operation of law
PRIMARY INTENDED USE. As defined in Section 7.2(b).
PROCEEDING. Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
RCRA. The Resource Conservation and Recovery Act, as
amended.
REAL ESTATE TAXES. All real estate taxes (including any
applicable interest and penalties thereon), including general and
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special assessments, if any, and possessory interest taxes which are imposed
upon the Land and/or the Leased Property.
RELEASE. A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
RENT. Collectively, the Base Rent, Percentage Rent and
Additional Charges.
ROOM AND OTHER REVENUES: All gross revenues, receipts and income of any
kind (whether on a cash or credit basis) paid, collected or accrued and derived
directly or indirectly by Lessee from: (i) the rental of guest rooms; (ii) gift
shop operations; (iii) fees collected from telephone, game room and guest
laundry services; and (iv) guaranteed no show reservations, space rentals
(excluding banquet and meeting room space rentals), discounts earned, vending
machines, valet services, movie services, commissions earned, and swim club
memberships, and (v) all other revenues in connection with the use or operation
of the Leased Property and all services or activities provided thereon,
including revenue derived from subtenants, concessionaires, and licensees, all
as determined in accordance with generally accepted accounting principles.
Notwithstanding the previous sentence, Room and Other Revenues shall not
include:
(a) Food and Beverage Revenues as defined above;
(b) The amount of any credits, rebates, refunds or
adjustments to customers, guests or patrons;
(c) Sales or use taxes;
(d) Interest income;
(e) Gratuities paid or payable to Persons other than
Lessee or its Affiliate; and
(f) Gains from the sale of assets out of the ordinary
course of business.
SARA: The Superfund Amendments and Reauthorization Act of
1985, as amended.
STATE: The State or Commonwealth of the United States in
which the Leased Property is located.
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SUBSIDIARIES: Corporations in which Lessee owns, directly
or indirectly, more than fifty percent (50%) of the voting stock
or control, as applicable.
TAKING: A taking or voluntary conveyance during the Term hereof of all
or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any Condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.
TERM: As defined in Section 1.2.
TSCA: The Toxic Substances Control Act, as amended.
UNAVOIDABLE DELAY: A delay due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease.
UNECONOMIC FOR ITS PRIMARY INTENDED USE: A state or condition of the
Facility such that in the good faith judgment of Lessor it is uneconomic to
operate the Facility for its Primary Intended Use, taking into account, among
other relevant factors, the number of usable rooms and projected revenues.
UNIDENTIFIED ENVIRONMENTAL LIABILITIES: Any and all obligations to pay
the amount of any judgment or settlement, the cost of complying with any
settlement, judgment or order for injunctive or other equitable relief, the cost
of compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or fine or
criminal fine, and any court costs and reasonable amounts for attorney's fees,
fees for witnesses, consultants and experts, and costs of investigation and
preparation for defense of any claim or any Proceeding, regardless of whether
such Proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Lessor, Lessee, any Predecessor, the Leased
Property or any property used therein and arising out of:
(a) Failure of Lessee, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under,
at or in any way affecting the Leased Property;
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(c) A Release at any time of any Hazardous Materials
on, in, at, under or in any way affecting the Leased
Property or any off-site property or facility;
(d) Identification of Lessee, or any Predecessor as a
potentially responsible party under CERCLA or under any
Environmental Law similar to CERCLA;
(e) Presence at any time of any above ground and/or
underground storage tanks as defined in RCRA or in any applicable
Environmental Law on, in, at or under the Leased Property or any
off-site property or facility; or
(f) Any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or
located at the Leased Property, or resulting from operation thereof;
but
excluding those arising out of:
(g) Identified Environmental Liabilities.
UNIFORM SYSTEM: The Uniform System of Accounts for Hotels
(8th Revised Edition, 1986) as published by the Hotel Association
of New York City, Inc. as same may hereafter be revised.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: A state or condition of the
Facility such that, in the good faith judgment of Lessor, due to casualty damage
or loss through Condemnation, the Facility cannot be operated or cannot function
as an integrated hotel facility consistent with standards applicable to a well
maintained and operated hotel.
ARTICLE III
-----------
3.1 RENT. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article XXXII hereof or at such other place or to such other Person, as Lessor
from time to time may designate in a Notice, (A) the higher of (i) Base Rent or
(ii) Percentage Rent and (B) Additional Charges, during the Term, as follows:
(A) BASE RENT: The annual sum of $ ______________, payable in
advance in equal, consecutive monthly installments, on or before the tenth
(10th) day of each calendar month of the Term ("Base Rent"); provided, however,
that the first monthly payment of Base Rent shall be payable on the Commencement
Date and that the first and last monthly payments of Base Rent shall be prorated
as to any partial month (subject to adjustment as provided in Sections 14.5,
15.2, 15.4, and 15.5); and provided,
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further, that Base Rent shall be increased by increases in CPI as set forth in
Subsection (c) below.
(b) PERCENTAGE RENT: For each Fiscal Year and Partial Fiscal
Year during the Term commencing with the Fiscal Year or Partial Fiscal Year
ending December 31, 1996, Lessee shall pay percentage rent ("Percentage Rent"),
if such Percentage Rent is in excess of Base Rent for such Fiscal Year or
Partial Fiscal Year, in an amount calculated by the following formula:
The amount equal to the sum of (i) the Room and Other Revenues
Computation for such Fiscal Year or Partial Fiscal Year plus
(ii) the Food and Beverage Revenues Computation for such
Fiscal Year or Partial Fiscal Year (each as defined below and
collectively, the "Revenue Computations").
For the purpose of this formula:
(1) The Room and Other Revenues Computation for the
applicable Fiscal Year (or Partial Fiscal Year) is equal to
the sum of (A) __% of the first $_________ in Room and Other
Revenues for such Fiscal Year or Partial Fiscal Year, (B) __%
of all amounts above $______ up to $______ in Room and Other
Revenues for such Fiscal Year or Partial Fiscal Year, and (C)
__% of all Room and Other Revenues in excess of $______ for
such Fiscal Year or Partial Fiscal Year (the preceding dollar
figures being referred to hereinafter as the "Threshold
Amounts", such Threshold Amounts to be prorated on a per diem
basis for any Partial Fiscal Year); and
(2) The Food and Beverage Revenues Computation is
equal to six percent (6%) of all Food and Beverage Revenues
for the applicable Fiscal Year or portion thereof.
(c) CPI ADJUSTMENTS TO THE THRESHOLD AMOUNTS AND BASE RENT:
For each Fiscal Year of the Term beginning on or after January 1, 1997, the
Threshold Amounts and Base Rent shall be adjusted from time to time as follows:
If the most recently published Consumer Price Index as of the
last day of the last month (the "Comparison Month") of any
Fiscal Year is different than the average Consumer Price Index
for the twelve (12) month period prior thereto, each of Base
Rent and the Threshold Amount for the next Fiscal Year shall
be adjusted by the percentage change in the Consumer Price
Index calculated by multiplying the Base Rent and each
Threshold
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Amount by the quotient obtained by dividing the Consumer Price
Index for the most recent Comparison Month by the Consumer
Price Index for the month which is exactly twelve (12)
months prior thereto.
Adjustments in the Threshold Amounts and Base Rent shall be effective
on the first day of the first calendar month of the Fiscal Year to which such
adjusted Threshold Amounts apply. In the event of casualty and corresponding
payment of rent out of the proceeds of rental interruption insurance provided
pursuant to Section 13.1(c), the Percentage Rent shall be based upon the higher
of (i) actual revenues, (ii) revenues for the same period in the previous Fiscal
Year (whether or not during the Term), or (iii) projected revenues used in
computing the final insurance settlement.
3.2 PAYMENT OF PERCENTAGE RENT. Percentage Rent shall be due and
payable quarterly on or before the thirtieth (30th) day after the last day of
each quarter during the Term. Additionally, an Officer's Certificate, setting
forth the calculation of such rent payment for such quarter, shall be delivered
to Lessor quarterly, together with such quarterly Percentage Rent payment after
each quarter of each Fiscal Year (or part thereof) during the Term. Such
quarterly payment shall be based on the formula set forth in Section 3.1(b),
but, in calculating the Revenue Computations for each quarter, gross revenues
for the year to date shall be annualized by dividing such sum by the number of
months which have passed year to date (including the current month) and
multiplying the result by 12. The resulting Percentage Rent amount shall be
multiplied by the number of months that have passed year-to-date (including the
current month) and divided by twelve (12). Payments of Base Rent and Percentage
Rent for the year to date shall be subtracted from the result to arrive at the
Percentage Rent payment due for that quarter. The Revenue Computations shall be
appropriately adjusted to calculate Percentage Rent for partial years. There
shall be no reduction in the Base Rent regardless of the result of the Revenue
Computations.
In addition, on or before March 1 of each year, commencing with March
1, 1997, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation (based on audited financial
statements of Lessee) of the actual Percentage Rent that accrued for each
quarter of the Fiscal Year that ended on the immediately preceding December 31
and shall pay to Lessor, with the delivery of the Officer's Certificate, the
amount of Percentage Rent due and payable for the Fiscal Year then ended as
shown in the Officer's Certificate, if any, that exceeds the amount actually
paid as Percentage Rent by Lessee for such Fiscal Year. If the Percentage Rent
actually due and payable for such Fiscal Year is shown by such certificate to be
less than the amount actually paid as Percentage Rent for
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the applicable Fiscal Year, Lessor, at its option, shall reimburse such amount
to Lessee or credit such amount against the next quarter's Percentage Rent
payments; provided, however, that no Event of Default exists.
Any difference between the annual Percentage Rent due and payable for
any Fiscal Year (as shown in the applicable Officer's Certificate) and the total
amount of quarterly payments for such Fiscal Year actually paid by Lessee (i)
shall bear interest at the Overdue Rate in the case of an underpayment or (ii)
shall bear interest at the Base Rate in the case of an overpayment, which
interest shall accrue from the close of such Fiscal Year until the amount of
such difference shall be paid or otherwise discharged by credit to Lessee. Any
such interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.
The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term. A final reconciliation, taking into account,
among other relevant adjustments, any adjustments which are accrued after such
expiration or termination date but which related to Percentage Rent accrued
prior to such termination date and Lessee's computation of Percentage Rent due
and payable, shall be made not later than ninety (90) days after such expiration
or termination date. Within such ninety (90) day period, Lessee shall deliver to
Lessor an Officer's Certificate setting forth the final Percentage Rent amount
payable to Lessor and payment of the amount due, if any.
3.3 CONFIRMATION OF PERCENTAGE RENT. Lessee shall utilize, or cause to
be utilized, an accounting system for the Leased Property in accordance with
generally accepted accounting principles consistently applied and the Uniform
System, that will accurately record all data necessary to compute Percentage
Rent, and Lessee shall retain for at least four years after the expiration of
each Fiscal Year (and in any event until the reconciliation described in Section
3.2 for such Fiscal Year has been made), reasonably adequate records conforming
to such accounting system showing all data necessary to compute Percentage Rent
for the applicable Fiscal Years. In the event of a conflict between generally
accepted accounting principles and the Uniform System, the Uniform System shall
prevail. Lessor (or its accountants or representatives), at its expense (except
as provided herein), shall have the right from time to time to audit the
information that formed the basis for the data set forth in any Officer's
Certificate provided under Section 3.2 and, in connection with such audits, to
examine all Lessee's records (including supporting data and sales and excise tax
returns) reasonably required to verify Percentage Rent, subject to any
prohibitions or limitations on disclosure of any such data under Legal
Requirements. If any such audit discloses a deficiency in the payment of
Percentage Rent, and either Lessee agrees with the
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result of such audit or the matter is otherwise determined or compromised,
Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally
agreed or determined, together with interest calculated at the Overdue Rate from
the due date for the last quarterly payment of Percentage Rent for the Fiscal
Year to the date of payment thereof; provided, however, that as to any audit
that is commenced more than two (2) years after the date Percentage Rent for any
Fiscal Year is reported by Lessee to Lessor, the deficiency, if any, with
respect to such Percentage Rent, shall bear interest at the Overdue Rate only
from the date such determination of deficiency is made unless such deficiency is
the result of gross negligence or willful misconduct on the part of Lessee. If
any such audit discloses that the Percentage Rent actually due from Lessee for
any Fiscal Year exceed those reported by Lessee by more than two percent (2%),
Lessee shall pay the cost of such audit and examination. Any proprietary
information obtained by Lessor pursuant to the provisions of this Section shall
be treated as confidential, except that such information may be used, subject to
appropriate confidentiality safeguards, in any litigation between the parties,
and except further that Lessor may disclose such information to prospective
lenders or purchasers, their respective attorneys, accountants and other
representatives, or pursuant to any Legal Requirements. The obligations of
Lessee contained in this Section shall survive the expiration or earlier
termination of this Lease.
3.4 ADDITIONAL CHARGES. In addition to the Base Rent and Percentage
Rent, (a) Lessee also will pay and discharge as and when due and payable all
other amounts, liabilities, obligations, costs and expenses necessary to perform
its obligations hereunder and under the Franchise Agreement, and (b) in the
event of any failure on the part of Lessee to timely pay any of those items
referred to in clause (a) of this Section 3.4, Lessee also will promptly pay and
discharge every fine, penalty, interest and cost that may be added for
non-payment or late payment of such items (the items referred to in clauses (a)
and (b) of this Section 3.4 being additional rent hereunder and being referred
to herein collectively as the "Additional Charges"), and Lessor shall have all
legal, equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of non-payment of the
Additional Charges as in the case of non-payment of the Base Rent. If any
installment of Base Rent, Percentage Rent or Additional Charges (but only as to
those Additional Charges that are payable directly to Lessor) shall not be paid
on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late
charge (to the extent permitted by law) computed at the Overdue Rate on the
amount of such installment, from the due date of such installment to the date of
payment thereof. To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease (which charges are not payable to
Lessor), Lessee shall be relieved of its obligation to pay such Additional
Charges to the
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entity to which they would otherwise be due and Lessor shall pay same from
monies received from Lessee.
3.5 CONVERSION OF PROPERTY. If, during the Term, Lessee wishes to cease
food and beverage operations at the Facility, Lessee shall give notice of such
desire to Lessor, which shall require the approval of Lessor which Lessor may
grant or withhold in its sole and absolute discretion. Lessor and Lessee shall,
if such cessation is to occur, commence negotiations to adjust Rent to reflect
the proposed change to the operation of the Facility, each acting reasonably and
in good faith; provided, however, that any such adjustment shall conform with
normal business practice and shall not result in the creation of a Rent formula
based on the income or profits of Lessee. All other terms of this Lease will
remain substantially the same. During negotiations, which shall not extend
beyond 60 days, Lessee shall not "convert" the Facility and shall continue
fulfilling its obligations under the existing terms of this Lease. If no
agreement is reached after such 60-day period, Lessee shall withdraw such notice
and this Lease shall continue in full force.
3.6 ANNUAL REVENUE PROJECTIONS. No later than thirty (30) days prior to
the commencement of each Fiscal Year, Lessee shall submit Annual Revenue
Projections for such Fiscal Year to Lessor. The Annual Revenue Projections shall
be subject to Lessor's prior approval as to form and content and shall be in
such form and shall contain such information as Lessee included in its annual
revenue projections in accordance with its past practice, and shall, in any
event, include the following:
(a) Lessee's reasonable estimate of Room and Other Revenues
and Food and Beverage Revenues for the Fiscal Year itemized on a
monthly basis, as such estimates may be revised or replaced from time
to time by Lessee; and
(b) A projection of the Percentage Rent payable for
such Fiscal Year.
3.7 ANNUAL CAPITAL EXPENDITURES BUDGET. Subject to the provisions of
Sections 8.1, 9.2 and 19.1(a), Lessor, at its sole expense, shall be responsible
for all Capital Expenditures as defined in this Section 3.7 and in accordance
with Exhibit E attached hereto and incorporated herein by reference, provided,
however, Lessor shall not be obligated to make any Capital Expenditure the need
for which Lessor disputes or objects to in good faith. Not later than forty-five
(45) days prior to the commencement of each Fiscal Year or Partial Fiscal Year,
Lessee shall submit to Lessor for Lessor's approval, Lessee's proposed Annual
Capital Expenditures Budget. The Annual Capital Expenditures Budget (the
"Capital Expenditures Budget") shall be subject to Lessor's approval and shall
contain the following:
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(a) Lessee's estimate of the amounts to be expended during the
upcoming Fiscal Year to renew, replace or refurbish FF&E, and a
reasonably detailed description of the expenses to be incurred, and
Lessee's estimate of the amount that will be expended during the
upcoming Fiscal Year on capital repairs, replacements and improvements
to the Leased Improvements, together with a reasonably detailed
description of the capital repairs, replacements and improvements that
will be undertaken. The expenditures referred to in this Section 3.7
are referred to in this Lease as "Capital Expenditures".
(b) A capital renewal program showing the major anticipated
Capital Expenditures and that will be incurred over the ensuing three
(3) year and five (5) year periods. If Lessor shall not give its
approval to the Annual Capital Expenditures Budget, Lessee shall revise
the Annual Capital Expenditures Budget, as may be required to obtain
Lessor's consent thereto.
The Capital Expenditures Budget shall be consistent with Lessee's policies as to
Capital Expenditures as set forth on Exhibit E.
3.8 CAPITAL EXPENDITURE FUND. Lessor shall establish and maintain an
account to provide a reserve for the Capital Expenditures costs at the Facility
and each other facility covered by a Percentage Lease. Such Account shall be
funded with an initial balance of $3,500,000 upon or prior to the execution of
this Percentage Lease Agreement. In addition, Lessor shall deposit in such
account a quarterly amount equal to four per cent (4%) of the sum of (i) the
Room and Other Revenues plus (ii) the Food and Beverage Revenues for each such
Facility. Subject to the provisions of Section 19.1(a), such account shall be
used to defer the costs of Capital Expenditures at all such Facilities; provided
that Lessor, in its reasonable discretion, shall be entitled to use such funds
for other purposes if adequate reserves remain for the purpose of Capital
Expenditures at all such Facilities.
3.9 APPLICATION OF CAPITAL EXPENDITURE FUND. When amounts are budgeted
and agreed to be spent for Capital Expenditures, Lessee shall be responsible for
the implementation of the Capital Expenditure program and shall make periodic
draws on the Capital Expenditure Fund by the presentation to Lessor of
appropriate documentation establishing the amounts to be paid in accordance with
the Capital Expenditure Budget, and including such supporting documentation as
Lessor may reasonably require. Lessor and Lessee shall cooperate in good faith
to accomplish such implementation as quickly as practicable in accordance with
sound business practices.
3.10 UNBUDGETED CAPITAL EXPENDITURES. No disbursements shall be made
from the Capital Expenditure Fund which are not in
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accordance with the Capital Expenditure Budget. However, Lessor and lessee
recognize that, in certain circumstances, Capital Expenditures which were not
budgeted may be necessary. In the following circumstances, disbursements shall
be made for Capital Expenditures from the Capital Expenditures Fund even though
such expenditures were not included in the Capital Expenditure Budget:
(i) When Lessor and Lessee agree to an addition to
the Capital Expenditure Budget;
(ii) When, due to circumstances beyond the control
of Lessee or Lessor, expenditures for a project exceed the
budgeted amount;
(iii) When the Capital Expenditure is necessary on an
emergency basis for any reason including the comfort and
safety of guests or employees; and
(iv) For deminimus Capital Expenditures not in
excess of $10,000 per item.
3.11 AGENT METHOD FOR PURCHASES OF CAPITAL EXPENDITURES.
(a) Lessor hereby retains Lessee as an independent contractor
on the terms contained in this Agreement to act for and on behalf of
Lessor as Lessor's agent in connection with the implementation of the
Capital Expenditure program for the Facility. Lessee's cost analysis
shall be based upon the plans and furnishings set forth in the
specifications and other written information agreed to be implemented
under the Capital Expenditure Budget. Lessee will be responsible for
negotiating purchases of Capital Expenditures on Lessor's behalf. All
purchases will be based on Lessee's actual cost, net of trade discounts
(including cash discounts, where applicable).
(b) Lessor acknowledges and agrees that purchase orders
relating to any Capital Expenditure for the Project will be executed by
Lessee as agent for and on behalf of Lessor. Lessor further
acknowledges and agrees that Lessee shall have no liability under this
Agreement or otherwise for payment of the Capital Expenditure or for
freight or storage related to the Capital Expenditure provided that no
expenditures shall be made except in accordance with the Budget and as
provided above. All down payments as well as payment of all vendor
invoices are the responsibility and obligation of Lessor. Lessor
acknowledges that a delay on the part of Lessor relating to any
required deposits or payments can result in delivery delays of the
Capital Expenditure. The timing of the making of all purchase orders
and delivery schedules will be established by mutual agreement of
Lessor and Lessee.
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(c) Lessee shall not be obligated under any circumstances to
(but in its discretion may) use its own funds for the purpose of making
down payments (either at the time purchase orders are processed or
otherwise) or making progress or final payments to Capital Expenditure
vendors. Taxes, warehouse, delivery, redelivery, restocking,
installation and similar charge, including, but not limited to delivery
and storage costs, shall be obligations of Lessor and Lessor agrees to
perform such obligations in a timely manner. All vendor invoices shall
be addressed to and issued directly to Lessor.
(d) Lessor shall designate a representative authorized to act
on its behalf with respect to the Leased Property.
(e) Lessor agrees to reimburse Lessee for all out-of-pocket
expenses (including long distance and messenger fees) incurred by
Lessee on behalf of or in connection with the Capital Expenditures for
the Facility. All such reimbursements shall be paid monthly as incurred
upon receipt of bills or other evidence reasonably satisfactory to
Lessor.
(f) Lessor shall furnish to Lessee from time to time all
information, take such actions and process such draws as may be
reasonably requested by Lessee or otherwise required under this
Agreement in a timely manner as reasonably necessary for the orderly
progress of work under this Agreement. Lessee shall have no
responsibility or be liable in any manner whatsoever for any delay
caused by information to be supplied or actions to be taken by Lessor,
its agents or other independent contractors working on or at the
Facility or caused by Lessor's failure to timely pay vendors.
(g) If Lessor desires to change, modify or alter the quantity
or specifications of any Capital Expenditure purchased by Lessee in
writing, Lessee will endeavor to satisfy any such request. Lessor
acknowledges and understands that Lessee's ability to comply with
requested changes, modifications or alterations is subject to
acceptance and performance on the part of the vendors and supplier with
whom Lessee has entered into agreements for and on behalf of Lessor.
Lessee assumes no liability or responsibility for its inability to
comply with Lessor's request for changes, modifications or alterations
under this paragraph.
(h) Lessor acknowledges and agrees that Lessee shall not be
responsible or liable to Lessor for any losses incurred or damages
suffered by Lessor due to delays, failures or omissions of third party
vendors in delivery of Capital Expenditure. Lessor agrees to hold
Lessee harmless
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for any such losses or damages. Lessor assumes ownership of Capital
Expenditure at the time of shipment of Capital Expenditure from any
third party vendor or manufacturer and any claims Lessor may have
against any freight company in connection with the delivery or shipment
of the Capital Expenditure are the responsibility of Lessor.
(i) LESSOR ACKNOWLEDGES AND AGREES THAT LESSEE MAKES NO
WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, RELATING TO QUALITY, FITNESS
OR CAPACITY OF THE WORK DONE PURSUANT TO CAPITAL EXPENDITURES. Lessor,
as purchaser of the Capital Expenditure, shall have the benefit of any
guarantees and warranties, either express or implied, from vendors and
suppliers of the Capital Expenditure, but Lessee shall have no
liability for any such third party guarantees or warranties. Lessee
will use its best efforts on Lessor's behalf to obtain proper service
for the replacement or correction of unsatisfactory Capital
Expenditure, but Lessee does not warrant its ability to obtain such
service and Lessee shall have no obligation or responsibility to
replace or correct any such unsatisfactory Capital Expenditure.
(j) Except with respect to matters arising from Lessee's
misconduct or Lessee's negligence, Lessor agrees to indemnify and hold
Lessee, its directors and officers harmless from and against any and
all claims, suits, costs, liabilities, obligations, losses and damages
whatsoever arising out of or in connection with the work done pursuant
to Capital Expenditures, the use of results of Capital Expenditures in
or at the Project and the payment of any and all sales, use or other
taxes (excepting federal, state and local income taxes relating to
Lessee's business).
(k) Lessor shall be responsible for and shall pay all
applicable sales and use taxes arising as a result of the purchase or
use of the Capital Expenditure or Lessor shall deliver appropriate
exemption certificates.
(l) Lessee agrees that for so long as it maintains interior
design and purchasing operations, it will perform the above services
without charge to Lessor.
ARTICLE IV
----------
4.1 PAYMENT OF TAXES AND IMPOSITIONS. Lessor shall pay all property
taxes (including the items in clauses (1) through (6) of the definition of
"Impositions" set forth in Article II. Subject to Article XII relating to
permitted contests, each party will pay, or cause to be paid, all Impositions
imposed on each of them, respectively, before any fine, penalty, interest or
cost may be added for non-payment, such payments to be made directly to the
taxing or other authorities where feasible, and will
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promptly furnish to the other party copies of official receipts or other
satisfactory proof evidencing such payments; provided, however, Lessee shall pay
all Impositions in respect of the Leased Property and this Lease (other than
fees, property taxes and taxes imposed on Lessor's income from the Leased
Property). Lessor and Lessee shall, upon request of the other, provide such data
as is maintained by the party to whom the request is made with respect to the
Leased Property as may be necessary to prepare any required returns and reports.
Lessee shall file all personal property tax returns in such jurisdictions where
it is legally required to so file. Lessor, to the extent it possesses the same,
and Lessee, to the extent it possesses the same, will provide the other party,
upon request, with cost and depreciation records necessary for filing returns
for any property so classified as personal property. Where Lessor is legally
required to file personal property tax returns, Lessor shall provide Lessee with
copies of assessment notices in sufficient time for Lessee to file a protest.
Lessee may, upon notice to Lessor, at Lessee's option and at Lessee's sole
expense, protest, appeal, or institute such other proceedings (in its or
Lessor's name) as Lessee may deem appropriate to effect a reduction of real
estate or personal property assessments for those Impositions to be paid by
Lessee, and Lessor, at Lessee's expense as aforesaid, shall fully cooperate with
Lessee in such protest, appeal, or other action. Lessee hereby agrees to
indemnify, defend, and hold harmless Lessor from and against any claims,
obligations, and liabilities against or incurred by Lessor in connection with
such cooperation, although Lessee is not liable for the amount of any (i) Real
Estate Taxes or (ii) personal property taxes attributable to personal property
owned by Lessor. Lessor, however, reserves the right to effect any such protest,
appeal or other action and, upon notice to Lessee, shall control any such
activity, which shall then go forward at Lessor's sole expense. Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such activities.
4.2 UTILITY CHARGES. Lessee will be solely responsible for obtaining
utility services to the Leased Property and will pay, or cause to be paid, all
charges for electricity, gas, oil, water, sewer and other utilities attributable
to, or used on, under or in the Leased Property during the Term as such charges
become due.
4.3 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all
premiums for the insurance coverages required to be maintained by it under
Article XIII. Lessor shall pay or cause to be paid all premiums for the
insurance coverages required to be maintained by it under Article VIII.
ARTICLE V
---------
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NO TERMINATION, ABATEMENT, ETC. Except as otherwise specifically
provided in this Lease, Lessee, to the extent permitted by law, shall remain
bound by this Lease in accordance with its terms and shall neither take any
action without the written consent of Lessor to modify, surrender or terminate
the same, nor seek nor be entitled to any abatement, deduction, deferment or
reduction of the Rent, or setoff against the Rent, nor shall the obligations of
Lessee be otherwise affected by reason of (a) any damage to, or destruction of,
any Leased Property or any portion thereof from whatever cause or any Taking of
the Leased Property or any portion thereof, (b) any claim which Lessee has or
might have against Lessor by reason of any default or breach of any warranty by
Lessor under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties, (c) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or transferee of Lessor,
(d) any lawful or unlawful prohibition of, or restriction upon, Lessee's use of
Leased Property, or interference with such use, or (e) for any other cause
whether similar or dissimilar to any of the foregoing. Lessee hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to (1) modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (2) abate, reduce, suspend or defer Rent or other sums payable by
Lessee hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessee hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee hereunder shall
continue to be payable in all events unless the obligations to pay the same
shall be terminated pursuant to the express provisions of this Lease or by
termination of this Lease other than by reason of an Event of Default.
ARTICLE VI
----------
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the possession and use of the Leased Property upon the terms and conditions of
this Lease.
6.2 LESSEE'S PERSONAL PROPERTY. Throughout the Term, Lessee will
acquire, own, maintain and replace such personal property (other than Capital
Expenditures) and Inventory as is required to operate the Leased Property as a
hotel and, otherwise, in the manner contemplated by this Lease. At all times
during the Term Lessee shall maintain an adequate and customary supply of
inventory. Lessee may (and shall as provided herein below), at its expense,
install, affix or assemble or place on any parcels of the Land or in any of the
Leased Improvements, any items of personal property (including
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Inventory) owned by Lessee (collectively, the "Lessee's Personal Property").
Lessee, at the commencement of the Term, and from time to time thereafter, shall
provide Lessor with an accurate list of all such items of the Lessee's Personal
Property. Lessee may, subject to the conditions set forth in this Section 6.2
and Section 6.3, remove any of Lessee's Personal Property set forth on such list
at any time during the Term or upon the expiration or any prior termination of
the Term. All of Lessee's Personal Property not removed by Lessee within ten
(10) days following the expiration or earlier termination of the Term shall be
considered abandoned by Lessee and may be appropriated, sold, destroyed or
otherwise disposed of by Lessor without first giving Notice thereof to Lessee,
without any payment to Lessee and without any obligation to account therefor.
Lessee will, at its expense, restore the Leased Property to the condition
required by Section 9.1(d), including repair of all damage to the Leased
Property caused by the removal of Lessee's Personal Property, whether effected
by Lessee or Lessor. Lessee may make such financing arrangements, title
retention agreements, leases or other agreements with respect to the Lessee's
Personal Property as it sees fit provided that Lessee first advises Lessor of
any such arrangement and such arrangement expressly provides that in the event
of Lessee's default thereunder, Lessor may assume Lessee's obligations and
rights under such arrangement.
6.3 LESSOR'S LIEN. To the fullest extent permitted by applicable law,
Lessor is granted a lien and security interest on all of Lessee's Personal
Property now or hereinafter placed in or upon the Leased Property, and such lien
and security interest shall remain attached to Lessee's Personal Property until
payment in full of all Rent and satisfaction of all of Lessee's obligations
hereunder; provided, however, Lessor shall subordinate its lien and security
interest to any purchase money security interest of any non-Affiliate of Lessee
which finances such Lessee's Personal Property of such Lessee's Personal
Property, the terms and conditions of such subordination to be satisfactory to
Lessor in the exercise of reasonable discretion. Lessee shall, upon the request
of Lessor, execute such financing statements, estoppel certificates and other
documents or instruments reasonably requested by Lessor to perfect the lien and
security interests herein granted.
ARTICLE VII
-----------
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased Property and has found the same to
be satisfactory for its purposes hereunder. Lessee is leasing the Leased
Property "as is," "where is" and with "all faults," in its present condition.
Lessee waives any claim or action against Lessor in respect of the condition of
the Leased Property. THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION
WITHOUT
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REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE
RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING
ALL CURRENT AND FUTURE COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER
MATTERS (NOT LIMITED TO ITEMS OF RECORD) INCLUDING ALL APPLICABLE LEGAL
REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND
SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN
INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF. LESSOR MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Notwithstanding
the foregoing, however, to the extent permitted by law, Lessor hereby assigns to
Lessee all of Lessor's rights to proceed against any predecessor in title other
than Lessee (or an Affiliate of Lessee which conveyed the Leased Property to
Lessor) for breaches of warranties or representations or for latent defects in
the Leased Property. Lessor shall fully cooperate with Lessee in the prosecution
of any such claim, in Lessor's or Lessee's name, all at Lessee's sole cost and
expense. Lessee hereby agrees to indemnify, defend and hold harmless Lessor from
and against any claims, obligations and liabilities against or incurred by
Lessor in connection with such cooperation. All amounts recovered that are
attributable to the period after the Term shall belong to Lessor.
7.2 USE OF THE LEASED PROPERTY.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise its best efforts to obtain and to maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property
only as a hotel facility (including food and beverage operations) of a caliber
consistent with its present use, and for such other uses as may be necessary or
incidental to such use or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of Lessor, which
consent may be granted, denied or conditioned in Lessor's sole discretion. No
use shall be made or permitted to be made of the Leased Property, and no acts
shall be done, which will cause the cancellation or increase the premium of any
insurance policy covering the Leased Property or any part thereof (unless
another adequate policy satisfactory to Lessor is available and Lessee pays any
premium increase), nor shall Lessee sell or permit to be kept, used or sold in
or about the Leased
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<PAGE> 32
Property any article which may be prohibited by law or fire underwriter's
regulations. Lessee shall, at its sole cost, comply with all of the requirements
pertaining to the Leased Property of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Lessee's Personal Property.
(c) Subject to the provisions of Articles XIV and XV Lessee
covenants and agrees that during the Term it will (1) maintain, operate
continuously the Leased Property as a hotel facility of the class currently
operated at the Leased Property, (2) keep in full force and effect and comply
with all the provisions of the Franchise Agreement, (3) not terminate or amend
the Franchise Agreement without the consent of Lessor, (4) maintain appropriate
certifications and licenses for such use and otherwise comply with all Legal
Requirements and (5) seek to maximize the gross revenues generated therefrom
consistent with sound business practices.
(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Lessee cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property
or any portion thereof, or Lessee's Personal Property, to be used in such a
manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case
may be) title thereto or to any portion thereof, or (2) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied dedication of the Leased Property or any portion thereof,
subject to Lessor's prior consent.
(f) Except as set forth on Exhibit F attached hereto and
incorporated by reference, Lessee or an Affiliate of Lessee shall not own, or
have any ownership interest in, any hotel or motel property in which Lessor or
an Affiliate of Lessor does not have an interest. Neither Lessee nor an
Affiliate of Lessee shall operate or manage any hotel or motel that is within a
ten (10) mile radius of any hotel or motel property in which Lessor or an
Affiliate of Lessor has an interest on the date Lessee or its Affiliate would
otherwise commence operating or managing such property, other than pursuant to
this Lease or another lease, agreement or arrangement with Lessor or an
Affiliate of Lessor. Lessor agrees to notify Lessee promptly of the location of
any hotel or motel property in which Lessor or an Affiliate of Lessor has an
interest.
(g) Lessee shall not use, generate, handle, dispose or store
Hazardous Materials on the Leased Property, except in the normal course of
operations of the Leased Property as a hotel and in compliance with all
Environmental Laws.
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(h) Lessee shall not enter into any collective bargaining
agreements with respect to any of the employees at the Leased Property without
the prior consent of Lessor, which shall not be unreasonably withheld or
delayed, unless required by law.
(i) Lessee hereby assumes and agrees to perform all of the
obligations of Lessor under all leases in effect at the Leased Property as of
the date of commencement of the Term.
(j) Lessee represents that, as of the date hereof, its sole
business activity consists of, and Lessee covenants that, during the Term
hereof, its sole business activity shall consist of the lease and operation of
the Leased Property, the Other Hotels and the operations described in Exhibit G
attached hereto and incorporated by reference, all of which shall be performed
by subsidiaries of Lessee and not by Lessee directly. Except as provided in the
foregoing sentence, and on Exhibit F, Lessee agrees that neither it nor any of
its Affiliates shall own, lease, operate, manage or franchise, directly or
indirectly, any hotel not owned by Lessor or any Affiliate of Lessor during the
Term of this Lease. Notwithstanding the foregoing, Lessor acknowledges that
Lessee, through its subsidiaries, may engage in third party hotel management,
purchasing services interior design services and other business activities.
7.3 LESSOR TO GRANT EASEMENTS, ETC. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed), (a) grant
easements and other rights in the nature of easements with respect to the Leased
Property to third parties, (b) release existing easements or other rights in the
nature of easements which are for the benefit of the Leased Property, (c)
dedicate or transfer unimproved portions of the Leased Property for road,
highway or other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility district, (e) execute
amendments or additions to any covenants and restrictions affecting the Leased
Property and (f) execute and deliver to any Person any instrument appropriate to
confirm or effect such grants, releases, dedications, transfers, petitions and
amendments (to the extent of its interests in the Leased Property), but only
upon delivery to Lessor of an Officer's Certificate stating that such grant,
release, dedication, transfer, petition or amendment is beneficial to the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.
7.4 COMPLIANCE WITH GROUND LEASE. [Lessee shall comply with the
provisions of the Ground Lease and shall take no action, or omit to take any
action, that would cause or result in any default thereunder]. [IF APPLICABLE]
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ARTICLE VIII
------------
8.1 COMPLIANCE WITH LEGAL, INSURANCE REQUIREMENTS, LESSOR'S INSURANCE
AND TAX OBLIGATIONS. Subject to Article XII relating to permitted contests,
Lessee, at its expense, will promptly (a) comply and cause the Leased Property
to comply with all applicable Legal Requirements and Insurance Requirements in
respect of the use, operation, maintenance, repair and restoration of the Leased
Property; provided, however, that Lessor shall be responsible for the cost of
compliance with Insurance Requirements presented to Lessor in writing including
Franchisor requirements which are related to the leased real and personal
property, as more fully set forth in Article XIII, and shall be responsible for
all Capital Expenditures and the items in clauses (1) through (6) of the
definition of "Impositions" set forth in Article II, unless the need for such
Capital Expenditure is the result of Lessee's negligence, misconduct or an
Alteration made by or commenced by Lessee other than Alterations contained in
the Capital Expenditure Budget, and (b) procure, maintain and comply with all
appropriate licenses and other authorizations required for any use of the Leased
Property and Lessee's Personal Property then being made, and for the proper
erection, installation, operation and maintenance of the Leased Property or any
part thereof.
8.2 LEGAL REQUIREMENTS COVENANTS. Lessee covenants and agrees that the
Leased Property and Lessee's Personal Property shall not be used for any
unlawful purpose, and that Lessee shall not permit or suffer to exist any
unlawful use of the Leased Property by others. Lessee shall acquire and maintain
all appropriate licenses, certifications, permits and other authorizations and
approvals needed to operate the Leased Property in its customary manner for the
Primary Intended Use, and any other lawful use conducted on the Leased Property
as may be permitted from time to time hereunder. Lessee further covenants and
agrees that Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times conform to all
Legal Requirements, unless the same are finally determined by a court of
competent jurisdiction to be unlawful (and Lessee shall cause all such
subtenants, invitees or others to so comply with all Legal Requirements). Lessee
may, however, upon prior Notice to Lessor, and subject to the provisions of
Article XII, contest the legality or applicability of any such Legal Requirement
or any licensure or certification decision if Lessee maintains such action in
good faith, with due diligence, without prejudice to Lessor's rights hereunder,
and at Lessee's sole expense. If by the terms of any such Legal Requirement
compliance therewith pending the prosecution of any such proceeding may legally
be delayed without the incurrence of any lien, charge or liability of any kind
against the Facility or Lessee's leasehold interest therein and without
subjecting Lessee or Lessor to any liability, civil or criminal, for failure so
to comply therewith, Lessee may
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delay compliance therewith until the final determination of such proceeding. If
any lien, charge or civil or criminal liability would be incurred by reason of
any such delay, Lessee, on the prior written consent of Lessor, which consent
shall not be unreasonably withheld, may nonetheless contest as aforesaid and
delay as aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury to Lessor by reason of such
contest or delay and (b) prosecutes the contest with due diligence and in good
faith.
8.3 ENVIRONMENTAL COVENANTS. In addition to, and not in diminution of,
Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof, Lessee
covenants and undertakes with Lessor as follows:
(a) At all times hereafter until such time as all liabilities,
duties or obligations of Lessee to the Lessor under the Lease have been
satisfied in full, Lessee shall fully comply with all Environmental Laws
applicable to the Leased Property and the operations thereon, subject to
Lessor's obligation to pay for Capital Expenditures, Lessee agrees to give
Lessor prompt written notice of (1) all Environmental Liabilities; (2) all
pending, threatened or anticipated Proceedings, and all notices, demands,
requests or investigations, relating to any Environmental Liability or relating
to the issuance, revocation or change in any Environmental Authorization
required for operation of the Leased Property; (3) all Releases at, on, in,
under or in any way affecting the Leased Property, or any Release known by
Lessee at, on, in or under any property adjacent to or near the Leased Property;
and (4) all facts, events or conditions that could reasonably lead to the
occurrence of any of the above-referenced matters.
(b) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any and all
Identified Environmental Liabilities and Unidentified Environmental Liabilities,
in all cases, which were caused by the acts or negligent failures to act of
Lessor.
(c) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Unidentified Environmental Liabilities caused by the acts or negligent failures
to act of Lessee. Lessee's responsibility to indemnify Lessor shall survive the
termination of this Lease.
(d) If any Proceeding is brought against any Indemnified Party
in respect of an Environmental Liability with respect to which such Indemnified
Party may claim indemnification under either Section 8.3(b) or (c) (an
"Indemnified Environmental Liability"), the Indemnifying Party, upon request,
shall at its sole expense resist and defend such Proceeding, or cause the same
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to be resisted and defended by counsel designated by the Indemnified Party and
approved by the Indemnifying Party, which approval shall not be unreasonably
withheld; provided, however, that such approval shall not be required in the
case of defense by counsel designated by any insurance company undertaking such
defense pursuant to any applicable policy of insurance. Each Indemnified Party
shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
will be at the sole expense of such Indemnified Party unless such counsel has
been approved by the Indemnifying Party, which approval shall not be
unreasonably withheld. The Indemnifying Party shall not be liable for any
settlement of any such Proceeding made without its consent, which shall not be
unreasonably withheld, but if settled with the consent of the Indemnifying
Party, or if settled without its consent (if its consent shall be unreasonably
withheld), or if there be a final, nonappealable judgment for an adversarial
party in any such Proceeding, the Indemnifying Party shall indemnify and hold
harmless the Indemnified Parties from and against any liabilities incurred by
such Indemnified Parties by reason of such settlement or judgment.
For purposes of this Section 8.3, all amounts for which any
Indemnitee seeks indemnification shall be computed net of (a) any actual income
tax benefit resulting therefrom to such Indemnitee, (b) any insurance proceeds
received (net of tax effects) with respect thereto, and (c) any amounts
recovered (net of tax effects) from any third parties based on claims the
Indemnitee has against such third parties which reduce the damages that would
otherwise be sustained; provided that in all cases, the timing of the receipt or
realization of insurance proceeds or income tax benefits or recoveries from
third parties shall be taken into account in determining the amount of reduction
of damages. Each Indemnitee agrees to use its reasonable efforts to pursue, or
assign to Lessee, any claims or rights it may have against any third party which
would materially reduce the amount of damages otherwise incurred by such
Indemnitee.
Notwithstanding anything to the contrary contained in this
Lease, if Lessor shall become entitled to the possession of the Leased Property
by virtue of the termination of this Lease or repossession of the Leased
Property, then Lessor may assign its indemnification rights under Section 8.3 of
this Lease (but not any other rights hereunder) to any Person to whom the Lessor
subsequently transfers the Leased Property, subject to the following conditions
and limitations, each of which shall be deemed to be incorporated into the terms
of such assignment, whether or not specifically referred to therein;
(1) The indemnification rights referred to in
this section may be assigned only if a known
Environmental Liability then exists or if a Proceeding
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is then pending or, to the knowledge of Lessee or
Lessor, then threatened with respect to the Leased
Property;
(2) Such indemnification rights shall be limited
to Indemnified Environmental Liabilities relating to or
specifically affecting the Leased Property; and
(3) Any assignment of such indemnification rights
shall be limited to the immediate transferee of Lessor, and
shall not extend to any such transferee's successors or
assigns.
(e) At any time any Indemnitee has reason to believe
circumstances exist which could reasonably result in an Indemnified
Environmental Liability, upon reasonable prior written notice to Lessee stating
such Indemnitee's basis for such belief, an Indemnitee shall be given immediate
access to the Leased Property (including, but not limited to, the right to enter
upon, investigate, drill wells, take soil borings, excavate, monitor, test, cap
and use available land for the testing of remedial technologies), Lessee's
employees, and to all relevant documents and records regarding the matter as to
which a responsibility, liability or obligation is asserted or which is the
subject of any Proceeding; provided that such access may be conditioned or
restricted as may be reasonably necessary to ensure compliance with Legal
Requirements and the safety of personnel and facilities or to protect
confidential or privileged information. All Indemnitees requesting such
immediate access and cooperation shall endeavor to coordinate such efforts to
result in as minimal interruption of the operation of the Leased Property as
practicable.
ARTICLE IX
----------
9.1 MAINTENANCE AND REPAIR.
(a) Subject to Lessor's obligation to make Capital
Expenditures and performance of Lessor's obligations under Subsection 9.1(c),
Lessee, at its sole expense, shall keep the Leased Property in good order and
repair, except for ordinary wear and tear (whether or not the need for such
repairs occurred as a result of Lessee's use, any prior use, the elements or the
age of the Leased Property, or any portion thereof). Except as otherwise
provided in Section 9.1(b), Article XIV or Article XV, and subject to Lessor's
obligation to make Capital Expenditures, Lessee shall, with reasonable
promptness, make all necessary and appropriate repairs, replacements, and
improvements thereto of every kind and nature, whether interior or exterior
ordinary or extraordinary, foreseen or unforeseen, or arising by reason of a
condition existing prior to the commencement of the Term of this Lease
(concealed or otherwise), or required by any governmental
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agency having jurisdiction over the Leased Property. Lessee, however, shall be
permitted upon prior written notice to Lessor to prosecute claims against
Lessor's predecessors in title for breach of any representation or warranty or
for any latent defects in the Leased Property to be maintained by Lessee unless
Lessor is already diligently pursuing or elects to diligently pursue such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use.
(b) Lessee shall, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property to Lessor in the condition in
which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of the Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair,
as provided in Subsection 9.1(a), damage by casualty or Condemnation, and
Lessor's obligations with respect to Capital Expenditures.
(c) Lessor shall be responsible for and pay for items of a
capital nature as defined in Exhibit E and to make Capital Expenditures, all as
required by and provided in Section 3.7
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. If, as a result of any act or
omission by Lessee, any of the Leased Improvements, at any time, materially
encroach upon any property, street or right-of-way adjacent to the Leased
Property, or violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof, or impair the rights of others under any easement or right-of-way
to which the Leased Property is subject (each of the foregoing conditions being
referred to herein as an "Encroachment"), then promptly upon the request of
Lessor or at the behest of any person affected by any such encroachment,
violation or impairment, Lessee shall, at its expense, subject to its right to
contest the existence of any encroachment, violation or impairment and in such
case, in the event of an adverse final determination, either (a) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Lessor or Lessee or (b) make such changes in the Leased
Improvements, and take such other actions, as Lessee in the good faith exercise
of its judgment deems reasonably practicable to remove such encroachment, and to
end such violation or impairment, including, if necessary, the alteration of any
of the Leased Improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use
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substantially in the manner and to the extent of the Leased Improvements were
operated prior to the assertion of such violation, impairment or encroachment.
If any such alteration is required for any reason other than Lessee's willful
misconduct or gross negligence, the cost of such alterations shall be treated as
Capital Expenditures and be performed pursuant to Section 3.7. Any such
alteration shall be made in conformity with the applicable requirements of
Article X. Nothing contained herein shall be construed as imposing on Lessee any
liability for, or responsibility for remedying the effects of, any Encroachment
occurring other than as a result of any willful misconduct or gross negligence
of Lessee. Lessee's obligations under this Section 9.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance held Lessor.
ARTICLE X
---------
10.1 ALTERATIONS. Lessee shall have the right, but not the obligation,
with the prior approval of Lessor (which approval may not be unreasonably
withheld) to make additions, modifications or improvements to the Leased
Property in connection with the Primary Intended Use (collectively,
"Alterations"), provided that such action shall not significantly alter the
character or purposes or significantly detract from the value or operating
efficiency thereof and will not impair the revenue-producing capability of the
Leased Property or adversely affect the ability of Lessee to comply with the
provisions of this Lease. As a condition of its approval, Lessor may retain the
right to separately approve all plans and specifications related to any
additions, modifications or improvements. Lessor may further require Lessee to
obtain appropriate completion bonds and to provide for the removal of any
improvements upon the termination of this Lease. The cost of such Alterations
shall, subject to Lessor's obligations to make Capital Expenditures, be paid by
Lessee, and all such Alterations shall be included under the terms of this Lease
and upon expiration or earlier termination of the Lease shall pass to and become
the property of Lessor.
10.2 SALVAGE. All materials which are scrapped or removed in connection
with the making of repairs or alterations required or permitted by Article IX or
X shall be or become the property of Lessor or Lessee depending on which party
is paying for or providing the financing for such work.
10.3 JOINT USE AGREEMENTS. If Lessee constructs additional improvements
that are connected to the Leased Property or share maintenance facilities, HVAC
(as defined in Section 13.1(b)), electrical, plumbing or other systems,
utilities, parking or other amenities, the parties shall enter into a mutually
agreeable cross-easement or joint use agreement to make available necessary
services and facilities in connection with such
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additional improvements, to protect each of their respective interests in the
properties affected, and to provide for separate ownership, use, and/or
financing of such improvements.
ARTICLE XI
----------
LIENS. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are consented to in writing by Lessor or any easements
granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for
those Impositions upon Lessor which Lessee is not required to pay hereunder, (e)
subleases permitted by Article XXIII hereof, (f) liens for Impositions or for
sums resulting from noncompliance with Legal Requirements so long as (1) the
same are not yet payable or are payable without the addition of any fine or
penalty or (2) such liens are in the process of being contested as permitted by
Article XII, (g) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed or not yet due provided that (1) the payment of such
sums shall not be postponed under any related contract for more than sixty (60)
days after the completion of the action giving rise to such lien and such
reserve or other appropriate provisions as shall be required by law or generally
accepted accounting principles shall have been made therefor or (2) any such
liens are in the process of being contested as permitted by Article XII hereof,
and (h) any liens which are the responsibility of Lessor pursuant to the
provisions of Article XXXIV of this Lease, or result from Lessor's wrongful
failure to pay for Capital Expenditures.
ARTICLE XII
-----------
PERMITTED CONTESTS. Lessee shall have the right to contest the amount
or validity of any Imposition to be paid by Lessee or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim ("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee's covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Article provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the
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loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to
be in default under any mortgage, deed of trust or security deed encumbering the
Leased Property or any interest therein. Upon the request of Lessor, Lessee
shall either (a) provide a bond or other assurance reasonably satisfactory to
Lessor that all Claims which may be assessed against the Leased Property
together with interest and penalties, if any, thereon will be paid, or (b)
deposit within the time otherwise required for payment with a bank or trust
company as trustee upon terms reasonably satisfactory to Lessor, as security for
the payment of such Claims, money in an amount sufficient to pay the same,
together with interest and penalties in connection therewith, as to all Claims
which may be assessed against or become a Claim on the Leased Property, or any
part thereof, in said legal proceedings. Lessee shall furnish Lessor and any
lender of Lessor with reasonable evidence of such deposit within five days of
the same. Lessor agrees to join in any such proceedings if the same be required
to legally prosecute such contest of the validity of such Claims; provided,
however, that Lessor shall not thereby be subjected to any liability for the
payment of any costs or expenses in connection with any proceedings brought by
Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such
costs or expenses. Lessee shall be entitled to any refund of any Claims and such
charges and penalties or interest thereon which have been paid by Lessee or paid
by Lessor and for which Lessor has been fully reimbursed. In the event that
Lessee fails to pay any Claims when due or to provide the security therefor as
provided in this paragraph and to diligently prosecute any contest of the same,
Lessor may, upon ten days advance Notice to Lessee, pay such charges together
with any interest and penalties and the same shall be repayable by Lessee to
Lessor as Additional Charges at the next Payment Date provided for in this
Lease. Provided, however, that should Lessor reasonably determine that the
giving of such Notice would risk loss to the Leased Property or cause damage to
Lessor, then Lessor shall give such Notice as is practical under the
circumstances. Lessor reserves the right to contest any of the Claims at its
expense not pursued by Lessee. Lessor and Lessee agree to cooperate in
coordinating the contest of any claims.
ARTICLE XIII
------------
13.1 GENERAL INSURANCE REQUIREMENTS. Lessee shall at all times keep the
Leased Property and the Facility (including all personal property) insured with
the kinds and amounts of insurance described below and in compliance with any
Franchise requirements; provided, however, that as to both Lessor's and Lessee's
insurance requirements, the kinds and amounts of insurance required are
reasonably available for purchase from insurance companies (i) authorized to
write insurance in the State and (ii) with a minimum financial stability rating
(A.M. Bests Rating) of "A minus 7" (or as otherwise reasonably
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acceptable to Lessor). The insurance shall be maintained in the amounts set
forth below with deductibles in amounts reasonably acceptable to Lessor. The
policies shall name Lessor and Lessee as insureds or as additional named
insureds, as the case may be. Losses shall be payable to Lessor and/or its
lenders except that Lessee's Business Interruption Insurance and Personal
Property Insurance shall name Lessor as loss payee. Any loss adjustment shall
require the written mutual consent of Lessor and Lessee, each acting reasonably
and in good faith. Evidence of insurance shall be provided to each party on the
date hereof, and evidence of renewal shall be provided, no later than thirty
(30) days prior to expiration of any policy required hereunder. The policies on
the Leased Property, including the Leased Improvements, Fixtures and all
personal property shall include:
(a) Lessor shall provide building insurance on the "Special
Form" (formerly "All Risk" form) in an amount and carry such risks as are
reasonably acceptable to Lessor, and personal property insurance on its property
as is reasonably acceptable to it;
(b) Lessor shall provide insurance on the "Comprehensive
Coverage Form" for loss or damage (direct and indirect) from steam boilers,
pressure vessels, electrical and mechanical systems, heating, ventilation and
air conditioning ("HVAC") systems or similar apparatus, now or hereafter
installed in the Facility, in an amount reasonably determined by Lessor from
time to time;
(c) Lessee shall provide loss of income/business interruption
insurance/rent insurance on the "Special Form", with proceeds to be in an amount
not less than one year of gross rent and other charges hereunder;
(d) Lessee shall provide commercial general liability
insurance, with amounts not less than $10,000,000, together with excess
liability coverage of not less than $50,000,000, covering each of the following:
bodily injury, death, or property damage liability per occurrence, personal and
advertising injury, general aggregate, products and completed operations, and
"all risk legal liability" (including, but not limited to, liquor law or "dram
shop" liability), all with respect to Lessor, Lessee and the Leased Property;
(e) Except to the extent Lessee is required to pay for the
same, or otherwise required to be provided by Lessor hereunder, Lessor shall
provide insurance covering such other hazards and in such amounts as may be
customary for comparable properties in the vicinity of the Leased Property and
reasonably acceptable to Lessor and is available from insurance companies,
insurance pools or other appropriate companies authorized to do business in the
State, and each with a minimum financial stability rating (A.M. Bests Rating) of
"A minus 7," at rates
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which are economically practicable in relation to the risks
covered as may be reasonably requested by Lessee;
(f) Lessee shall provide fidelity bonds with limits and
deductibles as may be reasonably requested by Lessor, covering Lessee's
employees and other crime insurance as may be reasonably required by Lessor;
(g) Lessee shall provide workmen's compensation insurance to
the extent required by law;
(h) Lessee shall provide vehicle liability and physical
damage insurance for owned, non-owned, and hired vehicles, in the amount of
$10,000,000; and
(i) Lessee shall provide such other insurance as Lessor may
reasonably request for facilities such as the Leased Property and the operation
thereof, consistent with Lessee's and Lessor's obligations hereunder.
13.2 FULL REPLACEMENT COST. The term "full replacement cost" as used
herein shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement in the amount of $5,000,000, if available, and the cost of debris
removal in an amount not to exceed twenty-five percent (25%) of the cost of
construction. In the event either party believes that full replacement cost has
increased or decreased at any time during the Lease Term, it shall have the
right to have such full replacement cost redetermined. Lessee shall obtain such
additional insurance as may be required as a result of such redetermination as
full replacement cost.
13.3 WAIVER OF SUBROGATION. All insurance policies covering the Leased
Property, the Fixtures, the Facility or any personal property, including,
without limitation, contents, fire, property and "special perils" insurance,
shall expressly waive any right of subrogation on the part of the insurer
against the other party. Such policies will include such waiver clause or
endorsement so long as the same are obtainable without unreasonable extra cost,
and in the event of such an extra charge the other party, at its election, may
pay the same, but shall not be obligated to do so.
13.4 WAIVER OF COINSURANCE. All insurance policies covering the Leased
Property, the Fixtures, the Facility or any personal property, and all insurance
covering loss of income and business interruption, shall expressly waive any
coinsurance penalty and resulting reduction in insurance proceeds, provided that
a waiver of coinsurance is applicable with respect to a given insurance policy.
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13.5 FORM SATISFACTORY, ETC. All of the policies of insurance referred
to in this Article XIII shall be written in a form satisfactory to Lessor and
Lessee and by insurance companies satisfactory to Lessor and Lessee. Each party
agrees that it will not unreasonably withhold its approval as to the form of the
policies of insurance or as to the insurance companies selected. All premiums
therefor, shall be paid and such policies or binders delivered and followed with
duplicate policies as issued thereof to the other party prior to their effective
date (and, with respect to any renewal policy, thirty (30) days prior to the
expiration of the existing policy), and in the event of the failure of the party
required to provide such insurance either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such policies or
certificates thereof at the times required, the other party shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be repayable upon written demand therefor. Each
insurer mentioned in this Article XIII shall agree, by endorsement to the policy
or policies issued by it, or by independent instrument, that it will give thirty
(30) days' written notice before the policy or policies in question shall be
materially altered, not renewed or cancelled.
13.6 INCREASE IN LIMITS. If either Lessor or Lessee at any time deems
the limits of bodily injury or property damage under the comprehensive public
liability insurance then carried to be either excessive or insufficient, Lessor
or Lessee shall endeavor in good faith to agree on the proper and reasonable
limits for such insurance to be carried; provided, however, that such limits
shall not be reduced below a minimum limit of $10,000,000. Thereafter, such
insurance shall be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section.
13.7 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article XIII, Lessee's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance; provided, however, that the coverage afforded will not be
reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this Lease by reason
of the use of such blanket policy of insurance, and provided further that the
requirements of this Article XIII are otherwise satisfied.
13.8 NO SEPARATE INSURANCE. Neither Lessee nor Lessor on its own
initiative, or pursuant to the request or requirement of any third party, shall
(i) take out separate insurance concurrent in form or contributing in the event
of loss, with that required in this Article, or (ii) increase the amount of any
then existing insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of the
insurance, are included therein as
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additional insureds, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. The party
obtaining such separate insurance shall immediately notify the other party of
the obtaining of any such separate insurance or of the increasing of any of the
amounts of the then existing insurance.
13.9 REPORTS OF INSURANCE CLAIMS. Lessee shall promptly investigate and
make a written report to the appropriate insurance company as to all accidents,
claims for damage relating to the ownership, operation, and maintenance of the
Leased Improvements, any damage or destruction to the Leased Improvements and
the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. Lessee shall submit
such proposed filings and reports relating to such claims to Lessor for its
review and approval, which approval shall not be unreasonably withheld or
delayed, prior to submitting same to the appropriate insurance company. All
other adjustments, settlements and compromises shall be made only with the prior
written consent of Lessor.
13.10 FAILURE TO OBTAIN INSURANCE. In the event that Lessee shall fail
to obtain or maintain any such insurance, Lessor shall have the right but not
the obligation, to obtain such insurance and to charge the Premium cost of such
to Lessee as Additional Changes.
ARTICLE XIV
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14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any loss or
damage to the Leased Property, or any portion thereof, and insured under any
policy of insurance required by Article XIII of this Lease shall be paid by the
payor to Lessor. If for any reason such proceeds are paid to any Person other
than Lessor, the recipient shall surrender all proceeds to Lessor to be held in
trust by Lessor in an interest-bearing account (subject to the provisions of
Section 14.6). The net proceeds shall be made available for reconstruction or
repair, as the case may be, of any damage to or destruction of the Leased
Property, or any portion thereof, and shall be paid out by Lessor from time to
time for the reasonable costs of such reconstruction or repair upon satisfaction
of reasonable terms and conditions. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the Leased Property
shall be paid to Lessor. If Lessor is not required to, and elects not to, repair
and restore, and the Lease is terminated as described in Section 14.2(a), all
such insurance proceeds shall be retained by Lessor. All salvage resulting from
any risk covered by insurance shall belong to Lessor.
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14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
COVERED BY INSURANCE.
(a) If during the Term the Leased Property is totally or
partially damaged or destroyed by a risk covered by the insurance described in
Article XIII and the Facility thereby is rendered Unsuitable for its Primary
Intended Use or following such casualty the Facility is uneconomic for its
Primary Intended Use, Lessor shall, at Lessor's option, either (1) restore the
Facility to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of the Lease,
or (2) terminate this Lease by Notice to Lessee given within ninety (90) days of
the date of such damage or destruction. If Lessor determines to terminate this
Lease, the Lease will terminate as of the date specified in Lessor's notice not
later than sixty (60) after such notice without further liability hereunder
(other than liability stated to survive the expiration or termination hereof)
and Lessor shall be entitled to retain all insurance proceeds.
(b) Except as provided in Section 14.6, if during the Term the
Leased Property is partially damaged or destroyed by a risk covered by the
insurance described in Article XIII, but the Facility is not thereby rendered
Unsuitable for its Primary Intended Use, provided the Facility is not unecomonic
for its Primary Intended Use, Lessor shall restore the Facility to substantially
the same condition as existed immediately before the damage or destruction and
otherwise in accordance with the terms of this Lease to the extent it can
reasonably do so with the net insurance proceeds actually received in respect to
such damage or destruction. Such damage or destruction shall not terminate this
Lease; provided, however, that if Lessor cannot within a reasonable time, obtain
all necessary government approvals, including building permits, licenses and
conditional use permits, after diligent efforts to do so, in order to be able to
perform all required repair and restoration work and to operate the Facility for
its Primary Intended Use in substantially the same manner as that existing
immediately prior to such damage or destruction and otherwise in accordance with
the terms of this Lease, this Lease shall terminate on the date which is thirty
(30) days after Lessor shall have notified the Lessee of the passage in such
Lessor's reasonable determination of such reasonable period of time.
(c) If Lessor elects to repair or restore the Leased Property,
and the cost of the repair or restoration exceeds the net amount of proceeds
received by Lessor from the insurance required under Article XIII, Lessor shall
be obligated to contribute any excess amounts needed to restore the Leased
Property.
14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
NOT COVERED BY INSURANCE. Except as provided in Section 14.6
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below, if during the Term the Facility is totally or materially destroyed by a
risk not covered by the insurance described in Article XIII (whether or not
actually obtained or in full force), whether or not such damage or destruction
renders the Facility Unsuitable for its Primary Intended Use, Lessor at its
option shall either (a) repair, rebuild or restore the Facility at Lessor's sole
expense to substantially the same condition it was in immediately before such
damage or destruction and such damage or destruction shall not terminate this
Lease, or (b) terminate this Lease by Notice to Lessee given within ninety (90)
days of the date of such destruction and this Lease will terminate as of the
date specified in Lessor's notice not later than 60 days after such notice. If
such damage or destruction is not material, Lessor shall restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease.
14.4 LESSEE'S PERSONAL PROPERTY. All insurance proceeds
payable by reason of any loss of or damage to any of Lessee's
Personal Property shall be paid to Lessee.
14.5 ABATEMENT OF RENT. In the event of a casualty, except as otherwise
provided herein, this Lease shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease (whether through the payment of insurance proceeds to Lessor or otherwise)
shall remain unabated.
14.6 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section
14.2 or 14.3 to the contrary, if damage to or destruction of the Facility occurs
during the last twenty-four (24) months of the Term, and such damage or
destruction cannot be repaired or restored within the earlier of (i) twelve (12)
months, or (ii) the expiration of the Term, then Lessee shall have the right to
terminate this Lease by giving written notice to Lessor within 60 days after the
date of damage or destruction, whereupon all accrued Rent shall be paid
immediately.
14.7 WAIVER. Lessee hereby waives any statutory rights of termination
that may arise by reason of any damage or destruction of the Facility that
Lessor is obligated to restore or may restore under any of the provisions of
this Lease.
ARTICLE XV
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15.1 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
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15.2 TOTAL TAKING. If (i) title to the fee of the whole of the Leased
Property or [(ii) THE ENTIRE GROUND LEASE IS CONDEMNED BY ANY CONDEMNOR], this
Lease shall cease and terminate as of the Date of Taking by the Condemnor. If
title to the fee of less than the whole of the Leased Property is so taken or
condemned, which nevertheless renders the Leased Property Unsuitable or
Uneconomic for its Primary Intended Use, Lessee and Lessor shall each have the
option, by notice to the other, at any time prior to the date that is 30 days
after the Date of Taking, to terminate this Lease as of the Date of Taking. Upon
such date, if such Notice has been given, this Lease shall thereupon cease and
terminate. All Rent paid or payable by Lessee hereunder shall be apportioned as
of the Date of Taking, and Lessee shall promptly pay Lessor such amounts. In the
event of any such termination, the provisions of Section 15.6 shall apply.
15.3 ALLOCATION OF AWARD. The total Award made with respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term of this Lease, shall be solely the property of and payable to Lessor. Any
Award made for the taking of Lessee's Personal Property, or for removal and
relocation expenses of Lessee in any such proceedings shall be the sole property
of and payable to Lessee. In any Condemnation proceedings, Lessor and Lessee
shall each seek its Award in conformity herewith, at its respective expense;
provided, however, Lessee shall not initiate, prosecute or acquiesce in any
proceedings that may result in a diminution of any Award payable to Lessor.
15.4 PARTIAL TAKING. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is still suitable for its Primary
Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but each fails to timely elect to terminate this Lease as
provided in Section 15.3 hereof, Lessor at its cost (not to exceed the net
Condemnation Award) shall with all reasonable dispatch after the payment of such
award to Lessor restore the untaken portion of any Leased Improvements so that
such Leased Improvements constitute a complete architectural unit of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to the
Condemnation. During and after the restoration of the untaken portion of the
Leased Property, Base Rent shall be abated in the manner and to the extent that
is fair, just and equitable to both Lessee and Lessor, taking into
consideration, among other relevant factors, the number of usable rooms, the
amount of square footage, and the revenues affected by such partial Taking. In
the event Base Rent is abated, the Threshold Amounts shall also be reduced
accordingly. If Lessor and Lessee are unable to agree upon the amount of such
abatement and for reduction within thirty (30) days after such partial Taking,
the matter may be submitted by either party to a court of competent jurisdiction
for resolution.
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15.5 TEMPORARY TAKING. If the whole or any part of the Leased Property
or of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the terms herein
specified, the full amounts of Rent and Additional Charges, but, if the entire
Leased Property is so condemned, only to the extent of net proceeds of
condemnation awards. Except only to the extent that Lessee may be prevented from
so doing pursuant to the terms of the order of the Condemnor, Lessee shall
continue to perform and observe all of the other terms, covenants, conditions
and obligations hereof on the part of the Lessee to be performed and observed,
as though such Condemnation had not occurred. In the event of any Condemnation
as in this Section 15.5 described, the entire amount of any Award made for such
Condemnation allocable to the Term, whether paid by way of damages, rent or
otherwise, shall be paid to Lessee. Lessor covenants that upon the termination
of any such period of temporary use or occupancy it will, at its sole expense,
restore the Leased Property as nearly as may be reasonably possible to the
condition in which the same was immediately prior to such Condemnation, unless
such period of temporary use or occupancy extends beyond the expiration of the
Term, in which case Lessor shall not be required to make such restoration.
ARTICLE XVI
-----------
16.1 EVENTS OF DEFAULT. If any one or more of the
following events (individually, an "Event of Default") occurs:
(a) Lessee fails to make payment of the Base Rent when the
same becomes due and payable and such condition continues for a period of ten
(10) days; or
(b) Lessee fails to make payment of Percentage Rent when the
same becomes due and payable and such condition continues for a period of ten
(10) days; or
(c) Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after receipt by the Lessee of Notice
thereof from Lessor, unless such failure cannot with due diligence be cured
within a period of thirty (30) days, in which case it shall not be deemed an
Event of Default if Lessee proceeds promptly and with due diligence to cure the
failure and diligently completes the curing thereof; provided, however, in no
event shall such cure period extend beyond one hundred eighty (180) days after
such Notice; or
(d) Lessee shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state bankruptcy
law or any similar federal or state law, or
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shall be adjudicated a bankrupt or shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts generally as
they become due, or if a petition or answer proposing the adjudication of the
Lessee as a bankrupt or its reorganization pursuant to any federal or state
bankruptcy law or any similar federal or state law shall be filed in any court
and the Lessee shall be adjudicated a bankrupt and such adjudication shall not
be vacated or set aside or stayed within sixty (60) days after the entry of an
order in respect thereof, or if a receiver of the Lessee or of the whole or
substantially all of the assets of the Lessee shall be appointed in any
proceeding brought by the Lessee or if any such receiver, trustee or liquidator
shall be appointed in any proceeding brought against the Lessee and shall not be
vacated or set aside or stayed within sixty (60) days after such appointment; or
(e) without Lessor's consent, Lessee is liquidated or
dissolved, or begins proceedings toward such liquidation or dissolution, or, in
any manner, permits the sale or divestiture of substantially all of its assets;
or
(f) the estate or interest of Lessee in the Leased Property or
any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in an proceeding (unless Lessee is contesting
such lien or attachment in good faith in accordance with Article XII hereof); or
(g) except as a result of damage, destruction or a partial or
complete Condemnation, Lessee voluntarily ceases operation of the Leased
Property for a period in excess of ten (10) days;
(h) the Franchise Agreement with respect to the Facility on
the Leased Premises is terminated by the franchisor as a result of any action or
failure to act by the Lessee or any Person with whom the Lessee contracts for
management services at the Facility; or
(i) an Event of Default shall occur under any
Percentage Lease (other than this Lease) between Lessor and
Lessee; or
(j) Robert Boykin, John Boykin and their heirs shall at any
time cease to own directly not less than a collective 51% interest in Lessee or
shall fail to collectively control Lessee unless Lessor shall, in its sole and
absolute discretion, have granted its prior written consent thereto; or
(k) Lessee shall breach the terms of Section 7.2(f),
Article 19, Section 23.1, or Section 24.2; or
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(l) a breach or default shall occur under the Alignment of
Interests Agreement, which breach or default shall continue beyond any
applicable notice or grace period;
then, and in any such event, Lessor may, so long as such Event of Default
continues, exercise one or more remedies available to it herein or at law or in
equity including, but not limited to, its right to terminate this Lease by
giving Lessee the shortest Notice of such termination permitted by law.
If litigation is commenced with respect to any alleged default under
this Lease, the prevailing party in such litigation shall receive, in addition
to its damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
No Event of Default (other than a failure to make a payment of money)
shall be deemed to exist under clause (c) during any time the curing thereof is
prevented by an Unavoidable Delay, provided that upon the cessation of such
Unavoidable Delay, Lessee remedies such default or Event of Default without
further delay.
16.2 REMEDIES.
(a) If any one or more Events of Default shall occur and be
continuing, then Lessor shall have the right, in addition to all other rights or
remedies available at law or in equity, at its election:
(i) To give Lessee written notice of Lessor's intention to
terminate this Lease on the earliest date permitted by law or on any later date
specified in such notice, in which case Lessee's right to possession of the
Leased Property shall cease and this Lease will be terminated on such date,
except as to liability of Lessee expressly, stated herein to survive the
termination of this Lease, including, without limitation, liability pursuant to
Section 16.2(d); or
(ii) Without further demand or notice, to reenter and take
possession of the Leased Property or any part of the Leased Property, repossess
the same, expel Lessee and those claiming through or under Lessee, and remove
the effects of both or either, using such force for such purposes as may be
lawful and necessary, without being liable for prosecution, without being deemed
guilty of any manner of trespass, and without prejudice to any remedies for
arrears or future payments of Base Rent, Percentage Rent, Additional Charges or
other amounts payable under this Lease or as a result of any preceding breach of
covenants or conditions; or
(iii) To cure any Event of Default and to charge Lessee
for the cost of effecting such cure, including, without
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limitation, reasonable attorneys, fees and interest on the amount so advanced at
the Overdue Rate, provided that Lessor shall have no obligation to cure any such
Event of Default.
(b) Should Lessor elect to reenter as provided in Section
16.2(a)(ii), or should Lessor take possession pursuant to legal proceedings or
pursuant to any notice provided by law while an Event of Default is continuing,
Lessor may, from time to time, without terminating this Lease, relet the Leased
Property or any part of the Leased Property in Lessor's or Lessee's name, but
for the account of Lessee, for such term or terms (which may be greater or less
than the period which would otherwise have constituted the balance of the Term
of this Lease) and on such conditions and upon such other terms (which may
include concessions of free rent and alteration and repair of the Leased
Improvements) as Lessor, in its reasonable discretion, may determine and Lessor
may collect and receive the rent. No such reentry or taking possession of the
Leased Property by Lessor will be construed as an election on Lessor's part to
terminate this Lease unless a written notice of such intention is given to
Lessee. No notice from Lessor under this Article 16 or under a forcible or
unlawful entry and detainer statute or similar law will constitute an election
by Lessor to terminate this Lease unless such notice specifically so states.
Lessor reserves the right following any such reentry or reletting to exercise
its right to terminate this Lease by giving Lessee such written notice, in which
event this Lease will terminate as specified in such notice.
(c) In the event that Lessor does not elect to terminate this
Lease as permitted in Section 16.2(a)(i), but elects instead to take possession
as provided in Section 16.2(a)(ii), Lessee shall pay to Lessor Base Rent,
Percentage Rent, Additional Charges and other sums as provided in this Lease
which would be payable under this Lease if such repossession had not occurred,
less the net proceeds, if any, of any reletting of the Leased Property, after
deducting all of Lessor's expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, attorneys,
fees, expenses of employees, alteration and repair costs and expenses of
preparation for such reletting. If, in connection with any reletting, the new
lease term extends beyond the existing Term of this Lease, or the premises
covered by such new lease include other premises not part of the Leased
Property, a fair apportionment of the rent received from such reletting and the
expenses incurred in connection with such reletting as provided in this
Paragraph will be made in determining the net proceeds from such reletting, and
any rent concessions will be equally apportioned over the term of the new lease.
Lessee shall pay such rent and other sums to Lessor monthly on the date on which
the Base Rent and Additional Charges, and, in the case of Percentage Rent,
quarterly on the day on which Percentage Rent, would have been payable under
this Lease if possession had not
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been retaken, and Lessor shall be entitled to receive such rent and other sums
from Lessee on each such day.
(d) If an Event of Default has occurred and this Lease is
terminated by Lessor, Lessee shall remain liable to Lessor for damages in an
amount equal to Base Rent, Percentage Rent, Additional Charges and other amounts
which would have been owing by Lessee for the balance of the Term of this Lease
had this Lease not been terminated, less the net proceeds, if any, of any
reletting of the Leased Property by Lessor subsequent to such termination, after
deducting all of Lessor's expenses in connection with such reletting, including,
but without limitation, the expenses enumerated in Section 16.2(c) (which
expenses, if the reletting is for a term that will extend beyond the existing
Term, will be apportioned as described in Section 16.2(c)). Lessor shall be
entitled to collect such damages from Lessee monthly on the day on which Base
Rent or Additional Changes, and quarterly on the day on which Percentage Rent,
would have been payable under this Lease if this Lease had not been terminated,
and Lessor shall be entitled to receive such Base Rent and other amounts from
Lessee on each such day. Alternatively, at the option of Lessor, in the event
this Lease is so terminated, Lessor shall be entitled to recover against Lessee
as damages for loss of the bargain and not as a penalty:
(i) The worth at the time of award of the unpaid Base
Rent and Percentage Rent which had been earned at the time of
termination;
(ii) The worth at the time of award of the amount, if any, by
which the unpaid Base Rent, Percentage Rent and all Additional Charges which
would have been earned after termination until the time of award exceeds the
amount of rental loss that Lessee proves could have been reasonable avoided;
(iii) The worth at the time of award of the amount, if any, by
which the unpaid Base Rent, Percentage Rent and Additional Charges for the
balance of the Term (had the same not been so terminated by Lessor) after the
time of award exceeds the amount of such rental loss during such period that
Lessee proves could be reasonably avoided; and
(iv) Any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of events would be likely to
result therefrom.
The "WORTH AT THE TIME OF AWARD" of the amounts referred to in clauses (i) and
(ii) above shall be computed by adding interest from the date of termination
until the time of the award computed at the Overdue Rate on the date on which
this Lease is terminated. The worth at the time of award of the amount referred
to in clause (iii) above shall be computed by using a
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discount rate of the Federal Reserve Bank of New York at the time of the award
plus one percent (1%).
(e) Percentage Rent for the purposes of this Section 16.2
shall be a sum equal to (i) the average of the annual amounts of the Percentage
Rent for the three (3) Fiscal Years immediately preceding the Fiscal Year in
which the termination, re-entry or repossession takes place, or (ii) if three
(3) Fiscal Years shall not have elapsed, the average of the Percentage Rent
during the preceding Fiscal Years during which the Lease was in effect, or (iii)
if one (1) Fiscal Year has not elapsed, the amount derived by analyzing the
Percentage Rent from the effective date of this Lease.
(f) Any suit or suits for the recovery of the amounts and
damages set forth in Sections 16.2(c) or (d) may be brought by, Lessor, from
time to time, at Lessor, a election, and nothing in this Lease will be deemed to
require Lessor to await the date upon which this Lease or the Term of this Lease
would have expired had there occurred no Event of Default. Each right and remedy
provided for in this Lease as a result of the occurrence of a default is
cumulative and is in addition to every other right or remedy provided for in
this Lease or now or after the date of the commencement of the Term existing at
law or in equity or by statute or otherwise, and the exercise or beginning of
the exercise by Lessor of any one or more of the rights or remedies provided for
in this Lease or now or after the date of the commencement of the Term existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Lessor of any or all other rights or remedies
provided for in this Lease or now or after the date of the commencement of the
Term existing at law or in equity or by statute or otherwise. All costs incurred
by Lessor in collecting any amounts and damages owing by Lessee pursuant to the
provisions of this Lease or to enforce any provision of this Lease, including,
but not limited to, reasonable attorneys' fees and related costs, whether or not
one or more actions are commenced by Lessor, shall also be recoverable by Lessor
from Lessee.
(g) Lessor shall have no obligation to mitigate damage
following the occurrence of an Event of Default.
16.3 WAIVER. Lessee hereby waives, to the extent permitted by
applicable law, (a) any right to a trial by jury in the event of summary
proceedings to enforce the remedies set forth in this Article 16; (b) the
benefit of any laws now or hereafter in any force exempting property from
liability for rent or for debt; (c) any equity of redemption; and (d) except as
provided herein, any presentations, demands for payment or for performance, or
notice of non-performance.
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16.4 APPLICATION OF FUNDS. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall, to the extent permitted by applicable law, be applied to Lessee's
obligations in the order that Lessor may determine, in Lessor's discretion.
16.5 SURRENDER. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor to do so, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by reasonable force, summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all personal property from the Leased Property, subject to rights of
any hotel guests and to any requirement of law. Lessee hereby waives any and all
requirements of applicable law for service of notice to reenter the Leased
Property. Lessor shall be under no obligation to, but may if it so chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.
16.6 WAIVER. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article XVI, and (B) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" (included limited liability resulting
from LLC status) of Lessee other than to the extent funds shall have been
inappropriately paid any Affiliate of Lessee following a default resulting in an
Event of Default.
ARTICLE XVII
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LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of the
Franchise Agreement, and fails to cure the same within the relevant time periods
provided in Section 16.1, Lessor, without waiving or releasing any obligation of
Lessee, and without waiving or releasing any obligation or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and,
subject to Section 16.2, take all such action thereon as, in Lessor's opinion,
may be necessary or appropriate therefor. No such entry shall be deemed an
eviction
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of Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorney's fees and expenses, in each case to the
extent permitted by law) so incurred, together with a late charge thereon (to
the extent permitted by law) at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessor, shall be paid by Lessee to
Lessor on demand. The obligations of Lessee and rights of Lessor contained in
this Article shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
-------------
EXCULPATION. In the event of (a) a sale or transfer of all or any part
of the Leased Property (by operation of law or otherwise), (b) the making of a
lease of all or substantially all of the Leased Property or (c) a sale or
transfer (by operation of law or otherwise) of the leasehold estate under any
such lease, (i) the seller, transferor or lessor, as the case may be, shall be
and hereby is automatically and entirely released and discharged, from and after
the date of such sale, transfer or lease, of all liability in respect of the
performance of any of the terms of this Lease on the part of Lessor thereafter
to be performed and (ii) the term "Lessor" shall thereafter mean only the
purchaser, transferee or lessee, as the case may be, and the covenants and
agreements of Lessor shall thereafter be binding upon such purchaser, transferee
or lessee.
Lessee shall look solely to Lessor's estate and interest in
the Leased Property for the satisfaction of any right of Lessee for the
collection of a judgment or other judicial process or arbitration award
requiring the payment of money by Lessor, and no other property or assets of
Lessor. Lessor's agents, incorporators, subscribers, shareholders, officers,
directors, members, partners, principals (disclosed or undisclosed) an
affiliates, whether directly or through Lessor or through any receiver,
assignee, trustee in bankruptcy or through anyone else, shall not be subject to
levy, lien, execution, attachment, or other enforcement procedure for the
satisfaction of Lessee's rights and remedies under of with respect to or arising
from or in connection with this Lease.
ARTICLE XIX
-----------
19.1 REIT COMPLIANCE. Lessee acknowledges that the general partner of
Lessor intends to qualify as a real estate investment trust under the Code, and
that pursuant to Lessor's limited partnership agreement, Lessor may not take or
omit to take any action, or engage in any business or business transaction or
relationship, that would or could result in the REIT being disqualified from
treatment as a real estate investment trust. As a material inducement to Lessor
to enter into this Lease,
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Lessee hereby agrees that it shall not take or omit to take any action, or
engage in any business or business transaction or relationship, that would or
could result in the REIT being disqualified from treatment as a real estate
investment trust under the Code. Without limiting the generality of the
foregoing, Lessee agrees that:
(A) PERSONAL PROPERTY LIMITATION. Anything contained in this
Lease to the contrary notwithstanding, the average of the adjusted tax bases of
the items of personal property that are leased to Lessee under this Lease at the
beginning and at the end of any Fiscal Year shall not exceed 15% of the average
of the aggregate adjusted tax bases of the Leased Property at the beginning and
at the end of such Fiscal Year. This Section 19.1(a) is intended to ensure that
the Rent qualifies as "rents from real property," within the meaning of Section
856(d) of the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent.
(B) SUBLEASE RENT LIMITATION. Anything contained in this Lease
to the contrary notwithstanding, Lessee shall not sublet the Leased Property on
any basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (i) the income or profits derived by the
business activities of the sublessee, or (ii) any other formula such that any
portion of the Rent would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.
19.2 SUBLEASE LESSEE LIMITATION. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublease the Leased Property to
any Person in which Boykin Lodging Trust, Inc., owns, directly or indirectly a
ten percent (10%) or more interest, within the meaning of Section 856(d)(2)(B)
of the Code, or any similar or successor provisions thereto.
19.3 LESSEE OWNERSHIP LIMITATION. Anything contained in this Lease to
the contrary notwithstanding, neither Lessee or an Affiliate of Lessee shall
acquire, directly or indirectly, a 10% or more interest in Boykin Lodging Trust,
Inc., within the meaning of Section 856(d)(2)(B) of the Code, or any similar or
successor provision thereto.
19.4 LESSEE OFFICER AND EMPLOYEE LIMITATION. Anything contained in this
Lease to the contrary notwithstanding, without the prior written consent of
Lessor, no officer or employee of Lessee (or any Person who furnishes or renders
services to the tenants of the Leased Property, or manages or operates the
Leased Property) shall at the same time be an officer of Lessor.
19.5 PAYMENTS TO AFFILIATES OF LESSEE. Except for (i)
payments made pursuant to a Management Agreement as permitted in
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Section 23.3 hereof, and (ii) payments made to acquire insurance as required by
Article XIII, Lessee shall not pay any fees to any Affiliate of Lessee during
the Term in connection with the Facility.
19.6 THIRD-PARTY MANAGEMENT ACTIVITIES. Notwithstanding any provision
of this Lease to the contrary, a subsidiary of Lessee may provide property
management services with respect to properties other than the Leased Property
pursuant to management contracts entered into with Persons other than Lessor;
provided, however, that Lessee may not provide such services with respect to any
hotel facility located within a ten (10) mile radius of any hotel facility owned
by Lessor as of the date hereof unless Lessee obtains the prior written consent
of each of Lessor's independent directors.
ARTICLE XX
----------
HOLDING OVER. If Lessee for any reason remains in possession of the
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month the aggregate of 105% of (a) one-twelfth of the aggregate
Base Rent and Percentage Rent payable with respect to the last Fiscal Year of
the Term, (b) all Additional Charges accruing during the applicable month and
(c) all other sums, if any, payable by Lessee under this Lease with respect to
the Leased Property. During such period, Lessee shall be obligated to perform
and observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
tenants at sufferance, to continued occupancy and use of the Leased Property.
Nothing contained herein shall constitute the consent, express or implied, of
Lessor to the holding over of Lessee after the expiration or earlier termination
of this Lease.
ARTICLE XXI
-----------
RISK OF LOSS. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequences of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequences of foreclosures, attachments, levies or
executions is retained by Lessor, and, in the absence of negligence, misconduct
or breach of this Lease by Lessee, Lessee shall in no event be answerable or
accountable therefore.
ARTICLE XXII
------------
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INDEMNIFICATION. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance, Lessee will protect, indemnify, hold harmless and defend any
Lessor Indemnified Party from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon or incurred by or asserted against any Lessor Indemnified
Party by reason of: (a) any accident, injury to or death of persons or loss of
or damage to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims under liquor liability, "dram
shop" or similar laws, (b) any past, present or future use, misuse, non-use,
condition, management, maintenance or repair or negligence by Lessee, its
agents, invitees, employees or guests, or any other person other than Lessor, of
the Leased Property or Lessee's Personal Property or any litigation, proceeding
or claim by governmental entities or other third parties to which Lessor is made
a party or participant related to such use, misuse, non-use, condition,
management, maintenance, or repair thereof by Lessee, including Lessee's failure
to perform obligations (other than Condemnation proceedings), (c) any
Impositions that are the obligations of Lessee pursuant to the applicable
provisions of this Lease, (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, (e) the nonperformance of any of the
terms and provisions of any and all existing and future subleases of the Leased
Property to be performed by the landlord thereunder, and (f) the sale of or
consumption of alcoholic beverages on or in the Leased Property, (g) claims of
Franchisor and Managers. Any amounts that become payable by Lessee under this
Article shall be paid within ten days after demand therefor by Lessor, and if
not timely paid, shall bear a late charge (to the extent permitted by law) at
the Overdue Rate from the expiration of such ten (10) day period date of such
determination to the date of payment. Lessee, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against any Lessor Indemnified Party or may compromise or otherwise dispose of
the same as Lessee sees fit. Nothing herein shall be construed as indemnifying
any Lessor Indemnified Party against its own grossly negligent acts or omissions
or willful misconduct.
Lessor shall indemnify and hold any Lessee Indemnified Party
from and against any and all liabilities, losses, interest, damages, costs or
expenses (including, without limitation, reasonable attorneys' fees) assessed
against, levied upon or collected from any Lessee Indemnified Party arising out
of the negligence, misconduct or breach of this Lease by Lessor.
Lessee's and Lessor's liability under the provisions of this
Article shall survive any termination of this Lease.
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ARTICLE XXIII
-------------
23.1 SUBLETTING AND ASSIGNMENT. Except as expressly permitted herein,
Lessee shall not mortgage, assign, sublet, or otherwise transfer its interest in
the Facility and, subject to the provisions of Article XIX and Section 23.2 and
any other express conditions or limitations set forth herein, Lessee may, but
only with the prior written consent of Lessor, which may be granted or withheld
in Lessor's sole and absolute discretion, (a) assign this Lease, (b) sublet all
or any part of the Leased Property, or (c) sublet any retail or restaurant
portion of the Leased Improvements in the normal course of the Primary Intended
Use; provided that any subletting to any party other than an Affiliate of Lessee
shall not individually as to any one such subletting, or in the aggregate,
materially diminish the actual or potential Rent payable under this Lease. In
the case of a subletting, the sublessee shall comply with the provisions of
Section 23.2, and in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Lease on the part
of Lessee to be kept and performed and shall be, and become, jointly and
severally liable with Lessee for the performance thereof. An original
counterpart of each such sublease and assignment and assumption, duly executed
by Lessee and such sublessee or assignee, as the case may be, in form and
substance satisfactory to Lessor, shall be delivered promptly to Lessor. In case
of either an assignment or subletting made during the Term, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder.
23.2 ATTORNMENT. Lessee shall insert in each sublease permitted under
Section 23.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) if this Lease terminates before the expiration of such
sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
23.3 MANAGEMENT AGREEMENT. Notwithstanding anything contained in this
Article XXIII to the contrary, Lessee may, with the prior written consent of
Lessor (which consent may be
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withheld in the sole and absolute direction of Lessor), enter into an agreement
(a "Management Agreement") with any third party to assign responsibility for the
management and/or operation of all or any part of the Leased Property, including
any retail or restaurant portion of the Leased Improvements, provided, however,
that Lessee shall not enter into any Management Agreement which will materially
diminish the actual or potential Rent payable under this Lease. Notwithstanding
the above, Lessee shall remain primarily liable, as principal rather than as
surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Lessee
hereunder.
ARTICLE XXIV
------------
24.1 OFFICERS' CERTIFICATES; FINANCIAL STATEMENTS; LESSOR'S
ESTOPPEL CERTIFICATES AND COVENANTS.
(a) At any time and from time to time upon not less than
twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and setting
forth the modifications), the date to which the Rent has been paid, whether to
the knowledge of Lessee there is any existing default or Event of Default
thereunder by Lessor or Lessee, and such other information as may be reasonably
requested by Lessor or Lessor's lender. Any such certificate furnished pursuant
to this Article may be relied upon by Lessor, any lender and any prospective
purchaser of the Leased Property.
(b) Lessee will furnish the following statements to
Lessor:
(1) on or before the twentieth (20th) day of each
month, a detailed profit and loss statement for the Leased
Property for the preceding month, a balance sheet for the
Leased Property as of the end of the preceding month, and a
detailed accounting of revenues for the Leased Property for
the preceding month, and such other information as may be
requested by Lessor or required by Lessor's lender, each in
form acceptable to Lessor; and
(2) the most recent Consolidated Financials of Lessee
within forty-five (45) days after each quarter of any Fiscal
Year (or, in the case of the final quarter in any Fiscal Year,
the most recent Audited Consolidated Financials of Lessee
within ninety (90) days) after such final quarter; and
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(3) with reasonable promptness, such information
respecting the financial condition and affairs of
Lessee as may be requested by Lessor.
(c) At any time and from time to time upon not less than
twenty (20) days notice by Lessee, Lessor will furnish to Lessee or to any
person designated by Lessee an estoppel certificate certifying that this Lease
is unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and setting forth the modifications), the date to which
Rent has been paid, whether to the knowledge of Lessor there is any existing
default or Event of Default on Lessee's part hereunder, and such other
information as may be reasonably requested by Lessee.
24.2 LESSEE'S FINANCIAL COVENANTS. Lessee shall not pay any dividends
to its shareholders, except in the amount necessary for such shareholders to pay
their respective federal, state and local income taxes to the extent such taxes
are allocable to Lessee's taxable income and reportable as such on such
shareholders' tax returns, until such time as Lessee has fully complied with the
terms and provisions of the "Alignment of Interests Agreement" dated , (the
"Alignment of Interests Agreement"). Lessee shall not incur any indebtedness
(other than ordinary trade payables) unless required (i) to pay rent, (ii) to
maintain and repair the Leased Property in accordance with Article IX, or (iii)
to make Alterations in accordance with Article X, provided that Lessee shall
thereafter retire such indebtedness prior to making any dividend payments to its
shareholders except to the extent needed to pay federal, state or local income
tax on their respective shares of Lessee's taxable income.
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ARTICLE XXV
-----------
BOOKS AND RECORDS; LESSOR'S RIGHT TO INSPECT. Lessee shall keep full
and adequate books of account and other records reflecting the results of
operation of the Facility on an accrual basis, all in accordance with the
Uniform System and generally accepted accounting principles. The books of
account and all other records relating to or reflecting the operation of the
Facility shall be kept either at the Facility or at Lessee's offices in
Cleveland, Ohio, and shall be available to Lessor and its representatives and
its auditors or accountants, at all reasonable times for examination, audit,
inspection and transcription. All of such books and records pertaining to the
Facility including, without limitation, books of account, guest records and
front office records, at all times shall be the property of Lessee, (subject to
the terms of Section 35.2) but shall not be removed from the Facility or
Lessee's offices by Lessee without Lessor approval.
Lessee shall permit Lessor and its authorized representatives
as frequently as reasonably requested by Lessor to inspect the Leased Property
and Lessee's accounts and records pertaining thereto and make copies thereof,
during usual business hours upon reasonable advance notice, subject only to any
business confidentiality requirements reasonably requested by Lessee.
ARTICLE XXVI
------------
NO WAIVER. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE XXVII
-------------
REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
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ARTICLE XXVIII
--------------
ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease or of the
Leased Property or any part thereof, or of any interest therein, shall be valid
or effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
ARTICLE XXIX
------------
NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXX
-----------
CONVEYANCE BY LESSOR. If Lessor or any successor owner of the Leased
Property conveys the Leased Property in accordance with the terms hereof other
than as security for a debt, and the grantee or transferee of the Leased
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
ARTICLE XXXI
------------
QUIET ENJOYMENT. So long as Lessee pays all Rent as the same becomes
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all liens and encumbrances subject
to which the Leased Property was conveyed to Lessor or hereafter consented to by
Lessee or provided for herein. Notwithstanding the foregoing, Lessee shall have
the right by separate and independent action to pursue any claim it may have
against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Section.
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ARTICLE XXXII
-------------
NOTICES. All notices, demands, requests, consents, approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served, mailed (by registered or certified mail, return receipt
requested and postage prepaid) or sent by facsimile transmission, addressed to
Lessor at 50 Public Square, Suite 1500, Cleveland, Ohio 44113, Attention: Robert
W. Boykin, and addressed to Lessee at 50 Public Square, Suite 1500, Cleveland,
Ohio 44113, Attention: Ronald A. Cook, or to such other address or addresses as
either party may hereafter designate, Notice by personal delivery or facsimile
transmission shall be effective upon receipt, and Notice given by mail shall be
complete at the time of deposit in the U.S. Mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response within
any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five days.
ARTICLE XXXIII
--------------
33.1 LESSOR MAY GRANT LIENS, SUBORDINATION. Without the consent of
Lessee, Lessor may, from time to time, directly or indirectly, create or
otherwise cause to exist, modify or extend any lien, encumbrance, superior lease
or title retention agreement ("Encumbrance") upon the Leased Property, or any
portion thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing. This Lease and Lessee's interest herein shall
be subordinate to each and every Encumbrance unless the holder thereof elects
otherwise.
(a) The subordination provisions herein contained shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Lessee shall execute and deliver promptly
any certificate that Lessor or its successors in interest may request. Lessee
hereby constitutes and appoints Lessor or its successors in interest as Lessee's
attorney-in-fact to execute and deliver any such certificate or certificates for
and on behalf of Lessee. Notwithstanding any provision in this Lease or any
separate agreement with Lessee, Lessee covenants and agrees that Lessee shall
not do any act, or refrain from doing any act, if doing such act, or refraining
from doing such act, would constitute a default or breach of any Encumbrance.
(b) This Lease has been, or may be, assigned as collateral
security. After Lessee receives notice of such assignment and so long as the
obligations secured by such assignment remain outstanding, Lessee (i) will not
pay any Rent under this Lease more than thirty (30) days in advance of its due
date without the prior written consent of the holder of any such
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assignment (the "Assignee"), (ii) will not surrender or consent to the
modification of any of the terms of the Lease nor to the termination hereof by
Lessor without the Assignee's prior written consent, (iii) will continue to pay
Rent under this Lease to the Lessor or as directed by Lessor in accordance with
the terms of this Lease (unless and until notified otherwise in writing by the
Assignee in case of an event of default under the Assignee's mortgage or other
Encumbrance, in which event Lessee will pay the rent due under this Lease
directly to the Assignee or the Assignee's designee) and (iv) will not seek to
terminate this Lease or seek or assert any set-off or counterclaim against Rent
by reason of any act or omission of the Lessor, until Lessee shall have given
written notice of such act or omission to the Assignee (at the Assignee's last
address furnished to Lessee) and until a reasonable period of time shall have
elapsed following the giving of such notice, during which period the Assignee
shall have the right, but shall not be obligated, to remedy such act or
omission. Any payments made to the Assignee by Lessee shall not affect or impair
the other rights and remedies the Assignee may have under said mortgage or
Encumbrance or otherwise against the Lessor.
(c) Lessee agrees, at the election of the holder of any
interest superior to this Lease pursuant to the terms hereof ("Holder") to fully
and completely attorn to, from time to time, and to recognize Holder or any
person, or such person's successors or assigns, who acquires the interest of
Lessor under the Lease as Lessee's lessor under this Lease (collectively,
"Successor Landlord") upon the then executory terms of this Lease. The foregoing
provisions of this paragraph shall inure to the benefit of any such Successor
Landlord, shall apply notwithstanding that, as a matter of law, the Lease may
automatically terminate, shall be self-operative upon any such demand, and no
further instrument shall be required to give effect to said provisions. Lessee
however, upon demand of any such Successor Landlord agrees to execute, from time
to time, lessor or any instruments to evidence and confirm the provisions of
this paragraph, satisfactory to lessor or any such Successor Landlord. Upon such
attornment and the acceptance thereof in writing by such Successor Landlord,
this Lease shall continue in full force and effect as a direct lease between
such Successor Landlord and Lessee upon all of the then executory terms of the
Lease, except that such Successor Landlord shall not be:
(i) liable for any act or omission of any prior
lessor (including Lessor); or
(ii) liable for the return of any security deposit
(unless actually received by such Successor Lessor); or
(iii) bound by any waiver or forbearance of any prior
lessor (including Lessor); or
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(iv) be liable for any damages or other relief
attributable to any latent or patent defects in
construction; or
(v) bound by any covenant to perform or complete
any construction or to pay any sum to Lessee; or
(vi) subject to any offsets or defenses which might
have against any prior Lessor (including Lessor); or
(vii) bound by any Rent which Lessee might have paid for more
than the current quarter to any prior lessor (including Lessor); or
(viii) bound by any amendment or modification of the
Lease made without its consent.
(d) If a lender or prospective lender shall request
modifications to this Lease, Lessee shall not unreasonably withhold, delay or
defer Lessee consent thereto.
(e) Lessor shall request of each Holder that such Holder enter
into a so-called "non-disturbance agreement" with Lessee on such Holder's
standard form, and Lessor shall make good faith reasonable efforts to obtain
such non-disturbance agreement.
33.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of Section 33.3,
if Lessor breaches any covenant to be performed by it under this Lease, Lessee,
after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor. All
sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) so incurred, together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee against the Base Rent payments next accruing or coming
due. The rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 34.2 shall survive the termination of this Lease
with respect to the Leased Property.
33.3 BREACH BY LESSOR. It shall be a breach of this Lease if Lessor:
[(i)] fails to observe or perform any term, covenant or condition of this Lease
on its part to be performed and such failure continues for a period of thirty
(30) days after Notice thereof from Lessee, unless such failure cannot with due
diligence be cured without a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor,
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within such thirty (30) day period, proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof, or [(ii) defaults
under the Ground Lease if such default is not cured within thirty (30) days
after Notice thereof from the ground lessor of the Ground Lease.] The time
within which Lessor shall be obligated to cure any such failure also shall be
subject to extension of time due to the occurrence of any Unavoidable Delay.
33.4 LESSEE'S COOPERATION. In connection with the termination of this
Lease due to the expiration of the Term or otherwise, Lessee shall cooperate
with Lessor in transferring possession of the Leased Property to a new tenant,
including, without limitation, cooperating with the transfer of any licenses or
permits necessary for the operation of the Facility.
ARTICLE XXXIV
-------------
34.1 MISCELLANEOUS. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum permissible
rate. Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by a written instrument in recordable form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The headings in this Lease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. This
Lease shall be governed by and construed in accordance with the laws of the
State, but not including its conflicts of laws rules.
34.2 TRANSITION PROCEDURES. Upon the expiration or termination of the
Term of this Lease, for whatever reason, Lessor and Lessee shall do the
following (and the provisions of this Section 35.2 shall survive the expiration
or termination of this Lease until they have been fully performed) and, in
general, shall cooperate in good faith to effect an orderly transition of the
management of the Facility.
(a) TRANSFER OF LICENSES. Upon the expiration or
earlier termination of the Term, Lessee shall use its reasonable
efforts (i) to transfer to Lessor or Lessor's nominee, to the
extent assignable or transferable, the Franchise Agreement, any
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<PAGE> 69
liquor licenses, and all other licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Facility (collectively, "Licenses"), or (ii) if such transfer
is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or
Lessor's nominee in connection with the processing by Lessor of Lessor's nominee
of any applications for, all Licenses; provided, in either case, except in the
case of a termination resulting from an Event of Default by Lessee, that the
costs and expenses of any such transfer or the processing of any such
application shall be paid by Lessor or Lessor's nominee.
(b) LEASES AND CONCESSIONS. Lessee shall assign to Lessor or
Lessor's nominee simultaneously with the termination of this Lease, and the
assignee shall assume any and all subleases and concession agreements in effect
with respect to the Facility which Lessor elects to have assigned and to assume.
(c) BOOKS AND RECORDS. Any and all books, records files and
keys for the Facility kept by Lessee pursuant to this Lease or otherwise shall
be delivered promptly to Lessor or Lessor's nominee, simultaneously with the
termination of this Agreement, but such books and records shall thereafter be
available to Lessee at all reasonable times for inspection, audit, examination,
and transcription for a period of three (3) years and Lessee may retain (on a
confidential basis) copies or computer records thereof.
(d) TRANSITION ADJUSTMENTS. Lessee shall pay all accounts
payable and accrued expenses relating to the Leased Property as of the date of
termination of this Lease, to the extent such accounts payable and accrued
expenses are required to be paid by Lessee under this Lease, and Lessee shall be
entitled to receive and retain all accounts receivable, and an amount equal to
all prepaid expenses paid by Lessee, as of the date of this termination. All
advance bookings deposits and credits shall be paid to Lessor.
(e) The provisions of this Section 34.2 shall survive the
termination or expiration of this Lease.
34.3 CHANGE OF FRANCHISE. Lessee may change the existing franchise
covering the Leased Property with the prior written consent of Lessor, which
consent may be withheld in sole and absolute discretion of Lessor.
34.4 WAIVER OF PRESENTMENT, ETC. Lessee waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance and waives all notices
of the existence, creation or incurring of new or additional obligations, except
as expressly granted herein.
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<PAGE> 70
ARTICLE XXXV
------------
MEMORANDUM OF LEASE. Lessor and Lessee shall promptly upon the request
of either enter into a short form memorandum of this Lease, in form suitable for
recording under the laws of the State in which reference to this Lease, and all
options contained herein, shall be made. Lessee shall pay all costs and expenses
of recording such memorandum of this Lease.
ARTICLE XXXVI
-------------
LESSOR'S OPTION TO PURCHASE ASSETS OF LESSEE. Effective on not less
than ninety (90) days' prior Notice given at any time within one hundred eighty
(180) days before the expiration of the Term, but not later than ninety (90)
days prior to such expiration, or upon such shorter Notice period as shall be
appropriate if this Lease is terminated prior to its expiration date, Lessor
shall have the option to purchase some or all of the assets of Lessee, tangible
and intangible, relating to the Leased Property (other than this Lease and those
matters covered by Section 35.2), at the expiration or earlier termination of
this Lease for an amount (payable in cash on the expiration or earlier
termination date of this Lease) equal to the then book value thereof.
Notwithstanding any such purchase, Lessor shall obtain no rights to any trade
name or logo used in connection with the Franchise Agreement unless separate
agreement as to such use is reached with the applicable franchisor.
ARTICLE XXXVII
--------------
LESSOR'S OPTION TO TERMINATE LEASE. In the event Lessor enters into a
bona fide contract to sell the Leased Property to a non-Affiliate, Lessor may
terminate the Lease by giving not less than thirty (30) days' prior Notice to
Lessee of Lessor's election to terminate this Lease effective upon the closing
under such contract. In the event a closing under such contract does not occur,
this Lease shall continue to be in full force and effect. Effective upon such
closing, this Lease shall terminate and be of no further force and effect except
as to any obligations of the parties existing as of such date that survive
termination of this Lease. As compensation for the early termination of its
leasehold estate under this Article XXXVIII, Lessor shall within ninety (90)
days of such closing pay to Lessee the fair market value of Lessee's leasehold
estate hereunder as of the closing of the sale of the Leased Property. In the
event Lessor and Lessee are unable to agree upon the fair market value of the
original leasehold estate, it shall be determined by appraisal using the
appraisal procedure set forth in Article XXXIII.
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<PAGE> 71
For the purposes of this Article, fair market value of the leasehold
estate means, as applicable, an amount equal to the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell for
Lessee's leasehold estate under this Lease.
ARTICLE XXXVIII
---------------
COMPLIANCE WITH FRANCHISE AGREEMENT. To the extent any of the
provisions of the Franchise Agreement impose a greater obligation on Lessee than
the corresponding provisions of this Lease, then Lessee shall be obligated to
comply with, and the provisions of this Lease are deemed modified to the extent
necessary to comply with, the provisions of the Franchise Agreement, it being
the intent of the parties hereto that Lessee comply in every respect with the
provisions of the Franchise Agreement so as to avoid any default thereunder. In
addition, and notwithstanding any other provisions to the contrary contained in
this Lease, in the event that Franchisor terminates the Franchise Agreement for
any reason, Lessor shall have the right to terminate this lease in which case
neither party shall thereafter have any liability to the other.
ARTICLE XXXIX
-------------
LESSOR'S LIMITATION ON LIABILITY. To the extent Lessor's obligations
hereunder are covered by the obligations or are the subject of the obligations
of parties to Contribution Agreements other than Lessor under the Contribution
Agreements, Lessor's liability shall be limited to amounts received under such
Contribution Agreements at the sole cost and expense of Lessee.
[ARTICLE XXXX]
--------------
CONDITION. THIS LEASE IS CONDITIONAL UPON LESSOR HAVING ACQUIRED THE
LEASED PREMISES AND THE OTHER 8 HOTEL PROPERTIES THROUGH AN INITIAL PUBLIC
OFFERING OF STOCK IN LESSOR. IN THE EVENT THAT THE INTITIAL PUBLIC OFFERING DOES
NOT OCCUR AND LESSOR DOES NOT ACQUIRE THE LEASED PREMISES AND THE OTHER 8 HOTEL
PROPERTIES, THEN THIS LEASE SHALL BE VOID AB INITIO, OF NO FURTHER FORCE AND
EFFECT AND THE PARTIES SHALL THEREAFTER HAVE NO LIABILITY TO THE OTHER
HEREUNDER.
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<PAGE> 72
IN WITNESS WHEREOF, the parties have executed this Lease under
seal by their duly authorized officers as of the date first above written.
"LESSOR"
BOYKIN HOTEL PROPERTIES, L.P.
By:___________________________
Title:________________________
"LESSEE"
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY
By:___________________________
Title:________________________
[CORPORATE SEAL]
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
The foregoing instrument was acknowledged before me this _____
day of ____________, 1996, by _________________ as _______________ of Boykin
Hotel Properties, L.P., an Ohio limited partnership.
My commission expires: ______________________.
------------------------------
Notary Public
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<PAGE> 73
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
The foregoing instrument was acknowledged before me this _____
day of ____________, 1996, by _________________ as _______________ of Boykin
Management Company Limited Liability
Company, an Ohio limited liability company.
My commission expires: ______________________.
------------------------------
Notary Public
-68-
<PAGE> 74
Master Lease
Exhibit A
PROPERTY DESCRIPTION
-69-
<PAGE> 1
EXHIBIT 10.11
NONCOMPETITION AGREEMENT
BETWEEN
BOYKIN LODGING COMPANY
AND
THE BOYKIN PARTIES
<PAGE> 2
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is entered
into as of ____________________, 1996, between Boykin Lodging Company, an Ohio
corporation (the "Company"), and each of the parties listed on Annex A attached
hereto (each, a "Boykin Party," and collectively, the "Boykin Parties").
W I T N E S S E T H:
WHEREAS, the Company was formed to own, develop,
acquire and manage hotel properties;
WHEREAS, certain Boykin Parties are selling their hotel
properties to the Company;
WHEREAS, it is a condition to the Company's obligation to
consummate the purchase of those hotel properties that the Boykin Parties enter
into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. COVENANT NOT TO COMPETE.
(a) Each Boykin Party agrees not to directly or
indirectly, own, manage, develop or control, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent contractor or
otherwise with, any corporation, partnership, proprietorship, firm, association
or other business entity engaged in the business of, or otherwise engage in the
business of owning, managing, developing or controlling hotel properties, except
that (i) any Boykin Party may (A) own not more than one percent (1%) of any
class of publicly traded securities of any entity, and own interests in the
Company subject only to any restriction imposed by any agreement or instrument
other than this Agreement, and (B) have such an interest in, or participation,
employment, engagement, affiliation, association or relationship with, any
entity that manages hotel properties, so long as that entity is not engaged in
the business of acquiring, owning or developing hotel properties; (ii) William
J. Boykin, Robert W. Boykin and John E. Boykin may retain, dispose of and
otherwise deal with their interests in the New Haven, Connecticut facility
described in the Company's Prospectus dated ___________, 1996 under the heading
"Certain Transactions" so long as their activities in connection therewith (A)
are consistent with the description thereof in the Company's Prospectus, and (B)
do not result in the acquisition, ownership or development of hotel properties
in addition to that facility; and (iii) William J. Boykin may own and develop a
Hampton Inn on real property currently owned by him in Miami, Florida.
<PAGE> 3
(b) The restrictions on the Boykin Parties set forth in Section 1(a) will
terminate as follows: (i) with respect to Boykin Management Company, Ltd.
("BMCL"), any entity in which BMCL directly or indirectly owns a fifty percent
(50%) or more equity interest and any entity that directly or indirectly owns a
fifty percent (50%) or more equity interest in BMCL, and Boykin Enterprises,
Ltd. ("BEL") and any entity in which BEL directly or indirectly owns a fifty
percent (50%) or more equity interest, on the later of: (A) the second
anniversary of the first day on which Robert W. Boykin is neither a director or
officer of the Company and (B) the first day on which no entity identified in
this clause (i) is a lessee of any hotel owned by the Company, and (ii) with
respect to each Boykin Party other than those identified in clause (i) of this
subsection, on the second anniversary of the first day on which Robert W. Boykin
is neither a director or officer of the Company.
2. NONDISCLOSURE. No Boykin Party may, during the term of this Agreement or
at any time thereafter, directly or indirectly disclose, divulge, discuss, copy
or otherwise use or suffer to be used in any manner, in competition with, or
contrary to the interests of, the Company, any confidential information relating
to the Company's operations or properties or otherwise relating to its
particular business or other trade secrets of the Company, it being acknowledged
by each Boykin Party that all such information regarding the business of the
Company compiled or obtained by or furnished to it while it shall have been
affiliated or associated with the Company is confidential information and the
Company's exclusive property; but the foregoing restrictions do not apply to any
such information that: (A) is clearly obtainable in the public domain, (B)
becomes obtainable in the public domain, except by reason of the breach by any
Boykin Party of the terms hereof, (C) was not acquired by any Boykin Party in
connection with its affiliation with the Company, (D) was not acquired by any
Boykin Party from the Company or its representatives, or (E) is required to be
disclosed by rule of law or by order of a court or governmental body or agency.
3. HOTEL OPPORTUNITIES. From the date of this Agreement until (i) with
respect to each Boykin Party identified in clause (i) of Section 1(b), above,
the later of (A) the first day on which Robert W. Boykin is neither a director
or officer of the Company and (B) the first day on which no entity identified in
that clause (i) is a lessee of any hotel owned by the Company, and (ii) with
respect to each Boykin Party other than those identified in clause (i) of
Section 1(b), above, the first day on which Robert W. Boykin is neither a
director or officer of the Company, that Boykin Party shall disclose and present
to the Company any information it acquires in connection with any opportunity
for hotel acquisition, development or ownership, and shall not pursue that
opportunity for its own benefit until the
-2-
<PAGE> 4
Company gives written notice to that Boykin Party of the Company's intent not to
pursue that opportunity.
4. INJUNCTIVE RELIEF. Each Boykin Party agrees and understands that the
remedy at law for any breach by that party of Section 1 or 2 hereof will be
inadequate and that the damages flowing from that breach would not be readily
susceptible to being measured in monetary terms. Accordingly, each Boykin Party
acknowledges that, upon adequate proof of its violation of any legally
enforceable provision of Section 1 or 2 hereof, the Company shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining any
threatened or further breach. Nothing in this Section 4 limits the Company's
remedies at law or in equity for any breach by any Boykin Party of any of the
provisions of Section 1 or 2 that may be pursued by the Company.
5. ACKNOWLEDGMENT. Each Boykin Party has carefully considered the nature
and extent of the restrictions upon it and the rights and remedies conferred
upon the Company under this Agreement, and hereby acknowledges and agrees that
the restrictions are reasonable in duration and scope, are designed to eliminate
competition which otherwise would be unfair to the Company, are fully required
to protect the legitimate interests of the Company and do not confer a benefit
on the Company disproportionate to the detriment to that Boykin Party.
6. SEVERABILITY. The provisions of this Agreement are severable and if any
provision is determined to be illegal or otherwise unenforceable, in whole or in
part, the remaining provisions and any partially unenforceable provision, to the
extent enforceable in any jurisdiction, nevertheless shall be binding and
enforceable.
7. BINDING EFFECT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding on, the Company
and its successors and assigns, and the rights and obligations of each Boykin
Party under this Noncompete Agreement shall inure to the benefit of, and shall
be binding on, such Boykin Party and its successors, heirs, personal
representatives and assigns. No party to this Agreement may assign this
Agreement or any of its rights or obligations under it without the prior written
consent of the other parties.
8. NOTICES. Any notice to be given under this Agreement shall be in
writing, and if directed to the Company, shall be addressed to its principal
place of business, Attention: General Counsel, and if directed to a Boykin
Party, shall be addressed to the address set forth on Annex A, or to such other
address or addresses as either the Company or a Boykin Party, as applicable, may
hereafter designate in a notice sent in accordance with this Section 8.
-3-
<PAGE> 5
9. WAIVER. The failure of any party to enforce any provision of this
Agreement shall not be construed as a waiver of that provision as to any future
violation thereof, or prevent that party thereafter from enforcing each and
every other provision of this Agreement. The rights granted the parties herein
are cumulative and the waiver of any remedy shall not constitute a waiver of
that party's right to assert all other legal remedies available to it under the
circumstances.
10. AMENDMENTS. This Agreement supersedes all prior agreements and
understandings between the parties concerning the subject matter of this
Agreement and may not be modified or terminated orally. No modification,
termination or waiver of any provision of this Agreement shall be valid unless
in writing and signed by the party against whom it is sought to be enforced.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. PRONOUNS; GENDER. Where necessary or appropriate to the meaning hereof,
the singular and plural shall be deemed to include each other, and the
masculine, feminine and neuter shall be deemed to include each other.
-4-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
BOYKIN LODGING COMPANY
By:___________________________
Title:________________________
BOYKIN ENTERPRISES, LTD. PURCHASING CONCEPTS, INC.
By:___________________________ By:___________________________
Title:________________________ Title:________________________
B. H. VENTURES PURCHASING CONCEPTS WEST JOINT
VENTURE
By:___________________________ By:___________________________
Title:________________________ Title:________________________
BOYKIN MANAGEMENT COMPANY PILGRIM HOTEL CORP.
By:___________________________ By:___________________________
Title:________________________ Title:________________________
BOYKIN MANAGEMENT COMPANY OF THE BOYKIN COMPANY
ILLINOIS, INC.
By:___________________________ By:___________________________
Title:________________________ Title:________________________
BOYKIN MANAGEMENT COMPANY, LTD. THE BOYKIN GROUP, INC.
By:___________________________ By:___________________________
Title:________________________ Title:________________________
BOPA DESIGN COMPANY d/b/a
SPECTRUM SERVICES
By:___________________________ ______________________________
Title:________________________ John E. Boykin
BOYKIN PACIFIC MANAGEMENT
COMPANY, INC.
By:___________________________ ______________________________
Title:________________________ William J. Boykin
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<PAGE> 7
ANNEX A
-------
Boykin Parties
--------------
NAME ADDRESS (for each Boykin Party)
---- -------------------------------
Boykin Enterprises, Ltd. c/o ________________
B. H. Ventures Terminal Tower, Suite 1500
Boykin Management Company 50 Public Square
Boykin Management Company of Cleveland, Ohio 44113-2258
Illinois, Inc.
Boykin Management Company, Ltd.
BOPA Design Company d/b/a Spectrum Services
Boykin Pacific Management Company, Inc.
Purchasing Concepts, Inc.
Purchasing Concepts West Joint Venture
Pilgrim Hotel Corp.
The Boykin Company
The Boykin Group, Inc.
John E. Boykin
William J. Boykin
<PAGE> 1
EXHIBIT 23.3
CONSENT OF PROPOSED DIRECTORS
I hereby consent to being named in this Registration Statement on Form
S-11 as a proposed director of Boykin Lodging Company (the "Company") and have
agreed to serve as a director of the Company if elected.
May 30, 1996 /s/ Albert T. Adams
-----------------------------
Albert T. Adams
June 3, 1996 /s/ Lee C. Howley, Jr.
-----------------------------
Lee C. Howley, Jr.
June 4, 1996 /s/ Ivan J. Winfield
-----------------------------
Ivan J. Winfield
June 5, 1996 /s/ Frank E. Moiser
-----------------------------
Frank E. Moiser
June 18, 1996 /s/ William N. Hulett III
-----------------------------
William N. Hulett III
