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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BOYKIN LODGING COMPANY
(Exact name of Registrant as specified in its charter)
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<S> <C>
Ohio 34-1824586
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
Terminal Tower, Suite 1500
50 Public Square
Cleveland, Ohio 44113-2258
(216) 241-6375
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Robert W. Boykin
Terminal Tower, Suite 1500
50 Public Square
Cleveland, Ohio 44113-2258
(216) 241-6375
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With a copy to:
Robert A. Weible, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
(216) 621-0200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
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. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED(1) OFFERING PRICE(2)(3) REGISTRATION FEE
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Preferred Shares, without par value(4).......................
Depositary Shares representing
Preferred Shares, without par value(5)..................... $300,000,000 $90,909(8)
Common Shares, without par value(6)..........................
Warrants(7)..................................................
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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.
(Footnotes on following page)
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(1) Offered Securities registered hereunder may be sold separately, together or
as units with other Offered Securities registered hereunder.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more foreign
currencies or units of two or more foreign currencies or composite
currencies (such as European Currency Units).
(3) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for Common Shares or Preferred
Shares that are issued upon conversion of Preferred Shares or Depositary
Shares or upon exercise of Warrants registered hereunder, as the case may
be. The aggregate maximum offering price of all Offered Securities issued
pursuant to this Registration Statement will not exceed $300,000,000.
(4) An indeterminate number of Preferred Shares as may from time to time be
issued at indeterminate prices. "Preferred Shares" include (i) Class A
Cumulative Preferred Shares, without par value, and (ii) Class A
Noncumulative Preferred Shares, without par value.
(5) To be represented by Depositary Receipts representing an interest in all or
a specified portion of a Preferred Share.
(6) An indeterminate number of Common Shares as may from time to time be issued
at indeterminate prices or upon conversion of Preferred Shares or Depositary
Shares or upon exercise of Warrants registered hereunder, as the case may
be.
(7) An indeterminate number of Warrants representing rights to purchase
Preferred Shares, Depositary Shares or Common Shares registered hereunder.
(8) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
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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 SALES 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 SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1997
PROSPECTUS
BOYKIN LODGING COMPANY
$300,000,000
PREFERRED SHARES, DEPOSITARY SHARES, COMMON SHARES AND WARRANTS
Boykin Lodging Company (the "Company") may from time to time offer in one
or more classes or series (i) whole or fractional preferred shares
(collectively, "Preferred Shares"), (ii) Preferred Shares represented by
depositary shares ("Depositary Shares"), (iii) common shares, without par value
("Common Shares"), with an aggregate public offering price of up to
$300,000,000, on terms to be determined at the time or times of offering, and
(iv) warrants to purchase Preferred Shares, Depositary Shares or Common Shares
(collectively, "Warrants"). The Preferred Shares, Depositary Shares, Common
Shares and Warrants (collectively, the "Offered Securities") may be offered,
separately or together, in separate classes or series, in amounts, at prices and
on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, when applicable: (i) in the case of Preferred
Shares, the number of shares, the specific class, series, title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price; (ii) in the case of Depositary
Shares, the number of shares, the whole or fractional Preferred Shares
represented by each such Depositary Share and any initial public offering price;
(iii) in the case of Common Shares, the number of shares and any initial public
offering price; and (iv) in the case of Warrants, the securities to which they
relate, duration, offering price, exercise price and detachability features. In
addition, those specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, when
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by that Prospectus Supplement.
The Offered Securities may be offered by the Company directly, through
agents designated from time to time by the Company, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names and any applicable purchase price,
fee, commission or discount arrangement between or among them will be set forth
in or will be calculable from the information set forth in the applicable
Prospectus Supplement. No Offered Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the offering
of those Offered Securities.
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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.
, 1997
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and information statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement, the exhibits and schedules forming a part thereof and
the reports, proxy statements and other information filed by the Company with
the Commission in accordance with the Exchange Act can be inspected and copied
at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. In addition, the
Company's Common Shares are listed on the New York Stock Exchange and similar
information concerning the Company can be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of 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 contents 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 Offered Securities, 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. upon
payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
a. Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as amended by the Annual Report on Form 10-K/A filed with the
Commission on March 31, 1997;
b. The description of the Company's Common Shares contained in the
Company's Registration Statement on Form 8-A/A filed with the Commission on
October 23, 1997;
c. Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1997 and June 30, 1997;
d. Current Report on Form 8-K dated April 4, 1997, as amended by the
Current Report on Form 8-K/A filed with the Commission on June 17, 1997;
and
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e. Current Report on Form 8-K dated March 6, 1997, as amended by the
Current Reports on Form 8-K/A filed with the Commission on June 2, 1997,
June 17, 1997 and June 19, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Offered Securities are deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein is deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein (or
in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded does not, except as so modified or superseded, constitute a part of
this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any and all documents incorporated by reference in this
Prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Boykin Lodging Company, Terminal Tower, Suite 1500,
50 Public Square, Cleveland, Ohio 44113-2258, Attention: Raymond P. Heitland,
Secretary, telephone number (216) 241-6375.
THE COMPANY
The Company was formed in February 1996 to continue and expand the hotel
ownership, acquisition, redevelopment and repositioning activities of its
predecessors, Boykin Management Company and its affiliates (the "Boykin Group").
The Company completed its initial public offering in November 1996 (the "Initial
Offering") and operates as a self-administered equity real estate investment
trust.
The Company's primary business strategies are to achieve revenue growth in
its 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.
The Company's executive offices are located in the Terminal Tower, Suite
1500, 50 Public Square, Cleveland, Ohio 44113-2258, and its telephone number is
(216) 241-6375.
USE OF PROCEEDS
Unless otherwise described in the accompanying Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include the repayment of certain
indebtedness under the Company's credit facility, the acquisition of properties
(including using the net proceeds for possible portfolio or asset acquisitions
or in business combinations) as suitable opportunities arise and the improvement
of certain properties in the Company's portfolio.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The Company's ratio of earnings to combined fixed charges and preferred
share dividends for the year ended December 31, 1994, the pre-Initial Offering
period of January 1, 1996 to November 3, 1996, the post-Initial Offering period
of November 4, 1996 through December 31, 1996 and the nine-month period ended
September 30, 1997 were 1.01, 1.04, 6.29 and 8.20, respectively. In 1992, 1993
and 1995, earnings were insufficient to cover fixed charges by $2,707,000,
$2,464,000 and $48,000, respectively. Through the date of this Prospectus, the
Company's ratio of earnings to combined fixed charges and preferred share
dividends has equaled the Company's ratio of earnings to fixed charges because
the Company has had no Preferred Shares outstanding.
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For purposes of computing this ratio, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) before
income taxes and extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense, and
amortization of debt discounts and issue costs, whether expensed or capitalized,
adjusted by preferred share dividends.
DESCRIPTION OF PREFERRED SHARES
The Amended and Restated Articles of Incorporation of the Company (the
"Articles") authorize the issuance of up to (i) 5,000,000 Class A Cumulative
Preferred Shares, without par value (the "Cumulative Shares"), and (ii)
5,000,000 Class A Noncumulative Preferred Shares, without par value (the
"Noncumulative Shares") (the Cumulative Shares and the Noncumulative Shares
collectively, the "Preferred Shares"). As of the date of this Prospectus, no
Cumulative Shares or Noncumulative Shares are outstanding.
The following description of the Preferred Shares sets forth certain
general terms and provisions of each class of Preferred Shares to which any
Prospectus Supplement may relate. The statements below are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Articles, which will be further amended by the Board of
Directors in connection with the fixing by the Board of Directors of certain
terms of the Preferred Shares as provided below.
GENERAL
The Cumulative Shares and the Noncumulative Shares rank on a parity with
each other and are identical to each other, except (1) that dividends on the
Cumulative Shares will be cumulative, while dividends on the Noncumulative
Shares will not be cumulative, and (2) in respect of the following matters that,
pursuant to the terms of the Articles and subject to Ohio law, may be fixed by
the Board of Directors with respect to each series of each class of Preferred
Shares prior to the issuance thereof: (i) the designation of the series which
may be by distinguishing number, letter or title, (ii) 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), (iii) the dividend rate or rates of the series,
including the means by which such rates may be established, (iv) with respect to
the Cumulative Shares, the date or dates from which dividends shall accrue and
be cumulative and, with respect to all Preferred Shares, the date 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, (v)
redemption rights and prices, (vi) the terms and amounts of any sinking fund,
(vii) 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
Company, (viii) whether the shares of the series are 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 (ix) restrictions (in addition to those
set forth in the Articles) on the issuance of shares of the same or any other
class or series.
Reference is made to the applicable Prospectus Supplement relating to the
Preferred Shares offered thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The dividend rate or rates, period or periods and payment date or
dates or method of calculation thereof applicable to such Preferred
Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction or remarketing of such Preferred
Shares;
(6) The provision for any sinking fund for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
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(9) Any terms and conditions upon which such Preferred Shares will be
convertible into Common Shares of the Company, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of or on such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) Any limitations on issuance of securities ranking senior to or on a
parity with such Preferred Shares as to dividend rights and rights
upon liquidation, dissolution or winding up of the affairs of the
Company; and
(15) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
The Preferred Shares will, when issued, be fully paid and nonassessable and
will have no preemptive rights.
RANK
All Preferred Shares will, when issued, rank (i) on a parity with all other
Preferred Shares with respect to dividend rights (subject to dividends on
Noncumulative Shares being noncumulative) and rights upon liquidation,
dissolution or winding up of the Company, (ii) senior to all classes of Common
Shares of the Company and to all other equity securities ranking junior to such
Preferred Shares with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company; (iii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Shares with respect
to dividend rights and rights upon liquidation, dissolution or winding up of the
Company; and (iv) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Shares, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company.
DIVIDENDS
The holders of each series of each class of Preferred Shares are entitled
to receive, if, when and as declared, out of funds legally available therefor,
dividends in cash at the rate determined for such series and no more, payable on
the dates fixed for such series, in preference to the holders of Common Shares
and of any other class of shares ranking junior to the Preferred Shares. With
respect to each series of Cumulative Shares, such dividends will be cumulative
from the dates fixed for the series. With respect to each series of
Noncumulative Preferred Shares, dividends will not be cumulative (i.e., if the
Board of Directors fails to declare a dividend payable on a dividend payment
date on any Noncumulative Shares, the holders of such series of Noncumulative
Shares will have no right to receive a dividend in respect of the dividend
period ending on such dividend payment date, and the Company will have no
obligation to pay any dividend for such period, whether or not dividends on such
series of Noncumulative Shares would be declared to be payable on any future
dividend payment date). Each such dividend will be payable to holders of record
as they appear on the share transfer books of the Company on such record dates
as are fixed by the Board of Directors of the Company.
If Preferred Shares of any series of any class are outstanding, no
dividends may be paid or declared and set apart for any series of 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
for all shares of all series of such class then issued and outstanding and
entitled to receive such dividend (but, if such series are series of
Noncumulative Shares, then only with respect to the current dividend period),
ratably in proportion to the respective annual dividend rates fixed therefor,
shall have been paid or declared and set apart and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date for all
other classes of Preferred Shares then issued and outstanding and entitled to
receive such dividends (but, with respect to Noncumulative Shares, only with
respect to the then current dividend period), ratably in proportion to the
respective dividend rates fixed therefor, shall have been paid or declared and
set apart.
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So long as any series of Preferred Shares is outstanding, no dividend,
except a dividend payable in Common Shares or other shares ranking junior to
such series of Preferred Shares, shall be paid or declared or any distribution
made, except as aforesaid, in respect of the Common Shares or any other shares
ranking junior to such series of Preferred Shares, nor shall any Common Shares
or any other shares ranking junior to such series of Preferred Shares be
purchased, retired or otherwise acquired by the Company, except out of the
proceeds of the sale of Common Shares or other shares of the Company ranking
junior to such series of Preferred Shares received by the Company subsequent to
the date of first issuance of such series of Preferred Shares, unless (i) all
accrued and unpaid dividends on all classes of Preferred Shares then
outstanding, including the full dividends for all current dividend periods
(except, with respect to Noncumulative Shares, for the then current dividend
period only), shall have been declared and paid or a sum sufficient for payment
thereof set apart, and (ii) there shall be no arrearages with respect to the
redemption of any series of any class of Preferred Shares from any sinking fund
provided for such class in accordance with the Articles.
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 any class of Preferred Shares will be inapplicable to (i) any payments
in lieu of issuance of fractional shares, whether upon any merger, conversion,
stock dividend or otherwise, (ii) the conversion of Preferred Shares into Common
Shares, or (iii) the exercise by the Company of its rights to repurchase shares
of its capital stock in order to preserve its status as a REIT under the
Internal Revenue Code of 1986, as amended from time to time (the "Code"). No
interest, or sum of money in lieu of interest, is payable in respect of any
dividend payment on Preferred Shares of any series which may be in arrears.
Any dividend payment made on Preferred Shares will first be credited
against the earliest accrued but unpaid dividend due with respect to such shares
which remains payable.
REDEMPTION
If so described in the applicable Prospectus Supplement, a series of a
class of Preferred Shares will be subject to mandatory redemption or redemption
at the option of the Company, as a whole or in part, in each case upon the
terms, at the times and at the redemption prices described in such Prospectus
Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that will be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which, in the case of
Noncumulative Shares, includes only unpaid dividends for the current dividend
period) to the date of redemption. The redemption price may be payable in cash
or other property, as described in the applicable Prospectus Supplement.
Except in connection with the repurchase by the Company of shares in order
to maintain its qualification as a REIT for federal income tax purposes, the
Company may not purchase or redeem (for sinking fund purposes or otherwise) less
than all of a class of Preferred Shares then outstanding except in accordance
with a share purchase offer made to all holders of record of such class, unless
all dividends on all Preferred Shares of that class then outstanding for
previous and current dividend periods (but, in the case of Noncumulative Shares,
dividends for the current dividend period only) shall have been declared and
paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
If fewer than all of the outstanding shares of any class of Preferred
Shares are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares to be redeemed will be selected by lot
in a manner determined by the Board of Directors.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a Preferred Share to
be redeemed at the address shown on the share transfer books of the Company. If
fewer than all the Preferred Shares of any series are to be redeemed, the notice
mailed to each such holder thereof will also specify the number of Preferred
Shares to be redeemed from each holder. If notice of redemption of any Preferred
Shares has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of the
Preferred Shares so called for redemption, then
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from and after the redemption date dividends will cease to accrue on such
Preferred Shares, and such holders will cease to be shareholders with respect to
such shares and such holders shall have no right or claim against the Company
with respect to such shares, except only the right to receive the redemption
price without interest or to exercise before the redemption date any unexercised
privilege of conversion.
LIQUIDATION PREFERENCE
In the event of any voluntary liquidation, dissolution or winding up of the
affairs of the Company, the holders of any series of any class of Preferred
Shares are entitled to receive in full out of the assets of the Company,
including its capital, before any amount is paid or distributed among the
holders of the Common Shares or any other shares ranking junior to such series,
the amounts fixed by the Board of Directors with respect to such series and set
forth in the applicable Prospectus Supplement plus an amount equal to all
dividends accrued and unpaid thereon (but, with respect to Noncumulative Shares,
dividends for the current dividend period only) to the date of payment of the
amount due pursuant to such liquidation, dissolution or winding up the affairs
of the Company. After payment to the holders of the Preferred Shares of the full
preferential amounts to which they are entitled, the holders of Preferred
Shares, as such, shall have no right or claim to any of the remaining assets of
the Company.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company will distribute among the
holders of any other classes or series of shares ranking junior to the Preferred
Shares upon liquidation, dissolution or winding up, according to their
respective rights and preferences and in each case according to their respective
numbers of shares. The merger or consolidation of the Company into or with any
other corporation, or the sale, lease or conveyance of all or substantially all
of the assets of the Company, will not constitute a dissolution, liquidation or
winding up of the Company.
VOTING RIGHTS
Holders of Preferred Shares will not have any voting rights, except as set
forth below and as from time to time required by law.
If and when the Company is in default in the payment of dividends on any
series of Cumulative Shares at any time outstanding, for a number of dividend
payment periods (whether or not consecutive) which in the aggregate contain at
least 540 days, then holders of all series of Cumulative Shares then
outstanding, voting together as a class, will be entitled to elect a total of
two members of the Board of Directors, which voting right will be vested (and
any additional directors will serve) until all accrued and unpaid dividends on
such series of Cumulative Shares shall have been paid or declared and a sum
sufficient for the payment thereof set aside for payment.
If and when the Company has not paid or declared and set aside a sum
sufficient for the payment of dividends on any series of Noncumulative Shares
then 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 Noncumulative Shares then outstanding, voting together as a class,
shall be entitled to elect two members of the Board of Directors (in addition to
any members of the Board of Directors elected by the holders of Cumulative
Shares) until the Company has fully paid or has set aside a sum sufficient for
the payment of, dividends on such Noncumulative Shares for a number of
consecutive dividend payment periods which in the aggregate contain at least 360
days.
The affirmative vote of the holders of at least two-thirds of a class of
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, is
necessary to effect either of the following:
(1) 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 class of Preferred Shares; or
(2) Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Articles or the
Code of Regulations which affects adversely and materially the preferences
or voting or other right of the holders of such class of Preferred Shares
which are set forth in the Articles;
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provided, however, neither the amendment of the Articles so as to
authorize, create or change the authorized or outstanding number of a class
of Preferred Shares or of any shares ranking on a parity with or junior to
such class of Preferred Shares nor the amendment of the provisions of the
Code of Regulations so as to change the number or classification of
directors of the Company shall be deemed to affect adversely and materially
preferences or voting or other rights of the holders of such class of
Preferred Shares.
Without limiting the provisions described above, under Ohio law, holders of
each class of Preferred Shares will be entitled to vote as a class on any
amendment to the Articles, whether or not they are entitled to vote thereon by
the Articles, if the amendment would (i) increase or decrease the par value of
the shares of such class, (ii) change the issued shares of such class into a
lesser number of shares of such class or into the same or different number of
shares of another class, (iii) change the express terms or add express terms of
the shares of the class in any manner substantially prejudicial to the holders
of such class, (iv) change the express terms of issued shares of any class
senior to the particular class in any manner substantially prejudicial to the
holders of shares of the particular class, (v) authorize shares of another class
that are convertible into, or authorize the conversion of shares of another
class into, shares of the particular class, or authorize the directors to fix or
alter conversion rights of shares of another class that are convertible into
shares of the particular class, (vi) reduce or eliminate the stated capital of
the Company, (vii) substantially change the purposes of the Company or (viii)
change the Company into a nonprofit corporation.
If, and only to the extent, that (i) a class of Preferred Shares is issued
in more than one series and (ii) 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 such class of 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 the Articles or
the Code of Regulations which affects adversely and materially the preferences
or voting or other rights of the holders of such series which are set forth in
the Articles; provided, however, neither the amendment of the Articles so as to
authorize, create or change the authorized or outstanding number of a class of
Preferred Shares or of any shares ranking on a parity with or junior to such
class of Preferred Shares nor the amendment of the provisions of the Code of
Regulations so as to change the number or classification of directors of the
Company shall be deemed to affect adversely and materially the preference or
voting or other rights of the holders of such series.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would be required shall be
effected, all outstanding shares of such series of Preferred Shares shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of any
class of Preferred Shares are convertible into Common Shares will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of Common Shares into which the Preferred Shares are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of such Preferred Shares or the Company, the events requiring an
adjustment of the conversion price, and provisions affecting conversion upon the
occurrence of certain events.
RESTRICTIONS ON OWNERSHIP
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 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 or during a proportionate part of a shorter taxable year. See "Federal
Income Tax Considerations--Requirements for Qualification." Because the Company
believes that it qualified, and will continue to qualify, as a REIT beginning
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<PAGE> 11
with the taxable year ended December 31, 1996, the Articles 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, 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
any 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 Boykin Management Company Limited Liability
Company 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 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 the Regulations promulgated thereunder (the "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. 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.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue through a depositary (such depositary or its
successor, the "Preferred Shares Depositary") receipts ("Depositary Receipts")
for Depositary Shares, each of which will represent a fractional interest or a
share of a particular series of a class of Preferred Shares, as specified in the
applicable Prospectus Supplement. Preferred Shares of each series of each class
represented by Depositary Shares will be deposited under a separate Deposit
Agreement (each, a "Deposit Agreement") among the Company, the Preferred Shares
Depositary and the holders from time to time of the Depositary Receipts. Subject
to the Deposit Agreement, each owner of a Depositary Receipt will be entitled,
in proportion to the fractional interest of a share of the particular series of
a class of Preferred Shares represented by the Depositary Shares evidenced by
such Depositary Receipt, to all the rights and preferences of the Preferred
Shares represented by such Depositary Shares (including dividend, voting,
conversion, redemption and liquidation rights). As of the date of this
Prospectus, there are no Depositary Shares outstanding.
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the applicable Preferred Shares by the Company to the Preferred
Shares Depositary, the Company will cause the Preferred Shares Depositary to
issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt will be filed with
the Commission at or prior to any offering of Depositary Shares and may be
obtained from the Company upon request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions, with all fractions being rounded down to the nearest whole
cent, received in respect of the Preferred Shares to the record holders of the
Depositary Receipts evidencing the related Depositary Shares in proportion to
the number of such Depositary Receipts owned by such holder, subject to certain
obligations of holders to file proofs, certificates and other information and to
pay certain charges and expenses to the Preferred Shares Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Shares Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Share which has been converted or
exchanged. The Deposit Agreement will also contain provisions relating to the
manner in which any subscription or similar right offered by the Company to
holders of the Preferred Shares will be made available to holders of Depositary
Shares.
WITHDRAWAL OF SHARES
Upon surrender of Depositary Receipts at the corporate trust office of the
Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holder thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of whole
or fractional Preferred Shares and any money or other property represented by
the Depositary Shares evidenced by such Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of
the related Preferred Shares on the basis of the proportion of Preferred Shares
represented by each Depositary Share as described in the applicable Prospectus
Supplement, but holders of such Preferred Shares will not thereafter be entitled
to receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares that represent the number of Preferred Shares to be withdrawn,
the Preferred Shares Depositary will deliver to such holder at the same time a
new Depositary Receipt evidencing such excess number of Depositary Shares.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Shares
Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, so long as the Company has paid in full to the Preferred
Shares Depositary the redemption price of the Preferred Shares to be redeemed
plus an amount equal to any accrued and unpaid dividends (but, with respect to
Noncumulative Shares, dividends for the current dividend period only) thereon to
the date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the corresponding Preferred Shares. If less than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be selected
by the Preferred Shares Depositary by lot or pro rata as may be determined by
the Preferred Shares Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender thereof to
the Preferred Shares Depositary.
VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Shares Depositary will be required to
mail the information contained in such notice of meeting to the record holders
of the Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Shares
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Shares Depositary will endeavor, insofar as practical, to vote the amount of
Preferred Shares represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by the Preferred Shares Depositary in order to enable the
Preferred Shares Depositary to do so. The Preferred Shares Depositary will be
required to abstain from voting the amount of Preferred Shares represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. The
Preferred Shares Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote, as long
as such action or inaction is in good faith and does not result from gross
negligence or willful misconduct of the Preferred Shares Depositary.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as described in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company. Nevertheless, if so described
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares that represent convertible Preferred Shares, the Depositary Receipts may
be surrendered by holders thereof to the Preferred Shares Depositary with
written instructions to the Preferred Shares Depositary to instruct the Company
to cause conversion of the Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipts into the securities into which those
Preferred Shares are convertible, and the Company has agreed that upon receipt
of such instructions and any amounts payable in respect thereof, it will cause
the conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Shares to effect such conversion. If the Depositary Shares
evidenced by a Depositary Receipt are to be converted in part only, one or more
new Depositary Receipts will be issued for any Depositary Shares not to be
converted. No
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fractional Common Shares will be issued upon any conversion, and if such
conversion would have resulted in a fractional share being issued, an amount
will be paid in cash by the Company equal to the value of the fractional
interest based upon the closing price of the Common Shares on the last business
day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Shares
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts will not be effective unless such
amendment has been approved by the existing holders of at least a majority of
the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Shares Depositary if (i) such
termination is to preserve the Company's status as a REIT or (ii) a majority of
each class of Preferred Shares affected by such termination consents to such
termination, whereupon the Preferred Shares Depositary shall deliver or make
available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
Preferred Shares as are represented by the Depositary Shares evidenced by such
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares shall have been redeemed,
(ii) there shall have been a final distribution in respect of the related
Preferred Shares in connection with any liquidation, dissolution or winding up
of the Company and such distribution shall have been made to the holders of
Depositary Receipts evidencing the Depositary Shares representing such Preferred
Shares or (iii) each related Preferred Share shall have been converted into
interests in the Company not represented by Depositary Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Shares Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Shares Depositary. A successor
Preferred Shares Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Shares Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by the Preferred Shares Depositary with respect to the related
Preferred Shares.
Neither the Preferred Shares Depositary nor the Company will be liable if
it is prevented from or delayed in, by law or any circumstance beyond its
control, performing its obligations under the Deposit Agreement. The obligations
of the Company and the Preferred Shares Depositary under the Deposit Agreement
will be limited to performing their duties thereunder in good faith and without
negligence, gross negligence or willful misconduct, and the Company and the
Preferred Shares Depositary will not be obligated to prosecute or defend any
legal proceeding in respect of any Depositary Receipts, Depositary Shares or
Preferred Shares represented thereby unless satisfactory indemnity is furnished.
The Company and the Preferred Shares Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting Preferred
Shares represented
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<PAGE> 15
thereby for deposit, holders of Depositary Receipts or other persons believed to
be competent to give such information, and on documents believed to be genuine
and signed by a proper party.
If the Preferred Shares Depositary receives conflicting claims, requests or
instructions from any holders of Depositary Receipts, on the one hand, and the
Company, on the other hand, the Preferred Shares Depositary is entitled to act
on such claims, requests or instructions received from the Company.
RESTRICTIONS ON OWNERSHIP
The Company must meet certain requirements concerning the ownership of its
outstanding shares in order to qualify as a REIT under the Code. See the
discussion above under "Description of Preferred Shares--Restrictions on
Ownership."
DESCRIPTION OF COMMON SHARES
GENERAL
The Articles authorize the issuance of up to 40,000,000 Common Shares,
without par value. As of November 1, 1997, there were 9,536,251 Common Shares
issued and outstanding. In addition, up to 1,000,000 Common Shares have been
reserved for issuance upon the exercise of options under the Company's Long-Term
Incentive Plan and 30,000 Common Shares have been reserved for issuance upon the
exercise of options granted to the Company's directors. In addition, as of
November 1, 1997, there were 1,340,718 units (the "Units") outstanding in Boykin
Hotel Properties, L.P. (the "Partnership"), through which the Company owns all
of its hotel property interests. The Units may be exchanged for cash subject to
the Company's right to deliver Common Shares on a one-for-one-basis in lieu of a
cash payment. The 293,602 Units owned by John E. Boykin, Robert W. Boykin,
Raymond P. Heitland and Paul A. O'Neil may not be exchanged until November 4,
1999. As of the date of this Prospectus, the balance of the Units may be
exchanged. The Common Shares are listed on the New York Stock Exchange under the
symbol "BOY." National City Bank, Cleveland, Ohio, is the transfer agent and
registrar of the Common Shares.
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares may be
issuable upon conversion of Preferred Shares or upon the exercise of Warrants.
The statements below describing the Common Shares are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of the
Articles and the Company's Code of Regulations (the "Code of Regulations").
Holders of 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 payment and declaration of dividends on the Common
Shares and purchases thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on any outstanding Preferred
Shares. See "Description of Preferred Shares-Dividends." The holders of Common
Shares, upon any liquidation, dissolution or winding-up of the Company, are
entitled to receive ratably any assets remaining after payment in full of all
liabilities of the Company and the preferential amounts owing with respect to
any Preferred Shares. See "Description of Preferred Shares--Liquidation
Preference." The Common Shares possess ordinary voting rights, with each share
entitling the holder thereof to one vote. Holders of Common Shares do not have
cumulative voting rights in the election of directors. Holders of Common Shares
do not have preemptive rights, which means that they have no right to acquire
any additional Common Shares that may be subsequently issued by the Company.
All of the Common Shares now outstanding are, and any Common Shares offered
by any accompanying Prospectus Supplement when issued will be, fully paid and
nonassessable.
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RESTRICTIONS ON OWNERSHIP
The Company must meet certain requirements concerning the ownership of its
outstanding shares in order to qualify as a REIT under the Code. See the
discussion above under "Description of Preferred Shares--Restrictions on
Ownership."
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 Articles. 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.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Preferred Shares,
Depositary Shares or Common Shares. Warrants may be issued independently or
together with Preferred Shares, Depositary Shares or Common Shares offered by
any Prospectus Supplement and may be attached to or separate from those Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent described in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holder or beneficial owner of
any Warrant.
The applicable Prospectus Supplement will describe the terms of Warrants
offered thereby, including the following when applicable: (1) the title of
Warrants; (2) the aggregate number of Warrants; (3) the price or prices at which
Warrants will be issued; (4) the number of Preferred Shares, Depositary Shares
or Common Shares purchasable upon exercise of Warrants; (5) the designation and
terms of any series of Preferred Shares, Depositary Shares or Common Shares with
which Warrants are being offered and the number of Warrants being offered with
such securities; (6) the date, if any, on and after which Warrants may be
transferred separately from any related securities; (7) the price at which the
securities purchasable upon exercise of Warrants may be purchased; (8) the date
on which the right to exercise Warrants will commence and the date on which such
right will expire; (9) the minimum or maximum amount of Warrants which may be
exercised at any one time; (10) information with respect to any book-entry
procedures; (11) a discussion of material federal income tax considerations; and
(12) any other terms of Warrants including terms, procedures and limitations
relating to the exchange and exercise of Warrants.
See the sections captioned "Description of Preferred Shares," "Description
of Depositary Shares" and "Description of Common Shares" for a general
description of the securities for which Warrants may be exercised, including a
description of certain restrictions on the ownership of the Preferred Shares,
Depositary Shares and Common Shares, and certain anti-takeover provisions of
Ohio law. Preferred Shares, Depositary Shares or Common Shares that may be
acquired upon the exercise of Warrants directly or constructively held by an
investor will be considered outstanding (a) at the time of acquisition of
Warrants, and (b) prior to the exercise of Warrants, in determining the
percentage ownership of the Preferred Shares, Depositary or the Common Shares
held by that investor for purposes of the ownership limits referenced above.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material federal income tax
considerations to the Company and its security holders relating to the Offered
Securities and the treatment of the Company as a REIT. The discussion is general
in nature and is not intended to represent a detailed description of the federal
income tax consequences applicable to a particular shareholder of the Company in
view of a shareholder's particular circumstances, or to certain types of
shareholders (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to
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special treatment under the federal income tax laws. The discussion in this
section is based on current provisions of the Code, current and proposed
Treasury Regulations, court decisions and other administrative rulings and
interpretations, all of which are subject to change either prospectively or
retroactively. There can be no assurance that any such change, future Code
provision or other legal authority will not alter significantly the tax
considerations described herein.
THIS DISCUSSION IS NOT INTENDED TO BE A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OWN TAX ADVISOR,
REGARDING THE SPECIFIC TAX CONSEQUENCES, IN VIEW OF SUCH PROSPECTIVE PURCHASER'S
INDIVIDUAL CIRCUMSTANCES, OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
GENERAL
The Company elected to be taxed as a REIT under Sections 856 through 860 of
the Code, effective for its short taxable year ended December 31, 1996. The
Company believes that, commencing with such taxable year, it has been and is
organized and operating in such a manner as to qualify for taxation as a REIT
under the Code. The Company intends to continue to operate in such a manner, but
no assurance can be given that it will operate in a manner so as to qualify or
remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth certain
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
In the opinion of Baker & Hostetler LLP ("Counsel"), based on certain
assumptions and representations, the Company has qualified as a REIT for its
first taxable year ended December 31, 1996, and the Company is organized in
conformity with the requirements for qualification as a REIT and its method of
operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code, provided the Company
continues to meet the asset composition, source of income, shareholder
diversification, distribution and other requirements of the Code necessary for
the Company to qualify as a REIT. Unlike a tax ruling, an opinion of counsel is
not binding on the United States Internal Revenue Service (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. In addition, it must be emphasized
that this opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters including, but
not limited to, those set forth below in this discussion of "Federal Income Tax
Considerations" and those concerning the Company's business and properties.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution levels
and diversity of share ownership, the various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by Counsel.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements. See
"-- Failure to Qualify."
TAXATION OF THE COMPANY
A REIT, such as the Company, generally will not be subject to federal
corporate income tax on its taxable income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and shareholder levels) that generally
results from an investment in a corporation. However, the Company will be
subject to federal income tax in several ways, including the following: First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax."
Third, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other
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non-qualifying income from foreclosure property, it will be subject to tax on
such income at the highest corporate rate. Fourth, if the Company has net income
from "prohibited transactions" (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than foreclosure property), such income will be
subject to a 100% corporate level tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (each discussed
below) but has nonetheless maintained its qualification as a REIT by satisfying
certain other requirements, it will be subject to a 100% tax on (i) an amount
equal to the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by (ii) a fraction intended to
reflect the Company's profitability. Sixth, if the Company should fail to
distribute during each calendar year at least the sum of: (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year and (iii) any undistributed taxable income from prior periods, it will
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. This excise tax would not apply to
undistributed capital gains for which a Capital Gains Designation (as defined
below) was made. See "--Annual Distribution Requirements". Seventh, if the
Company acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the Company's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation, and the Company
recognizes gain on the disposition of such asset during the ten-year period
beginning on the date the asset was acquired by the Company, then the excess of
(i) the fair market value of such asset as of the beginning of such period over
(ii) the Company's adjusted basis in such asset as of the beginning of such
period, will be subject to tax at the highest regular corporate tax rate.
REQUIREMENTS FOR QUALIFICATION
A REIT is defined in the Code as a corporation, trust or association: (i)
that 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) that would be taxable as a domestic
corporation, but for Sections 856 through 860 of the Code; (iv) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100 or more
persons; (vi) not more than 50% in value of the outstanding shares of which is
owned during the last half of each taxable year, directly or indirectly, by or
for five or fewer individuals (as defined in the Code to include certain
entities); and (vii) which meets certain income and asset tests described below.
Conditions (i) through (iv) and (vii) above must be met during the entire
taxable year and condition (v) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a taxable year of less than
12 months. However, conditions (v) and (vi) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT. Under the
Taxpayer Relief Act of 1997 (the "1997 Act"), beginning with the Company's 1998
taxable year, if the Company complies with the Treasury Regulations for
ascertaining its actual ownership and did not know, or exercising reasonable
diligence would not have reason to know, that more than 50% in value of its
outstanding shares were held, actually or constructively, by five or fewer
individuals, then the Company will be treated as meeting such requirement. These
share ownership requirements need not be met until the second taxable year of
the Company for which a REIT election is made.
The Company has satisfied conditions (v) and (vi) set forth above. In
addition, the Articles provide for restrictions regarding the ownership and
transfer of the Company's capital shares, which restrictions are intended to
assist the Company in continuing to satisfy those requirements.
In the case of a REIT that is a partner in a partnership, the Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and the asset tests. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the Partnership and
other partnerships (including limited liability companies treated as
partnerships for federal income tax purposes) in which the Company is or becomes
a partner will be treated as assets, liabilities and items of income of the
Company for purposes of applying the requirements described herein.
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INCOME TESTS
In order to maintain qualification as a REIT, currently the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from sale or disposition of stock or securities (or from any combination of the
foregoing). Third, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year. The 30% gross income test has been repealed
by the 1997 Act for taxable years beginning after August 5, 1997 and need not be
met by the Company for its taxable year beginning January 1, 1998 and any
taxable year thereafter.
Rents received by the Company ("Rents") will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if the following conditions are met:
First, in order for the Rents to qualify as "rents from real property," the
Rent, including Rent received pursuant to leases ("Leases") that is based on (i)
percentages of room revenue, food revenue and beverage revenue (the "Percentage
Rent") or (ii) base Rent plus Percentage Rent, must not be based in whole or in
part on the income or profits of any person. The Rent, however, will qualify as
"rents from real property" if it is based on percentages of receipts or sales or
base Rent plus Rent based on percentages of receipts or sales and the Rent
formulas (i) are fixed at the time the Percentage Leases are entered into; (ii)
are not renegotiated during the term of the Leases in a manner that has the
effect of basing Rent on income or profits; and (iii) conforms with normal
business practice. More generally, the Rent will not qualify as "rents from real
property" if, considering the 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 Rent on income or profits. Since the Rent is based
on fixed percentages of the gross revenues or base Rent plus fixed percentages
of the gross revenues that are established in the Leases, and the Company has
represented that the Rents (i) will not be renegotiated during the terms of the
Leases in a manner that has the effect of basing the Rent on income or profits;
and (ii) conform with normal business practice, the 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 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, or base Rent plus
fixed percentages of the gross revenues, as described above).
Second, in order for the Rents to constitute "rents from real property",
the Rents attributable to personal property leased in connection with the lease
of the real property comprising a hotel must not be greater than 15% of the
Rents received under the leases. The Rent attributable to the personal property
in a 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 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
hotel at the beginning and at the end of such taxable year (the "Adjusted Basis
Ratio"). The Company has represented that Rents attributable to personal
property will not exceed 15% of the Rents received under the any lease.
Third, in order for the Rents to constitute "rents from real property", 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
Partnership if partners in the Partnership collectively own 10% or more (by
value) of the Company. The agreement of limited partnership of the Partnership
provides that a redeeming limited partner will receive cash, rather than Common
Shares, if the acquisition of Common Shares by such partner would result in the
Company being treated as owning, directly or constructively, 10% or more of any
tenant or any tenant's sublessee. However, notwithstanding such restriction,
because the Code's constructive ownership rules for purposes of the 10%
Ownership
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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 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. Under the 1997 Act,
beginning with the Company's 1998 taxable year, the Company and a tenant will
not be related if (i)(a) the REIT's shares are owned by a partnership and (b) a
partner owning (directly or indirectly) less than a 25% interest in that
partnership also owns an interest in the tenant, or (ii) owners of the Company
and owners of the tenant are partners in a partnership and neither the owners of
the Company nor the owners of the tenant are directly or indirectly 25% or
greater partners in the partnership.
Fourth, in order for the Rents to constitute "rents from real property",
the Company cannot furnish or render services that are of a type that a
tax-exempt organization could not provide its tenants without causing its rental
income to be unrelated business taxable income under the Code ("Non-Qualifying
Services"), other than through an independent contractor from whom the Company
itself does not derive or receive any income, nor can it render services
(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") (together, the
Noncustomary Services and Non-Qualifying Services are referred to as the
"Impermissible Services") Although the Company does provide certain management
services, the Company has represented and warranted to Counsel 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 tenants. To the extent the
provision of Non-Qualifying 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 below,
however, if any of the Company's 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 hotels other than through an independent contractor from whom
the Company derives or receives no income.
Under the 1997 Act, beginning with the Company's 1998 taxable year, the
Company will be permitted to render a de minimis amount of Impermissible
Services to tenants of the hotels, or in connection with the management of
property, and still treat amounts received with respect to that property as
rent. The value of these Impermissible Services may not exceed 1% of all amounts
received or accrued during the year, directly or indirectly, from the property.
The value of any service (or management operation) for this purpose shall be
deemed to be not less than 150% of the direct cost of the REIT in furnishing or
rendering the service (or providing the management or operation).
In order for the Rents to constitute "rents from real property," the leases
pursuant to which the Rents are received, 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 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.
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In rendering its opinion that the Company will qualify for taxation as a
REIT, Counsel has concluded that the Leases should be treated as true leases for
federal income tax purposes. Such conclusion is based, in part, on the following
facts: (i) the Partnership and the lessees intend for their relationship to be
that of a lessor and lessee and such relationship will be documented by lease
agreements; (ii) the lessees will have the right to exclusive possession and use
and quiet enjoyment of the hotels during the term of the Leases; (iii) the
lessees will bear the cost of, and be responsible for, day-to-day maintenance
and repair of the hotels, other than the cost of maintaining underground
utilities and structural repairs, and will dictate how the hotels are operated,
maintained and improved; (iv) the lessees will bear all of the costs and
expenses of operating the hotels (including the cost of any inventory used in
their operation) during the term of the 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 Partnership under each Lease); (v) the lessees will benefit from
any savings in the costs of operating the hotels during the term of the Leases;
(vi) the lessees will indemnify the Partnership against all liabilities imposed
on the Partnership during the term of the Leases by reason of (A) injury to
persons or damage to property occurring at the hotels or (B) the lessees' use,
management, maintenance or repair of the hotels; (vii) the lessees are obligated
to pay substantial fixed rent for the period of use of the hotels; and (viii)
the lessees stand to incur substantial losses (or reap substantial gains)
depending on how successfully they operate the 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 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 Partnership and the
lessees are 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 assurance that the IRS will not successfully assert a contrary
position. If the Leases are recharacterized as service contracts or partnership
agreements, rather than true leases, part or all of the payments that the
Partnership receives from lessees may not be considered rent or may not
otherwise satisfy the various requirements for qualification as "rents from real
property." In that case, the Company likely would not be able to satisfy either
the 75% or 95% income tests and, as a result, would lose its REIT status. See
"-- Requirements for Qualification -- Income Tests."
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
The interest accrued on the $40 million loan from the Company to the
Partnership (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 hotels.
If the sum of the income realized by the Company (whether directly or
through its interest in the 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 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 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 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. Under
the 1997 Act,
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beginning with the Company's 1998 taxable year, except as provided in
regulations, qualifying income for purposes of the 95% gross income test will
include any payment under an interest rate swap or cap agreement, option,
futures contract, forward rate agreement, or any similar financial instrument,
entered into by the Company to reduce its interest rate risk with respect to
debt that was or is to be incurred to acquire or carry real estate assets. Gain
from the sale or other disposition of such hedges is also treated as qualifying
income for purposes of the 95% gross income test.
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" No such relief is available for violations of the 30% income
test.
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 Partnership --
General." The Company's investment in the hotels through its interest in the
Partnership (and through its joint ventures) 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. However, if the IRS is successful in treating the Partnership (or either
of the joint ventures) as a corporation for tax purposes, this test would not be
met and the Company's status as a REIT would be jeopardized. See "-- Tax Aspects
of the Company's Investment in the Partnership -- Classification as a
Partnership".
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.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's
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"REIT taxable income" (computed without regard to the dividends paid deduction
and the Company's net capital gain) and (b) 95% of the net income (after tax),
if any, from foreclosure property, minus (ii) the sum of certain items of
non-cash income. To the extent that the Company does not distribute all of its
net capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails to distribute during each calendar year at least the sum of: (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income
for such year and (iii) any undistributed taxable income from prior periods, the
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Beginning with the Company's
1998 taxable year, the 1997 Act will expand the class of non-cash income that is
excluded from the distribution requirement to include (i) income from the
cancellation of indebtedness and (ii) for REITs, like the Company, that use an
accrual method of accounting, (income in excess of the cash and the fair market
value of property received from (a) instruments containing original issue
discount or (b) instruments creating a residual interest in a Real Estate
Mortgage Investment Conduit ("REMIC"). Distributions by the Company must be paid
in the taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration. To
the extent that the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its REIT taxable income, as
adjusted, it will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be. Beginning
with the Company's 1998 taxable year, the 1997 Act will permit a REIT, with
respect to undistributed net long-term capital gains it will receive during the
taxable year, to elect to designate in a notice mailed to shareholders within 60
days of the end of the taxable year (or in a notice mailed with its annual
report for the taxable year) such amount of such gains, which its shareholders
will then be required to include in their taxable income as long-term capital
gains (the "Capital Gains Designation"). Thus, if the Company elects to make
this designation, the shareholders of the Company would include in their income
as long-term capital gains their proportionate share of the undistributed
long-term capital gains as designated by the Company. Each shareholder of the
Company would be deemed to have paid such shareholder's share of the tax paid by
the Company on such gains, which tax would be credited or refunded to the
shareholder. A shareholder would increase his tax basis in his Company stock by
the difference between the amount of income to the shareholder resulting from
the designation and the shareholder's credit or refund for the tax paid by the
Company.
The Company intends to make timely distributions sufficient to satisfy
these annual distribution requirements. In this regard, the partnership
agreement of the Partnership authorizes the Company, as the general partner, to
take such steps as may be necessary to cause the Partnership to distribute to
its partners an amount that would result in the Company's share of such
distribution being 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
because of timing differences between (i) the actual receipt of income and the
actual payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company. In
the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form of
taxable share dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
RECORDKEEPING REQUIREMENTS
Pursuant to applicable Treasury Regulations, in order to be able to elect
to be taxed as a REIT, the Company must maintain certain records and request on
an annual basis certain information from its shareholders designed to disclose
the actual ownership of its outstanding shares. Under the 1997 Act, beginning
with the Company's 1998 taxable year, the Company will not lose its REIT status
if it fails to request information from its
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shareholders with respect to the actual ownership of its outstanding shares in
any taxable year, but instead will incur a monetary penalty. The Company has
complied with the recordkeeping requirements in the past and intends to continue
to comply with such requirements.
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 by the Company. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and, subject to certain limitations, a
corporate distributee may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. Whether the Company
would be entitled to such statutory relief cannot be foreseen.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE PARTNERSHIP AND CERTAIN JOINT
VENTURES
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct investment in the Partnership
and, to a limited extent, the Company's indirect investment, through the
Partnership, in various limited partnership joint ventures in which the
Partnership serves as general partner. The discussion does not cover state or
local tax laws or any federal tax laws other than income tax laws.
General. The Company will hold a direct interest in the Partnership and
indirect interests in the joint ventures. 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 Partnership and its joint ventures for
purposes of the various REIT income tests and in the computation of its REIT
taxable income. See "-- Requirements for Qualification -- Income Tests." Any
resultant increase in the Company's REIT taxable income will increase its
distribution requirements (see "-- Requirements for Qualification -- Annual
Distribution Requirements"), but such income will not be subject to federal
income tax in the hands of the Company if it is distributed by the Company to
its shareholders. Moreover, for purposes of the REIT asset tests (see "--
Requirements for Qualification -- Asset Tests"), the Company will include its
proportionate share of assets held by the Partnership and the joint ventures.
Classification as a Partnership. The Company will be entitled to include in
its income its distributive share of the Partnership's income and its indirect
share of the income from its joint ventures and to deduct its distributive share
of the losses of these entities only if each of the Partnership and the joint
ventures is classified for federal income tax purposes as a partnership rather
than as a corporation or an association taxable as a corporation. An entity will
be classified as a partnership rather than as a corporation for federal income
tax purposes if the entity (i) is treated as a partnership under Treasury
regulations, effective January 1, 1997, relating to entity classification (the
"Check-the-Box Regulations") and (ii) is not a "publicly traded" partnership.
Pursuant to the Check-the-Box Regulations, an unincorporated entity with at
least two members may elect to be classified either as an association or as a
partnership. If such an entity fails to make an election, it generally will be
treated as a partnership for federal income tax purposes. The federal income tax
classification of an entity that was in existence prior to January 1, 1997, such
as the Partnership and the joint ventures, will be respected for all periods
prior to January 1, 1997 if (i) the entity had a reasonable basis for its
claimed classification, (ii) the entity and all members of the entity recognized
the federal tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (iii) neither the entity nor
any member of the entity was notified in writing by a taxing authority on or
before May 8, 1996 that the classification of the entity was under examination.
The Partnership and each of the joint ventures had a reasonable basis for its
claimed classification under the Treasury Regulations in effect prior to January
1, 1997 and each intends to continue to be classified as a partnership for
federal income tax purposes. In addition, the Company has represented that
neither
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the Partnership nor the joint ventures (i) was notified by a taxing authority on
or before May 8, 1996 that the classification of the entity was under
examination or (ii) will elect to be classified as an association taxable as a
corporation under the Check-the-Box Regulations.
A "publicly traded partnership" is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will be treated as a corporation for federal income tax purposes unless at least
90% of such partnership's gross income for a taxable year consists of
"qualifying income" under section 7704(d) of the Code, which generally includes
any income that is qualifying income for purposes of the 95% gross income test
applicable to REITs (the "90% Passive-Type Income Exception"). See "Federal
Income Tax Considerations -- Requirements for Qualification -- Income Tests."
The U.S. Treasury Department has issued regulations effective for taxable years
beginning after December 31, 1995 (the "PTP Regulations") that provide limited
safe harbors from the definition of a publicly traded partnership. Pursuant to
one of those safe harbors (the "Private Placement Exclusion"), interests in a
partnership will not be treated as readily tradable on a secondary market or the
substantial equivalent thereof if (i) all interests in the partnership were
issued in a transaction (or transactions) that was not required to be registered
under the Securities Act of 1933, as amended, and (ii) the partnership does not
have more than 100 partners at any time during the partnership's taxable year.
In determining the number of partners in a partnership, a person owning an
interest in a flow-through entity (i.e., a partnership, grantor trust, or S
corporation) that owns an interest in the partnership is treated as a partner in
such partnership only if (a) substantially all of the value of the owner's
interest in the flow-through entity is attributable to the flow-through entity's
interest (direct or indirect) in the partnership and (b) a principal purpose of
the use of the flow-through entity is to permit the partnership to satisfy the
100-partner limitation. Each of the Partnership and the joint ventures qualifies
for the Private Placement Exclusion.
If for any reason the Partnership or a joint venture were taxable as a
corporation, rather than as a partnership, for federal income tax purposes, the
Company would not be able to qualify as a REIT. See "-- Requirements for
Qualification -- Income Tests" and "-- Requirements for Qualification -- Asset
Tests." In addition, any change in the Partnership's, or any joint venture's,
status for tax purposes might be treated as a taxable event, in which case the
Company might incur a tax liability without any related cash distribution. See
"-- Requirements for Qualification -- Distribution Requirements." Further, items
of income and deduction of the Partnership or an affected joint venture would
not pass through to its partners, and its partners would be treated as
shareholders for tax purposes. Consequently, the Partnership or any affected
joint venture would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing the affected entity's taxable income.
Partnership Anti-Abuse Rule. The U.S. Department of the Treasury has issued
a final regulation (the "Anti-Abuse Rule") under the partnership provisions of
the Code (the "Partnership Provisions") that authorizes the IRS, in certain
abusive transactions involving partnerships, to disregard the form of the
transaction and recast it for federal tax purposes as the IRS deems appropriate.
The Anti-Abuse Rule applies where a partnership is formed or utilized in
connection with a transaction (or series of related transactions) a principal
purpose of which is to reduce substantially the present value of the partners'
aggregate federal tax liability in a manner inconsistent with the intent of the
Partnership Provisions. The Anti-Abuse Rule states that the Partnership
Provisions are intended to permit taxpayers to conduct joint business (including
investment) activities through a flexible economic arrangement that accurately
reflects the partners' economic agreement and clearly reflects the partners'
income, without incurring an entity-level tax. The purposes for structuring a
transaction involving a partnership are determined based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal tax liability
through the use of a partnership does not, by itself, establish inconsistency
with the intent of the Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, some of the limited partners have the right,
beginning two years after the formation of the partnership, to require the
redemption of
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their limited partnership interests in exchange for cash or REIT stock (at the
REIT's option) equal to the fair market value of their respective interests in
the partnership at the time of the redemption. The example concludes that the
use of the partnership is not inconsistent with the intent of the Partnership
Provisions and, thus, cannot be recast by the IRS. However, the Exchange Rights
do not conform in all respects to the redemption rights contained in the
foregoing example. Moreover, the Anti-Abuse Rule is extraordinarily broad in
scope and is applied based on an analysis of all of the facts and circumstances.
As a result, there can be no assurance that the IRS will not attempt to apply
the Anti-Abuse Rule to the Company. If the conditions of the Anti-Abuse Rule are
met, the IRS is authorized to take appropriate enforcement action, including
disregarding the Partnership for federal tax purposes or treating one or more of
its partners as nonpartners. Any such action could jeopardize the Company's
status as a REIT.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to property (such as
a hotel) contributed by a partner in exchange for a partnership interest 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 Partnership requires such
allocations to be made in a manner consistent Section 704(c) of the Code.
The carryover basis of certain contributed assets in the hands of the
Partnership 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 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 -- 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 Taxable U.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 certain hotels at their agreed value.
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"). 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 Partnership currently intends to account for Book-Tax Differences
using the traditional method provided for in the Treasury Regulations.
With respect to any property purchased by the Partnership 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, (B) the amount of cash
distributed to the Company, and (C) the amount of 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 to 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 to 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.
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Depreciation Deductions Available to the Partnership. Upon formation the
Company made a cash contribution to the Partnership in exchange for an
approximately 82.0% general partnership interest in the Partnership (which
interest will increase to 85.7% if the Intercompany Convertible Note is
converted). The Partnership concurrently acquired all of the equity interests in
the partnerships or limited liability companies that owned the hotels acquired
at the time of the Company's formation (the "Contributed Partnerships") in
exchange for approximately $9.1 million in cash and issuance of Units
representing approximately 18.0% of the equity interests in the Partnership
(14.3% if the Intercompany Convertible Note is converted). The Partnership's
initial basis in those hotels for federal income tax purposes was a carryover of
the basis of the Contributed Partnerships in those 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, such hotels and any depreciable hotel property which it acquires for
cash under the Alternative Depreciation System ("ADS"). Under ADS, the
Partnership will depreciate such 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 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 any taxable year, a
mid-quarter depreciation convention must be used for the furnishings and
equipment placed in service during that year.
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. See "-- Taxation of Taxable U.S. Shareholders" for
capital gains tax rates. However, under REIT rules, the Company's share of any
gain realized by the 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" 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 when 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
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 hotels will be purchased by the
lessees or their designees as required by the terms of the Leases. Accordingly,
the Company and the Partnership believe that no asset owned by the Company or
the Partnership is dealer property of the Company or the Partnership.
Nevertheless, the Company and the 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 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 U.S. SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to its
taxable U.S. shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will result in ordinary income to
such shareholders. As used herein, the term "U.S. shareholder" means a holder of
shares that for U.S. federal income tax purposes is (i) a citizen or resident of
the United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate whose income from sources without the
United States is includable in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States, or (iv) any trust with respect to which (A) a U.S. court is able
to exercise primary supervision over the administration of such trust, and (B)
one or more U.S. fiduciaries have the authority to control all substantial
decisions of the trust. Corporate shareholders will not be entitled to the
dividends received deduction. Distributions (and beginning with the Company's
1998 taxable year, undistributed amounts) that are designated as capital gain
dividends are treated as gain from the sale or distribution of a capital asset
held for more than one
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year (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. Under the 1997 Act,
beginning with the Company's 1998 taxable year, the Company may elect to retain
and pay income tax on its net long-term capital gains. In that case, the
Company's shareholders would include in income their proportionate share of the
Company's undistributed long-term capital gains. In addition, the shareholders
would be deemed to have paid their proportionate share of the tax paid by the
Company, which would be credited or refunded to the shareholders. Each
shareholder's basis in his shares would be increased by the amount of the
undistributed long-term capital gain included in the shareholder's income, less
the shareholder's share of the tax paid by the Company.
Distributions by the Company in excess of its current and accumulated
earnings and profits will not be taxable to a shareholder to the extent that
such distributions do not exceed the adjusted basis of the shareholder's shares,
but rather, will be a non-taxable reduction in a shareholder's adjusted basis in
such shares to the extent thereof and thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of
any year payable to a shareholder of record on a specified date in any such
month will be treated as both paid by the Company and received by the
shareholder on or before December 31 of such year, provided that the dividend is
actually paid by the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain.
The 1997 Act made certain changes to the Code with respect to taxation of
long-term capital gains earned by taxpayers other than a corporation. In
general, for sales made after May 6, 1997, the maximum tax rate for individual
taxpayers on net long-term capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) is lowered to 20% for most
assets. This 20% rate applies to sales on or after July 29, 1997 only if the
asset was held for more than 18 months at the time of disposition. Capital gains
on the disposition of assets on or after July 29, 1997 held for more than one
year and up to 18 months at the time of disposition will be taxed as "mid-term
gain" at a maximum rate of 28%. Also, so-called "unrecaptured section 1250 gain"
is subject to a maximum Federal income tax rate of 25%. "Unrecaptured section
1250 gain" generally includes the long-term capital gain realized on (i) the
sale after May 6, 1997 of a real property asset described in Section 1250 of the
Code or (ii) the sale after July 28, 1997 of a real property asset described in
Section 1250 of the Code which the taxpayer has held for more than 18 months,
but in each case not in excess of the amount of depreciation (less the gain, if
any, treated as ordinary income under Code Section 1250) taken on such asset. A
rate of 18% instead of 20% will apply after December 31, 2000 for assets held
for more than 5 years. However, the 18% rate applies only to assets acquired
after December 31, 2000, unless the taxpayer elects to treat an asset held prior
to such date as sold for its fair market value on January 1, 2001. In the case
of individuals whose ordinary income is taxed at a 15% rate, the 20% rate is
reduced to 10% and the 18% rate for assets held for more than 5 years is reduced
to 8%.
Certain aspects of the new legislation are currently unclear, including how
the reduced rates will apply to gains earned by REITs such as the Company. Until
the IRS issues some guidance, it is unclear whether or how the 20% or 10% rate
will apply to distributions of long-term capital gains by the Company. The 1997
Act gives the IRS authority to apply the 1997 Act's new rules on taxation of
capital gains to sales by pass-through entities, including REITs. It is possible
that the IRS could provide in such regulations that REIT capital gain dividends
must be determined by looking through to the assets sold by the REIT and treated
by REIT shareholders as "long-term capital gain", "mid-term gain" and
"unrecaptured section 1250 gain" to the extent of such respective gain realized
by the REIT. No regulations have yet been issued. Such regulations, if and when
issued, may have a retroactive effect.
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Shareholders of the Company should consult their tax advisor with regard to
(i) the application of the changes made by the 1997 Act with respect to taxation
of capital gains and capital gain dividends and (ii) state, local and foreign
taxes on capital gains.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S.
Shareholder (as defined below) the amount of dividends (including any capital
gain dividends) paid to, and the tax withheld with respect to, each Non-U.S.
Shareholder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these returns may also be required to be made available under the provisions of
a specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
shares to a Non-U.S. Shareholder at an address outside the United States.
The payment of the proceeds from the disposition of shares to or through a
U.S. office of a broker will be subject to information reporting and backup
withholding unless the owner, under penalties of perjury, certifies, among other
things, its status as a Non-U.S. Shareholder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of shares to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting, except as noted below. In the case
of a payment of proceeds from the disposition of shares to or through a non-U.S.
office of a broker which is (i) a U.S. person, (ii) a "controlled foreign
corporation" for U.S. federal income tax purposes or (iii) a foreign person 50%
or more of whose gross income for certain periods is derived from a U.S. trade
or business, information reporting (but not backup withholding) will apply
unless the broker has documentary evidence in its files that the holder is a
Non-U.S. Shareholder (and the broker has no actual knowledge to the contrary)
and certain other conditions are met, or the holder otherwise establishes an
exemption. Under proposed Treasury Regulations, a payment of the proceeds from
the disposition of shares to or through such broker will be subject to backup
withholding if such broker has actual knowledge that the holder is a Non-U.S.
person.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. federal income tax liability, provided that required
information is furnished to the IRS.
These backup withholding and information reporting rules are currently
under review by the U.S. Treasury Department, and their application to stock is
subject to change. In particular, Treasury Regulations proposed in 1996, which
have not yet been adopted, and are therefore not currently effective, would, if
and when they become effective, revise in certain respects the rules applicable
to foreign shareholders with respect to payments made after December 31, 1997.
TAXATION OF TAX-EXEMPT U.S. SHAREHOLDERS
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Subject to the discussion below
regarding a "pension-held REIT," and based on such ruling and the statutory
framework of the Code, distributions by the Company to a shareholder that is a
tax-exempt entity should not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its stock with "acquisition
indebtedness" within the meaning of the Code, that the stock is not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that the
Company, consistent with its present intent, does not hold a residual interest
in a REMIC.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For
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these purposes, a "pension-held REIT" is defined as a REIT if (i) such REIT
would not have qualified as a REIT but for the provisions of the Code which look
through such a qualified pension trust in determining ownership of stock of the
REIT and (ii) at least one qualified pension trust holds more than 25% by value
of the interests of such REIT or one or more qualified pension trusts (each
owning more than a 10% interest by value in the REIT) hold in the aggregate more
than 50% by value of the interests in such REIT.
TAXATION OF FOREIGN SHAREHOLDERS
A "Non-U.S. Shareholder" is - any shareholder who is not a "U.S.
shareholder" as defined above. See "--Taxation of Taxable U.S. Shareholders".
The rules governing United States federal income taxation of Non-U.S.
Shareholders are complex and no attempt is 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 OFFERED SECURITIES,
INCLUDING ANY REPORTING REQUIREMENTS.
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 capital stock of
which is owned directly or indirectly by Non-U.S. Shareholders) and therefore
gain from the sale of Offered Securities by a Non-U.S. Shareholder will 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 paid 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 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. Beginning with payments made on or after
January 1, 1999, newly issued Treasury Regulations require a corporation that is
a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed below) with
respect to the remainder of the distribution.
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, those distributions, if any, which 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,
28
<PAGE> 31
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 will withhold 35% of any distribution to a Non-U.S. Shareholder that
could be designated by the Company as a capital gain dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability. A refund may
be available if the amount withheld exceeds the Non-U.S. Shareholder's actual
U.S. federal tax liability.
STATE AND LOCAL CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various jurisdictions, including those jurisdictions in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT
IN THE COMPANY.
FEDERAL ESTATE TAX
Shares owned or treated as owned by an individual who is not a citizen or
"resident" (as specifically defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includable in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be subject to U.S.
federal estate tax on the property includable in the estate for U.S. federal
estate tax purposes.
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 an investment of a portion of the Plan's assets in the
Offered Securities. 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 Offered Securities also should
consider whether the acquisition or the continued holding of the Offered
Securities 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
Offered Securities are being sold in an offering registered under the Securities
Act and the Common Shares are 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
Common Shares are "widely held."
29
<PAGE> 32
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, 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 Offered Securities are limited to the restrictions on
transfer generally permitted under the DOL Regulations and are not likely to
result in the failure of the Offered Securities to be "freely transferable." 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 Offered Securities will be "widely held" and "freely
transferable," the Company believes that the Offered Securities will be publicly
offered securities for the purposes of the Regulations and the assets of the
Company will not be deemed to be "plan assets" of any Plan that invests in the
Offered Securities.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, related to the prevailing market prices at the
time of sale, or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Offered Securities upon the terms and conditions set forth in an applicable
Prospectus Supplement. In connection with the sale of Offered Securities,
underwriters may be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Offered Securities for whom they may act as agent.
Underwriters may sell Offered Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions from the
underwriters or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers will
be set forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Offered Securities may be deemed
to be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Offered Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Securities sold
pursuant to Contracts shall be not less or more than, the respective amounts
stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Offered Securities
covered by its Contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject and (ii) if the Offered Securities are being sold to underwriters, the
Company shall have sold to such underwriters the total principal amount of the
Offered Securities less the principal amount thereof covered by Contracts.
30
<PAGE> 33
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Offered Securities, other than Common Shares, which are listed on the
New York Stock Exchange, will be a new issue with no established trading market.
Any Common Shares sold pursuant to a Prospectus Supplement will be listed on
such Exchange. The Company may elect to list any other series of Offered
Securities on an exchange, but is not obligated to do so. Any underwriters to
whom Offered Securities are sold by the Company for public offering and sale may
make a market in such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of or the trading markets
for any Offered Securities.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
The specific terms and manner of sale of the Offered Securities will be
described or summarized in the applicable Prospectus Supplement.
EXPERTS
The audited financial statements and schedules incorporated by reference in
this Prospectus and elsewhere in the registration statement to the extent and
for the periods indicated in their reports have been audited by Arthur Andersen
LLP, independent public accountants, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
31
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC and NASD registration fees, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee..................................................... $ 90,909
NASD filing fee.......................................................... 30,500
NYSE listing fee......................................................... 42,000
Accounting fees and expenses............................................. 50,000
Legal fees and expenses (other than Blue Sky)............................ 50,000
Blue Sky fees and expenses (including counsel fees)...................... 1,000
Printing and engraving expenses.......................................... 75,000
Miscellaneous expenses................................................... 35,591
--------
Total.......................................................... $375,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ohio Revised Code (the "Ohio 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 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 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 or officer of the Registrant upon the receipt of an undertaking
to repay such amount unless it is ultimately determined that the director or
officer is entitled to indemnification.
The Registrant maintains a directors' and officers' insurance policy which
insures the directors and officers of the Registrant from claim arising out of
an alleged wrongful act by such persons in their respective capacities as
directors and officers of the Registrant, subject to certain exceptions.
Reference is made to the Underwriting Agreement, a copy of which is filed
herewith as Exhibit 1.1, for information concerning indemnification arrangements
among the Registrant and the underwriters.
II-1
<PAGE> 35
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 -- Form of Underwriting Agreement for Equity Securities (1)
4.1 -- Amended Articles of Incorporation (2) (3)
4.2 -- Code of Regulations (2)
4.3 -- Specimen Certificate for Common Shares (2)
4.4 -- Form of Preferred Share Certificate (1)
4.5 -- Form of Deposit Agreement and Depositary Receipt (1)
4.6 -- Form of Common Share Warrant Agreement (1)
4.7 -- Form of Preferred Share Warrant Agreement (1)
5 -- Opinion of Baker & Hostetler LLP
8 -- Opinion of Baker & Hostetler LLP regarding tax matters (1)
12.1 -- Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Share
Dividends
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Baker & Hostetler LLP (included in Exhibit 5)
24 -- Power of Attorney (included on signature page)
</TABLE>
- ---------------
(1) To be filed by amendment or incorporated by reference prior to the offering
of the related securities.
(2) Incorporated by reference from the Company's Registration Statement on Form
S- 11 (Registration Statement No. 333-6341), filed on June 19, 1996, as
amended.
(3) To be filed by amendment or incorporated by reference prior to the offering
of any Preferred Shares or Depository Shares.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus file
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent of the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE> 36
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned hereby further 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 Company 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; and
(2) For purposes 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.
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 provisions described under Item 15 of this
registration statement, 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 such 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 such Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 37
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-3 and has duly caused to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio, on the day of November 3,
1997.
BOYKIN LODGING COMPANY
By: /s/ ROBERT W. BOYKIN
------------------------------------
Robert W. Boykin, Chairman,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert W. Boykin, Raymond P. Heitland and Albert
T. Adams, or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all pre- or
post-effective amendments to this Registration Statement (including any
subsequent registration statement for the same offering that may be filed under
Rule 462(b) under the Securities Act of 1933, as amended), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------- ---------------------
<C> <S> <C>
/s/ ROBERT W. BOYKIN Chairman, Chief Executive November 3, 1997
- ------------------------------------------ Officer and Director
ROBERT W. BOYKIN (Principal Executive
Officer)
/s/ RAYMOND P. HEITLAND Chief Financial Officer and November 3, 1997
- ------------------------------------------ Director
RAYMOND P. HEITLAND (Principal Financial and
Accounting Officer)
Director November , 1997
- ------------------------------------------
IVAN J. WINFIELD
/s/ LEE C. HOWLEY, JR. Director November 3, 1997
- ------------------------------------------
LEE C. HOWLEY, JR.
/s/ FRANK E. MOSIER Director November 3, 1997
- ------------------------------------------
FRANK E. MOSIER
/s/ WILLIAM H. SCHECTER Director November 3, 1997
- ------------------------------------------
WILLIAM H. SCHECTER
/s/ ALBERT T. ADAMS Director November 3, 1997
- ------------------------------------------
ALBERT T. ADAMS
</TABLE>
II-4
<PAGE> 1
[Baker & Hostetler LLP letterhead] Exhibit 5
November 3, 1997
Boykin Lodging Company
Terminal Tower, Suite 1500
50 Public Square
Cleveland, Ohio 44113-2258
Gentlemen:
As counsel for Boykin Lodging Company, an Ohio corporation
(the "Company"), we are familiar with the Company's Registration Statement on
Form S-3 (the "Registration Statement") being filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, on or about
the date hereof, with respect to the offering from time to time by the Company
of an aggregate of up to $300,000,000 of the following: one or more classes or
series of (i) whole or fractional preferred shares (collectively, "Preferred
Shares"), (ii) Preferred Shares represented by depositary shares ("Depositary
Shares"), (iii) common shares, without par value ("Common Shares"), and (iv)
warrants to purchase Preferred Shares, Depositary Shares or Common Shares
(collectively, "Warrants").
In connection with the foregoing, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of (i) the
Amended and Restated Articles of Incorporation and the Code of Regulations of
the Company, (ii) the form of Underwriting Agreement for Equity Securities filed
as an exhibit to the Registration Statement (the "Underwriting Agreement"),
(iii) the form of Deposit Agreement and Depositary Receipt filed as an exhibit
to the Registration Statement, (iv) the forms of Common Share Warrant Agreement
and Preferred Share Warrant Agreement filed as exhibits to the Registration
Statement, (v) the form of Preferred Share Certificate, (vi) Specimen
Certificate for Common Shares, and (vii) such records of the corporate
proceedings of the Company and such other documents as we have deemed necessary
to render this opinion.
Based on the foregoing and subject to the qualifications and
limitations set forth below, 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. When Preferred Shares are issued and sold as
described in the Registration Statement, and if in an
underwritten offering, in accordance with the
<PAGE> 2
Boykin Lodging Company
November 3, 1997
Page 2
terms and conditions of the applicable Underwriting
Agreement, substantially in the form filed as an
exhibit to the Registration Statement with the blanks
therein appropriately filled in, and in a manner
contemplated in the Registration Statement, including
the Prospectus Supplement relating to those Preferred
Shares, those Preferred Shares will be validly
issued, fully paid and nonassessable.
3. When Depositary Shares are issued and sold as
described in the Registration Statement, and if in an
underwritten offering, in accordance with the terms
and conditions of the applicable Underwriting
Agreement, substantially in the form filed as an
exhibit to the Registration Statement with the blanks
therein appropriately filled in, and in a manner
contemplated in the Registration Statement, including
the Prospectus Supplement relating to those
Depositary Shares, those Depositary Shares will be
validly issued, fully paid and nonassessable.
4. When Common Shares are issued and sold as described
in the Registration Statement, and if in an
underwritten offering, in accordance with the terms
and conditions of the Underwriting Agreement,
substantially in the form filed as an exhibit to the
Registration Statement with the blanks therein
appropriately filled in, and in a manner contemplated
in the Registration Statement, including the
Prospectus Supplement relating to those Common
Shares, those Common Shares will be validly issued,
fully paid and nonassessable.
5. When Warrants are issued and sold as described in the
Registration Statement, and if in an underwritten
offering, in accordance with the terms and conditions
of the Underwriting Agreement, substantially in the
form filed as an exhibit to the Registration
Statement with the blanks therein appropriately
filled in, and in a manner contemplated in the
Registration Statement, including the Prospectus
Supplement relating to those Warrants, those Warrants
will be legally issued and will be binding
obligations of the Company.
We hereby consent to the filing of this opinion as Exhibit 5
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,
Baker & Hostetler LLP
<PAGE> 1
EXHIBIT 12.1
BOYKIN LODGING COMPANY AND PREDECESSOR
CALCULATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD NINE MONTHS
JANUARY 1, TO NOVEMBER 4, TO ENDED
NOVEMBER 3, DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------------- -------------- -------------
(A) (A) (A) (A) (A)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges --
Interest expense(B)........ $12,997 $12,375 $12,397 $14,169 $13,430 $ 123 $ 1,686
Interest element of
rentals(C)............... 202 207 217 228 209 36 212
Capitalized interest....... -- -- -- -- -- -- 169
------- ------- ------- ------- ------- -------- -------
Total............... $13,199 $12,582 $12,614 $14,397 $13,639 $ 159 $ 2,067
======= ======= ======= ======= ======= ======== =======
Preferred Dividends.......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= ======= ======== =======
Earnings --
Net income (loss).......... $(2,707) $(2,464) $ 172 $ 508 $ (779) $ (4,107) $12,986
Extraordinary loss
(gain)................... -- -- -- (556) 1,315 4,908 141
Fixed charges.............. 13,199 12,582 12,614 14,397 13,639 159 2,067
Capitalized interest....... -- -- -- -- -- -- (169)
Income allocable to
minority interest having
fixed charges............ -- -- -- -- -- 40 1,917
------- ------- ------- ------- ------- -------- -------
Total............... $10,492 $10,118 $12,786 $14,349 $14,175 $ 1,000 $16,942
======= ======= ======= ======= ======= ======== =======
Ratio of Earnings to Fixed
Charges.................... (D) (D) 1.01 (D) 1.04 6.29 8.20
</TABLE>
- ---------------
In computing the ratio of earnings to combined fixed charges and preferred
dividends: (a) earnings have been based on income from continuing operations
before income taxes and fixed charges (exclusive of interest capitalized), and
(b) fixed charges consist of interest and amortization of debt discount and
expense (including amounts capitalized) and the estimated interest portion of
rents.
(A) Data applicable to periods prior to November 4, 1996 relates to the Initial
Hotels, the predecessor to the business of Boykin Lodging Company.
(B) For all periods presented, includes amortization of deferred financing costs
and debt discount.
(C) The Company believes that the interest element of its operating lease
agreements is equal to one-third of its rental obligations under such
leases.
(D) In 1992, 1993 and 1995, earnings were insufficient to cover fixed charges by
$2,707, $2,464 and $48, respectively.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated (i) February 25,
1997 (except with respect to the matters discussed in Note 13 to the financial
statements of Boykin Lodging Company (the "Company"), as to which the date is
March 14, 1997) included in the Company's Form 10-K for the year ended December
31, 1996, (ii) May 16, 1997 included in Amendment No. 1 to the Company's
Current Report on Form 8-K/A filed with the Securities and Exchange Commission
(the "Commission") on June 17, 1997, and (iii) May 17, 1997 included in
Amendment No. 3 to the Company's Current Report on Form 8-K/A filed with the
Commission on June 19, 1997, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 31, 1997.
