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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998 Commission file number 001-11975
BOYKIN LODGING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
Ohio 34-1824586
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
Guildhall Building, Suite 1500,
45 W. Prospect Avenue 44115
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(Address of Principal Executive Office) (Zip Code)
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(216) 430-1200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Shares, Without Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 19, 1999, was approximately $212 million.
As of March 19, 1999, the registrant had 17,061,638 common shares issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May
25, 1999, into Part III, Items 10, 11, 12, and 13.
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FORWARD LOOKING STATEMENTS
This Form 10-K contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Form 10-K and
the documents incorporated by reference herein and include statements regarding
the intent, belief or current expectations of Boykin, its directors or its
officers with respect to:
- Leasing, management or performance of our hotels;
- Adequacy of our reserves for renovation and refurbishment;
- Potential acquisitions and dispositions;
- Our financing plans;
- Our policies regarding investments, acquisitions, dispositions,
financings, conflicts of interest and other matters; and
- Trends affecting our, or any of our hotels' financial condition or results
of operations.
You are cautioned that any such forward-looking statement is not a guarantee
of future performance and involves risks and uncertainties, and that actual
results may differ materially from those in the forward-looking statement as a
result of various factors. The information contained in this Form 10-K and in
the documents incorporated by reference herein identifies important factors that
could cause such differences.
With respect to any such forward-looking statement that includes a statement
of its underlying assumptions or bases, we caution that, while we believe such
assumptions or bases to be reasonable and have formed them in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, we or
our management express an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
ABOUT BOYKIN LODGING COMPANY AND ITS STRATEGIES
Boykin Lodging Company, an Ohio corporation, is a real estate investment
trust that owns hotels throughout the United States and leases its properties to
established hotel operators. Our primary business strategies are:
- acquiring upscale, full-service commercial and resort hotels that will
increase our cash flow and are purchased at a discount to their
replacement cost;
- developing strategic alliances and relationships with a network of
high-quality hotel operators and franchisors of the hotel industry's
premier upscale brands; and
- maximizing revenue growth in our hotels through -
- strong management performance from our lessee/operators;
- selective renovation;
- expansion and development; and
- brand repositioning.
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Our management has substantial hotel operating, development, acquisition and
transactional experience. Our officers have over 100 years combined experience
in the hotel industry and have directly overseen the acquisition, disposition,
recapitalization, development and repositioning of over a billion dollars of
hotel assets throughout the United States.
FORMATION AND INITIAL PUBLIC OFFERING
Boykin was formed to continue and expand the hotel ownership, acquisition,
redevelopment and repositioning activities of its predecessors, Boykin
Management Company and its affiliates (the "Boykin Group"). We have been in the
hotel business for 40 years. We completed our initial public offering ("IPO") in
November 1996. In conjunction with our IPO, we contributed approximately $133.9
million to Boykin Hotel Properties, L.P., an Ohio limited partnership (the
"Partnership"), in exchange for an approximate 84.5% equity interest as the sole
general partner of the Partnership and we loaned $40 million to the Partnership
in exchange for an intercompany convertible note. The Partnership then acquired
nine hotel properties (the "Initial Hotels") in which the Boykin Group held
significant ownership interests, seven of which the Boykin Group developed and
has owned and managed since their opening. We do all our business through the
Partnership.
MAJOR EVENTS SINCE THE IPO
- Since the IPO, consistent with our strategies, we have acquired 22 hotels
containing 6,281 guest rooms, bringing the total number of hotels we own
as of December 31, 1998 to 31 hotels with a total of 8,689 guest rooms.
During this period, we established new strategic alliances with five high
quality hotel lessee/operators and two premier franchisors. We also made
significant renovations at seven of our hotels and reflagged/repositioned
three hotels. In 1998 and 1997, we spent $32.5 million and $13.5 million,
respectively, on renovations. This represented 14 percent and 11 percent
of 1998 and 1997 hotel revenues, respectively, significantly above the
hotel industry standard of four percent.
- Since the IPO, we increased our debt capacity from a $75 million secured
credit facility to a $250 million unsecured facility. In 1998, we also put
in place $130 million of term debt at a fixed interest rate of 6.9% for
ten years.
- On February 24, 1998, we completed a follow-on public equity offering of
4.5 million common shares. The net proceeds were approximately $106.3
million, which we contributed to the Partnership, increasing our ownership
percentage therein to 90.3%. We used the proceeds to repay existing
indebtedness under our credit facility, purchase limited partnership units
from two unaffiliated limited partners, fund the acquisitions of two
hotels purchased in March 1998 and for general corporate purposes.
- On May 22, 1998 we completed our merger with Red Lion Inns Limited
Partnership, in which we acquired Red Lion Inns Operating L.P. ("OLP")
which owns a portfolio of ten DoubleTree-licensed hotels. These hotels
contain 3,062 guest rooms and are located in California, Oregon,
Washington, Colorado, Idaho, and Nebraska. The DoubleTree hotels, which
formerly operated as "Red Lion Hotels" or "Red Lion Inns," were reflagged
to operate as DoubleTree hotels in June 1997.
In the transaction, we issued 3.1 million common shares and paid
approximately $35.3 million in cash to the Red Lion limited partners and
general partner. The total consideration value, including assumed
liabilities of approximately $155.7 million and common shares issued
valued at $80.3 million, was $271.3 million. The issuance of Boykin's
common shares in the merger had the impact of increasing our ownership
percentage in the Partnership to 92.2%.
- On February 1, 1999, we formed a joint venture with AEW Partners III, L.P.
(AEW), an investment partnership managed by AEW Capital Management, L.P.,
a Boston-based real estate investment firm that manages a portfolio of
approximately $6 billion. This joint venture provides us with the
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ability to continue our acquisition and growth strategies with private
capital at a time when public capital sources are limited, and when we
expect to see attractive buying opportunities. AEW will provide $50
million of equity capital for the joint venture, and Boykin will provide
approximately $17 million and serve as the operating partner of the joint
venture.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
All of Boykin Lodging's operations are in the hotel industry.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Our primary business objectives are to maximize current returns to our
shareholders by increasing cash flow available for distribution and long-term
total returns to shareholders through appreciation in value of our common
shares. We seek to achieve these objectives through participation in increased
revenues from our hotels pursuant to lease agreements with tenants that provide
us with the greater of a base rental income or a percentage of revenues from
hotel operations. We also seek to achieve these objectives by selective
acquisition, ownership, redevelopment, repositioning and expansion of additional
hotel properties as well as timely disposition of non-strategic assets. We will
seek to continue to invest in properties at which our established industry and
marketing expertise will enable us to improve the acquired hotels' performance.
BOYKIN'S HOTEL PORTFOLIO
Our hotel portfolio includes 29 full-service hotels and two limited-service
hotels, all of which compete in the upscale to moderate price segment of the
hospitality market. For the year ended December 31, 1998, our hotels had an
average occupancy rate of 65.1%, an average daily rate ("ADR") of $90.23 and
revenue per available room ("REVPAR") of $58.72. Refer to Item 2(a) "Hotel
Properties" on page 11 for a listing of our hotels. Also refer to Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 22 for a chart of hotel operating data for 1998 and 1997.
HOW BOYKIN APPLIES ITS BUSINESS STRATEGIES
A. ACQUISITIONS
We believe that the upscale and moderate market segments of the hospitality
industry continue to present attractive acquisition opportunities on a selective
basis. Our acquisition strategy focuses on the following categories:
- PRODUCT TYPE -- Full-service commercial hotels, airport hotels, major
tourist hotels and destination resorts in major markets and business
centers.
- MARKET REPOSITIONING OPPORTUNITIES -- Undervalued hotels whose occupancy,
daily rates and overall revenues can be significantly enhanced through new
brand affiliations and/or implementation of new marketing strategies which
will maximize revenues and profitability.
- REDEVELOPMENT AND RENOVATION OPPORTUNITIES -- Hotels with sound
operational fundamentals that, because of a lack of capital, require
physical renovation to achieve their full performance potential, and other
properties which can benefit from total redevelopment and market
repositioning.
- PORTFOLIO ACQUISITIONS -- Portfolios of hotels which result in geographic
economies of scale or which may be leased back to proven hotel operators
as additional lessees, and that may benefit from our repositioning and
redevelopment experience and access to capital.
We intend to maintain a geographically diversified hotel portfolio and may
also cluster hotels within certain primary markets in order to take advantage of
operational and managerial economies of scale. We will acquire or develop
additional hotel properties only as suitable opportunities arise, and will not
undertake acquisition or development of properties unless adequate sources of
capital and financing are
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available. Funds for future acquisitions or development of hotels are expected
to be derived, in whole or in part, from capital obtained from borrowings under
our credit facility or other borrowings, from the proceeds of a sale of
non-strategic hotels, additional issuances of common shares or other securities,
cash flows from operations, or capital funding under the terms of our joint
venture arrangement with AEW.
B. STRATEGIC ALLIANCES AND RELATIONSHIPS
Our strategic alliances and relationships fall into two primary areas:
- Franchise Brand Strategy
- Multiple Lessee/Joint Venture Strategy
1. FRANCHISE BRAND STRATEGY
We focus on owning hotel properties that are, or can be, associated with
brands that will lead the hospitality industry in REVPAR, such as
DoubleTree-Registered Trademark-, Marriott-Registered Trademark-,
Radisson-Registered Trademark-, Hilton-Registered Trademark-, Holiday
Inn-Registered Trademark-, Hampton Inns-Registered Trademark-, Quality
Suites-Registered Trademark-, Hyatt-Registered Trademark-,
Renaissance-Registered Trademark-, Omni-Registered Trademark-, and Embassy
Suites-Registered Trademark-. We believe that we can maximize our market share
and revenue by taking advantage of our orientation toward sales and marketing to
identify the most effective branding and to leverage our brands with effective
direct sales strategies.
We expect to continue to affiliate with a number of different franchisors in
order to maximize the performance of our hotels by providing greater access to a
broad base of national marketing and reservation systems and to mitigate the
risks of franchise loss and franchise overlap. We believe that our relationships
with certain franchisors facilitate finding acquisition opportunities and
completing acquisitions on attractive terms.
2. MULTIPLE LESSEE AND JOINT VENTURE STRATEGY
We lease our properties to established hotel operators pursuant to the
percentage lease agreements, which provide us with the greater of a base rental
income or a percentage of revenues from operations.
We believe that having multiple tenants facilitates meeting our growth
objectives. In selecting lessees, we seek hotel operators with demonstrated
full-service hotel expertise, a stable operating and financial performance
history, an excellent reputation in the hospitality industry, and an ability to
introduce additional acquisition opportunities to, and to lease additional
hotels from us. We expect to pursue lease relationships with additional hotel
operators that have strong operating histories and demonstrated management
expertise.
The 31 hotels in our current portfolio are leased to and operated by the
following entities:
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NUMBER
LESSEE OF HOTELS OPERATOR
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Boykin Management Company Limited Liability Company ("BMC")............ 15 BMC
Westboy LLC ("Westboy")................................................ 10 Promus Hotel Corporation
MeriStar Hotels and Resorts, Inc. ("MeriStar")......................... 3 MeriStar
Davidson Hotel Company ("Davidson").................................... 1 Davidson
Outrigger Lodging Services ("Outrigger"),.............................. 1 Outrigger
Radisson Hotels Worldwide ("Radisson")................................. 1 Radisson
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31
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BMC AND WESTBOY
Robert W. Boykin, our Chairman of the Board, President and Chief Executive
Officer, and his brother, John E. Boykin, control BMC, which was formed at the
time of our IPO. Westboy is a wholly-
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owned subsidiary of BMC that leases the ten DoubleTree hotels acquired by us as
part of the Red Lion merger. BMC has continued the hotel operation and
management business of the Boykin Group. BMC and its subsidiaries have been in
the hotel business for 40 years and have capabilities in all phases of
development and management of hotel properties. BMC currently manages 18
properties containing 4,510 guest rooms located throughout the United States,
including 15 hotels leased from us.
BMC's subsidiaries, which conduct management activities for owners other
than us, include an award-winning hotel interior design business and a hotel and
restaurant food, beverage, supply and equipment purchasing business. These
operations are conducted, in part, with a view to introducing us to acquisition
opportunities.
BMC and its owners, who have a substantial interest in the Partnership, have
interests that conflict with our interests in connection with the structuring
and enforcement of the percentage lease agreements and other agreements between
us and BMC and in connection with activities that may maximize profits for BMC
without necessarily benefiting us. We have implemented several measures,
including those listed below, to align the interests of BMC and its owners with
our interests and to address these conflicts of interest:
- BMC's owners have agreed to retain their equity interests in the
Partnership until November 1999;
- Robert W. Boykin will not hold office in BMC (other than a directorship),
and neither John E. Boykin nor any other officer of BMC will hold office
in Boykin Lodging;
- Distributions from BMC and net proceeds of any sale of BMC (with certain
limited exceptions) will be used to purchase units in the Partnership or
our common shares, and half of BMC's consolidated earnings will be
retained in BMC and its subsidiaries to maintain their consolidated net
worth at not less than 25% of the aggregate annual rent payments under
BMC's percentage lease agreements;
- Determinations made on behalf of Boykin Lodging in connection with any
conflict of interest involving any affiliate of Boykin are made by our
independent directors;
- Any affiliate of the Boykin Group will conduct all hotel acquisition,
development and ownership activities only through Boykin Lodging; and
- Any change in control of BMC without our consent will constitute a default
under BMC's percentage lease agreements.
BMC also has developed a deferred compensation plan for its corporate-level
senior executives, under which each award's value is based on the value of our
common shares.
THIRD PARTY OPERATOR
Promus Hotel Corporation manages our portfolio of ten DoubleTree hotels.
Promus is a publicly-traded company with a long history of owning and operating
upscale hotels. Promus owns the DoubleTree-Registered Trademark-, Embassy
Suites-Registered Trademark-, and Hampton Inns-Registered Trademark- hotel
brands, among others.
THIRD PARTY LESSEE/OPERATORS
As part of our multiple tenant strategy, we have implemented a strategy of
structuring joint ventures with our third party lessee/operators to align the
hotel lessees' economic interests with our economic interests. In each joint
venture, the lessee's ability to receive cash flow and equity capital
distributions is subordinated to Boykin Lodging's receipt of specified minimum
distributions. In addition, each lessee must maintain a specified net worth to
support its lease payment obligations and pledge its joint venture interest as
security for the lease payment obligations. We are permitted to subject any
joint venture's hotel to a mortgage or to sell the hotel or its interest in the
joint venture without receiving the affected joint venture partner's consent.
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During 1997 and 1998, We formed joint ventures with the following companies
or their affiliates to operate, lease and share in the ownership of the
following hotels:
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BOYKIN LESSEE
LESSEE/JV OWNERSHIP OWNERSHIP
NAME OF JOINT VENTURE PARTNER PERCENTAGE PERCENTAGE HOTEL OWNED UNDER JOINT VENTURE
- ------------------------- ---------- --------------- --------------- --------------------------------------------------
<S> <C> <C> <C> <C>
BoyStar Ventures, L.P.... MeriStar 91% 9% Holiday Inn Minneapolis West
Shawan Road Hotel Limited
Partnership.............. Davidson 91% 9% Marriott's Hunt Valley Inn
Boykin San Diego ,
L.L.C.................... Outrigger 91% 9% Hampton Inn San Diego Airport/Sea World
Boykin Kansas City,
L.L.C.................... MeriStar 80% 20% DoubleTree Kansas City
RadBoy Mt. Laurel,
L.L.C.................... Radisson 85% 15% Radisson Hotel Mt. Laurel
<CAPTION>
DATE OF HOTEL
NAME OF JOINT VENTURE PURCHASE
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<S> <C>
BoyStar Ventures, L.P.... July 1997
Shawan Road Hotel Limited
Partnership.............. July 1997
Boykin San Diego ,
L.L.C.................... November 1997
Boykin Kansas City,
L.L.C.................... November 1997
RadBoy Mt. Laurel,
L.L.C.................... June 1998
</TABLE>
MERISTAR. MeriStar is a publicly traded hotel management company based in
Washington, D.C. that manages hotels throughout the United States. MeriStar's
portfolio of full-service hotels under management includes both independent
brands and a number of well-known franchised brands, including Hilton-Registered
Trademark-, Sheraton-Registered Trademark-, Marriott-Registered Trademark-,
Embassy Suites-Registered Trademark-, Westin-Registered Trademark- and
DoubleTree-Registered Trademark-. MeriStar also leases and operates our Pink
Shell Beach Resort which owned 100% by the Partnership.
DAVIDSON. Davidson is a privately held national hotel management company
located in Memphis, Tennessee. Davidson provides management, development,
consulting and accounting expertise for the hospitality industry. Davidson
operates hotels under franchise agreements with such franchisors as
Marriott-Registered Trademark-, Embassy Suites-Registered Trademark-,
Hilton-Registered Trademark-, Crowne Plaza-Registered Trademark-,
Omni-Registered Trademark- and Holiday Inn-Registered Trademark-.
OUTRIGGER. Outrigger is a privately held hotel management company based in
Encino, California. Outrigger has operated or operates a full range of hotel
products, including Marriott-Registered Trademark-, Sheraton-Registered
Trademark-, Hilton-Registered Trademark-, Residence Inn-Registered Trademark-,
Holiday Inn-Registered Trademark-, and Radisson-Registered Trademark-, and many
limited service products. In addition to branded hotels, Outrigger operates
upscale, boutique hotels.
RADISSON. Radisson Hotels Worldwide, headquartered in Minneapolis,
Minnesota, is one of the lodging brands of Carlson Hotels Worldwide, an
operating unit of Carlson Companies Inc., with revenues over $20 billion. Its
lodging operations include over 560 locations in 54 countries. Specific brands
include Regent International Hotels-Registered Trademark-, Radisson Hotel &
Resorts-Registered Trademark-, Country Inns Suites by Carlson-Registered
Trademark-, Radisson Seven Seas Cruises-Registered Trademark-, and several other
well-known hotel, restaurant and cruise operations.
C. INTERNAL GROWTH FROM STRONG MANAGEMENT, RENOVATION, AND DEVELOPMENT AND
REPOSITIONING
1. Strong Management Performance
We believe that the revenue and cash flow from our hotels will be maximized
by intensive management and marketing. We intend to derive increased cash flow
through the application of our lessees' operating strategies, which include
active hotel revenue maximization (also referred to as effective yield
management). We believe that our lessees' commitment to customer service and the
experience of their management teams positions us to capitalize on the expected
continuing demand in our markets.
We also believe that, based on our historical operating results and the
location of our hotels and on the strength of our own and our lessees'
management teams, the portfolio should provide us with the opportunity for cash
flow growth through the percentage leases.
2. Capital Expenditure and Renovation Strategy
We believe that our regular program of capital improvements at our hotels,
including replacement and refurbishment of furniture, fixtures, and equipment,
helps maintain and enhance their competitiveness and maximizes revenue growth
under the percentage leases. During the year ended December 31, 1998, we
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spent approximately $32.5 million on renovations. This represents an average of
approximately 14 percent of 1998 hotel revenues under our ownership. We consider
the majority of these improvements to be revenue-producing and therefore these
amounts have been capitalized and are being depreciated over their estimated
useful lives.
The percentage leases require us to provide reserves for capital
expenditures equal to specified percentages of individual hotel total revenues.
For the year ended December 31, 1998, this reserve would have represented an
average of $1,302 per room for the hotels. We generally use the capital
expenditures reserve for the replacement and refurbishment of furniture,
fixtures, and equipment and other capital expenditures to maintain and enhance
the competitive position of our hotels, although we may make other uses of
amounts reserved that we consider appropriate from time to time. We believe that
the reserve will be adequate to meet our continuing capital expenditure and
furniture, fixtures, and equipment needs for our hotels in light of their age
and condition.
We have announced our intention to make approximately $20 million of
improvements at some of the ten DoubleTree hotels over the next two years.
Approximately 750 of the hotel rooms in this portfolio will be renovated in the
first quarter of 1999. Funding for these capital expenditures will be made from
cash on hand, available capital expenditure reserves, and borrowings on our
credit facility.
3. Development and Repositioning Strategy
We may develop additional full-service or upscale limited-service hotels on
land that we acquire in our current geographic markets or on land contiguous to
our hotels. We believe that selective development of hotels in our existing
geographic markets could enable us to take advantage of operating efficiencies
to generate attractive returns on investment. We may also reposition
under-performing hotels by changing the franchise brand affiliation.
TERMS OF THE PERCENTAGE LEASE AGREEMENTS
The following summary of the material terms of the percentage leases is
qualified in its entirety by reference to the form of Percentage Lease, which
was filed as an exhibit to our Registration Statement on Form S-11 (Registration
Statement No. 333-6341, filed on June 19, 1996, as amended). We expect that
leases with respect to our future hotel property investments will have
substantially similar terms, although the Board of Directors may alter any of
these terms.
The percentage lease agreements have the material terms described below:
- DURATION -- non-cancelable remaining terms ranging from two to ten years,
subject to earlier termination on the occurrence of certain contingencies
described in the percentage leases. The majority of the percentage leases
do not contain renewal terms and those with renewal options are subject to
agreement between the parties regarding market terms.
- AMOUNTS PAYABLE UNDER THE PERCENTAGE LEASES. Lessees are obligated to pay
to us the higher of minimum rent or percentage rent, except for the French
Lick Springs Resort, for which both minimum rent and percentage rent are
required to be paid.
- Minimum rent is a fixed amount determined by negotiation between us and
the applicable lessee and is payable monthly.
- Percentage rent is calculated by multiplying fixed percentages by gross
room and other revenue and gross food and beverage revenue, over
specified threshold amounts. Percentage rent is payable quarterly.
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Both the threshold gross room and other revenue amounts used in computing
percentage rent and minimum rent are adjusted annually for changes in the
United States Consumer Price Index.
Lessees are also obligated to pay us certain other amounts, including
interest accrued on any late payment or charge.
Each lease also requires the lessee to pay all costs and expenses
incurred in the operation of the hotel. The lessee is required to
maintain the hotel in good order and repair and to make necessary
nonstructural repairs. We fund capital expenditures as we consider
necessary and as required by our franchisors.
- INSURANCE AND PROPERTY TAXES. We pay, or cause the lessee to pay, real
estate and personal property taxes and maintain, or cause the lessee to
maintain, property insurance, including casualty insurance, on our hotels.
The lessee maintains comprehensive general public liability, workers'
compensation, 12-month rental interruption and any other insurance
customary for properties similar to the hotel or required by any relevant
franchisor and must have us named as an additional insured. We believe
that the insurance coverage carried by each hotel is adequate in scope and
amount.
- INDEMNIFICATION. The lessee indemnifies us against all liabilities, costs
and expenses incurred by, imposed on or asserted against us, on account
of, among other things:
- accidents or injury to persons or property on or about the hotel;
- negligence by the lessee or any of its agents;
- certain environmental liabilities resulting from conditions existing at
the time of the lease execution;
- taxes and assessments in respect of the hotel (other than our real
estate taxes and income taxes on income attributable to the hotel);
- the sale or consumption of alcoholic beverages on the hotel property;
and
- any breach of the lease by the lessee.
- ASSIGNMENT AND SUBLEASING. The lessee is not permitted to sublet all or
any part of the hotel, assign its interest, or enter a management
agreement with a third party to operate the hotel without our prior
written consent.
- EVENTS OF DEFAULT. Events of default include, among others:
- the failure by the lessee to pay minimum and percentage rent when due;
- failure to observe or perform any other term of the lease;
- termination of the franchise agreement covering any hotel leased to the
lessee;
- any failure to comply with covenants as defined in the lease
agreements.
In the event of default under any lease with BMC, we may terminate the lease
and any or all of the other percentage leases with BMC, and BMC will be required
to surrender possession of the affected hotels. If an event of default under any
lease with any other lessee occurs, we may terminate the lease and the lessee
will be required to surrender possession of the affected hotel.
FRANCHISE AGREEMENTS
Our hotels are operated under franchise license agreements with premier
nationally recognized hotel chains, including:
<TABLE>
<S> <C> <C> <C>
- - DoubleTree-Registered - Radisson-Registered - Holiday Inn-Registered - Hampton Inns-Registered
Trademark- Trademark- Trademark- Trademark-
- - Marriott-Registered - Hilton-Registered Trademark- - Quality Suites-Registered
Trademark- Trademark-
</TABLE>
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Our French Lick Springs Resort in French Lick, Indiana operates as an
independent hotel.
We expect that most of the additional hotel properties that we acquire will
be operated under franchise agreements. We believe that the public's perception
of quality associated with a franchisor can be an important feature in the
operation of a hotel. Franchisors provide a variety of benefits for franchisees,
including national advertising, publicity, and other marketing programs designed
to increase brand awareness, training of personnel, continuous review of quality
standards, and centralized reservation systems.
The expiration dates for the hotels' franchise agreements range from August
31, 2001 to December 31, 2018, which, in some cases, may be extended for
additional terms beyond 2018. The franchise agreements generally impose certain
management, operational, record-keeping, accounting, reporting and marketing
standards and procedures with which the franchised operator must comply. Some of
the key provisions of the franchise agreements include the following:
- Each franchise agreement gives the lessee/operator the right to operate
the franchised hotel under a franchise for a period of years specified in
that agreement. The franchise agreements provide for early termination at
the franchisor's option on the occurrence of certain events of default,
such as the failure to properly maintain the hotel.
- The lessees/operators are responsible to pay franchise fees ranging from
3% to 6% of gross room sales and advertising or marketing and reservation
fees ranging from 0.8% to 4% of gross room sales.
- Notification must be given to the franchisor upon the sale of a hotel
giving the franchisor rights, as defined in its franchise agreement,
ranging from consent to the transfer of ownership, the franchisors'
ability to match an offer for sale, or the right terminate the franchise
agreement
EMPLOYEES
We currently have thirteen employees. These employees perform, directly or
through the Partnership, various acquisition, development, redevelopment and
corporate management functions.
INVENTORY
All working capital assets required in the operation of our hotels are
provided by the lessees at their expense.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances, and regulations, an
owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances or petroleum on, under or
in the property. This liability may be imposed without regard to whether the
owner or operator knew of, or was responsible for, the presence of the
substances. Other federal, state and local laws, ordinances and regulations and
the common law impose on owners and operators certain requirements regarding
conditions and activities that may affect human health or the environment.
Failure to comply with applicable requirements could result in difficulty in the
lease or sale of any affected property or the imposition of monetary penalties,
in addition to the costs required to achieve compliance and potential liability
to third parties. We may be potentially liable for such costs or claims in
connection with the ownership and operation of the current hotels and hotels we
may acquire in the future.
We have not been notified by any governmental authority, and are not
otherwise aware, of any material noncompliance, liability or claim relating to
hazardous or toxic substances or to other environmental matters in connection
with any of its hotels. Nonetheless, it is possible that material environmental
contamination or conditions exist, or could arise in the future, in the hotels
or on the land upon which they
9
<PAGE>
are located which could create a material environmental liability. Further,
there can be no assurance that the hotels that we may acquire will not give rise
to any material environmental liability.
COMPETITION
Each of our hotels is located in a developed area that includes other hotel
properties. The occupancy, ADR and REVPAR of any hotel or any hotel property
acquired in the future could be materially and adversely affected by the number
of competitive hotel properties in its market area. Competition for potential
acquisitions may generally reduce the number of suitable investment
opportunities offered to us and increase the bargaining power of property owners
seeking to sell.
SEASONALITY
The operations at our hotels historically have been seasonal. Twenty-six of
the hotels maintain higher occupancy rates during the second and third quarters.
The five hotels in Florida experience their highest occupancy in the first
quarter. This seasonality pattern can be expected to cause fluctuations in our
quarterly lease revenue under the percentage leases.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
All of our operations are conducted in the United States.
10
<PAGE>
ITEM 2. PROPERTIES
(a) HOTEL PROPERTIES
On December 31, 1998, we owned the following 31 hotel properties:
<TABLE>
<CAPTION>
NUMBER
PROPERTY OF ROOMS LESSEE LOCATION
- ------------------------------------------------------ ----------- ----------- -------------------------
<S> <C> <C> <C>
DoubleTree Portland, Lloyd Center..................... 476 Westboy Portland, OR
DoubleTree Sacramento................................. 448 Westboy Sacramento, CA
DoubleTree Omaha...................................... 413 Westboy Omaha, NE
DoubleTree Kansas City................................ 388 MeriStar Kansas City, MO
DoubleTree Boise...................................... 304 Westboy Boise, ID
DoubleTree Colorado Springs........................... 299 Westboy Colorado Springs, CO
DoubleTree Spokane Valley............................. 237 Westboy Spokane, WA
DoubleTree Portland Downtown.......................... 235 Westboy Portland, OR
DoubleTree Springfield................................ 234 Westboy Springfield, OR
DoubleTree Bellevue Center............................ 208 Westboy Bellevue, WA
DoubleTree Yakima Valley.............................. 208 Westboy Yakima, WA
Cleveland Marriott East............................... 403 BMC Cleveland, OH
Marriott's Hunt Valley Inn............................ 392 Davidson Baltimore, MD
Cleveland Airport Marriott............................ 375 BMC Cleveland, OH
Buffalo Marriott...................................... 356 BMC Buffalo, NY
Columbus North Marriott............................... 300 BMC Columbus, OH
Berkeley Marina Radisson.............................. 373 BMC Berkeley, CA
Radisson Hotel Mt. Laurel............................. 283 Radisson Mt. Laurel, NJ
High Point Radisson................................... 251 BMC High Point, NC
Daytona Beach Radisson Resort......................... 206 BMC Daytona Beach, FL
Radisson Inn Sanibel Gateway.......................... 157 BMC Fort Myers, FL
Holiday Inn Minneapolis West.......................... 196 MeriStar Minneapolis, MN
Holiday Inn Crabtree.................................. 176 BMC Raleigh, NC
Lake Norman Holiday Inn............................... 119 BMC Charlotte, NC
Knoxville Hilton...................................... 317 BMC Knoxville, TN
Melbourne Hilton Oceanfront........................... 118 BMC Melbourne, FL
Hampton Inn San Diego Airport/Sea World............... 199 Outrigger San Diego, CA
Lake Norman Hampton Inn............................... 117 BMC Charlotte, NC
Melbourne Quality Suites.............................. 208 BMC Melbourne, FL
Pink Shell Beach Resort............................... 208 MeriStar Fort Myers, FL
French Lick Springs Resort............................ 485 BMC French Lick, IN
-----
8,689
-----
-----
</TABLE>
(b) OFFICE SPACE
Pursuant to a shared services and office space agreement, we paid BMC
approximately $4,000 per month in 1998 for the right to use certain office space
and receive certain related services.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
We are subject to various legal proceedings and claims that arise in the
ordinary course of business. In our opinion, the amount of any ultimate
liability with respect to these actions will not materially affect our financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, the following
information is reported below.
Our executive officers are elected and serve at the discretion of the Board
of Directors until their successors are duly chosen and qualified, and are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ------------------------------------------------------
<S> <C> <C>
Robert W. Boykin 49 Chairman of the Board, President and Chief Executive
Officer
Richard C. Conti 49 Chief Operating Officer
Paul A. O'Neil 41 Chief Financial Officer and Treasurer
Mark L. Bishop 39 Senior Vice President -- Acquisitions
Andrew C. Alexander 35 Vice President -- Corporate Counsel
</TABLE>
The following is a biographical summary of the business experience of our
executive officers.
Robert W. Boykin has served as our President and Chief Executive Officer
since our formation. He served as the President and Chief Executive officer of
Boykin Management Company from 1985 until November 1996. He served as Boykin
Management Company's Executive Vice President from 1981 until 1985.
Richard C. Conti joined us on May 1, 1998 to serve as our Chief Operating
Officer. Mr. Conti was a Principal and Director with Coopers & Lybrand L.L.P.
Mr. Conti was responsible for Coopers & Lybrand L.L.P.'s hospitality consulting
practice in the Midwest and has been involved in the hospitality industry for
over 21 years. Mr. Conti has worked closely with many of the leaders in the
industry and brings to us a wealth of industry knowledge and contacts.
Mark L. Bishop is our Senior Vice President-Acquisitions. He served as
Senior Vice President-Acquisitions of Boykin Management Company from April 1994
until November 1996. From December 1986 until April 1994, Mr. Bishop was
employed by Grubb & Ellis, serving as Vice President/Senior Marketing Consultant
beginning in February 1991. From February 1990 until December 1995, Mr. Bishop
also owned and served as President of four separate companies that owned and
operated restaurants.
Our Treasurer, Paul A. O'Neil, succeeded Raymond P. Heitland as Chief
Financial Officer on May 26, 1998, in connection with Mr. Heitland's retirement.
Mr. O'Neil served as the Chief Financial Officer of Boykin Management Company
from 1996 to 1997. He was the Treasurer of Boykin Management from 1994 to 1996.
Prior to joining Boykin Management, he managed the Real Estate Service Group in
Arthur Andersen L.L.P.'s Cleveland office from 1990 to 1994. Mr. O'Neil is a
member of the American Institute of Certified Public Accountants.
Andrew C. Alexander became our Vice President-Corporate Counsel in July
1998. From July 1995 until July 1997, Mr. Alexander served as Vice
President-Corporate Counsel of Renaissance Hotel Group, N.V., a publicly traded
hotel company. From September 1989 until July 1995, Mr. Alexander was an
attorney at the law firm of Calfee, Halter & Griswold, LLP.
12
<PAGE>
There are no arrangements or understandings known to us between any
executive officer and any other person pursuant to which any executive officer
was elected to office. There is no family relationship between any of our
directors or executive officers and any other director or executive officer.
EMPLOYMENT ARRANGEMENTS. Robert W. Boykin and Mark L. Bishop entered into
employment contracts with us in connection with the IPO. Mr. Boykin's agreement
provides for an initial three-year term that is automatically extended for an
additional year at the end of each year of the agreement, subject to the right
of either party to terminate the agreement by giving two years prior written
notice. Mr. Bishop's agreement provides for a one-year term that is
automatically extended for an additional year at the end of each year of the
agreement, subject to the right of either party to terminate the agreement by
giving six months prior written notice. Mr. Bishop's employment agreement is
currently in effect until December 31, 1999. Each of Mr. Boykin and Mr. Bishop
is prohibited from competing with us during the term of his employment agreement
and, in the case of Mr. Boykin, for a term of two years thereafter, and in the
case of Mr. Bishop, for a term of six months thereafter.
On May 20, 1997, we entered into an employment arrangement with Paul A.
O'Neil. The arrangement provides for an initial one-year term that will be
extended for an additional year at the end of each year of the arrangement,
subject to the right of either party to terminate the employment relationship by
giving six months prior written notice. On March 20, 1998, we entered into an
employment arrangement with Richard C. Conti. Please see Exhibit 10.14 of our
Form 10-Q as of June 30, 1998 for the terms of Mr. Conti's employment
arrangement.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS
(a) MARKET INFORMATION
Our common shares are traded on the New York Stock Exchange under the symbol
"BOY." The following table sets forth for the indicated periods the high and low
sales prices for the common shares and the cash distributions declared per
share:
<TABLE>
<CAPTION>
CASH
DISTRIBUTIONS
PRICE RANGE DECLARED
----------------------------- PER
HIGH LOW SHARE
-------------- -------------- -------
<S> <C> <C> <C>
Year Ended December 31, 1997:
First Quarter......................... $ 24 1/2 $ 21 5/8 $0.45
Second Quarter........................ $ 23 15/16 $ 20 $0.45
Third Quarter......................... $ 27 $ 22 1/2 $0.45
Fourth Quarter........................ $ 27 3/4 $ 24 3/4 $0.45
Year Ended December 31, 1998:
First Quarter......................... $ 28 1/2 $ 23 9/16 $0.47
Second Quarter........................ $ 24 11/16 $ 20 $0.47
Third Quarter......................... $ 22 5/8 $ 14 $0.47
Fourth Quarter........................ $ 15 1/16 $ 12 1/16 $0.47
Year Ending December 31, 1999:
First Quarter (through March 19,
1999)............................... $ 14 5/16 $ 12 $0.47
</TABLE>
(b) SHAREHOLDER INFORMATION
As of March 19, 1999, there were 938 record holders of our common shares,
including shares held in "street name" by nominees who are record holders, and
approximately 18,000 beneficial owners.
13
<PAGE>
In order to comply with certain requirements related to our qualification as
a REIT, our charter limits the number of common shares that may be owned by any
single person or affiliated group to 9% of the outstanding common shares.
(c) DISTRIBUTION INFORMATION
We currently anticipate that we will maintain our current distribution rate
in the near term, unless actual results of operations, economic conditions or
other factors differ from our current expectations. The declaration and payment
of distributions is at the discretion of our Board of Directors and depends on,
among other things, our receipt of cash distributions from the Partnership, the
Partnership's level of indebtedness, any contractual restrictions and other
factors considered relevant by the Board. We determine the level of our cash
distributions in light of our cash needs, including our requirements for
investing and financing activities and other anticipated cash needs. Our
principal source of revenue consists of payments of rent by the lessees under
the percentage leases.
(d) SALES OF UNREGISTERED SECURITIES
In September 1997, we sold 20,000 common shares to BMC for cash
consideration of $490,625, or $24.53 per share. This sale was not registered
under the Securities Act of 1933 in reliance upon the exemption from the
registration requirements thereof provided by Section 4 (2) of Securities Act of
1933.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected historical and pro forma operating
and financial data for Boykin Lodging Company and BMC and selected combined
historical financial data for the Initial Hotels. The selected historical
financial data for Boykin Lodging and BMC for the years ended December 31, 1998
and 1997, and for the period November 4, 1996 (inception of operations) to
December 31, 1996, and the selected combined historical financial data for the
Initial Hotels for the period January 1, 1996 through November 3, 1996, and for
the years ended December 31, 1994 and 1995 have been derived from the historical
financial statements of Boykin Lodging, BMC and the Initial Hotels,
respectively, audited by Arthur Andersen LLP, independent public accountants.
Our pro forma financial information and that of BMC is presented as if the
following significant transactions had been consummated as of January 1, 1997:
- our sale of 4.5 million common shares in February 1998;
- our issuance of 3.1 million common shares in May 1998 related to Red Lion
merger;
- our acquisitions in 1997 and 1998; and
- our repurchase of 114,500 shares in 1998.
The 1997 pro forma results of operations exclude the results of the Daytona
Beach Radisson Resort and the DoubleTree Kansas City, as these hotels were
closed for renovations during portions of the year.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this Form 10-K.
14
<PAGE>
BOYKIN LODGING COMPANY
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED NOVEMBER 4, 1996
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1998 1997 1996
------------ ------------ -----------------
<S> <C> <C> <C>
OPERATING DATA:
Total revenues................................................. $ 70,122 $ 38,266 $ 3,378
Total expenses................................................. 47,921 20,832 2,537
------------ ------------ --------
Income before minority interest and extraordinary item......... 22,201 17,434 841
Minority interest.............................................. (2,059) (2,210) (40)
------------ ------------ --------
Income before extraordinary item............................... 20,142 15,224 801
Extraordinary item -- loss on early extinguishment of debt, net
of minority interest......................................... (1,138) (882) (4,908)
------------ ------------ --------
Net income (loss) applicable to common shares.................. $ 19,004 $ 14,342 $ (4,107)
------------ ------------ --------
------------ ------------ --------
EARNINGS PER SHARE:
Net income (loss) per common share:
Basic........................................................ $ 1.25 $ 1.51 $ (.46)
Diluted...................................................... $ 1.25 $ 1.49 $ (.45)
Weighted average number of common shares outstanding:
Basic........................................................ 15,252 9,523 8,981
Diluted...................................................... 15,252 9,595 9,036
OTHER DATA:
Funds from operations(1)....................................... $ 42,805 $ 27,381 $ 2,185
Net cash provided by operating activities...................... $ 39,960 $ 29,477 $ 329
Net cash used for investing activities......................... $ (299,784) $ (110,554) $ (1,824)
Net cash provided by financing activities...................... $ 263,612 $ 61,570 $ 22,857
Dividends declared............................................. $ 30,685 $ 17,150 $ 2,700
Weighted average number of common shares and units
outstanding.................................................. 16,549 10,883 10,359
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Investment in hotel properties, net................................................ $ 595,132 $ 231,651
Total assets....................................................................... 615,062 238,855
Total debt......................................................................... 286,000 91,750
Minority interest in Partnership................................................... 11,710 13,054
Shareholders' equity............................................................... 286,216 114,815
</TABLE>
15
<PAGE>
BOYKIN LODGING COMPANY
SELECTED PRO FORMA OPERATING AND FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
OPERATING DATA:
Total revenues.......................................................................... $ 83,360 $ 81,070
Total expenses.......................................................................... 60,170 57,206
---------- ----------
Income before minority interest and extraordinary item.................................. 23,190 23,864
Minority interest....................................................................... (2,079) (1,752)
---------- ----------
Income before extraordinary item applicable to common shares............................ $ 21,111 $ 22,112
---------- ----------
---------- ----------
EARNINGS PER SHARE:
Income before extraordinary item per common share:
Basic................................................................................. $ 1.24 $ 1.30
Diluted............................................................................... $ 1.24 $ 1.29
Weighted average number of common shares outstanding
Basic................................................................................. 17,044 17,037
Diluted............................................................................... 17,044 17,109
OTHER DATA:
Funds from operations(1)................................................................ $ 48,667 $ 50,165
Net cash provided by operating activities(2)............................................ $ 49,319 $ 50,772
Net cash used for investing activities(3)............................................... $ (11,455) $ (10,988)
Net cash used for financing activities(4)............................................... $ (34,470) $ (33,003)
Weighted average number of common shares and units outstanding.......................... 18,335 18,335
</TABLE>
- ------------
(1) The White Paper on Funds From Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines funds from operations ("FFO") as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after comparable adjustments for company's portion of
these items related to unconsolidated entities and joint ventures. We
believe that FFO is helpful to investors as a measure of the performance of
an equity REIT because, along with cash flow from operating, financing and
investing activities, it provides investors with an indication of our
ability to incur and service debt, make capital expenditures and fund other
cash needs.
We compute FFO in accordance with standards established by NAREIT which may
not be comparable to FFO reported by other REITs that do not define the term
in accordance with the current NAREIT definition or that interpret the
NAREIT definition differently than us. FFO does not represent cash generated
from operating activities determined by GAAP and should not be considered as
an alternative to GAAP net income as an indication of our financial
performance or to cash flow from operating activities determined by GAAP as
a measure of our liquidity, nor is it indicative of funds available to fund
our cash needs, including its ability to make cash distributions. FFO may
include funds that may not be available for management's discretionary use
due to functional
16
<PAGE>
requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties. The following is a
reconciliation between net income and FFO (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL YEAR PERIOD ENDED
ENDED DECEMBER 31, DECEMBER 31, PRO FORMA FOR YEARS
-------------------- ------------ ENDED DECEMBER 31,
1998 1997 1996 1998 1997
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss)................................. $ 19,004 $ 14,342 $ (4,107) $ 21,111 $ 22,112
Real estate related depreciation and
amortization.................................... 21,265 10,148 1,344 26,256 26,270
Minority interest................................. 2,059 2,210 40 2,079 1,752
Extraordinary item................................ 1,138 882 4,908 -- --
FFO applicable to joint venture minority
interest........................................ (661) (201) -- (779) 31
--------- --------- ------------ --------- ---------
Funds from operations............................. $ 42,805 $ 27,381 $ 2,185 $ 48,667 $ 50,165
--------- --------- ------------ --------- ---------
--------- --------- ------------ --------- ---------
</TABLE>
(2) For pro forma purposes, net cash provided by operating activities represents
net income before depreciation of real estate assets, amortization of
deferred financing costs and minority interest including adjustments for the
joint venture minority interest therein. For pro forma purposes, no effect
has been given to changes in working capital assets and liabilities.
(3) For pro forma purposes, net cash used for investing activities represents 4%
of hotel revenues for the applicable period. For those hotels which are
owned through a joint venture, only our percentage interest in such hotel
revenues is considered in the calculation.
(4) For pro forma purposes, net cash used for financing activities represents
estimated dividends and distributions based upon our historical annual
dividend rate of $1.88 and $1.80 per common share in 1998 and 1997,
respectively and the pro forma weighted average number of common shares and
units outstanding during the applicable period.
17
<PAGE>
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY
SELECTED HISTORICAL AND PRO FORMA OPERATING AND FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PERIOD
FROM NOVEMBER 4, 1996
(INCEPTION OF (UNAUDITED)
HISTORICAL YEAR OPERATIONS) TO PRO FORMA YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- --------------------- --------------------
1998 1997 1996 1998 1997
--------- --------- --------------------- --------- ---------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Room revenue................ $ 148,643 $ 72,751 $ 7,684 $ 150,169 $ 149,677
Food and beverage revenue... 71,925 30,229 3,976 72,501 72,669
Other hotel revenue......... 15,085 7,568 620 15,245 14,842
--------- --------- ------- --------- ---------
Total hotel revenues...... 235,653 110,548 12,280 237,915 237,188
Other revenue............... 2,407 2,477 382 2,407 2,477
--------- --------- ------- --------- ---------
Total revenues............ 238,060 113,025 12,662 240,322 239,665
--------- --------- ------- --------- ---------
Operating expenses.......... 170,162 75,891 9,748 171,782 169,077
Cost of goods sold of
non-hotel operations...... 427 619 102 427 619
Percentage lease expense.... 67,424 34,834 3,258 68,078 69,630
--------- --------- ------- --------- ---------
Total expense............... 238,013 111,344 13,108 240,287 239,326
--------- --------- ------- --------- ---------
Net income (loss)........... $ 47 $ 1,681 $ (446) $ 35 $ 339
--------- --------- ------- --------- ---------
--------- --------- ------- --------- ---------
</TABLE>
INITIAL HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER JANUARY 1,
31, 1996 TO
-------------------- NOVEMBER 3,
1994 1995 1996(1)
--------- --------- -----------
<S> <C> <C> <C>
OPERATING DATA:
Room revenue................................................. $ 48,652 $ 50,730 $ 51,627
Food and beverage revenue.................................... 22,811 22,984 20,062
Other revenue................................................ 4,092 4,490 4,148
--------- --------- -----------
Total revenues............................................. 75,555 78,204 75,837
Departmental and other expenses.............................. 53,967 54,629 52,367
Real estate and personal property taxes, insurance and ground
rent....................................................... 3,329 3,579 3,228
Depreciation and amortization................................ 5,690 6,545 6,308
Interest expense............................................. 12,397 14,169 13,430
Gain on property insurance recovery.......................... -- (670) (32)
--------- --------- -----------
Income (loss) before extraordinary item...................... 172 (48) 536
Extraordinary item-- gain (loss) on early extinguishment of
debt....................................................... -- 556 (1,315)
--------- --------- -----------
Net income (loss)............................................ $ 172 $ 508 $ (779)
--------- --------- -----------
--------- --------- -----------
</TABLE>
- ------------
(1) On February 8, 1996, the Lake Norman Holiday Inn and Lake Norman Hampton Inn
were acquired by a Boykin Affiliate. The acquisition was accounted for as a
purchase and, accordingly, the operating results of the Holiday Inn and
Hampton Inn have been included in the above operating data commencing
February 8, 1996.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BOYKIN'S FORMATION AND RECENT EVENTS
On November 4, 1996, we completed our IPO issuing a total of 9.5 million
common shares. In conjunction with our IPO, we contributed approximately $133.9
million to Boykin Hotel Properties, L.P., an Ohio limited partnership (the
"Partnership"), in exchange for an approximate 84.5% equity interest as the sole
general partner of the Partnership and we loaned $40 million to the Partnership
in exchange for an intercompany convertible note. The Partnership then acquired
nine hotel properties (the "Initial Hotels") and another eight hotel properties
in 1997 using remaining proceeds from the IPO and borrowings under our credit
facility. We do all of our business through the Partnership.
On February 24, 1998, we completed a follow-on public equity offering and
issued an additional 4.5 million common shares. The net proceeds of
approximately $106.3 million were contributed to the Partnership, increasing our
ownership percentage therein to 90.3%. The proceeds were used by the Partnership
to pay down existing indebtedness under the credit facility, purchase limited
partnership units from two unaffiliated limited partners, fund the acquisitions
of two hotels purchased in March 1998 and for general corporate purposes.
On May 22, 1998 we completed our merger with Red Lion Inns Limited
Partnership, in which we acquired Red Lion Inns Operating L.P. ("OLP") which
owns a portfolio of ten DoubleTree-licensed hotels. In the transaction, we
issued 3.1 million common shares and paid approximately $35.3 million in cash to
the Red Lion limited partners and general partner. The total consideration
value, including assumed liabilities of approximately $155.7 million and common
shares issued valued at $80.3 million, was $271.3 million. The issuance of our
common shares in the merger had the impact of increasing our ownership
percentage in the Partnership to 92.2%.
At the end of 1998, we owned 31 hotels containing a total of 8,689 guest
rooms located in 16 different states.
Our principal source of revenue is lease payments from lessees pursuant to
percentage lease agreements. Percentage lease revenue is based upon the room,
food and beverage and other revenues of our hotels. The lessees' ability to make
payments to us pursuant to the percentage leases is dependent primarily upon the
operations of the hotels.
RESULTS OF OPERATIONS
The following discusses our actual results of operations for 1998 compared
to 1997 and 1997 compared to the short period from November 4 through December
31, 1996. It also discusses our pro forma results of operations and that of BMC
for the years ended December 31, 1998 and 1997. The pro forma information is
presented as if the following items had been consummated as of January 1, 1997:
- our sale of 4.5 million common shares in February 1998;
- our issuance of 3.1 million common shares in May 1998 related to the Red
Lion merger;
- our acquisitions in 1997 and 1998; and
- our repurchase of 114,500 common shares in 1998.
The 1997 pro forma results of operations exclude the results of the Daytona
Beach Radisson Resort and the DoubleTree Kansas City, as these hotels were
closed for renovations during portions of the year.
Because the rent we collect from BMC constitutes a significant portion of
our lease revenues, we believe that a discussion of the historical and pro forma
operations of BMC is also important to understand our business. The pro forma
information of BMC is presented as if our acquisitions of hotels leased by BMC
and Westboy were consummated as of January 1, 1997. The 1997 pro forma
information
19
<PAGE>
excludes the results of the Daytona Beach Radisson Resort, as this hotel was
closed during most of 1997 for renovation.
BOYKIN LODGING COMPANY
ACTUAL RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR
ENDED 1997
Our percentage lease revenue increased to $69.7 million in 1998 from $37.9
million in 1997, primarily because the number of hotels we owned increased from
17 to 31 during the year. Percentage lease revenue payable by BMC represented
$56.7 million, or 81.3% of total percentage lease revenue in 1998, compared to
91.9% in 1997. The amount of percentage lease revenues from BMC, as a percentage
of total lease revenues, decreased in 1998 because of the addition of third
party lessees in 1998.
Income before minority interests and extraordinary item increased to $22.2
million in 1998 compared to $17.4 million in 1997. As a percent of total
revenues, income before minority interests and extraordinary item decreased to
31.7% in 1998 from 45.6% in 1997, primarily resulting from:
- an increase in interest expense to $13.9 million in 1998, or 19.8% of
total revenues, in 1998, compared to $2.65 million, or 6.9%, in 1997, due
to an increase in the average outstanding debt balances associated with
the purchase of additional hotels. Interest expense in 1997 was unusually
low due to minimal borrowings under our credit facility as the remaining
funds from our IPO were used to fund the majority of acquisitions in the
first half of 1997. New debt associated with our 1998 acquisitions and the
Red Lion merger increased our interest expense in 1998.
- an increase in real estate related depreciation and amortization, as a
percent of total revenue, from 26.5% in 1997 to 30.3% in 1998, because of
an increase in the size of our hotel portfolio.
General and administrative expenses decreased, as a percentage of total
revenue, from 6.3% in 1997 to 5.3% in 1998, and personal property taxes,
insurance, and ground rent, as a percentage of revenues also decreased from
13.5% in 1997 to 12.0% in 1998.
Net income was $19.0 million in 1998 compared to $14.3 million in 1997.
Minority interest applicable to the operating partnership and joint venture
partnerships in the income before extraordinary item of the Partnership was $2.1
million in 1998, or 2.9% of total revenues, compared to $2.2 million, or 5.8% in
1997. Extraordinary charges (net of minority interest of $.2 million and $.1
million in 1997 and 1998, respectively) increased from $.9 million in 1997 to
$1.1 million in 1998. The extraordinary charge in 1998 represented the write-off
of deferred financing costs associated with our former $150 million secured
credit facility which was replaced with a new $250 million unsecured facility.
The extraordinary charge in 1997 represented the write-off of deferred financing
costs incurred in connection with increasing our available credit facility in
October 1997 and the retirement of mortgage indebtedness of one of the joint
ventures.
Our FFO in 1998 was $42.8 million compared to $27.4 million in 1997. For a
definition of FFO, reconciliation of net income to FFO and discussion why we
believe FFO is an important measure to investors of a REIT's financial
performance, please see Item 6. "Selected Financial Data" on page 16.
ACTUAL RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE
PERIOD FROM NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS) TO DECEMBER 31, 1996
Percentage lease revenue increased to $37.9 million from $3.3 million in
1996, primarily because of the partial year of operations in 1996 and the
increase in the number of hotels we owned from 9 to 17 at December 31, 1996 and
1997, respectively. Percentage lease revenue payable by BMC represented $34.8
million or 91.9% of total percentage lease revenue in 1997 compared to 100% in
1996. Income before minority interest and extraordinary item increased to $17.4
million in 1997 compared to $.8 million in 1996. As a percent of total revenue,
income before minority interest and extraordinary item increased to 45.6% in
1997 from 24.9% in 1996, primarily resulting from:
20
<PAGE>
- a decline in real estate related depreciation and amortization, as a
percent of total revenue, from 39.8% in 1996 to 26.5% in 1997,
- a decrease in real estate and personal property taxes, insurance and
ground rent, as a percentage of total revenues, from 18.4% in 1996 to
13.5% in 1997,
- a decrease in general and administrative expenses, as a percent of total
revenues, from 13.3% in 1996 to 6.3% in 1997. These expenses, as a percent
of total revenues, decreased because of a greater increase in percentage
lease revenues during our full year of operations in 1997 relative to the
increase in expenses during the same period.
- an increase in interest expense to $2.7 million in 1997 compared to
$54,000 in 1996 because of borrowings under the our credit facility used
to fund acquisitions in 1997.
Net income was $14.3 million in 1997 compared to a net loss in 1996 of $4.1
million. Minority interest applicable to the operating partnership and joint
venture partnerships in the income before extraordinary item of the Partnership
was $2.2 million in 1997, or 5.8% of total revenues, compared to $40,000, or
1.2%, in 1996. Extraordinary charges (net of minority interest of $1.0 million
and $.2 million in 1996 and 1997, respectively) decreased from $4.9 million in
1996 to $.9 million in 1997. The extraordinary charge in 1996 represented the
write-off of deferred financing costs and the payment of prepayment penalties
and fees incurred in connection with the retirement of all mortgage indebtedness
assumed by the Partnership upon formation of the company.
Our FFO in 1997 was $27.4 million compared to $2.2 million in 1996 due to a
partial year in 1996 and the increased number of hotels owned during 1997.
PRO FORMA RESULTS OF OPERATIONS YEAR ENDED 1998 COMPARED TO 1997
For the year ended December 31, 1998, our pro forma total revenue would have
been $83.3 million, representing a $2.3 million, or 2.8%, increase over pro
forma total revenue for the year ended December 31, 1997 of $81.1 million. The
increase for 1998 over 1997 is primarily the result of increased percentage
lease revenue because of increases in the average daily rates (ADR) and the
exclusion of the Daytona and Kansas City hotels in the 1997 results as they were
closed for renovations during portions of 1997.
Pro forma expenses before minority interest, consisting principally of
depreciation and amortization, property taxes, insurance, ground rent, general
administrative expenses and interest expense would have been $60.2 million,
representing a $3.0 million, or 5.2%, increase over 1997 expenses of $57.2
million. As a percentage of revenues, our expenses before minority interest
would have increased from 70.6% in 1997 to 72.2% in 1998. The principal factors
for this increase are attributable to interest expense, general and
administrative expenses, depreciation and amortization.
General and administrative expenses would have increased $1.3 million in
1998 compared to 1997, or 55.8%, primarily attributable to incremental costs
associated with hiring management personnel to support our strategic growth
objectives. Real estate and personal property taxes, insurance and ground rent
expense would have decreased from $10.2 million in 1997 to $9.8 million in 1998,
or 4.2%, primarily because of lower insurance premiums in 1998 compared to 1997.
Pro forma interest expense would have increased 11.5% in 1998, because of higher
average borrowing levels in 1998 compared to 1997 associated with funding
capital expenditures, offset somewhat by lower interest rates in 1998. Pro forma
FFO for the year ended December 31, 1998 decreased slightly to $48.7 million
compared to $50.2 million in 1997.
During 1998, the pro forma ADR at our hotels (excluding Daytona and Kansas
City as these hotels were closed during portions of 1997 for renovations)
increased to $90.18 compared to $87.52 in 1997, representing a 3.0% increase.
The weighted average occupancy decreased to 66.6% from 68.3% in 1997. This
resulted in an increase in REVPAR to $60.04 in 1998 compared to $59.80 in 1997.
The following table
21
<PAGE>
sets forth the pro forma operating data of the hotels owned by us as of December
31, 1998, without regard to when we acquired the hotels.
<TABLE>
<CAPTION>
ADR OCCUPANCY REVPAR
-------------------- -------------------- --------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
All 29 Hotels(1)....................................... $ 90.18 $ 87.52 66.6% 68.3% $ 60.04 $ 59.80
Initial Nine Hotels.................................... 95.62 94.77 71.7 76.5 68.58 72.53
Acquired Hotels (10 Properties)........................ 89.30 83.85 58.9 58.4 52.62 48.94
Acquired Red Lion DoubleTrees (10 properties).......... 86.39 83.82 69.1 70.3 59.66 58.97
Total 31 Hotels(2)..................................... 90.23 N/A 65.1 N/A 58.72 N/A
</TABLE>
- ------------
(1) The pro forma data excludes the operations of the Daytona Beach Radisson
Resort and the DoubleTree Kansas City as these hotels were closed during
portions of the pro forma periods prior to being reopened in January 1998
and April 1997, respectively.
(2) Includes all 31 hotels including Daytona and Kansas City.
No assurance can be given that the trends reflected in this data applicable
to the hotels will continue or that ADR, occupancy, and REVPAR will not decrease
as a result of changes in national or local economic or hospitality industry
conditions.
BMC
ACTUAL RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
1997
For the year ended December 31, 1998 BMC had hotel revenues of $235.7
million compared to $110.5 million in 1997. The increase was due to the increase
in the number of hotels leased, from 13 at December 31, 1997 to 25 at December
31, 1998. BMC recorded net income of $47,000 in 1998 compared to $1.7 million in
1997.
Percentage lease expense during 1998 was $67.4 million, or 28.6% of hotel
revenues, compared to $34.8 million, or 31.5% of hotel revenues, in 1997.
Departmental and other hotel operating expenses, consisting primarily of rooms
expenses, food and beverage costs, franchise fees, utilities, repairs and
maintenance, and other general and administrative expenses of the hotels were
$170.2 million in 1998 compared to $75.9 million in 1997. As a percent of hotel
revenues, the departmental and other hotel operating expenses increased from
68.6% in 1997 to 72.2% in 1998, because of the additional hotels and management
fees paid to Promus for the DoubleTree hotels.
ACTUAL RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE
PERIOD FROM NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS) TO DECEMBER 31, 1996
For the year ended December 31, 1997 BMC had hotel revenues of $110.5
million compared to $12.3 million in 1996. The increase was because of the
partial year in 1996 and an increase in the number of hotels leased, from nine
at December 31, 1996 to 13 at December 31, 1997. BMC recorded net income of $1.7
million in 1997 compared to a net loss of $.4 million in 1996. The loss in 1996
was partially the result of the application of the percentage lease rent terms
during an interim period (as opposed to a full calendar year). The terms of each
lease allow for annualizing the rent payable to compensate for the effects of
seasonality when base rents may be required during periods of lower occupancy
which would otherwise be offset during peak seasons. Historically, the fourth
quarter has been a period of lower occupancy for the Initial Hotels on a
combined basis in comparison to the other three quarters of the year.
The percentage lease expense during 1997 was $34.8 million, or 31.5% of
hotel revenues, compared to $3.3 million, or 26.5% of hotel revenues, in 1996.
Departmental and other hotel operating expenses, consisting primarily of rooms
expenses, food and beverage costs, franchise fees, utilities, repairs and
maintenance, and other general and administrative expenses of the hotels, were
$75.9 million in 1997 compared to $9.7 million in 1996. As a percent of hotel
revenues, the departmental and other hotel
22
<PAGE>
operating expenses decreased from 79.4% in 1996 to 68.6% in 1997 because of the
lower fourth quarter revenues in 1996 (as opposed to a full calendar year).
PRO FORMA RESULTS OF OPERATIONS YEAR ENDED 1998 COMPARED TO 1997
For the year ended December 31, 1998, BMC's pro forma hotel revenues would
have been $237.9 million, a slight increase in pro forma hotel revenues over the
year ended December 31, 1997 of $237.2 million. The increase in revenues for
1998 compared to 1997 is primarily the result of increases in the average daily
rates offset by lower occupancy rates experienced at some of the BMC hotels.
Pro forma percentage lease expense would have decreased from $69.6 million
in 1997 to $68.1 million in 1998, or 2.2%, because of changes in the percentage
lease calculations in 1998 for increases in the Consumer Price Index applied to
the relatively flat hotel revenues between years. Pro forma departmental
expenses and other hotel operating expenses of BMC would have been $172.2
million in 1998 compared to $169.1 million in 1997, an increase of 1.9%. As a
percentage of hotel revenues, these expenses would have increased slightly from
71.3% in 1997 to 72.4% in 1998.
Pro forma net income of BMC would have been $35,000 in 1998 compared to net
income of $.3 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of cash to meet our cash requirements, including
distributions to shareholders, is our share of the Partnership's cash flow from
the percentage leases. The lessees' obligations under the percentage leases are
unsecured and the lessees' ability to make rent payments to the Partnership
under the percentage leases, are dependent on the lessees' ability to generate
sufficient cash flow from the operation of the hotels.
As of December 31, 1998, we had $5.6 million of unrestricted cash and cash
equivalents, $4.3 million of restricted cash for the payment of capital
expenditures, real estate tax and insurance and we had outstanding borrowings
totaling $156.0 million and $130.0 million against our credit facility and term
note payable, respectively. In February 1999, the borrowings under our credit
facility increased to $158.0 million to fund capital expenditures for
significant renovations at four DoubleTree hotels.
We have a $250 million credit facility available, as limited under terms of
the credit agreement, to fund acquisitions of additional hotels, renovations and
capital expenditures, and for our working capital needs. For information
relating to the terms of our credit facility and our $130 million term note
payable, please see Notes 5 and 6, respectively, of the notes to consolidated
financial statements of Boykin Lodging Company included in this Form 10-K. We
may seek to negotiate additional credit facilities or issue debt instruments.
Any debt incurred or issued by us may be secured or unsecured, long-term,
medium-term or short-term, bear interest at a fixed or variable rate, and be
subject to such other terms as the Board of Directors considers prudent.
In November 1997, we filed a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to $300 million in
securities over two years. Securities issued under this registration statement
may be preferred shares, depository shares, common shares or any combination
thereof, and may be issued at different times, depending on market conditions.
Warrants to purchase these securities may also be issued. The terms of issuance
of any securities covered by this registration statement would be determined at
the time of their offering. The 4.5 million common shares sold in the February
28, 1998 offering were sold under this registration statement.
On February 1, 1999, we formed a joint venture with AEW Partners III, L.P.
("AEW"), an investment partnership managed by AEW Capital Management, L.P., a
Boston-based real estate investment firm that manages a portfolio of
approximately $6 billion. AEW will provide $50 million of equity capital for the
joint venture, and we will provide approximately $17 million and serve as the
operating partner of the joint venture. We plan to use the joint venture to take
advantage of acquisition opportunities in the lodging
23
<PAGE>
industry. Combined with debt financing, the initial capital commitments would
allow the joint venture to complete approximately $175 million of acquisitions
over a 24-month period. The joint venture agreement also contains provisions for
AEW and Boykin to double their respective capital commitments under certain
circumstances, which could result in total acquisitions by the joint venture of
approximately $350 million. In addition, as part of the transaction, we will
receive incentive returns based on the performance of acquired assets as well as
other compensation as a result of the joint venture's activities.
We anticipate that funds generated from operations and our credit facility
will enable us to meet our anticipated cash needs for the next year. Our
percentage lease revenues and cash flow are dependent in large part upon the
hotel revenues recognized by our lessees. There can be no assurance that those
revenues will meet expected levels. The availability of borrowings under the
credit facility is restrained by borrowing base and loan-to-value limits, as
well as other financial performance covenants contained in the agreement. There
can be no assurance that funds will be available in anticipated amounts from the
credit facility. Additionally, no assurance can be given that we will make
distributions in the future at the current rate, or at all.
INFLATION
Our revenues are from percentage leases, which can change based on changes
in the revenues of our hotels. Therefore, we rely entirely on the performance of
the hotels and the lessees' ability to increase revenues to keep pace with
inflation. Operators of hotels in general, and our lessees, can change room
rates quickly, but competitive pressures may limit the lessees' ability to raise
rates to keep pace with inflation.
Our general and administrative costs as well as real estate and personal
property taxes, property and casualty insurance and ground rent are subject to
inflation.
YEAR 2000 COMPLIANCE
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result
computerized systems, which include information and non-information technology
systems, and applications used by us, are being reviewed, evaluated and modified
or replaced, if necessary, to ensure all such financial, information and
operational systems are Year 2000 compliant.
STATE OF READINESS
We are addressing the Year 2000 compliance issue by focusing on our
corporate facility, which includes all of our administrative, non-hotel
operating functions, and on our hotel properties.
Corporate Facility:
For our corporate facility, we are in the phase of assessing our hardware
components and critical corporate business applications, all of which are
expected to be modified or upgraded, as necessary, to ensure Year 2000
compliance by the end of the second quarter of 1999.
Hotel Properties:
We are communicating with our lessees and other vendors with whom we do
significant business to determine their readiness of Year 2000 compliance. For
all of our hotels, we have gained an understanding of the process which our
lessees have undertaken to address the risk assessment, validation, remediation
and contingency plans related to Year 2000 compliance.
24
<PAGE>
These processes have included the following:
- completion of an inventory and assessment of all computerized systems,
applications and hardware by internal personnel;
- prioritization of items representing critical business applications; and
- estimation of remediation costs.
Most of our lessees are using internal personnel, who are determining the
level of resources needed, necessary modifications or upgrades, remediation and
contingency plans to become Year 2000 compliant. Our lessees have informed us
that they have dedicated the tools and resources to address all Year 2000 issues
in an effort to be Year 2000 compliant during the third quarter of 1999.
There can be no assurance that the efforts related to the hotel properties
will be sufficient to make these properties' computerized systems and
applications Year 2000 compliant in a timely manner or that the allocated
resources will be sufficient. A failure to become Year 2000 compliant could
affect the integrity of the hotel property guest check-in, billing and
accounting functions. Certain physical hotel property machinery and equipment
could also fail resulting in safety risks and customer dissatisfaction. We
cannot predict at this time the most reasonably likely worst case scenario
relating to Year 2000 issues.
YEAR 2000 PROJECT COSTS
We estimate that total unexpended costs for the Year 2000 compliance review,
evaluation, assessment and remediation efforts for the corporate facility and
the hotels should not exceed $.8 million, although there can be no assurance
that actual costs will not exceed this amount. During 1998, we spent
approximately $1.6 million related to computerized systems and equipment which
are Year 2000 compliant. It should be noted that the vast majority of our costs
to remediate this issue are capital in nature and would therefore not affect our
funds from operations.
CONTINGENCY PLAN
We are in the process of developing our contingency plan for the corporate
facility and hotel properties to provide for the most reasonably likely worst
case scenarios regarding Year 2000 compliance. This contingency plan is expected
to be completed in the third quarter of 1999.
SEASONALITY
Our hotels' operations historically have been seasonal. Twenty-six of our
hotels maintain higher occupancy rates during the second and third quarters. The
five hotels located in Florida experience their highest occupancy in the first
quarter. This seasonality pattern can be expected to cause fluctuations in our
quarterly lease revenue under the percentage leases. We anticipate that our cash
flow from the percentage leases will be sufficient to enable us to continue to
make quarterly distributions at the current rate for the next twelve months. To
the extent that cash flow from operations is insufficient during any quarter
because of temporary or seasonal fluctuations in percentage lease revenue, we
expect to utilize cash on hand or borrowings to make those distributions. No
assurance can be given that we will make distributions in the future at the
current rate, or at all.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
In 1998 we entered into a $130 million term note payable which bears
interest at a fixed rate of 6.9% for ten years, and a new fixed rate to be
determined thereafter. The term note requires interest only payments for the
first two years, with principal repayments commencing in the third loan year
based on a 25-year amortization schedule. The term note expires in June 2023.
Assuming a 10% increase in interest
25
<PAGE>
rates as of December 31, 1998, the fair market value of the term note payable
would be approximately $126.1 million.
In 1998, we also entered into a new unsecured credit facility with a group
of banks, which enables us to borrow up to $250 million, subject to borrowing
base and loan-to-value limitations, at a rate of interest that fluctuates at
LIBOR plus 1.40% to 1.75%. Due to changes in the U.S. and global economy,
interest rates fluctuate regularly which creates risk that these rates may
increase in the future, which would adversely impact our interest expense and
cash flows.
See Notes 2, 5 and 6 to the consolidated financial statements for discussion
of fair values of financial instruments and the terms of the unsecured credit
facility and the term note payable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to the Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to the
information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in Boykin Lodging's Proxy
Statement in connection with its Annual Meeting of Shareholders to be held on
May 25, 1999, and the information under the heading "Executive Officers" in Part
I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to the
information under the heading "Executive Compensation" contained in Boykin
Lodging's Proxy Statement in connection with its Annual Meeting of Shareholders
to be held on May 25, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to the
information under the heading "Security Ownership of Certain Beneficial Owners
and Management" contained in Boykin Lodging's Proxy Statement in connection with
its Annual Meeting of Shareholders to be held on May 25, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to the
information under the heading "Transactions with Management" contained in Boykin
Lodging's Proxy Statement in connection with its Annual Meeting of Shareholders
to be held on May 25, 1999.
26
<PAGE>
BOYKIN LODGING COMPANY
AS OF DECEMBER 31, 1998 AND 1997
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BOYKIN LODGING COMPANY:
Report of Independent Public Accountants........................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997....................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998 and
1997 and the Period February 8, 1996 (Inception) through December 31, 1996....... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1998 and 1997 and the Period February 8, 1996 (Inception) through December 31,
1996............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and
1997 and the Period February 8, 1996 (Inception) through December 31, 1996....... F-6
Notes to Consolidated Financial Statements......................................... F-7
Schedule III -- Real Estate and Accumulated Depreciation as of December 31, 1998... F-20
INITIAL HOTELS (PREDECESSORS TO BOYKIN LODGING COMPANY):
Report of Independent Public Accountants........................................... F-22
Combined Statement of Operations for the Period January 1, 1996, through
November 3, 1996................................................................. F-23
Combined Statement of Partners' Deficit for the Period January 1, 1996, through
November 3, 1996................................................................. F-24
Combined Statement of Cash Flows for the Period January 1, 1996, through
November 3, 1996................................................................. F-25
Notes to Combined Financial Statements............................................. F-26
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES (BMC):
Report of Independent Public Accountants........................................... F-30
Consolidated Balance Sheets as of December 31, 1998 and 1997....................... F-31
Consolidated Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1998 and 1997 and the Period November 4, 1996 (Inception of
Operations) through December 31, 1996............................................ F-32
Consolidated Statements of Members' Capital for the Years Ended December 31, 1998
and 1997 and the Period November 4, 1996 (Inception of Operations) through
December 31, 1996................................................................ F-33
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and
1997 and the Period November 4, 1996 (Inception of Operations) through December
31, 1996......................................................................... F-34
Notes to Consolidated Financial Statements......................................... F-35
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND BOPA DESIGN COMPANY
(PREDECESSORS TO BMC):
Report of Independent Public Accountants........................................... F-41
Combined Statement of Revenues and Expenses for the Period January 1, 1996, through
November 3, 1996................................................................. F-42
Notes to Combined Financial Statements............................................. F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Boykin Lodging Company:
We have audited the accompanying consolidated balance sheets of Boykin
Lodging Company (an Ohio corporation) and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1998 and 1997 and the
period ended December 31, 1996. These financial statements and the schedule
referred to below are the responsibility of Boykin Lodging's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boykin Lodging Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997
and the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is the responsibility of Boykin Lodging Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 12, 1999.
F-2
<PAGE>
BOYKIN LODGING COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998, AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investment in hotel properties, net....................................................... $ 595,132 $ 231,651
Cash and cash equivalents................................................................. 5,643 1,855
Rent receivable from lessees:
Related party lessees................................................................... 4,748 897
Third party lessees..................................................................... 547 360
Deferred expenses, net.................................................................... 3,159 2,055
Restricted cash........................................................................... 4,330 --
Other assets.............................................................................. 1,503 2,037
---------- ----------
$ 615,062 $ 238,855
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings against credit facility........................................................ $ 156,000 $ 91,750
Term note payable......................................................................... 130,000 --
Accounts payable and accrued expenses..................................................... 6,521 4,688
Dividends/distributions payable........................................................... 8,618 4,893
Due to lessees:
Related party lessees................................................................... 2,971 1,069
Third party lessees..................................................................... 1,775 1,268
Minority interest in joint ventures....................................................... 11,251 7,318
Minority interest in operating partnership................................................ 11,710 13,054
Shareholders' equity:
Preferred shares, without par value; 10,000,000 shares authorized; no shares issued and
outstanding........................................................................... -- --
Common shares, without par value; 40,000,000 shares authorized; 17,044,361 and 9,542,251
shares outstanding.................................................................... -- --
Additional paid-in capital.............................................................. 307,512 124,430
Retained deficit........................................................................ (21,296) (9,615)
---------- ----------
Total shareholders' equity.............................................................. 286,216 114,815
---------- ----------
$ 615,062 $ 238,855
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
BOYKIN LODGING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FEBRUARY 8, 1996
(INCEPTION) THROUGH DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD
FEBRUARY 8,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ -------------------
<S> <C> <C> <C>
Revenues:
Lease revenue from related party.............................. $ 56,708 $ 34,834 $ 3,258
Other lease revenue........................................... 13,039 3,050 --
Interest income............................................... 375 382 120
------------ ------------ -------
70,122 38,266 3,378
------------ ------------ -------
Expenses:
Real estate related depreciation and amortization............. 21,265 10,148 1,344
Real estate and personal property taxes, insurance and ground
rent........................................................ 8,413 5,173 620
General and administrative.................................... 3,745 2,404 450
Interest expense.............................................. 13,905 2,653 54
Amortization of deferred financing costs...................... 593 454 69
------------ ------------ -------
47,921 20,832 2,537
------------ ------------ -------
Income before minority interests and extraordinary item......... 22,201 17,434 841
Minority interest in joint ventures............................. (461) (144) --
Minority interest in operating partnership...................... (1,598) (2,066) (40)
------------ ------------ -------
Income before extraordinary item................................ 20,142 15,224 801
Extraordinary item -- loss on early extinguishment of debt, net
of minority interest of $110, $172 and $970 in 1998, 1997 and
1996, respectively............................................ (1,138) (882) (4,908)
------------ ------------ -------
Net income (loss) applicable to common shares................... $ 19,004 $ 14,342 $ (4,107)
------------ ------------ -------
------------ ------------ -------
Earnings per share:
Basic......................................................... $ 1.25 $ 1.51 $ (.46)
Diluted....................................................... $ 1.25 $ 1.49 $ (.45)
Weighted average number of common shares outstanding:
Basic......................................................... 15,252 9,523 8,981
Diluted....................................................... 15,252 9,595 9,036
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
BOYKIN LODGING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FEBRUARY 8, 1996 (INCEPTION) THROUGH
DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
SHARES CAPITAL DEFICIT TOTAL
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Issuance of common shares, net of offering expenses of
$16,427...................................................... 9,516,251 $ 173,898 $ -- $ 173,898
Purchase accounting adjustment necessary to reflect assets at
predecessor cost............................................. -- (50,070) -- (50,070)
Net loss....................................................... -- -- (4,107) (4,107)
Dividends declared -- $.2837 per common share.................. -- -- (2,700) (2,700)
------------ ---------- ---------- ----------
Balance, December 31, 1996..................................... 9,516,251 123,828 (6,807) 117,021
Net income..................................................... -- -- 14,342 14,342
Dividends declared -- $1.80 per common share................... -- -- (17,150) (17,150)
Shares issued.................................................. 26,000 616 -- 616
Additional offering costs...................................... -- (14) -- (14)
------------ ---------- ---------- ----------
Balance, December 31, 1997..................................... 9,542,251 124,430 (9,615) 114,815
Issuance of common shares, net of offering expenses of
$8,058....................................................... 7,616,610 184,912 -- 184,912
Common share purchases for treasury............................ (114,500) (1,830) -- (1,830)
Dividends declared -- $1.88 per common share................... -- -- (30,685) (30,685)
Net income..................................................... -- -- 19,004 19,004
------------ ---------- ---------- ----------
Balance, December 31, 1998..................................... 17,044,361 $ 307,512 $ (21,296) $ 286,216
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
BOYKIN LODGING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FEBRUARY 8, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
FEBRUARY 8,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 19,004 $ 14,342 $ (4,107)
Adjustments to reconcile net income (loss) to net cash flow provided
by operating activities --
Extraordinary item-noncash loss on early extinguishment of debt... 1,138 882 57
Depreciation and amortization..................................... 21,858 10,602 1,413
Minority interests................................................ 2,059 2,210 930
Changes in assets and liabilities --
Rent receivable................................................. (2,589) (951) (306)
Other assets.................................................... 370 (1,200) (772)
Accounts payable and accrued expenses........................... 837 1,936 2,433
Restricted cash................................................. (4,330) -- --
Due to lessees.................................................. 1,613 1,656 681
------------- ------------- -------------
Net cash flow provided by operating activities................ 39,960 29,477 329
------------- ------------- -------------
Cash flows from investing activities:
Acquisitions of hotel properties, net of joint venture partner
contribution...................................................... (76,288) (97,043) --
Acquisition of Red Lion Inns Operating L.P., net of common shares
issued of $80,333 and cash acquired of $11........................ (191,004) -- --
Improvements and additions to hotel properties...................... (32,492) (13,511) (622)
Title, insurance, transfer taxes and filing fees paid to acquire
Initial Hotel properties.......................................... -- -- (1,202)
------------- ------------- -------------
Net cash flow used for investing activities................... (299,784) (110,554) (1,824)
------------- ------------- -------------
Cash flows from financing activities:
Payments of dividends and distributions............................. (29,388) (17,781) --
Borrowings against credit facility.................................. 161,000 91,750 2,000
Repayment of borrowings against credit facility..................... (96,750) -- (2,000)
Term note borrowing................................................. 130,000 -- --
Retirement of mortgage debt assumed................................. -- (10,338) (140,623)
Payment of deferred financing costs................................. (2,975) (1,589) --
Proceeds from issuance of common shares, net........................ 104,579 602 172,591
Cash payments for redemption of certain limited partnership
interests......................................................... (967) (1,074) --
Distributions to joint venture minority interest partners, net...... (57) -- --
Cash payments to non-continuing equity investors of predecessor..... -- -- (9,111)
Cash payment for common share purchases............................. (1,830) -- --
------------- ------------- -------------
Net cash flow provided by financing activities................ 263,612 61,570 22,857
------------- ------------- -------------
Net change in cash and cash equivalents............................... $ 3,788 $ (19,507) $ 21,362
Cash and cash equivalents, beginning of period........................ 1,855 21,362 --
------------- ------------- -------------
Cash and cash equivalents, end of period.............................. $ 5,643 $ 1,855 $ 21,362
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. BACKGROUND:
Boykin Lodging Company is a real estate investment trust that owns hotels
throughout the United States and leases its properties to established hotel
operators. Boykin's principal source of revenue is lease payments from lessees
pursuant to percentage lease agreements. Percentage lease revenue is based upon
the room, food and beverage and other revenues of Boykin's hotels. The lessees'
ability to make payments to Boykin Lodging pursuant to the percentage leases is
dependent primarily upon the operations of the hotels.
INITIAL PUBLIC OFFERING AND MAJOR EVENTS SINCE THE IPO
In November 1996, Boykin completed its initial public offering ("IPO")
issuing a total of 9,516,250 common shares, including exercise of the
underwriters' over-allotment option. In conjunction with its IPO, Boykin Lodging
contributed approximately $133,898 to Boykin Hotel Properties, L.P., an Ohio
limited partnership (the "Partnership"), in exchange for an approximate 84.5%
equity interest as the sole general partner of the Partnership and also loaned
$40,000 to the Partnership in exchange for an intercompany convertible note. The
Partnership then acquired nine hotel properties (the "Initial Hotels") and
leased them to Boykin Management Company Limited Liability Company ("BMC"). BMC
is owned by Robert W. Boykin, Chairman, President and Chief Executive Officer of
Boykin Lodging Company (53.8%) and his brother, John E. Boykin (46.2%). The
Partnership acquired eight additional hotel properties in 1997 using remaining
proceeds from the IPO and borrowings under Boykin's credit facility.
On February 24, 1998, Boykin completed a follow-on public equity offering
and issued an additional 4,500,000 common shares. The net proceeds of
approximately $106,313 were contributed to the Partnership, increasing Boykin
Lodging Company's ownership percentage therein to 90.3%. The proceeds were used
by the Partnership to pay down existing indebtedness under the credit facility,
purchase limited partnership units from two unaffiliated limited partners, fund
the acquisitions of two hotels purchased in March 1998 and for general corporate
purposes.
On May 22, 1998 Boykin completed its merger with Red Lion Inns Limited
Partnership, in which Boykin Lodging acquired Red Lion Inns Operating L.P.
("OLP") which owns a portfolio of ten DoubleTree-licensed hotels. In the
transaction, Boykin issued 3,109,606 common shares and paid approximately
$35,305 in cash to the Red Lion limited partners and general partner. The total
consideration value, including assumed liabilities of approximately $155,710 and
common shares issued valued at $80,333, was $271,348. The common shares issued
in the merger were valued at $25.83 per share, the five-day average trading
price of Boykin's shares before the merger announcement. The issuance of
Boykin's common shares in the merger had the impact of increasing Boykin
Lodging's ownership percentage in the Partnership to 92.2%.
At the end of 1998, Boykin owned 31 hotels containing a total of 8,689 guest
rooms located in 16 different states. As part of Boykin's acquisitions in 1997
and 1998, Boykin established new strategic
F-7
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
alliances with four hotel operators and purchased five hotels with them through
joint venture structures. The following table sets forth the joint venture
agreements which have been established in 1997 and 1998:
<TABLE>
<CAPTION>
BOYKIN LESSEE/JV
LESSEE/JV OWNERSHIP OWNERSHIP
NAME OF JOINT VENTURE PARTNER PERCENTAGE PERCENTAGE HOTEL OWNED UNDER JOINT VENTURE
- ------------------------- ---------- --------------- --------------- --------------------------------------------
<S> <C> <C> <C> <C>
BoyStar Ventures, L.P. MeriStar 91% 9% Holiday Inn Minneapolis West
Shawan Road Hotel L.P. Davidson 91% 9% Marriott's Hunt Valley Inn
Boykin San Diego LLC Outrigger 91% 9% Hampton Inn San Diego Airport/Sea World
Boykin Kansas City LLC MeriStar 80% 20% DoubleTree Kansas City
RadBoy Mt. Laurel LLC Radisson 85% 15% Radisson Hotel Mt. Laurel
<CAPTION>
DATE OF HOTEL
NAME OF JOINT VENTURE PURCHASE
- ------------------------- ----------------
<S> <C>
BoyStar Ventures, L.P. July 1997
Shawan Road Hotel L.P. July 1997
Boykin San Diego LLC November 1997
Boykin Kansas City LLC November 1997
RadBoy Mt. Laurel LLC June 1998
</TABLE>
BASIS OF PRESENTATION
Boykin Lodging exercises unilateral control over the Partnership. Therefore,
the separate financial statements of Boykin Lodging, OLP, the Partnership, and
the joint ventures discussed above are consolidated. All significant
intercompany transactions and balances have been eliminated.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVESTMENT IN HOTEL PROPERTIES
Hotel properties are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from 20 to 40 years for
buildings and improvements and 3 to 20 years for furniture and equipment.
Boykin reviews the hotel properties for impairment when events or changes in
circumstances indicate the carrying amounts of the hotel properties may not be
recoverable. When such conditions exist, management estimates the future cash
flows from operations and disposition of the hotel properties. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount to the related hotel property's
estimated fair market value would be recorded and an impairment loss would be
recognized. Boykin does not believe that there are any factors or circumstances
indicating impairment of any of its investment in hotel properties.
Investment in hotel properties as of December 31, 1998 and 1997 consists of
the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land.................................................................. $ 55,538 $ 21,248
Buildings and improvements............................................ 512,165 186,415
Furniture and equipment............................................... 57,369 28,004
Construction in progress.............................................. 2,772 7,418
---------- ----------
627,844 243,085
Less -- Accumulated depreciation...................................... (32,712) (11,434)
---------- ----------
$ 595,132 $ 231,651
---------- ----------
---------- ----------
</TABLE>
The thirty-one hotel properties owned by Boykin Lodging at December 31, 1998
are located in Florida (5), North Carolina (4), Ohio (3), California (3), Oregon
(3), Washington (3), New York, New
F-8
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Jersey, Missouri, Maryland, Indiana, Colorado, Minnesota, Idaho, Nebraska, and
Tennessee and are subject to percentage leases as described in Note 10.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash on hand and in banks plus
short-term investments with an original maturity of three months or less.
DEFERRED EXPENSES
Included in deferred expenses at December 31, 1998 and 1997 are the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Financing costs............................................................ $ 3,316 $ 1,589
Franchise fees............................................................. 657 627
--------- ---------
3,973 2,216
Accumulated amortization................................................... (814) (161)
--------- ---------
$ 3,159 $ 2,055
--------- ---------
--------- ---------
</TABLE>
Deferred financing costs are being amortized over the term of the related
debt agreements. Accumulated amortization at December 31, 1998 and 1997 was $704
and $111, respectively.
Deferred franchise fees are being amortized on a straight-line basis over
the terms of related franchise agreements. Accumulated amortization at December
31, 1998 and 1997 was $110 and $50, respectively.
RESTRICTED CASH
Restricted cash consists of cash to be held in escrow reserves under the
terms of the term note payable discussed in Note 6. These reserves relate to the
payment of capital expenditures, insurance, and real estate taxes.
DIVIDENDS/DISTRIBUTIONS
Boykin Lodging pays dividends which are dependent upon the receipt of
distributions from the Partnership.
REVENUE RECOGNITION
Boykin Lodging recognizes lease revenue for interim and annual reporting
purposes on an accrual basis pursuant to the terms of the respective percentage
leases.
MINORITY INTERESTS
Minority interest in the Partnership represents the limited partners' actual
proportionate share of the equity in the Partnership. Income is allocated to
minority interest based on the weighted average limited partnership percentage
ownership throughout the period.
Minority interest in joint ventures represents the joint venture partners'
actual proportionate share of the equity in the joint ventures. Income is
allocated to minority interest based on the joint venture partners' percentage
ownership throughout the period, subject to minimum returns to the Partnership,
as defined in the joint venture agreements.
F-9
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
INCOME TAXES
Boykin qualifies as a REIT under Sections 856-860 of the Internal Revenue
Code. Accordingly, no provision for income taxes has been reflected in the
accompanying consolidated financial statements.
Boykin's earnings and profits, as defined by federal income tax law, will
determine the taxability of distributions to shareholders. Earnings and profits
will differ from income reported for financial reporting purposes primarily due
to the differences in the estimated useful lives and methods used to compute
depreciation. For federal income tax purposes, dividends to shareholders
applicable to 1998 and 1997 operating results represent ordinary taxable income
while dividends applicable to 1996 operating results represent a 100% return of
capital.
EARNINGS PER SHARE
Boykin follows Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share."
Boykin's basic and diluted earnings per share for 1998, 1997, and 1996 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic:
Income before extraordinary item................ $ 1.32 $ 1.60 $ .09
Extraordinary item.............................. (.07) (.09) (.55)
----- ----- -----
Net income (loss)............................. $ 1.25 $ 1.51 $ (.46)
----- ----- -----
----- ----- -----
Diluted:
Income before extraordinary item................ $ 1.32 $ 1.59 $ .09
Extraordinary item.............................. (.07) (.10) (.54)
----- ----- -----
Net income (loss)............................. $ 1.25 $ 1.49 $ (.45)
----- ----- -----
----- ----- -----
</TABLE>
Basic earnings per share is based on the weighted average number of common
shares outstanding during the period whereas diluted earnings per share adjusts
the weighted average shares outstanding for the effect of all dilutive
securities. The weighted average number of shares used in determining basic
earnings per share was 15,252,000, 9,523,000, and 8,981,000 for the years ended
December 31, 1998 and 1997, and for the period November 4, 1996 through December
31, 1996. For 1997 and 1996, diluted per share amounts reflect incremental
common shares outstanding of 72,000 and 55,000 related to unexercised stock
options as of December 31, 1997 and 1996, respectively. There were no dilutive
stock options outstanding at December 31, 1998. There are no adjustments to the
reported amounts of income in computing diluted per share amounts.
PARTNERSHIP UNITS
At December 31, 1998 and 1997, a total of 1,291,000 and 1,332,000 limited
partnership units were issued and outstanding, respectively. The weighted
average number of limited partnership units outstanding for the periods ended
December 31, 1998, 1997, and 1996 were 1,297,000, 1,360,000, and 1,378,000
respectively. The weighted average number of common shares and limited
partnership units for the periods ended December 31, 1998, 1997 and 1996 were
16,549,000, 10,883,000, and 10,359,000 respectively.
F-10
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is determined by using available market information and
appropriate valuation methodologies. Boykin's principal financial instruments
are cash, cash equivalents, restricted cash, accounts receivable, borrowings
against the credit facility, and the term note payable. Cash, cash equivalents,
and restricted cash, due to their short maturities, and the liquidity of
accounts receivable, are carried at amounts which reasonably approximate fair
value. As borrowings against the credit facility bear interest at variable
market rates, carrying value approximates market value at December 31, 1998 and
1997.
The estimated fair value of the $130,000 term note payable (Note 6) is based
on the discounted value of contracted cash flows estimated using rates currently
offered for debt with similar maturities. This estimate assumes a ten percent
increase from Boykin's actual rate on the term note of 6.9%. At December 31,
1998 the estimated fair value was approximately $126,061.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS OF HOTEL PROPERTIES:
The following table summarizes Boykin's acquisitions in 1998 and 1997:
1998 ACQUISITIONS
<TABLE>
<CAPTION>
ACQUISITION NUMBER OF PURCHASE PERCENTAGE OWNED
HOTEL LOCATION DATE ROOMS PRICE BY PARTNERSHIP LESSEE
- ----------------------------------- ---------------- -------------- ------------- ----------- --------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Knoxville Hilton................... Knoxville, TN March 1998 317 $ 26,400 100% BMC
High Point Radisson................ High Point, NC March 1998 251 $ 10,600 100% BMC
Pink Shell Beach Resort............ Fort Myers, FL May 1998 208 $ 19,250 100% MeriStar
DoubleTree Portfolio............... Various May 1998 3,062 $ 271,300 100% Westboy
Radisson Hotel Mt. Laurel.......... Mt. Laurel, NJ June 1998 283 $ 23,240 85% Radisson
</TABLE>
1997 ACQUISITIONS
<TABLE>
<CAPTION>
ACQUISITION NUMBER OF PURCHASE PERCENTAGE OWNED
HOTEL LOCATION DATE ROOMS PRICE BY PARTNERSHIP LESSEE
- ----------------------------------- ---------------- -------------- ------------- ----------- --------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Melbourne Hilton Oceanfront........ Melbourne, FL March 1997 118 $ 9,300 100% BMC
Holiday Inn Crabtree............... Raleigh, NC March 1997 176 $ 7,500 100% BMC
French Lick Springs Resort......... French Lick, IN April 1997 485 $ 20,000 100% BMC
Holiday Inn Minneapolis West....... Minneapolis, MN July 1997 196 $ 12,300 91% MeriStar
Marriott's Hunt Valley Inn......... Baltimore, MD July 1997 392 $ 27,300 91% Davidson
DoubleTree Kansas City............. Kansas City, MO November 1997 388 $ 25,000 80% MeriStar
Hampton Inn San Diego Airport/ Sea
World............................ San Diego, CA November 1997 199 $ 8,900 91% Outrigger
</TABLE>
All of the acquisitions have been accounted for using the purchase method,
with the operating results of the acquired properties being included in the
consolidated operating results of Boykin Lodging since the respective dates of
acquisition.
F-11
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. INTERCOMPANY CONVERTIBLE NOTE:
The $40,000 intercompany convertible note matures in November 2001. Interest
on the note accrues at a rate equal to 9.5% per annum, increasing to 9.75% per
annum beginning in November 1999, and is payable quarterly. The note may be
prepaid in full, but not in part, at any time. Boykin has the right to convert
the note, prior to maturity and in advance of any proposed prepayment by the
Partnership, into additional equity interests in the Partnership at face value
based on the $20 per share IPO price of Boykin Lodging's common shares. Boykin
Lodging is the sole general partner of the Partnership. The note is secured by
mortgages on certain hotel properties.
5. CREDIT FACILITY:
On June 11, 1998, Boykin entered into a new unsecured credit facility with a
group of banks, which enables Boykin to borrow up to $250,000, subject to
borrowing base and loan-to-value limitations, at a rate of interest that
fluctuates at LIBOR plus 1.40% to 1.75% (7.25% at December 31, 1998), as
defined. Boykin is required to pay a .25% fee on the unused portion of the
credit facility. The credit facility expires in June 2000, with an additional
one-year extension. The new facility replaced the Boykin's previous $150,000
credit facility, which was secured by first mortgages on thirteen of the hotels.
As of December 31, 1998 and December 31, 1997, Boykin had $156,000 and $91,750,
respectively, outstanding against the credit facility.
The credit facility requires Boykin, among other things, to maintain a
minimum net worth, a coverage ratio of EBITDA to debt service, and a coverage
ratio of EBITDA to debt service and fixed charges. The company is required to
maintain the franchise agreement at each hotel and to maintain its REIT status.
Boykin was in compliance with its covenants at December 31, 1998 and December
31, 1997.
6. TERM NOTE PAYABLE:
On May 22, 1998, OLP entered into a $130,000 term loan agreement. The loan
expires in June 2023 and may be prepaid without penalty or defeasance after May
21, 2008. The loan bears interest at a fixed rate of 6.9% for ten years, and at
a new fixed rate to be determined thereafter. The loan requires interest-only
payments for the first two years, with principal repayments commencing in the
third loan year based on a 25-year amortization schedule. The loan is secured by
ten DoubleTree hotels. Under covenants in the loan agreement, assets of OLP are
not available to pay the creditors of any other Boykin entity, except to the
extent of permitted cash distributions from OLP to Boykin. Likewise, the assets
of other Boykin entities are not available to pay the creditors of OLP. The loan
agreement also requires OLP to hold funds in escrow for the payment of capital
expenditures, insurance and real estate taxes. The term note also requires OLP
to maintain certain financial covenants. OLP was in compliance with these
covenants at December 31, 1998.
Maturities of long term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ --
2000.............................................................. 992
2001.............................................................. 2,090
2002.............................................................. 2,239
2003.............................................................. 2,399
2004 and thereafter............................................... 122,280
---------
$ 130,000
---------
---------
</TABLE>
F-12
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. DESCRIPTION OF CAPITAL SHARES:
COMMON SHARES
Holders of Boykin's common shares are entitled to receive dividends, as and
if declared by the Board of Directors, out of funds legally available therefor.
The holders of common shares, upon any liquidation, dissolution or winding-up of
Boykin, are entitled to share ratably in any assets remaining after payment in
full of all liabilities of Boykin and all preferences of the holders of any
outstanding preferred shares. The common shares possess ordinary voting rights,
each share entitling the holder thereof to one vote. Holders of common shares do
not have cumulative voting rights in the election of directors and do not have
preemptive rights.
PREFERRED SHARES
The Board of Directors is authorized to provide for the issuance of two
classes of preferred shares, each in one or more series, to establish the number
of shares in each series and to fix the designation, powers, preferences and
rights (other than voting rights) of each series and the qualifications,
limitations or restrictions thereon. An aggregate of ten million preferred
shares are authorized. Because the Board of Directors has the power to establish
the preferences and rights of each series of preferred shares, the Board of
Directors may afford the holders of any series of preferred shares preferences,
powers and rights senior to the rights of holders of common shares. The issuance
of preferred shares could have the effect of delaying or preventing a change in
control of Boykin. No preferred shares had been issued or were outstanding as of
December 31, 1998 and 1997.
8. LIMITED PARTNERSHIP INTERESTS:
Pursuant to the Partnership Agreement, the limited partners of the
Partnership have exchange rights, which enable them to cause the Partnership to
pay cash for their interests in the Partnership, or at Boykin Lodging's
election, to exchange common shares for such interests. The exchange rights may
be exercised in whole or in part. The number of common shares initially issuable
to the limited partners upon exercise of the exchange rights was 1,378,000. The
number of shares issuable upon exercise of the exchange rights will be adjusted
upon the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions, which otherwise would have the effect of diluting the
ownership interests of the limited partners or the shareholders of Boykin
Lodging.
During 1998 and 1997, the Partnership purchased 40,976 and 45,910,
respectively, of its outstanding limited partnership units for aggregate cash
consideration of $967 and $1,074, respectively. The excess of the aggregate
purchase price paid over the capital account balances of the units purchased was
$562 and $610, respectively and was recorded as additional investment in hotel
properties.
As a result of the purchases of limited partnership units and the use of
proceeds from the issuances of common shares discussed in Note 1 to purchase
additional general partnership units, offset by the redemption of general
partnership units in conjunction with the repurchase of 114,500 common shares in
1998, Boykin's general partnership interest in the Partnership increased to
92.1% as of December 31, 1998 from 85.0% as of December 31, 1997.
9. EXTRAORDINARY ITEM:
In June 1998, in connection with obtaining the new unsecured credit facility
discussed in Note 5, Boykin wrote off existing deferred financing costs under
the former secured facility totaling $1,138. These charges, net of $110 of
minority interest, were reflected as an extraordinary item in the accompanying
consolidated statement of income for the year ended December 31, 1998.
F-13
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In connection with obtaining an increased credit facility in 1997 and
retiring certain assumed mortgage indebtedness, Boykin wrote off existing
deferred financing costs totaling $882. These charges, net of $172 of minority
interest, were reflected as an extraordinary item in the accompanying
consolidated statement of income for 1997.
In acquiring the Initial Hotels in 1996, an extraordinary loss of $4,908 was
incurred which consisted of prepayment penalties of $5,821 and the write off of
deferred financing costs of $57, net of $970 of minority interest. This loss was
incurred from retirement of the underlying mortgage indebtedness of the hotels.
The debt was retired from the proceeds from the sale of the general partnership
interest to Boykin Lodging and from the proceeds from the intercompany
convertible note.
10. PERCENTAGE LEASE AGREEMENTS:
The percentage leases have noncancelable remaining terms ranging from two to
ten years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The rent due under each percentage lease is the
greater of minimum rent, as defined, or percentage rent. Percentage rent
applicable to room and other hotel revenues varies by lease and is calculated by
multiplying fixed percentages by the total amounts of such revenues over
specified threshold amounts. Both the minimum rent and the revenue thresholds
used in computing percentage rents applicable to room and other hotel revenues
are subject to annual adjustments based on increases in the United States
Consumer Price Index (CPI). Percentage rent applicable to food and beverage
revenues is calculated by multiplying fixed percentages by the total amounts of
such revenues. Percentage lease revenues were $69,747, $37,884 and $3,258,
respectively, for the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996, of which approximately $18,746, $12,303 and $306,
respectively, was in excess of minimum rent.
Future minimum rentals (ignoring future CPI increases) to be received by
Boykin from BMC and from other lessees pursuant to the percentage leases for
each of the years in the period 1999 to 2003 and in total thereafter are as
follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
LESSEES LESSEES TOTALS
---------- --------- ----------
<S> <C> <C> <C>
1999................................... $ 49,261 $ 9,076 $ 58,337
2000................................... 49,261 9,076 58,337
2001................................... 42,960 9,076 52,036
2002................................... 36,055 7,677 43,732
2003................................... 11,439 5,884 17,323
Thereafter............................. 26,409 23,067 49,476
---------- --------- ----------
$ 215,385 $ 63,856 $ 279,241
---------- --------- ----------
---------- --------- ----------
</TABLE>
11. SHARE COMPENSATION PLANS:
Boykin has a Long-Term Incentive Plan (LTIP) which provides for the granting
to eligible employees of incentive or nonqualified share options, restricted
shares, deferred shares, share purchase rights and share appreciation rights in
tandem with options, or any combination thereof. Boykin has reserved 1,000,000
common shares for issuance under the LTIP.
F-14
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
OPTION PLAN
The following table summarizes information related to share option grant and
exercise activity in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
OPTIONS GRANTED TO
--------------------------
<S> <C> <C> <C> <C> <C>
OFFICERS WEIGHTED AVERAGE EXERCISED
AND NON-EMPLOYEE FAIR VALUE OF OPTIONS PRICE PER
YEAR EMPLOYEES DIRECTORS OPTIONS GRANTED EXERCISED SHARE
- ---------------------------------- ----------- ------------- ----------------- ----------- -----------
1998.............................. 340,483 30,000 $ 2.10 5,000 $ 20.00
1997.............................. 148,500 30,000 $ 2.54 5,000 $ 20.00
1996.............................. 400,000 25,000 $ 1.59 -- --
</TABLE>
As of December 31, 1998 and 1997, the following information related to
outstanding options was as follows:
<TABLE>
<CAPTION>
TOTAL OPTIONS EXERCISABLE OPTIONS
------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
PER SHARE REMAINING PER SHARE
OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
YEAR OUTSTANDING PRICE LIFE OUTSTANDING PRICE
- ---------------------------- ----------- ------------- --------------- ----------- -------------
1998........................ 963,983 $ 20.53 8.8 years 385,343 $ 21.23
1997........................ 598,500 $ 21.17 9.1 years 161,666 $ 20.36
</TABLE>
Options vest over various periods ranging from one to nine years from the
date of grant. The term of each option granted will not exceed ten years from
date of grant, and the exercise price may not be less than 100% of the fair
market value of Boykin's common shares on the grant date.
Boykin has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its employee
share option plan. If Boykin Lodging had elected to recognize compensation costs
for the LTIP based on the fair value at the grant dates for option awards
consistent with the method prescribed by SFAS No. 123, reported amounts of net
income and earnings per share would have been changed to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
--------- --------- --------- ---------
Net income........................................ $ 19,004 $ 18,225 $ 14,342 $ 13,845
Earnings per share:
Basic........................................... $ 1.25 $ 1.19 $ 1.51 $ 1.46
Diluted......................................... $ 1.25 $ 1.19 $ 1.49 $ 1.44
</TABLE>
F-15
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The fair value of employee share options used to compute the pro forma amounts
of net income and basic earnings per share was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
OPTIONS ISSUED IN:
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Dividend yield......................................... 9.50% 6.50%
Expected volatility.................................... 19.03% 18.2%
Risk-free interest rate................................ 5.39% 6.16%
Expected holding period................................ 6.6 years 5.4 years
</TABLE>
12. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1997, Boykin adopted the Boykin Lodging Company Money
Purchase Pension Plan, a defined contribution plan which was established to
provide retirement benefits to eligible employees. Boykin's contributions for
the years ended December 31, 1998 and 1997 totaled $140 and $127, respectively.
13. COMMITMENTS:
In general, the percentage leases require Boykin Lodging to establish
reserves for capital expenditures. Boykin Lodging intends to use the capital
expenditures reserve for the replacement and refurbishment of furniture,
fixtures and equipment and other capital expenditures although it may make other
uses of the amounts in the fund that it considers appropriate from time to time.
Two of the hotels owned by Boykin and land related to another hotel are
subject to land leases which expire at various dates through 2068. All leases
require minimum annual rentals, and one lease requires percentage rent based on
hotel revenues. The other two leases are adjusted for increases in CPI every ten
years. Rental expense charged to operations related to these leases for the
years ended December 31, 1998 and 1997 was $832 and $830, respectively. Rent
expense for the period ended December 31, 1996 was $108.
Under the terms of the Red Lion merger agreement, Boykin committed to spend
$10,000 over a two-year period in capital renovations at some of the hotels in
that portfolio. Boykin plans on spending a total of $20,000 during this period
of which approximately $10,000 will be funded through hotel capital expenditure
reserves based on a percentage of hotel revenues. The remainder will be funded
from Boykin's operations and borrowings under its credit facility.
The DoubleTree Kansas City purchased by Boykin K.C. in November 1997
underwent a substantial renovation which was completed in April 1997. The
renovation was funded, in part, with $15,110 of proceeds from tax increment
financing bonds issued by the Redevelopment Authority of Kansas City, Missouri.
Debt service on the bonds is to be funded entirely by sales taxes, payroll
taxes, real estate taxes, hotel taxes and other specified taxes and net revenues
generated by the hotel. However, if the specified taxes generated by the hotel
are insufficient to satisfy the debt service requirements of the bonds, Boykin
K.C. could be obligated to fund such shortfall. In the opinion of management of
Boykin, it is unlikely that Boykin K.C. will have to fund any debt service on
the bonds.
Boykin's joint venture partner in Shawan has the right, commencing in July
1999, subject to certain performance criteria, to sell one-half of their
respective interests in this joint venture to Boykin at fair market value, with
Boykin retaining the option to fund the purchase price with cash or through the
issuance of common shares.
F-16
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. RELATED PARTY TRANSACTIONS:
The Chairman, President and Chief Executive Officer of Boykin Lodging is the
majority shareholder of BMC. BMC and Westboy LLC, a subsidiary of BMC, were a
significant source of Boykin's percentage lease revenue through December 31,
1998 and 1997. At December 31, 1998 and 1997, Boykin had rent receivable of
$4,748 and $897, respectively, due from related party lessees.
Boykin Lodging paid Spectrum Design Services $672 for design services in
1998. Of this total, $290 was for design services, $285 represented purchasing
services and $97 was reimbursement of expenses incurred while performing
services for the hotels during 1998.
At December 31, 1998 and 1997, Boykin had a payable to related party lessees
of $2,971 and $1,069, respectively, primarily for the reimbursement of capital
expenditure costs incurred on behalf of Boykin Lodging.
In September 1997, BMC purchased 20,000 common shares of Boykin for cash
consideration of $491. Boykin utilized the proceeds to purchase 20,000
additional general partner units in the Partnership.
The Initial Hotels were acquired by the Partnership from entities in which
certain officers of Boykin and their affiliates had substantial ownership
interests. These officers and their affiliates received 1,222,143 limited
partnership units in exchange for their interests in the hotel properties.
15. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
In 1998, Boykin issued 3,109,606 common shares, valued at $80,333, as
partial consideration for the acquisition of OLP. Approximately $8,618 of
dividends and partnership distributions were declared but were not paid as of
December 31, 1998.
In 1997, the Partnership assumed $10,338 of existing debt which was
immediately retired after closing of an acquisition. Approximately $4,893 of
dividends and Partnership distributions which were declared but were not paid as
of December 31, 1997.
In 1996, in connection with the IPO, approximately $64,000 of historical net
book value in hotel properties was contributed to the Partnership in exchange
for Partnership units and the Partnership assumed approximately $140,000 of
debt. Approximately $3,091 of dividends and Partnership distributions were
declared but were not paid as of December 31, 1996.
Interest paid during the years ended December 31, 1998, and 1997, and the
period ended December 31, 1996 was and $12,763, $2,059, and $25, respectively.
16. SUBSEQUENT EVENT:
On February 1, 1999, Boykin formed a joint venture with AEW Partners III,
L.P. (AEW), an investment partnership managed by AEW Capital Management, L.P., a
Boston-based real estate investment firm. AEW will provide $50,000 of equity
capital for the joint venture, and Boykin will provide approximately $17,000 and
serve as the operating partner of the joint venture.
Boykin and AEW plan to use the joint venture to take advantage of
acquisition opportunities in the lodging industry. The joint venture agreement
contains provisions for AEW and Boykin to double their respective capital
commitments under certain circumstances. In addition, as part of the transition,
Boykin will receive incentive returns based on the performance of acquired
assets as well as other compensation as a result of the joint venture's
activities.
After the end of the two-year investment period, AEW has the option to
convert its capital invested in the joint venture into Boykin convertible
preferred shares. Pursuant to the venture agreements, AEW also
F-17
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
purchased a warrant for $500. The warrant gives AEW the right to buy up to
$20,000 of Boykin's preferred or common (at Boykin's election) shares for $16.48
a share. The warrant is exercisable after the two year investment period, and
expires one year after it becomes exercisable. The amount of the warrant will be
reduced and eliminated under the terms of the agreement on a dollar for dollar
basis as the last $20,000 of AEW's $50,000 capital is invested. If issued, the
preferred shares would be convertible into common shares at $16.48 per common
share and have a minimum cumulative annual dividend equivalent to $1.88 per
common share, Boykin's current common share dividend.
17. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
Pro forma financial information is presented as if the following significant
transactions had been consummated as of January 1, 1997:
- the share offering of 4,500,000 common shares in February 1998;
- the issuance of 3,109,606 common shares in May 1998 related to the Red
Lion merger;
- the acquisitions of properties by Boykin in 1997 and 1998;
- Boykin's common share repurchase of 114,500 shares in 1998;
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Lease revenue..................................................................... $ 83,000 $ 81,070
Interest revenue.................................................................. 360 --
--------- ---------
Total revenues.................................................................... 83,360 81,070
Real estate related depreciation and amortization................................. 26,256 26,270
Real estate and personal property taxes, insurance and ground rent................ 9,807 10,240
General and administrative........................................................ 3,745 2,404
Interest expense.................................................................. 19,710 17,685
Amortization of deferred financing costs.......................................... 652 607
--------- ---------
60,170 57,206
Income before minority interest and extraordinary item............................ 23,190 23,864
Minority interest................................................................. (2,079) (1,752)
--------- ---------
Income before extraordinary item.................................................. $ 21,111 $ 22,122
--------- ---------
--------- ---------
Income per share before extraordinary item:
Basic........................................................................... $ 1.24 $ 1.30
Diluted......................................................................... $ 1.24 $ 1.29
</TABLE>
The operations of the Kansas City and Daytona hotels are excluded from the
1997 pro forma results as these hotels were closed for renovations during
portions of the year.
18. QUARTERLY OPERATING RESULTS (UNAUDITED)
Boykin Lodging's unaudited consolidated quarterly operating data for the
year ended December 31, 1998 and 1997 follows. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of quarterly results have been reflected in the data. Quarterly
operating results are not necessarily indicative of the results to be achieved
in succeeding quarters or years.
F-18
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In May 1998, the Emerging Issues Task Force (EITF) issued EITF 98-9,
"Accounting for Contingent Rent in Interim Periods." EITF 98-9 provided that a
lessor shall defer recognition of contingent rental income in interim periods
until specified targets that trigger the contingent income are met. Boykin
elected to adopt the provisions of EITF 98-9 in the third quarter of 1998,
retroactive to January 1, 1998, and restated its financial results for the first
and second quarters of 1998. In November 1998, the EITF rescinded its previous
ruling, allowing Boykin to revert back to its previous revenue recognition
policies before adopting EITF 98-9. Therefore, the following quarterly
information for 1998 has been restated from that previously reported on Forms
10-Q/A to reflect Boykin's decision to recognize percentage rent revenue in
accordance with the terms of its percentage lease agreements rather than
pursuant to the requirements of the rescinded EITF 98-9.
<TABLE>
<CAPTION>
FOR THE 1998 QUARTER ENDED
-----------------------------------------------------
<S> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
Total revenues.............................................. $ 10,914 $ 17,492 $ 23,266 $ 18,450
Income before extraordinary item............................ 3,649 5,858 7,215 3,420
Net income.................................................. 3,649 4,720 7,215 3,420
Earnings per share:
Income before extraordinary item --
Basic................................................... .32 .38 .42 .20
Diluted................................................. .32 .38 .42 .20
Net income --
Basic................................................... .32 .31 .42 .20
Diluted................................................. .32 .31 .42 .20
Weighted average number of common shares outstanding:
Basic..................................................... 11,342 15,412 17,125 17,044
Diluted................................................... 11,447 15,436 17,125 17,044
</TABLE>
<TABLE>
<CAPTION>
FOR THE 1997 QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues................................................ $ 7,439 $ 9,728 $ 12,036 $ 9,063
Income before extraordinary item.............................. 3,381 4,373 5,373 2,097
Net income.................................................... 3,381 4,373 5,232 1,356
Earnings per share:
Income before extraordinary item --
Basic..................................................... .36 .46 .56 .22
Diluted................................................... .35 .46 .56 .22
Net income --
Basic..................................................... .36 .46 .55 .14
Diluted................................................... .35 .46 .55 .14
Weighted average number of common shares outstanding:
Basic....................................................... 9,516 9,516 9,522 9,537
Diluted..................................................... 9,575 9,553 9,596 9,651
</TABLE>
F-19
<PAGE>
BOYKIN LODGING COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS CAPITALIZED
GROSS AMOUNTS AT WHICH
SUBSEQUENT TO CARRIED AT CLOSE OF
INITIAL COST ACQUISITION PERIOD
------------------------ ------------------------ ------------------------
BUILDINGS AND BUILDING AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- ------------------------------------- --------------- --------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate Offices
Cleveland, Ohio.................... $ -- $ -- $ -- $ -- $ 34 $ -- $ 34
Berkeley Marina Radisson
Berkeley, California............... -- -- 10,807 -- 4,932 -- 15,739
Buffalo Marriott
Buffalo, New York.................. -- 1,164 15,174 -- 497 1,164 15,671
Cleveland Airport Marriott
Cleveland, Ohio.................... -- 1,175 11,441 -- 5,509 1,175 16,950
Cleveland Marriott East
Beachwood, Ohio.................... -- 1,918 19,514 -- 1,322 1,918 20,836
Columbus North Marriott
Columbus, Ohio..................... -- 1,635 12,873 3 754 1,638 13,627
Melbourne Quality Suites
Melbourne, Florida................. -- 3,092 7,819 -- 516 3,092 8,335
Radisson Inn Sanibel Gateway
Ft. Myers, Florida................. -- 718 2,686 -- 258 718 2,944
Lake Norman Hampton Inn
Charlotte, North Carolina.......... -- 490 4,131 -- 559 490 4,690
Lake Norman Holiday Inn
Charlotte, North Carolina.......... -- 700 4,435 -- 855 700 5,290
Holiday Inn Crabtree
Raleigh, North Carolina............ -- 725 6,542 -- 3,366 725 9,908
Melbourne Hilton Oceanfront
Melbourne, Florida................. -- 852 7,699 -- 342 852 8,041
Daytona Beach Radisson Resort
Daytona, Florida................... -- 386 3,470 -- 6,907 386 10,377
French Lick Springs Resort
French Lick, Indiana............... -- 2,000 16,000 -- 1,817 2,000 17,817
Holiday Inn Minneapolis West
Minneapolis, Minnesota............. -- 1,000 10,604 -- 340 1,000 10,944
Marriott's Hunt Valley Inn
Baltimore, Maryland................ -- 2,890 21,575 -- 555 2,890 22,130
Hampton Inn San Diego Airport/Sea
World
San Diego, California.............. -- 1,000 7,400 -- 157 1,000 7,557
DoubleTree Kansas City
Kansas City, Missouri.............. -- 1,500 20,958 -- 53 1,500 21,011
Knoxville Hilton
Knoxville, Tennessee............... -- 1,500 8,132 -- 113 1,500 8,245
High Point Radisson
High Point, North Carolina......... -- 450 25,057 -- 87 450 25,144
Radisson Hotel Mt. Laurel
Mt. Laurel, New Jersey............. -- 2,000 19,697 -- 11 2,000 19,708
<CAPTION>
ACCUMULATED
DEPRECIATION NET BOOK VALUE
BUILDINGS AND LAND AND BUILDING DATE OF DATE OF
DESCRIPTION TOTAL(B)(C) IMPROVEMENTS(D) AND IMPROVEMENTS CONSTRUCTION ACQUISITION
- ------------------------------------- ----------- ----------------- ------------------ ------------- -------------
<S> <C>
Corporate Offices
Cleveland, Ohio.................... $ 34 $ 3 $ 31 1998
Berkeley Marina Radisson
Berkeley, California............... 15,739 1,302 14,437 1972 1996
Buffalo Marriott
Buffalo, New York.................. 16,835 1,988 14,847 1981 1996
Cleveland Airport Marriott
Cleveland, Ohio.................... 18,125 2,109 16,016 1970 1996
Cleveland Marriott East
Beachwood, Ohio.................... 22,754 2,460 20,294 1977 1996
Columbus North Marriott
Columbus, Ohio..................... 15,265 1,779 13,486 1981 1996
Melbourne Quality Suites
Melbourne, Florida................. 11,427 840 10,587 1986 1996
Radisson Inn Sanibel Gateway
Ft. Myers, Florida................. 3,662 209 3,453 1986 1996
Lake Norman Hampton Inn
Charlotte, North Carolina.......... 5,180 439 4,741 1991 1996
Lake Norman Holiday Inn
Charlotte, North Carolina.......... 5,990 550 5,440 1987 1996
Holiday Inn Crabtree
Raleigh, North Carolina............ 10,633 531 10,102 1974 1997
Melbourne Hilton Oceanfront
Melbourne, Florida................. 8,893 528 8,365 1986 1997
Daytona Beach Radisson Resort
Daytona, Florida................... 10,763 656 10,107 1974 1997
French Lick Springs Resort
French Lick, Indiana............... 19,817 1,440 18,377 1903 1997
Holiday Inn Minneapolis West
Minneapolis, Minnesota............. 11,944 699 11,245 1986 1997
Marriott's Hunt Valley Inn
Baltimore, Maryland................ 25,020 1,450 23,570 1971 1997
Hampton Inn San Diego Airport/Sea
World
San Diego, California.............. 8,557 392 8,165 1989 1997
DoubleTree Kansas City
Kansas City, Missouri.............. 22,511 1,134 21,377 1969 1997
Knoxville Hilton
Knoxville, Tennessee............... 9,745 373 9,372 1981 1998
High Point Radisson
High Point, North Carolina......... 25,594 816 24,778 1982 1998
Radisson Hotel Mt. Laurel
Mt. Laurel, New Jersey............. 21,708 516 21,192 1975 1998
<CAPTION>
LIFE ON WHICH
DEPRECIATION IN
INCOME STATEMENT
DESCRIPTION IS COMPLETED
- ------------------------------------- -----------------
Corporate Offices
Cleveland, Ohio.................... 10 years
Berkeley Marina Radisson
Berkeley, California............... 20 years
Buffalo Marriott
Buffalo, New York.................. 25 years
Cleveland Airport Marriott
Cleveland, Ohio.................... 20 years
Cleveland Marriott East
Beachwood, Ohio.................... 25 years
Columbus North Marriott
Columbus, Ohio..................... 25 years
Melbourne Quality Suites
Melbourne, Florida................. 30 years
Radisson Inn Sanibel Gateway
Ft. Myers, Florida................. 30 years
Lake Norman Hampton Inn
Charlotte, North Carolina.......... 30 years
Lake Norman Holiday Inn
Charlotte, North Carolina.......... 30 years
Holiday Inn Crabtree
Raleigh, North Carolina............ 30 years
Melbourne Hilton Oceanfront
Melbourne, Florida................. 30 years
Daytona Beach Radisson Resort
Daytona, Florida................... 40 years
French Lick Springs Resort
French Lick, Indiana............... 40 years
Holiday Inn Minneapolis West
Minneapolis, Minnesota............. 30 years
Marriott's Hunt Valley Inn
Baltimore, Maryland................ 30 years
Hampton Inn San Diego Airport/Sea
World
San Diego, California.............. 30 years
DoubleTree Kansas City
Kansas City, Missouri.............. 30 years
Knoxville Hilton
Knoxville, Tennessee............... 30 years
High Point Radisson
High Point, North Carolina......... 30 years
Radisson Hotel Mt. Laurel
Mt. Laurel, New Jersey............. 30 years
</TABLE>
F-20
<PAGE>
BOYKIN LODGING COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998 -- CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
AMOUNTS
AT WHICH
COSTS CAPITALIZED CARRIED
AT CLOSE
INITIAL COST SUBSEQUENT TO ACQUISITION OF PERIOD
------------------------ -------------------------- ---------
BUILDINGS AND BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ------------------------------------- --------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pink Shell Beach Resort
Ft. Myers, Florida................. -- 6,000 13,445 -- 446 6,000
DoubleTree Sacramento
Sacramento, California............. --(a) 4,400 41,884 -- 187 4,400
DoubleTree Colorado Springs
Colorado Springs, Colorado......... --(a) 3,340 31,296 -- 51 3,340
DoubleTree Boise
Boise, Idaho....................... --(a) 2,470 23,998 -- 32 2,470
DoubleTree Omaha
Omaha, Nebraska.................... --(a) 1,100 19,690 -- 78 1,100
DoubleTree Springfield
Springfield, Oregon................ --(a) 2,160 6,050 -- 14 2,160
DoubleTree Portland Lloyd Center
Portland, Oregon................... --(a) 3,900 61,633 -- 8 3,900
DoubleTree Portland Downtown
Portland, Oregon................... --(a) 1,800 21,034 -- 155 1,800
DoubleTree Bellevue
Bellevue, Washington............... --(a) 2,400 13,730 -- 7 2,400
DoubleTree Spokane Valley
Spokane, Washington................ --(a) 1,630 6,693 -- 525 1,630
DoubleTree Yakima Valley
Yakima, Washington................. --(a) 1,140 6,188 -- 23 1,140
--------- ------------- ----- ------------- ---------
Total................................ $ 55,535 $ 481,655 $ 3 $ 30,510 $ 55,538
--------- ------------- ----- ------------- ---------
--------- ------------- ----- ------------- ---------
<CAPTION>
ACCUMULATED
DEPRECIATION NET BOOK VALUE
BUILDINGS AND BUILDINGS AND LAND AND BUILDING DATE OF
DESCRIPTION IMPROVEMENTS TOTAL(B)(C) IMPROVEMENTS(D) AND IMPROVEMENTS CONSTRUCTION
- ------------------------------------- ------------- ----------- ----------------- ------------------ -------------
<S> <C> <C>
Pink Shell Beach Resort
Ft. Myers, Florida................. 13,891 19,891 312 19,579 1989
DoubleTree Sacramento
Sacramento, California............. 42,071 46,471 1,027 45,444 1974
DoubleTree Colorado Springs
Colorado Springs, Colorado......... 31,347 34,687 788 33,899 1986
DoubleTree Boise
Boise, Idaho....................... 24,030 26,500 629 25,871 1968
DoubleTree Omaha
Omaha, Nebraska.................... 19,768 20,868 493 20,375 1970/81
DoubleTree Springfield
Springfield, Oregon................ 6,064 8,224 278 7,946 1973
DoubleTree Portland Lloyd Center
Portland, Oregon................... 61,641 65,541 1,481 64,060 1964/81
DoubleTree Portland Downtown
Portland, Oregon................... 21,189 22,989 552 22,437 1972
DoubleTree Bellevue
Bellevue, Washington............... 13,737 16,137 387 15,750 1981
DoubleTree Spokane Valley
Spokane, Washington................ 7,218 8,848 292 8,556 1969
DoubleTree Yakima Valley
Yakima, Washington................. 6,211 7,351 183 7,168 1968
------------- ----------- ------- --------
Total................................ $ 512,165 $ 567,703 $ 26,636 $ 541,067
------------- ----------- ------- --------
------------- ----------- ------- --------
<CAPTION>
LIFE ON WHICH
DEPRECIATION IN
DATE OF INCOME STATEMENT
DESCRIPTION ACQUISITION IS COMPLETED
- ------------------------------------- ------------- -----------------
Pink Shell Beach Resort
Ft. Myers, Florida................. 1998 30 years
DoubleTree Sacramento
Sacramento, California............. 1998 30 years
DoubleTree Colorado Springs
Colorado Springs, Colorado......... 1998 30 years
DoubleTree Boise
Boise, Idaho....................... 1998 30 years
DoubleTree Omaha
Omaha, Nebraska.................... 1998 30 years
DoubleTree Springfield
Springfield, Oregon................ 1998 30 years
DoubleTree Portland Lloyd Center
Portland, Oregon................... 1998 30 years
DoubleTree Portland Downtown
Portland, Oregon................... 1998 30 years
DoubleTree Bellevue
Bellevue, Washington............... 1998 30 years
DoubleTree Spokane Valley
Spokane, Washington................ 1998 30 years
DoubleTree Yakima Valley
Yakima, Washington................. 1998 30 years
Total................................
</TABLE>
- --------------------
(a) These hotels are collateral for the term note payable.
(b) Aggregate cost for federal income tax reporting purposes at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Land.......................................................................... $ 50,391
<S> <C>
Buildings and improvements.................................................... 502,329
---------
$ 552,720
---------
---------
</TABLE>
(c) Reconciliation of Gross Amounts of Land, Buildings and Improvements
<TABLE>
<CAPTION>
Balance as of December 31, 1997............................................... $ 207,663
<S> <C>
Acquisitions.................................................................. 332,817
Improvements and other additions.............................................. 27,223
---------
Balance as of December 31, 1998............................................... $ 567,703
---------
---------
</TABLE>
(d) Reconciliation of Accumulated Depreciation of Buildings and Improvements
<TABLE>
<CAPTION>
Balance at December 31, 1997.................................................. $ 5,396
<S> <C>
Depreciation expense.......................................................... 21,240
---------
Balance at December 31, 1998.................................................. $ 26,636
---------
---------
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Boykin Lodging Company:
We have audited the accompanying combined statements of operations,
partners' deficit and cash flows of the Initial Hotels, as defined in Note 1 to
the combined financial statements, for the period January 1, 1996 through
November 3, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
the Initial Hotels for the period January 1, 1996 through November 3, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 25, 1997.
F-22
<PAGE>
INITIAL HOTELS
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Revenues from hotel operations:
Room revenue..................................................................... $ 51,627
Food and beverage revenue........................................................ 20,062
Other revenue.................................................................... 4,148
---------
Total revenues................................................................. 75,837
---------
Expenses:
Departmental expenses --
Rooms.......................................................................... 11,683
Food and beverage.............................................................. 14,613
Other.......................................................................... 2,124
General and administrative....................................................... 6,574
Advertising and promotion........................................................ 3,027
Utilities........................................................................ 3,039
Management fees to related party................................................. 3,366
Franchisor royalties and other charges........................................... 4,081
Repairs and maintenance.......................................................... 3,468
Real estate and personal property taxes, insurance and rent...................... 3,228
Interest expense................................................................. 12,802
Interest expense on partner advances............................................. 628
Depreciation and amortization.................................................... 6,308
Unallocated business interruption insurance expense.............................. 118
Gain on property insurance recovery.............................................. (32)
Other............................................................................ 274
---------
Total expenses................................................................. 75,301
---------
Income before extraordinary item............................................... 536
Extraordinary loss on early extinguishment of debt................................. (1,315)
---------
Net loss........................................................................... $ (779)
---------
---------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined statement.
F-23
<PAGE>
INITIAL HOTELS
COMBINED STATEMENT OF PARTNERS' DEFICIT
FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
COMBINED
PARTNERS'
(DEFICIT)
----------
<S> <C>
BALANCE, DECEMBER 31, 1995............................................................................ $ (56,260)
Net loss............................................................................................ (779)
Capital contributions............................................................................... 1,638
Cash distributions.................................................................................. (2,029)
Net loss of Pacific Ohio Partners for the period October 1, 1995 to December 31, 1995 excluded from
these statements.................................................................................. (69)
----------
BALANCE, NOVEMBER 3, 1996............................................................................. $ (57,499)
----------
----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined statement.
F-24
<PAGE>
INITIAL HOTELS
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (779)
Adjustments to reconcile net loss to net cash provided by operating activities
--
Net loss of Pacific Ohio Partners for the period October 1, 1995 to December
31, 1995, excluded from the combined statement of operations................. (69)
Depreciation and amortization expense......................................... 8,897
Deferred interest expense on partner advances................................. 628
Extraordinary loss on early extinguishment of debt............................ 1,315
Payments for franchise fees and other deferred costs.......................... (156)
Changes in assets and liabilities --
Receivables................................................................. (1,824)
Inventories, prepaids and other assets...................................... (269)
Cash held in escrow......................................................... 237
Accounts payable, accrued expenses and other liabilities.................... 334
---------
Net cash provided by operating activities................................. 8,314
---------
Cash flows from investing activities:
Improvements and additions to hotel properties, net............................. (3,061)
Acquisitions of hotels.......................................................... (9,721)
Property insurance proceeds received, net....................................... 320
---------
Net cash used for investing activities.................................... (12,462)
---------
Cash flows from financing activities:
Principal payments on mortgage notes payable.................................... (43,417)
Proceeds from refinancing and new borrowings of mortgage debt................... 51,173
Payment of debt prepayment premium and debt issuance costs...................... (424)
Payments on advances from partners.............................................. (400)
Capital contributions........................................................... 1,638
Cash distributions paid......................................................... (2,029)
---------
Net cash provided by financing activities................................. 6,541
---------
Net change in cash and cash equivalents........................................... 2,393
Cash and cash equivalents at beginning of period.................................. 2,909
---------
Cash and cash equivalents at end of period........................................ $ 5,302
---------
---------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest...................................... $ 10,088
Supplemental schedule of noncash investing and financing activities:
Prepayment penalty financed with additional borrowing......................... $ 1,246
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined statement.
F-25
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF NOVEMBER 3, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
The Initial Hotels consist of the following hotels:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTY NAME LOCATION ROOMS
- ------------------------------------------------------- ------------------------- -------------
<S> <C> <C>
Berkeley Marina Marriott............................... Berkeley, California 373
Buffalo Marriott....................................... Buffalo, New York 356
Cleveland Airport Marriott............................. Cleveland, Ohio 375
Cleveland Marriott East................................ Beachwood, Ohio 403
Columbus Marriott North................................ Columbus, Ohio 300
Melbourne Quality Suites Inn........................... Melbourne, Florida 208
Radisson Inn Sanibel Gateway........................... Ft. Myers, Florida 157
Hampton Inn............................................ Charlotte, N. Carolina 117
Holiday Inn............................................ Charlotte, N. Carolina 119
</TABLE>
Boykin Management Company (former BMC) was involved in the development of
each of the above hotels except the Hampton Inn and Holiday Inn and has managed
all of the Initial Hotels excluding the Hampton Inn and Holiday Inn since their
respective inceptions. The hotels were owned by partnerships (Boykin
Partnerships) in which the shareholders of The Boykin Company (TBC), former
BMC's parent company, and certain officers and employees of former BMC
(collectively, BMC Affiliates) had significant direct and indirect ownership
interests.
As of November 3, 1996, the Initial Hotels were owned as follows:
<TABLE>
<CAPTION>
PARTNERSHIP INTEREST
--------------------------
<S> <C> <C>
BMC THIRD
AFFILIATES PARTY
------------- -----
Berkeley Marina Associates, L.P. (BMLP)..................................... 100% 0%
Buffalo Hotel Joint Venture (BHJV).......................................... 50% 50%
Pacific Ohio Partners (POP)................................................. 100% 0%
Beachwood Hotel Joint Venture (Beachwood)................................... 35% 65%
Columbus Hotel Joint Venture (CHJV)......................................... 50% 50%
Melbourne Oceanfront Hotel Associates (MOHA)................................ 100% 0%
Fort Myers Hotel Partnership (FMHP)......................................... 100% 0%
B.B.G., I, L.L.C. (BBG)..................................................... 46% 54%
</TABLE>
Boykin Lodging Company is an Ohio corporation which has been established to
acquire equity interests in hotel properties.
In November 1996, Boykin Lodging Company completed its initial public
offering (IPO) issuing a total of 9,516,250 common shares, including exercise of
the underwriters' over-allotment option. Boykin contributed all of the net
proceeds of the IPO to Boykin Hotel Properties, L.P., an Ohio limited
partnership (the Partnership) in exchange for an approximate 84.5% general
partnership interest and a
F-26
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
$40 million convertible note. Boykin is taxed as a real estate investment trust
pursuant to Sections 856 -- 860 of the Internal Revenue Code.
The partners of the Boykin Partnerships contributed their respective
partnership interests to the Partnership in exchange for cash and partnership
interests. The Partnership used a portion of the proceeds from the sale of the
general partnership interest and the note to Boykin to retire mortgage
indebtedness encumbering the Initial Hotels. All of the Initial Hotels are
leased to Boykin Management Company Limited Liability Company (BMC) pursuant to
operating leases which contain provisions for rent based on the revenues of the
Initial Hotels. BMC is an affiliate of TBC.
BASIS OF PRESENTATION
Management believes that these combined financial statements result in a
more meaningful presentation of the Initial Hotel businesses acquired by the
Partnership and thus appropriately reflect the results of operations of the
predecessor of Boykin Lodging Company. All significant intercompany transactions
have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING PERIODS
For the period ended November 3, 1996, POP's operating results were adjusted
to exclude the three-month period October 1, 1995 to December 31, 1995. The
total revenues and net loss of POP excluded from the combined statements of
operations for the period ended November 3, 1996 were $3,328 and $69,
respectively.
In the opinion of management, the effect of nonconforming period ends is not
material to the combined financial statements.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization on hotel properties is computed using
primarily the straight-line method based upon the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings and improvements........................ 7-40 years
Furniture and equipment........................... 3-20 years
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in the determination of net income or
loss.
INCOME TAXES
The Boykin Partnerships are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners must
take income or loss of the Boykin Partnerships into consideration when filing
their respective tax returns.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-27
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
EXTRAORDINARY ITEM
The refinancing and concurrent payment of a prepayment penalty on the
extinguishment of the BHJV note resulted in an extraordinary loss of $1,315 for
the period ended November 3, 1996.
3. ACQUISITION:
On February 8, 1996, BBG acquired the Holiday Inn and Hampton Inn from
Norman Associates and Norman Associates II in exchange for aggregate cash
consideration of $9,721. The acquisition was accounted for as a purchase and,
accordingly, the operating results of these hotels have been included in the
accompanying combined financial statements commencing February 8, 1996.
4. MORTGAGE NOTES PAYABLE:
The Initial Hotels had mortgage notes payable with interest rates ranging
from 8.54% to 13.25%. Certain of the notes required the payment of additional
interest upon maturity or repayment in full. The additional interest was charged
to interest expense utilizing the effective interest rate method over the
contractual term of the notes and was $1,383 for the period ended November 3,
1996. All of the mortgage notes payable were paid off with a portion of the
proceeds from the IPO.
5. RELATED PARTY TRANSACTIONS:
A substantial portion of the Initial Hotels' management and accounting
functions were performed by former BMC, for a fee computed as specified in each
hotel's management agreement. The base management fee is based on percentages of
hotel revenues of 3% or 3.5% except for the Holiday Inn and Hampton Inn for
which the fees were calculated as 5% of hotel revenues. In addition, if
specified operating results are achieved, an incentive fee was due to former
BMC. The management agreements with former BMC expired at various dates through
September 30, 2010.
BBG paid a 1% asset management fee to an affiliate of its third-party owner.
The Initial Hotels incurred interest expense totaling $628 for the period
ended November 3, 1996 related to advances and accrued interest on advances from
partners used to complete construction and to fund operations. Interest bore at
a rate of 10% per annum.
6. COMMITMENTS AND CONTINGENCIES:
CLAIMS AND LEGAL MATTERS
Some of the hotels are involved in claims and legal matters incidental to
their businesses. In the opinion of management, the ultimate resolution of these
matters will not have a material impact on the results of operations of the
hotels.
FRANCHISE AGREEMENTS
Under the terms of hotel franchise agreements, annual payments for franchise
royalties and reservation and advertising services are due from the hotels. For
eight of the hotels, fees are computed based upon percentages of gross room
revenues. The franchise agreements expire at various dates through 2014.
The franchise agreements contain provisions whereby the franchisor would be
entitled to additional payments in the event the franchisees would terminate the
franchise agreements prior to maturity.
F-28
<PAGE>
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
OTHER
The land on which the Berkeley Marina Marriott is located is leased under an
operating lease agreement expiring in 2033 which can be extended to 2051. The
lease requires minimum annual rentals of $100, and percentage rentals based on
hotel revenues. BMLP is responsible for all taxes, insurance and maintenance on
the property. Rental expense charged to operations for the land lease for the
period ended November 3, 1996 was as follows:
<TABLE>
<S> <C>
Minimum rent................................................. $ 93
Percentage rent.............................................. 535
---------
$ 628
---------
---------
</TABLE>
7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
Following pro forma data for the period ended November 3, 1996 assumes that
the acquisition of the Holiday Inn and the Hampton Inn occurred on January 1,
1996.
<TABLE>
<S> <C>
Total revenues............................................. $ 76,228
Loss before extraordinary items............................ (817)
Net loss................................................... (2,132)
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Boykin Management Company
Limited Liability Company:
We have audited the accompanying consolidated balance sheets of Boykin
Management Company Limited Liability Company (an Ohio limited liability company)
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations and comprehensive income, members' capital and cash
flows for the years then ended and the period November 4, 1996 (inception of
operations) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boykin Management Company
Limited Liability Company and subsidiaries as of December 31, 1998 and 1997 and
the results of their operations and their cash flows of the years then ended and
the period November 4, 1996 (inception of operations) through December 31, 1996
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 12, 1999.
F-30
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................... $ 12,973 $ 6,862
Accounts receivable:
Trade, net of allowance for doubtful accounts of $166 and $84 at December 31, 1998 and
1997, respectively...................................................................... 8,097 3,859
Related party lessors..................................................................... 2,971 1,069
Other..................................................................................... 178 --
Inventories................................................................................. 2,060 788
Property and equipment, net................................................................. 434 366
Investment in Boykin Lodging Company........................................................ 248 529
Prepaid expenses and other assets........................................................... 2,383 908
--------- ---------
$ 29,344 $ 14,381
--------- ---------
--------- ---------
LIABILITIES AND MEMBERS' CAPITAL
Rent payable to related party lessors....................................................... $ 4,748 $ 897
Accounts payable:
Trade..................................................................................... 3,114 1,746
Advance deposits and other................................................................ 774 261
Bank overdraft liability.................................................................. 4,806 2,837
Accrued expenses:
Accrued payroll........................................................................... 633 391
Accrued vacation.......................................................................... 2,250 893
Accrued sales, use and occupancy taxes.................................................... 1,856 646
Accrued management fee.................................................................... 4,044 --
Other accrued liabilities................................................................. 3,080 2,437
--------- ---------
Total liabilities......................................................................... 25,305 10,108
--------- ---------
MEMBERS' CAPITAL:
Capital contributed....................................................................... 3,000 3,000
Retained earnings......................................................................... 1,282 1,235
Accumulated other comprehensive income.................................................... (243) 38
--------- ---------
Total members' capital.................................................................... 4,039 4,273
--------- ---------
$ 29,344 $ 14,381
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-31
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIOD NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
YEARS ENDED DECEMBER NOVEMBER 4,
31, 1996 THROUGH
---------------------- DECEMBER 31,
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Room revenue............................................................. $ 148,643 $ 72,751 $ 7,684
Food and beverage revenue................................................ 71,925 30,229 3,976
Other hotel revenue...................................................... 15,085 7,568 620
Other revenue............................................................ 2,407 2,477 382
---------- ---------- ------------
Total revenues......................................................... 238,060 113,025 12,662
Expenses:
Departmental expenses of hotels:
Rooms.................................................................. 36,224 16,630 2,066
Food and beverage...................................................... 53,173 21,945 2,894
Other.................................................................. 8,364 3,867 360
Cost of goods sold of non-hotel operations............................... 427 619 102
Percentage lease expense................................................. 67,424 34,834 3,258
General and administrative............................................... 25,182 13,232 1,884
Advertising and promotion................................................ 11,414 4,906 609
Utilities................................................................ 10,532 4,550 558
Franchisor royalties and other charges................................... 7,465 5,423 665
Repairs and maintenance.................................................. 8,926 5,163 674
Depreciation and amortization............................................ 129 82 19
Management fee........................................................... 8,620 -- --
Other.................................................................... 133 93 19
---------- ---------- ------------
Total expenses......................................................... 238,013 111,344 13,108
---------- ---------- ------------
Net income (loss).......................................................... $ 47 $ 1,681 $ (446)
---------- ---------- ------------
---------- ---------- ------------
Comprehensive income (loss)................................................ $ (234) $ 1,719 $ (446)
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-32
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIOD NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
CONTRIBUTED EARNINGS COMPREHENSIVE COMPREHENSIVE
CAPITAL (DEFICIT) INCOME INCOME
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Initial capital contribution--
November 4, 1996....................................... $ 3,000 $ -- $ -- $ --
Net loss............................................. -- (446) -- (446)
----------- ----------- ----- ------
Balance at December 31, 1996............................. 3,000 (446) -- (446)
Net income........................................... -- 1,681 -- 1,681
Unrealized appreciation on investment................ -- -- 38 38
----------- ----------- ----- ------
Balance at December 31, 1997............................. 3,000 1,235 38 1,719
Net income........................................... -- 47 -- 47
Unrealized depreciation on investment................ -- -- (281) (281)
----------- ----------- ----- ------
Balance at December 31, 1998............................. $ 3,000 $ 1,282 $ (243) $ (234)
----------- ----------- ----- ------
----------- ----------- ----- ------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-33
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIOD NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
YEARS ENDED DECEMBER NOVEMBER 4,
31, 1996 THROUGH
-------------------- DECEMBER 31,
1998 1997 1996
--------- --------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ 47 $ 1,681 $ (446)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization.............................................. 129 82 19
Loss (gain) on fixed asset disposal........................................ 56 -- (11)
Changes in assets and liabilities:
Accounts receivable...................................................... (6,318) (1,314) 3,231
Inventories.............................................................. (1,272) (318) (12)
Prepaid expenses and other assets........................................ (1,475) (321) 531
Rent payable............................................................. 3,851 591 306
Accounts payable......................................................... 3,850 1,544 952
Other accrued liabilities................................................ 7,496 379 (5,210)
--------- --------- ------
Net cash provided by (used for) operating activities................... 6,364 2,324 (640)
--------- --------- ------
Cash flows from investing activities:
Property additions, net...................................................... (253) (136) (1)
Investment in Boykin Lodging Company......................................... -- (491) --
Collection of notes and accrued interest due from former owner............... -- -- 3,109
Cash of predecessor entities at date of merger............................... -- -- 7,678
Consideration from sale of fixed asset....................................... -- -- 36
--------- --------- ------
Net cash (used for) provided by investing activities................... (253) (627) 10,822
--------- --------- ------
Cash flows from financing activities:
Payments of obligations to former owners..................................... -- (373) (3,529)
Repayment of debt............................................................ -- -- (1,420)
Collections of amounts due from former owners................................ -- 69 236
--------- --------- ------
Net cash used for financing activities................................. -- (304) (4,713)
--------- --------- ------
Net increase in cash and cash equivalents...................................... 6,111 1,393 5,469
Cash and cash equivalents, beginning of period................................. 6,862 5,469 --
--------- --------- ------
Cash and cash equivalents, end of period....................................... $ 12,973 $ 6,862 $ 5,469
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-34
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS:
Boykin Management Company Limited Liability Company and its subsidiaries
(collectively, "BMC")
- lease and operate full and limited service hotels located throughout the
United States pursuant to long-term percentage leases;
- manage full and limited service hotels located throughout the United
States pursuant to management agreements;
- provide national purchasing services to hotels; and
- provide interior design services to hotels and other businesses.
2. ORGANIZATION:
BMC commenced operations on November 4, 1996 as an Ohio limited liability
company. BMC is indirectly owned by Robert W. Boykin (53.8%) and John E. Boykin
(46.2%). Robert W. Boykin is the Chairman, President and Chief Executive Officer
of Boykin Lodging Company.
Pursuant to formation transactions related to the November 4, 1996 initial
public offering of Boykin Lodging, Boykin Management Company ("former BMC") and
BOPA Design Company (doing business as Spectrum Services), wholly owned
subsidiaries of The Boykin Company ("TBC"), were merged into subsidiaries of
BMC. In addition, Purchasing Concepts, Inc. ("PCI") contributed its assets to a
subsidiary of BMC and that subsidiary assumed PCI's liabilities. TBC and PCI are
related through common ownership. BMC and its subsidiaries are the successors to
the businesses of former BMC, Spectrum Services and PCI. As BMC, former BMC,
Spectrum Services and PCI were related through common ownership, there were no
purchase accounting adjustments to the historical carrying values of the assets
and liabilities of former BMC, Spectrum Services and PCI upon merger into or
contribution to the subsidiaries of BMC.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The separate financial statements of BMC's subsidiaries have been published
on a consolidated basis with BMC. All material intercompany transactions and
balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and in banks plus
short-term investments with an original maturity of three months or less.
INVENTORIES
Inventories consisting primarily of food and beverages and gift store
merchandise are stated at the lower of first-in, first-out cost or market.
F-35
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- -------------
<S> <C> <C>
Leasehold improvements........................................... $ -- $ 115
Furniture and equipment.......................................... 507 352
----- -----
507 467
Less -- Accumulated depreciation and amortization................ (73) (101)
----- -----
$ 434 $ 366
----- -----
----- -----
</TABLE>
Property and equipment is stated at cost. Depreciation and amortization is
calculated using the straight-line and accelerated methods based upon the
following estimated useful lives.
<TABLE>
<S> <C>
Leasehold improvements............................ 7-10 years
Furniture and equipment........................... 3-10 years
</TABLE>
The management of BMC reviews the property and equipment for impairment when
events or changes in circumstances indicate the carrying amounts of the assets
may not be recoverable. When such conditions exist, management estimates the
future cash flows from operations and disposition of the property and equipment.
If the estimated undiscounted future cash flows are less than the carrying
amount of the asset, an adjustment to reduce the carrying amount to the related
assets estimated fair market value would be recorded and an impairment loss
would be recognized.
Maintenance and repairs are charged to operations as incurred. Upon the sale
or disposition of a fixed asset, the asset and related accumulated depreciation
are removed from the accounts and the gain or loss is included in the
determination of net income or loss.
INVESTMENT IN BOYKIN LODGING COMPANY
During 1997, BMC purchased 20,000 common shares of Boykin Lodging Company
for cash consideration of $491. BMC accounts for this investment in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investment in Debt and Equity Securities". The investment is classified
as available-for-sale pursuant to the provisions of SFAS No. 115.
COMPREHENSIVE INCOME
Effective January 1, 1998, BMC adopted SFAS No. 130 "Reporting Comprehensive
Income," which requires disclosure of comprehensive income and its components in
a full set of general-purpose financial statements. Comprehensive income is
defined as changes in shareholders' equity from nonowner sources which for BMC
consist of differences between the cost basis and fair market value of its
investment in 20,000 common shares in Boykin Lodging. For the years ended
December 31, 1998, and 1997 there was a difference of $281, and $(38)
respectively between net income and comprehensive income due to the decline
(increase) in market value of the investment.
F-36
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed
and historical credit losses have been within management's expectations.
For hotels operated by BMC pursuant to long-term percentage leases, BMC
recognizes the room, food, beverage and other hotel revenues as earned. For
hotels which are managed by a subsidiary of BMC pursuant to management
agreements, BMC recognizes management fee revenue as earned pursuant to the
terms of the respective agreements.
PERCENTAGE LEASE EXPENSE
For both annual and interim reporting purposes, BMC recognizes percentage
lease expense pursuant to the provisions of the related percentage lease
agreements.
FRANCHISE COSTS
The cost of obtaining the franchise licenses is paid by Boykin Hotel
Properties, L.P. (the Partnership), a partnership in which Boykin Lodging
Company has a general partnership interest, and the ongoing franchise fees are
paid by BMC. These fees are generally computed as a percentage of room revenue
for each hotel in accordance with franchise agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires all entities to disclose the fair value of certain
financial instruments in their financial statements. The primary financial
instruments of BMC are cash and cash equivalents, the fair value of which
approximates historical carrying value due to the short maturity of these
instruments, and the investment in the common shares of the Boykin Lodging
Company, which are carried at the year end market value as discussed above.
INCOME TAXES
BMC is a limited liability company which is taxed for federal income tax
purposes as a partnership and, accordingly, no income tax provision has been
recorded.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. PERCENTAGE LEASE AGREEMENTS:
BMC LEASES ON 15 HOTELS
BMC leases 15 hotels (the BMC Hotels) from the Partnership pursuant to
long-term percentage leases. The BMC Hotels are located in Cleveland, Ohio (2);
Columbus, Ohio; Buffalo, New York; Berkeley, California; Raleigh, North
Carolina; Charlotte, North Carolina (2); High Point, North Carolina; Knoxville,
Tennessee; Ft. Myers, Florida; Melbourne, Florida (2); Daytona Beach, Florida;
and French Lick, Indiana.
F-37
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The percentage leases have noncancellable remaining terms ranging from two
to nine years, subject to earlier termination on the occurrence of certain
contingencies, as defined. BMC is required to pay the higher of minimum rent, as
defined, or percentage rent. Percentage rent applicable to room and other hotel
revenue varies by lease and is calculated by multiplying fixed percentages by
the total amounts of such revenues over specified threshold amounts. Percentage
rent related to food and beverage revenues and other revenues, in some cases, is
based on fixed percentages of such revenues. Both the threshold amounts used in
computing percentage rent and minimum rent on room and other hotel revenues are
subject to adjustments as of January 1 of each year based on increases in the
United States Consumer Price Index.
Other than real estate and personal property taxes, casualty insurance,
ground lease rental, and capital improvements, which are obligations of the
Partnership, the percentage leases require BMC to pay all costs and expenses
incurred in the operation of the BMC Hotels.
The percentage leases require BMC to indemnify Boykin Lodging Company
against all liabilities, costs and expenses incurred by, imposed on or asserted
against the Partnership in the normal course of operating the BMC Hotels.
WESTBOY LEASE ON TEN DOUBLETREE HOTELS:
Effective January 1, 1998, Westboy, LLC (Westboy), a wholly-owned subsidiary
of BMC, entered into a long term lease agreement with Red Lion Inns Operating
L.P. (OLP) with terms similar to those described above. OLP was acquired by the
Boykin Lodging Company on May 22, 1998. The ten DoubleTree-licensed hotels (the
"DoubleTree Hotels") leased by Westboy are located in California, Oregon (3),
Washington (3), Colorado, Idaho and Nebraska. The hotels are managed by a
subsidiary of Promus Hotel Corporation. BMC made an initial capital contribution
to Westboy of $1,000, of which $900 was funded with a demand promissory note.
Assets of Westboy are not available to pay the creditors of any other entity,
except to the extent of permitted cash distributions from Westboy to BMC.
Similarly, except to the extent of the unpaid promissory note, the assets of BMC
are not available to pay the creditors of Westboy.
Future minimum rent (ignoring CPI increases) to be paid by BMC and Westboy
under their respective percentage lease agreements at December 31, 1998 for each
of the years in the period 1999 to 2003 and in total thereafter is as follows:
<TABLE>
<S> <C>
1999...................................................... $ 49,261
2000...................................................... 49,261
2001...................................................... 42,960
2002...................................................... 36,055
2003...................................................... 11,439
Thereafter................................................ 26,409
---------
$ 215,385
</TABLE>
5. RELATED PARTY TRANSACTIONS:
Percentage lease expense payable to the Partnership (including OLP in 1998)
was $56,708, $34,834 and $3,258 in 1998, 1997 and 1996, respectively.
F-38
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 1998 and 1997, BMC (including Westboy) had receivables from
the Partnership (including OLP) of $2,971 and $1,069, respectively, primarily
for the reimbursement of capital expenditure costs incurred on behalf of the
Partnership and OLP.
At December 31, 1998 and December 31, 1997, BMC (including Westboy) had
payables to the Partnership (including OLP) of $4,748 and $897, respectively,
for amounts due pursuant to the percentage leases.
6. COMMITMENTS AND CONTINGENCIES:
CLAIMS AND LEGAL MATTERS
BMC is involved in claims and legal matters incidental to its businesses. In
the opinion of management, the ultimate resolution of these matters will not
have a material impact on the financial position or results of operations of
BMC.
FRANCHISE AGREEMENTS
Under the terms of the hotel franchise agreements, annual payments for
franchise royalties and reservation and advertising services are due from the
hotels. Franchise fees are computed based upon percentages of gross room
revenues. At December 31, 1998, the franchise royalty fees payable ranged from
3% to 6% of room revenues while the fees for advertising services ranged from
.8% to 4.0%. The franchise agreements expire at various dates through 2018. The
hotel located in French Lick, Indiana has no franchise affiliation.
MANAGEMENT AGREEMENT
On January 1, 1998 Westboy entered into a management agreement with Promus
hotels (formerly Red Lion Hotels, Inc.) The agreement calls for a base and
incentive management fee. The base management fee represents 3% of annual gross
hotel revenues. The incentive menagement fee adjusts based on certain financial
thresholds. Total fees paid to Promus in 1998 were $8,620.
OTHER
Robert W. Boykin and John E. Boykin have entered in an agreement with the
Boykin Lodging Company pursuant to which they have agreed that any distributions
received from BMC (in excess of their tax liabilities with respect to the income
of BMC) for a period of 10 years, and any net cash proceeds from any sale of BMC
within the same 10-year period, will be used to purchase units in the
Partnership or common shares of Boykin Lodging Company. Any units or common
shares so purchased must be held for at least two years from the purchase date.
Pursuant to an agreement with Boykin Lodging Company, during the first 10
years after the inception of operations of BMC, 50% of BMC's consolidated
earnings (after distributions to cover income taxes) will be retained in BMC
until its consolidated net worth reaches 25% of the aggregate annual rent
payments due under the percentage lease agreements (and will be retained
thereafter during that period to maintain that level).
F-39
<PAGE>
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. EMPLOYEE BENEFITS PLANS:
During 1997, BMC established a 401(k) plan for substantially all employees
under which a portion of employee contributions are matched by BMC. BMC matching
contributions for 1998 and 1997 were $104 and $91, respectively.
Effective January 1, 1997, BMC established an incentive compensation plan
for certain senior executives. The dollar amounts of individual awards are
deemed to be invested in common shares of Boykin Lodging Company. BMC pays to
each participant cash equal to the per share dividend amount paid by Boykin
Lodging Company multiplied by the number of Boykin's shares credited to each
participant's account. For the year ended December 31, 1998 and 1997, BMC has
recorded a provision of $1 and $199 respectively with respect to this plan,
which represents the amortization over the vesting period of the prepaid
compensation associated with the awards.
8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The following unaudited pro forma condensed statements of operations for the
years ended December 31, 1998 and 1997 are presented as if BMC (including
Westboy) leased and operated from January 1, 1997 all the BMC Hotels and the
DoubleTree Hotels leased and/or operated as of December 31, 1998.
The pro forma condensed statements of operations do not purport to present
what actual results of operations would have been if the BMC Hotels and the
DoubleTree Hotels were leased and/or operated by BMC (including Westboy)
pursuant to the percentage leases from January 1, 1997 or to project results for
any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Revenues:
Room revenue........................................................ $ 150,169 $ 149,677
Food and beverage revenue........................................... 72,501 72,669
Other hotel revenue................................................. 15,245 14,842
Other revenue....................................................... 2,407 2,477
---------- ----------
Total revenue..................................................... 240,322 239,665
Expenses:
Departmental expenses of hotels..................................... 171,782 169,077
Cost of goods sold of non-hotel operations.......................... 427 619
Percentage lease expense............................................ 68,078 69,630
---------- ----------
Net income............................................................ $ 35 $ 339
---------- ----------
---------- ----------
</TABLE>
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Boykin Management Company, Purchasing Concepts, Inc.
and Bopa Design Company:
We have audited the accompanying combined statement of revenues and expenses
of Boykin Management Company (an Ohio corporation), Purchasing Concepts, Inc.
(an Ohio corporation) and Bopa Design Company (an Ohio corporation) for the
period January 1, 1996 through November 3, 1996. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements have been prepared to present the
combined revenues and expenses of Boykin Management Company, Purchasing
Concepts, Inc. and Bopa Design Company which were merged into or contributed to
subsidiaries of Boykin Management Company Limited Liability Company pursuant to
the formation transactions referred to in Note 2. These financial statements are
not intended to be a complete presentation of the combined revenues and expenses
of Boykin Management Company, Purchasing Concepts, Inc. and Bopa Design Company.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined revenues and expenses of Boykin
Management Company, Purchasing Concepts, Inc. and Bopa Design Company for the
period January 1, 1996 through November 3, 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 25, 1997.
F-41
<PAGE>
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
COMBINED STATEMENT OF REVENUES AND EXPENSES
FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Revenues:
Management fees --
Affiliates...................................................................... $ 3,402
Other........................................................................... 731
Design and other fees --
Affiliates...................................................................... 1,646
Other........................................................................... 1,435
Interest income from affiliates................................................... 225
Other............................................................................. 203
---------
Total revenues.............................................................. 7,642
---------
Expenses:
Cost of sales and operating expenses.............................................. 3,003
Selling, general and administrative expenses...................................... 2,943
Depreciation and amortization expense............................................. 81
Rent.............................................................................. 100
Interest.......................................................................... 91
Other, net........................................................................ (38)
---------
Total expenses.............................................................. 6,180
---------
Revenues in excess of expenses...................................................... $ 1,462
---------
---------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined statement.
F-42
<PAGE>
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
AS OF NOVEMBER 3, 1996
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. DESCRIPTION OF BUSINESSES:
Boykin Management Company (former BMC), a wholly owned subsidiary of The
Boykin Company (TBC), and certain of its subsidiaries managed and operated full
and limited service hotels located throughout the United States pursuant to
management agreements. See Note 4 for further discussion of the management
agreements. Purchasing Concepts, Inc. (PCI), related to TBC through common
ownership, provided national purchasing services to hotels and restaurants. Bopa
Design Company (doing business as Spectrum Services), a wholly owned subsidiary
of TBC since January 1, 1996, provided interior design services to hotels and
other businesses. Certain of the hotels managed by former BMC and served by PCI
and Spectrum Services were related to former BMC, PCI and Spectrum Services
through common ownership.
2. BASIS OF PRESENTATION:
Pursuant to formation transactions related to the November 4, 1996 initial
public offering of Boykin Lodging Company, former BMC and Spectrum Services
merged into subsidiaries of Boykin Management Company Limited Liability Company
(BMC), a newly formed Ohio Limited Liability Company. Prior to such mergers,
former BMC and Spectrum Services transferred certain assets and liabilities to
TBC pursuant to an Assignment and Assumption Agreement. In addition, PCI
contributed its assets to a subsidiary of BMC and that subsidiary assumed PCI's
liabilities.
BMC and its subsidiaries are the successors to the businesses of former BMC,
PCI and Spectrum Services. BMC is the lessee of nine hotels formerly affiliated
with TBC which were acquired by Boykin Hotel Properties, L.P., a partnership in
which Boykin Lodging Company is the general partner. The hotels are leased
pursuant to long-term leases which provide for the payment of rents based on
percentages of hotel revenues.
The accompanying financial statements present on a historical combined basis
the revenues and expenses of former BMC, PCI and Spectrum Services that
ultimately were merged into BMC and its subsidiaries. Items of revenues and
expenses related to assets and liabilities of former BMC, PCI and Spectrum
Services which were not merged into or contributed to BMC and its subsidiaries
and have been excluded from the accompanying financial statements. Accordingly,
the accompanying financial statements are not intended to be a complete
presentation of the revenues and expenses of former BMC, PCI and Spectrum
Services (collectively, the Combined Entities).
3. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared on the accrual
basis of accounting. All significant intercompany balances and transactions have
been eliminated.
ACCOUNTING PERIODS
Former BMC had a March 31 fiscal year-end, whereas PCI and Spectrum Services
utilized calendar year-ends. The accompanying financial statements for the
period January 1, 1996 through November 3, 1996 combine the accounts of former
BMC, PCI and Spectrum Services for the period January 1, 1996 through November
3, 1996. For the period ended November 3, 1996, the operating results of former
BMC have been adjusted to include the three-month period January 1, 1996 through
March 31, 1996. The total
F-43
<PAGE>
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
AS OF NOVEMBER 3, 1996
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
revenues and revenues in excess of expenses of former BMC included in the
combined statements of revenues and expenses for the period January 1, 1996
through November 3, 1996 were $208, respectively.
INCOME TAXES
Income tax attributes of the Combined Entities were not assumed by BMC or
its subsidiaries. As such, the accompanying combined statement of revenues and
expenses do not reflect any federal income tax provisions as BMC and its
subsidiaries were formed as pass-through entities for tax purposes.
The taxable income of former BMC was included in the consolidated federal
income tax return of its parent company, TBC. PCI and Spectrum Services (prior
to January 1, 1996) were S Corporations for federal income tax reporting
purposes.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense is computed using the straight-line
and declining balance methods based upon the following estimated useful lives:
<TABLE>
<S> <C>
7-10
Leasehold improvements........................... years
3-10
Furniture and equipment.......................... years
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts and the gain or loss is included in the statement of revenues and
expenses.
REVENUE RECOGNITION
Revenue is recognized as earned pursuant to the terms of hotel management
agreements with respect to fomer BMC, and as the services of PCI and Spectrum
Services are rendered.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. REVENUES:
Former BMC has management agreements with several entities to manage the
operations of hotels and restaurants. Generally, former BMC receives a fee based
upon percentages of revenues. In certain management contracts, former BMC is
entitled to additional incentive fees in the event the managed property achieves
specified operating results. Certain contracts also include limitations on
management fees, or restrict payment of earned fees to former BMC based upon the
defined cash flow of the related property. PCI provides national purchasing
services to hotels and restaurants and Spectrum Services provides interior
design services to hotels and other businesses.
F-44
<PAGE>
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY
AS OF NOVEMBER 3, 1996
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
Revenues from affiliates in the accompanying combined statement of revenues
and expenses represent revenues earned by the Combined Entities on goods or
services provided to various hotel properties in which the respective owners of
the Combined Entities or their affiliates had direct or indirect ownership
interests.
Other revenues consisted primarily of telephone commissions.
5. COMMITMENTS AND CONTINGENCIES:
In October 1992, BMC entered into a five-year lease agreement for office
space. The lease provides for two, three-year renewal options. The annual rent
is $126. As an incentive to enter into the lease, BMC received a $70 payment
from the lessor which is being recognized as a reduction of rent expense on a
straight-line basis over the five-year lease term.
The Combined Entities are involved in claims and legal matters incidental to
their businesses. In the opinion of management of the Combined Entities, the
ultimate resolution of these matters will not have a material impact on the
results of operations of the Combined Entities.
6. RELATED PARTY TRANSACTIONS:
The shareholders of TBC, certain of their family members and certain
officers of former BMC are material partners in Boykin Columbus Joint Venture
(BCJV). Former BMC advanced funds to BCJV in connection with the construction of
a hotel in Columbus, Ohio and to fund operating deficits of that hotel. The
loans receivable from BCJV accrued interest at 10% per annum. Interest income
earned on the loans to BCJV was $223 in the period January 1, 1996 through
November 3, 1996. The loans and interest receivable from BCJV were paid off in
connection with the initial public offering of Boykin Lodging Company.
F-45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) See page F-1 for an index to financial statements.
<TABLE>
<CAPTION>
EXHIBITS
- ------------
<C> <S>
2.1 **** Agreement and Plan of Merger dated as of
December 30, 1997 by and among Red Lion Inns
Limited Partnership, Red Lion Properties,
Inc., Red Lion Inns Operating L.P. Boykin
Hotel Properties, L.P., Boykin Lodging
Company, Boykin Acquisition Corporation I,
Inc., Boykin Acquisition Corporation II,
Inc., and Boykin Acquisition Partnership,
L.P.
3.1 Amended and Restated Articles of
Incorporation, as amended
3.2 * Code of Regulations
4.1 * Specimen Share Certificate
10.1 * Limited Partnership Agreement of Boykin Hotel
Properties, L.P.
10.2 * Form of Registration Rights Agreement
10.3 * Long-Term Incentive Plan
10.4 * Directors' Deferred Compensation Plan
10.5 * Employment Agreement between the Company and
Robert W. Boykin
10.7 * Employment Agreement between the Company and
Mark L. Bishop
10.8 * Form of Percentage Lease
10.9 * Intercompany Convertible Note
10.10* Agreements with General Partners of the
Contributed Partnerships
10.11* Form of Noncompetition Agreement
10.12* Alignment of Interests Agreement
10.13** Description of Employment Arrangement between
the Company and Paul A. O'Neil
10.14*** Description of Employment Arrangement between
the Company and Richard C. Conti
21 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
27 Financial Data Schedule
99.1 **** Partnership Interest Assignment Agreement
dated as of December 30, 1997 by and among
Red Lion Properties, Inc., Boykin Hotel
Properties, L.P., Boykin Lodging Company and
West Doughboy LLC.
99.2 **** Percentage Lease Agreement dated as of
December 30, 1997 by and between Red Lion
Inns Operating L.P. and Westboy LLC
99.3 **** Termination of Management Agreement dated as
of December 30, 1997 by and between Red Lion
Inns Operating L.P. and Red Lion Hotels, Inc.
99.4 **** Management Agreement dated as of December 30,
1997 by and between Red Lion Hotels, Inc. and
Westboy LLC.
99.5 **** Owner Agreement dated as of December 30, 1997
by and among Red Lion Inns Operating L.P.,
Westboy LLC and Red Lion Hotels, Inc.
99.6 **** Joint Press Release of Red Lion Inns Limited
Partnership and Boykin Lodging Company dated
as of December 30, 1997.
</TABLE>
- ------------
* Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form
S-11") filed on October 24, 1996. Each of the above exhibits has the same
exhibit number in the Form S-11.
** Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1997.
*** Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1998.
**** Incorporated by reference from the Company's Form 8-K filing on January 8,
1998 related to the merger with Red Lion Inns Limited Partnership.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
March 31, 1999 BOYKIN LODGING COMPANY
By: /s/ ROBERT W. BOYKIN
-----------------------------------
Robert W. Boykin
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
March 31, 1999 /s/ ROBERT W. BOYKIN
------------------------------------------
Robert W. Boykin
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
March 31, 1999 /s/ PAUL A. O'NEIL
------------------------------------------
Paul A. O'Neil
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
March 31, 1999 /s/ IVAN J. WINFIELD
------------------------------------------
Ivan J. Winfield
Director
March 31, 1999 /s/ LEE C. HOWLEY, JR.
------------------------------------------
Lee C. Howley, Jr.
Director
March 31, 1999 /s/ FRANK E. MOSIER
------------------------------------------
Frank E. Mosier
Director
March 31, 1999 /s/ WILLIAM H. SCHECTER
------------------------------------------
William H. Schecter
Director
March 31, 1999 /s/ ALBERT T. ADAMS
------------------------------------------
Albert T. Adams
Director
March 31, 1999 /s/ RAYMOND P. HEITLAND
------------------------------------------
Raymond P. Heitland
Director
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C>
2.1**** Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited
Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P. Boykin Hotel Properties,
L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition
Corporation II, Inc., and Boykin Acquisition Partnership, L.P.
3.1 Amended and Restated Articles of Incorporation, as amended
3.2* Code of Regulations
4.1* Specimen Share Certificate
10.1* Limited Partnership Agreement of Boykin Hotel Properties, L.P.
10.2* Form of Registration Rights Agreement
10.3* Long-Term Incentive Plan
10.4* Directors' Deferred Compensation Plan
10.5* Employment Agreement between the Company and Robert W. Boykin
10.7* Employment Agreement between the Company and Mark L. Bishop
10.8* Form of Percentage Lease
10.9* Intercompany Convertible Note
10.10* Agreements with General Partners of the Contributed Partnerships
10.11* Form of Noncompetition Agreement
10.12* Alignment of Interests Agreement
10.13** Description of Employment Arrangement between the Company and Paul A. O'Neil
10.14*** Description of Employment Arrangement between the Company and Richard C. Conti
21 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
27 Financial Data Schedule
99.1**** Partnership Interest Assignment Agreement dated as of December 30, 1997 by and among Red Lion
Properties, Inc., Boykin Hotel Properties, L.P., Boykin Lodging Company and West Doughboy LLC.
99.2**** Percentage Lease Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating
L.P. and Westboy LLC
99.3**** Termination of Management Agreement dated as of December 30, 1997 by and between Red Lion Inns
Operating L.P. and Red Lion Hotels, Inc.
99.4**** Management Agreement dated as of December 30, 1997 by and between Red Lion Hotels, Inc. and
Westboy LLC.
99.5**** Owner Agreement dated as of December 30, 1997 by and among Red Lion Inns Operating L.P., Westboy
LLC and Red Lion Hotels, Inc.
99.6**** Joint Press Release of Red Lion Inns Limited Partnership and Boykin Lodging Company dated as of
December 30, 1997.
</TABLE>
- ------------
* Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form
S-11") filed on October 24, 1996. Each of the above exhibits has the same
exhibit number in the Form S-11.
** Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1997.
*** Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1998.
**** Incorporated by reference from the Company's Form 8-K filing on January 8,
1998 related to the merger with Red Lion Inns Limited Partnership.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BOYKIN LODGING COMPANY
FIRST: The name of the corporation shall be Boykin Lodging Company (the
"Corporation").
SECOND: The place in the State of Ohio where the principal office of
the Corporation is located is Cleveland, Cuyahoga County.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to
1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The authorized number of shares of the Corporation is
50,000,000, consisting of 40,000,000 Common Shares, without par value
(hereinafter called "Common Shares"), 5,000,000 Class A Cumulative Preferred
Shares, without par value (hereinafter called "Cumulative Preferred Shares"),
and 5,000,000 Class A Noncumulative Preferred Shares, without par value
(hereinafter called "Noncumulative Preferred Shares").
DIVISION A: PREFERRED SHARES
I. THE CLASS A CUMULATIVE PREFERRED SHARES. The Cumulative Preferred
Shares shall have the following express terms:
Section 1. SERIES. The Cumulative Preferred Shares may be issued
from time to time in one or more series. All Cumulative Preferred Shares
shall be of equal rank and shall be identical, except in respect of the
matters that may be fixed by the Board of Directors as hereinafter provided,
and each share of a series shall be identical with all other shares of such
series, except as to the dates from which dividends shall accrue and be
cumulative. All Cumulative Preferred Shares shall rank on a parity with the
Noncumulative Preferred Shares and shall be identical to all Noncumulative
Preferred Shares except (1) in respect of the matters that may be fixed by
the Board of Directors as provided in clauses (a) through (i), inclusive, of
this Section 1 and (2) only dividends on Cumulative Preferred Shares shall be
cumulative as set forth herein. Subject to the provisions of Sections 2
through 5, both inclusive, and of Items III and IV of this Division, which
provisions shall apply to all Cumulative Preferred Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or
more series and with respect to each such series to determine and fix prior
to the issuance thereof (and thereafter, to the extent provided in clause (b)
of this Section) the following:
(a) The designation of the series, which may be by distinguishing
number, letter or title;
(b) The authorized number of shares of the series, which number
the Board of Directors may (except when otherwise provided in the creation of
the series) increase or decrease from time to time before or after the
issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including the means
by which such rates may be established;
(d) The date or dates from which dividends shall accrue and be
cumulative and the dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which such
dates and periods may be established;
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(e) The redemption rights and price or prices, if any, for shares
of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth elsewhere in
these Amended and Restated Articles of Incorporation) on the issuance of
shares of the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time amendments to
the Amended and Restated Articles of Incorporation, as amended, fixing, with
respect to each such series, the matters described in clauses (a) through
(i), both inclusive, of this Section and is authorized to take such actions
with respect thereto as may be required by law in order to effect such
amendments.
Section 2. DIVIDENDS.
(a) The holders of Cumulative Preferred Shares of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Cumulative Preferred Shares, shall be entitled to
receive out of any funds legally available therefor, when and as declared by
the Board of Directors, dividends in cash at the rate or rates for such
series fixed in accordance with the provisions of Section 1 above and no
more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series,
from and after the date or dates fixed with respect to such series. Any
dividend payment made on the Cumulative Preferred Shares shall first be
credited against the earliest accrued but unpaid dividends on such Cumulative
Preferred Shares. No dividends shall be paid upon or declared or set apart
for any series of the Cumulative Preferred Shares for any dividend period
unless at the same time (i) a like proportionate dividend for the dividend
periods terminating on the same or any earlier date, ratably in proportion to
the respective annual dividend rates fixed therefor, shall have been paid
upon or declared or set apart for all Cumulative Preferred Shares of all
series then issued and outstanding and entitled to receive such dividend and
(ii) the dividends payable for the dividend periods terminating on the same
or any earlier date (but only with respect to the then current dividend
period), ratably in proportion to the respective dividend rates fixed
therefor, shall have been paid upon or declared or set apart for all
Noncumulative Preferred Shares then issued and outstanding and entitled to
receive such dividends.
(b) So long as any Cumulative Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common Shares or other
shares ranking junior to the Cumulative Preferred Shares, shall be paid or
declared or any distribution be made, except as aforesaid, in respect of the
Common Shares or any other shares ranking junior to the Cumulative Preferred
Shares, nor shall any Common Shares or any other shares ranking junior to the
Cumulative Preferred Shares be purchased, retired or otherwise acquired by
the Corporation, except out of the proceeds of the sale of Common Shares or
other shares of the Corporation ranking junior to the Cumulative Preferred
Shares received by the Corporation subsequent to the date of first issuance
of Cumulative Preferred Shares of any series, unless:
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(1) All accrued and unpaid dividends on Cumulative Preferred
Shares, including the full dividends for all current dividend periods, shall
have been declared and paid or a sum sufficient for payment thereof set
apart;
(2) All unpaid dividends on Noncumulative Preferred Shares
for the then current dividend period shall have been declared and paid or a
sum sufficient for payment therefor set apart; and
(3) There shall be no arrearages with respect to the
redemption of Cumulative Preferred Shares or Noncumulative Preferred Shares
of any series from any sinking fund provided for shares of such series in
accordance with Section 1 of this Division A.I or Section 1 of Division A.II.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption, retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Cumulative Preferred Shares shall be inapplicable to (i) any
payments in lieu of issuance of fractional shares thereof, whether upon any
merger, conversion, stock dividend or otherwise, (ii) the conversion of
Cumulative Preferred Shares or Noncumulative Preferred Shares into Common
Shares, and (iii) the exercise by the Corporation of its rights pursuant to
Division C or any similar provision hereafter contained in these Amended and
Restated Articles of Incorporation with respect to any other class or series
of shares hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to designate
as "capital gain dividends" (as defined in Section 857 of the Internal
Revenue Code), any portion (the "Capital Gains Amount") of the dividends paid
or made available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to holders of the Cumulative Preferred Shares shall be the amount
that the total dividends paid or made available to the holders of the
Cumulative Preferred Shares for the year bears to the Total Dividends.
Section 3. REDEMPTION.
(a) Subject to the express terms of each series of Cumulative
Preferred Shares, the Corporation:
(1) May, from time to time at the option of the Board of
Directors, redeem all or any part of any redeemable series of Cumulative
Preferred Shares at the time outstanding at the applicable redemption price
for such series fixed in accordance with Section 1 of this Division A.I.; and
(2) Shall, from time to time, make such redemptions of each
series of Cumulative Preferred Shares as may be required to fulfill the
requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with Section 1
of this Division A.I.;
and shall in each case pay all accrued and unpaid dividends to the redemption
date.
(b) (1) Notice of every such redemption shall be mailed, postage
prepaid, to the holders of record of the Cumulative Preferred Shares to be
redeemed at their respective addresses then appearing on the books of the
Corporation, not less than 30 days nor more than 60 days prior to the date
fixed for such redemption, or such other time prior thereto as the Board of
Directors shall fix for any series pursuant to Section 1 of this Division
prior to the issuance thereof. At any time after notice as provided above
has been deposited in the mail, the Corporation may deposit the aggregate
redemption price of Cumulative Preferred Shares to be redeemed, together with
accrued and unpaid dividends thereon to the redemption date, with any bank or
trust company in Cleveland, Ohio, or New York, New York,
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having capital and surplus of not less than $100,000,000, named in such
notice and direct that there be paid to the respective holders of the
Cumulative Preferred Shares so to be redeemed amounts equal to the redemption
price of the Cumulative Preferred Shares so to be redeemed, together with
such accrued and unpaid dividends thereon, on surrender of the share
certificate or certificates held by such holders; and upon the deposit of
such notice in the mail and the making of such deposit of money with such
bank or trust company, such holders shall cease to be shareholders with
respect to such shares; and from and after the time such notice shall have
been so deposited and such deposit of money shall have been so made, such
holders shall have no rights or claim against the Corporation with respect to
such shares, except only the right to receive such money from such bank or
trust company without interest or to exercise before the redemption date any
unexpired privilege of conversion. If less than all of the outstanding
Cumulative Preferred Shares are to be redeemed, the Corporation shall select
by lot the shares so to be redeemed in such manner as shall be prescribed by
the Board of Directors.
(2) If the holders of Cumulative Preferred Shares which have
been called for redemption shall not within six years after such deposit
claim the amount deposited for the redemption thereof, any such bank or trust
company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company and the Corporation shall be
relieved of all responsibility in respect thereof and to such holders.
(c) Any Cumulative Preferred Shares which are (1) redeemed by the
Corporation pursuant to this Section, (2) purchased and delivered in
satisfaction of any sinking fund requirement provided for shares of such
series, (3) converted in accordance with the express terms thereof, or (4)
otherwise acquired by the Corporation, shall resume the status of authorized
but unissued Cumulative Preferred Shares without serial designation.
(d) Except in connection with the exercise of the Corporation's
rights pursuant to Division C or any similar provisions hereafter contained
in these Amended and Restated Articles of Incorporation, the Corporation may
not purchase or redeem (for sinking fund purposes or otherwise) less than all
of the Cumulative Preferred Shares then outstanding except in accordance with
a purchase offer made to all holders of record of Cumulative Preferred
Shares, unless all dividends on all Cumulative Preferred Shares then
outstanding for all previous and current dividend periods shall have been
declared and paid or funds therefor set apart and all accrued sinking fund
obligations applicable thereto shall have been complied with.
Section 4. LIQUIDATION.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Cumulative Preferred Shares of any series shall be entitled to receive in
full out of the assets of the Corporation, including its capital, before any
amount shall be paid or distributed among the holders of the Common Shares or
any other shares ranking junior to the Cumulative Preferred Shares, the
amounts fixed with respect to shares of such series in accordance with
Section 1 of this Division A.I., plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant
to such liquidation, dissolution or winding up of the affairs of the
Corporation. If the net assets of the Corporation legally available therefor
are insufficient to permit the payment upon all outstanding Cumulative
Preferred Shares and Noncumulative Preferred Shares of the full preferential
amount to which they are respectively entitled, then such net assets shall be
distributed ratably upon all outstanding Cumulative Preferred Shares and
Noncumulative Preferred Shares in proportion to the full preferential amount
to which each such share is entitled.
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(2) After payment to the holders of Cumulative Preferred
Shares of the full preferential amounts as aforesaid, the holders of
Cumulative Preferred Shares, as such, shall have no right or claim to any of
the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with
any other Corporation, the merger of any other Corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding
up for purposes of this Section.
Section 5. VOTING.
(a) The holders of Cumulative Preferred Shares shall have no
voting rights, except as provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default
in the payment of dividends on any series of Cumulative Preferred Shares at
the time outstanding, whether or not earned or declared, for a number of
dividend payment periods (whether or not consecutive) which in the aggregate
contain at least 540 days, the holders of all series of Cumulative Preferred
Shares, voting separately as a class, shall be entitled to elect, as herein
provided, two members of the Board of Directors of the Corporation; but the
holders of the Cumulative Preferred Shares shall not exercise such special
class voting rights except at meetings of such shareholders for the election
of directors at which the holders of not less than 50% of the Cumulative
Preferred Shares are present in person or by proxy; and the special class
voting rights provided for in this paragraph when the same shall have become
vested shall remain so vested until all accrued and unpaid dividends on the
Cumulative Preferred Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon
the holders of the Cumulative Preferred Shares shall be divested of their
special class voting rights in respect of subsequent elections of directors,
subject to the revesting of such special class voting rights in the event
above specified in this paragraph.
(2) On a dividend payment default entitling holders of
Cumulative Preferred Shares to elect two directors as specified in paragraph
(1) of this Subsection, a special meeting of such holders for the purpose of
electing such directors shall be called by the Secretary of the Corporation
upon written request of, or may be called by, the holders of record of at
least 10% of the Cumulative Preferred Shares with respect to which such
default exists and notice thereof shall be given in the same manner as that
required for the annual meeting of shareholders; but the Corporation shall
not be required to call such special meeting if the annual meeting of
shareholders shall be called to be held within 90 days after the date of
receipt of the foregoing written request from the holders of Cumulative
Preferred Shares. At any meeting at which the holders of Cumulative
Preferred Shares shall be entitled to elect directors, holders of 50% of the
Cumulative Preferred Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority
of such shares so present at any such meeting at which there shall be such a
quorum shall be sufficient to elect the members of the Board of Directors
which the holders of Cumulative Preferred Shares are entitled to elect as
herein provided. Notwithstanding any provision of these Articles of
Incorporation or the Code of Regulations of the Corporation or any action
taken by the holders of any class of shares fixing the number of directors of
the Corporation, the two directors who may be elected by the holders of
Cumulative Preferred Shares pursuant to this Subsection shall serve in
addition to any other directors then in office or proposed to be elected
otherwise than pursuant to this Subsection. Nothing in this Subsection shall
prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation nor require the resignation
of any director elected otherwise than pursuant to this Subsection.
Notwithsanding any classification of the other directors of the Corporation,
the two directors elected by the holders of Cumulative Preferred Shares shall
be elected annually for terms expiring at the next succeeding annual meeting
of shareholders.
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(3) Upon any divesting of the special class voting rights of
the holders of the Cumulative Preferred Shares in respect of elections of
directors as provided in this Subsection, the terms of office of all
directors then in office elected by such holders shall terminate immediately
thereupon. If the office of any director elected by such holders voting as a
class becomes vacant by reason of death, resignation, removal from office or
otherwise, the remaining director elected by such holders voting as a class
may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) The affirmative vote of the holders of at least two-thirds of
the Cumulative Preferred Shares at the time outstanding, voting separately as
a class, given in person or by proxy either in writing or at a meeting called
for the purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting
or other rights of the holders of Cumulative Preferred Shares which are set
forth in these Amended and Restated Articles of Incorporation; but neither an
amendment of these Amended and Restated Articles of Incorporation so as to
authorize, create or change the authorized or outstanding number of
Cumulative Preferred Shares or of any shares ranking on a parity with or
junior to the Cumulative Preferred Shares nor an amendment of the Code of
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially preferences or
voting or other rights of the holders of Cumulative Preferred Shares; or
(2) The authorization, creation or increase in the authorized
number of any shares, or of any security convertible into shares, in either
case ranking prior to such Cumulative Preferred Shares.
(d) If, and only to the extent, that (1) Cumulative Preferred
Shares are issued in more than one series and (2) Ohio law permits the
holders of a series of a class of shares to vote separately as a class, the
affirmative vote of the holders of at least two-thirds of each series of
Cumulative Preferred Shares at the time outstanding, voting separately as a
class, given in person or by proxy either in writing or at a meeting called
for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of these Amended and Restated Articles of
Incorporation or of the Code of Regulations of the Corporation which affects
adversely and materially the preferences or voting or other rights of the
holders of such series which are set forth in these Amended and Restated
Articles of Incorporation; but neither an amendment of these Amended and
Restated Articles of Incorporation, so as to authorize, create or change the
authorized or outstanding number of Cumulative Preferred Shares or of any
shares ranking on a parity with or junior to the Cumulative Preferred Shares
nor an amendment of the Code of Regulations so as to change the number or
classification of directors of the Corporation, shall be deemed to affect
adversely and materially the preferences or voting or other rights of the
holders of such series.
II. THE CLASS A NONCUMULATIVE PREFERRED SHARES. The Noncumulative
Preferred Shares shall have the following express terms:
Section 1. SERIES. The Noncumulative Preferred Shares may be
issued from time to time in one or more series. All Noncumulative Preferred
Shares shall be of equal rank and shall be identical, except in respect of
the matters that may be fixed by the Board of Directors as hereinafter
provided, and each share of a series shall be identical with all other shares
of such series, except as to the dates on which and the periods for which
dividends may be payable. All Noncumulative Preferred Shares shall rank on a
parity with the Cumulative Preferred Shares and shall be identical to all
Cumulative Preferred Shares
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except (1) in respect of the matters that may be fixed by the Board of
Directors as provided in clauses (a) through (i), inclusive, of this Section
1 and (2) only dividends on the Cumulative Preferred Shares are cumulative as
set forth in Division A.I. herein. Subject to the provisions of Sections 2
through 5, both inclusive, and of Items III and IV of this Division, which
provisions shall apply to all Noncumulative Preferred Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or
more series and with respect to each such series to determine and fix prior
to the issuance thereof (and thereafter, to the extent provided in clause (b)
of this Section) the following:
(a) The designation of the series, which may be by distinguishing
number, letter or title;
(b) The authorized number of shares of the series, which number
the Board of Directors may (except when otherwise provided in the creation of
the series) increase or decrease from time to time before or after the
issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including the means
by which such rates may be established;
(d) The dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which such
dates and periods may be established;
(e) The redemption rights and price or prices, if any, for shares
of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth elsewhere in
these Amended and Restated Articles of Incorporation) on the issuance of
shares of the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time amendments to
the Amended and Restated Articles of Incorporation, as amended, fixing, with
respect to each such series, the matters described in clauses (a) through
(i), both inclusive, of this Section and is authorized to take such actions
with respect thereto as may be required by law in order to effect such
amendments.
Section 2. DIVIDENDS.
(a) The holders of Noncumulative Preferred Shares of each series,
in preference to the holders of Common Shares and of any other class of
shares ranking junior to the Noncumulative Preferred Shares, shall be
entitled to receive out of any funds legally available therefor, if, when and
as declared by the Board of Directors, dividends in cash at the rate or rates
for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends
shall accrue, in the case of shares of each particular series, from and after
the date or dates fixed with respect to such series; provided, however, that
if the Board of Directors fails to declare a dividend payable on a dividend
payment date on any Noncumulative Preferred Shares, the holders of the
Noncumulative Preferred Shares shall have no right to receive a dividend in
respect of the dividend period ending on such
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dividend payment date, and the Corporation shall have no obligation to pay
the dividend accrued for such period, whether or not dividends on such
Noncumulative Preferred Shares are declared payable on any future dividend
payment date. Any dividend payment made on the Noncumulative Preferred
Shares shall first be credited against the earliest declared but unpaid
dividend on such Noncumulative Preferred Shares. No dividends shall be paid
upon or declared or set apart for any series of the Noncumulative Preferred
Shares for any dividend period unless at the same time (i) a like
proportionate dividend for the then current dividend period, ratably in
proportion to the respective annual dividend rates fixed therefor, shall have
been paid upon or declared or set apart for all Noncumulative Preferred
Shares of all series then issued and outstanding and entitled to receive such
dividend and (ii) the dividends payable for the dividend periods terminating
on the same or any earlier date, ratably in proportion to the respective
dividend rates fixed therefor, shall have been paid upon or declared and set
part for all Cumulative Preferred Shares then issued and outstanding and
entitled to receive such dividends.
(b) So long as any Noncumulative Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common Shares or other
shares ranking junior to the Noncumulative Preferred Shares, shall be paid or
declared or any distribution be made, except as aforesaid, in respect of the
Common Shares or any other shares ranking junior to the Noncumulative
Preferred Shares, nor shall any Common Shares or any other shares ranking
junior to the Noncumulative Preferred Shares be purchased, retired or
otherwise acquired by the Corporation, except out of the proceeds of the sale
of Common Shares or other shares of the Corporation ranking junior to the
Noncumulative Preferred Shares received by the Corporation subsequent to the
date of first issuance of Noncumulative Preferred Shares of any series,
unless:
(1) All accrued and unpaid dividends on Cumulative Preferred
Shares, including the full dividends for all current dividend periods, shall
have been declared and paid or a sum sufficient for payment thereof set
apart;
(2) All unpaid dividends on Noncumulative Preferred Shares
for the then current dividend period shall have been declared and paid or a
sum sufficient for payment therefor set apart; and
(3) There shall be no arrearages with respect to the
redemption of Cumulative Preferred Shares or Noncumulative Preferred Shares
of any series from any sinking fund provided for shares of such series in
accordance with the provisions of Section 1 of this Division A.II or Section
1 of Division A.I.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption, retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Noncumulative Preferred Shares shall be inapplicable to (i) any
payments in lieu of issuance of fractional shares thereof, whether upon any
merger, conversion, stock dividend or otherwise, (ii) the conversion of
Cumulative Preferred Shares or Noncumulative Preferred Shares into Common
Shares, and (iii) the exercise by the Corporation of its rights pursuant to
Division C or any similar provisions hereafter contained in these Amended and
Restated Articles of Incorporation with respect to any other class or series
of shares hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to designate
as "capital gain dividends" (as defined in Section 857 of the Internal
Revenue Code), any portion (the "Capital Gains Amount") of the dividends paid
or made available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to holders of the Noncumulative Preferred Shares shall be the
amount that the total dividends paid or made available to the holders of the
Noncumulative Preferred Shares for the year bears to the Total Dividends.
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Section 3. REDEMPTION.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of
Directors, redeem all or any part of any redeemable series of Noncumulative
Preferred Shares at the time outstanding at the applicable redemption price
for such series fixed in accordance with Section 1 of this Division A.II.; and
(2) Shall, from time to time, make such redemptions of each
series of Noncumulative Preferred Shares as may be required to fulfill the
requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with Section 1
of this Division A.II.;
and shall in each case pay all unpaid dividends for the then current dividend
period to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage
prepaid, to the holders of record of the Noncumulative Preferred Shares to be
redeemed at their respective addresses then appearing on the books of the
Corporation, not less than 30 days nor more than 60 days prior to the date
fixed for such redemption, or such other time prior thereto as the Board of
Directors shall fix for any series pursuant to Section 1 of this Division
prior to the issuance thereof. At any time after notice as provided above
has been deposited in the mail, the Corporation may deposit the aggregate
redemption price of Noncumulative Preferred Shares to be redeemed, together
with unpaid dividends thereon for the then current dividend period to the
redemption date, with any bank or trust company in Cleveland, Ohio, or New
York, New York, having capital and surplus of not less than $100,000,000,
named in such notice and direct that there be paid to the respective holders
of the Noncumulative Preferred Shares so to be redeemed amounts equal to the
redemption price of the Noncumulative Preferred Shares so to be redeemed
together with such accrued and unpaid dividends thereon for the then current
dividend period, on surrender of the share certificate or certificates held
by such holders; and upon the deposit of such notice in the mail and the
making of such deposit of money with such bank or trust company, such holders
shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of
money shall have been so made, such holders shall have no rights or claim
against the Corporation with respect to such shares, except only the right to
receive such money from such bank or trust company without interest or to
exercise before the redemption date any unexpired privilege of conversion.
If less than all of the outstanding Noncumulative Preferred Shares are to be
redeemed, the Corporation shall select by lot the shares so to be redeemed in
such manner as shall be rescribed by the Board of Directors.
(2) If the holders of Noncumulative Preferred Shares which
have been called for redemption shall not within six years after such deposit
claim the amount deposited for the redemption thereof, any such bank or trust
company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company and the Corporation shall be
relieved of all responsibility in respect thereof and to such holders.
(c) Any Noncumulative Preferred Shares which are (1) redeemed by
the Corporation pursuant to this Section, (2) purchased and delivered in
satisfaction of any sinking fund requirement provided for shares of such
series, (3) converted in accordance with the express terms thereof, or (4)
otherwise acquired by the Corporation, shall resume the status of authorized
but unissued Noncumulative Preferred Shares without serial designation.
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(d) Except in connection with the exercise of the Corporation's
rights pursuant to Division C or any similar provisions hereafter contained
in these Amended and Restated Articles of Incorporation, the Corporation may
not purchase or redeem (for sinking fund purposes or otherwise) less than all
of the Noncumulative Preferred Shares then outstanding except in accordance
with a purchase offer made to all holders of record of Noncumulative
Preferred Shares, unless all unpaid dividends on all Noncumulative Preferred
Shares then outstanding shall have been paid or funds therefor set apart and
all accrued sinking fund obligations applicable thereto shall have been
complied with.
Section 4. LIQUIDATION.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Noncumulative Preferred Shares of any series shall be entitled to receive in
full out of the assets of the Corporation, including its capital, before any
amount shall be paid or distributed among the holders of the Common Shares or
any other shares ranking junior to the Noncumulative Preferred Shares, the
amounts fixed with respect to shares of such series in accordance with
Section 1 of this Division A.II., plus an amount equal to all dividends
declared and unpaid thereon. If the net assets of the Corporation legally
available therefor are insufficient to permit the payment upon all
outstanding Cumulative Preferred Shares and Noncumulative Preferred Shares of
the full preferential amount to which they are respectively entitled, then
such net assets shall be distributed ratably upon all outstanding Cumulative
Preferred Shares and Noncumulative Preferred Shares in proportion to the full
preferential amount to which each such share is entitled.
(2) After payment to the holders of Noncumulative Preferred
Shares of the full preferential amounts as aforesaid, the holders of
Noncumulative Preferred Shares, as such, shall have no right or claim to any
of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with
any other Corporation, the merger of any other Corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding
up for purposes of this Section.
Section 5. VOTING.
(a) The holders of Noncumulative Preferred Shares shall have no
voting rights, except as provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall not have fully
paid, or shall not have declared and set aside a sum sufficient for the
payment of, dividends on any series of Noncumulative Preferred Shares at the
time outstanding, for a number of dividend payment periods (whether or not
consecutive) which in the aggregate contain at least 540 days, the holders of
all series of such Noncumulative Preferred Shares, voting separately as a
class, shall be entitled to elect, as herein provided, two members of the
Board of Directors of the Corporation; but the holders of the Noncumulative
Preferred Shares shall not exercise such special class voting rights except
at meetings of such shareholders for the election of directors at which the
holders of not less than 50% of the Noncumulative Preferred Shares are
present in person or by proxy; and the special class voting rights provided
for in this paragraph when the same shall have become vested shall remain so
vested until the Corporation shall have fully paid, or shall have set aside a
sum sufficient for the payment of, dividends on such Noncumulative Preferred
Shares then outstanding for a number of consecutive dividend payment periods
which in the aggregate contain at least 360 days, whereupon the holders of
the Noncumulative Preferred Shares shall be divested of their special class
voting rights in respect of subsequent elections of directors, subject to the
revesting of such special class voting rights in the event above specified in
this paragraph.
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(2) On an event entitling holders of Noncumulative Preferred
Shares to elect two directors as specified in paragraph (1) of this
Subsection, a special meeting of such holders for the purpose of electing
such directors shall be called by the Secretary of the Corporation upon
written request of, or may be called by, the holders of record of at least
10% of the Noncumulative Preferred Shares of the affected series and notice
thereof shall be given in the same manner as that required for the annual
meeting of shareholders; but the Corporation shall not be required to call
such special meeting if the annual meeting of shareholders shall be called to
be held within 90 days after the date of receipt of the foregoing written
request from the holders of Noncumulative Preferred Shares. At any meeting
at which the holders of Noncumulative Preferred Shares shall be entitled to
elect directors, holders of 50% of the Noncumulative Preferred Shares,
present in person or by proxy, shall be sufficient to constitute a quorum,
and the vote of the holders of a majority of such shares so present at any
such meeting at which there shall be such a quorum shall be sufficient to
elect the members of the Board of Directors which the holders of
Noncumulative Preferred Shares are entitled to elect as herein provided.
Notwithstanding any provision of these Amended and Restated Articles of
Incorporation or the Code of Regulations of the Corporation or any action
taken by the holders of any class of shares fixing the number of directors of
the Corporation, the two directors who may be elected by the holders of
Noncumulative Preferred Shares pursuant to this Subsection shall serve in
addition to any other directors then in office or proposed to be elected
otherwise than pursuant to this Subsection. Nothing in this Subsection shall
prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation nor require the resignation
of any director elected otherwise than pursuant to this Subsection.
Notithstanding any classification of the other directors of the Corporation,
the two directors elected by the holders of Noncumulative Preferred Shares
shall be elected annually for terms expiring at the next succeeding annual
meeting of shareholders.
(3) Upon any divesting of the special class voting rights of
the holders of the Noncumulative Preferred Shares in respect of elections of
directors as provided in this Subsection, the terms of office of all
directors then in office elected by such holders shall terminate immediately
thereupon. If the office of any director elected by such holders voting as a
class becomes vacant by reason of death, resignation, removal from office or
otherwise, the remaining director elected by such holders voting as a class
may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) The affirmative vote of the holders of at least two-thirds of
the Noncumulative Preferred Shares at the time outstanding, voting separately
as a class, given in person or by proxy either in writing or at a meeting
called for the purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting
or other rights of the holders of Noncumulative Preferred Shares which are
set forth in these Amended and Restated Articles of Incorporation; but
neither an amendment of these Amended and Restated Articles of Incorporation
so as to authorize, create or change the authorized or outstanding number of
Noncumulative Preferred Shares or of any shares ranking on a parity with or
junior to the Noncumulative Preferred Shares nor an amendment of the Code of
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially preferences or
voting or other rights of the holders of Noncumulative Preferred Shares; or
(2) The authorization, creation or increase in the authorized
number of any shares, or any security convertible into shares, in either case
ranking prior to such Noncumulative Preferred Shares.
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(d) If, and only to the extent, that (1) Noncumulative Preferred
Shares are issued in more than one series and (2) Ohio law permits the
holders of a series of a class of shares to vote separately as a class, the
affirmative vote of the holders of at least two-thirds of each series of the
Noncumulative Preferred Shares at the time outstanding, voting separately as
a class, given in person or by proxy either in writing or at a meeting called
for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of these Amended and Restated Articles of
Incorporation or of the Code of Regulations of the Corporation which affects
adversely and materially the preferences or voting or other rights of the
holders of such series which are set forth in these Amended and Restated
Articles of Incorporation; but neither an amendment of these Amended and
Restated Articles of Incorporation, so as to authorize, create or change the
authorized or outstanding number of Noncumulative Preferred Shares or of any
shares remaining on a parity with or junior to the Noncumulative Preferred
Shares nor an amendment of the Code of Regulations so as to change the number
or classification of directors of the Corporation shall be deemed to affect
adversely and materially preferences or voting or other rights of the holders
of such series.
III. DEFINITIONS. For the purposes of this Division:
(a) Whenever reference is made to shares "ranking prior to"
Cumulative Preferred Shares or Noncumulative Preferred Shares, such reference
shall mean all shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends or as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation are given preference over the rights of
the holders of Cumulative Preferred Shares or Noncumulative Preferred Shares,
as the case may be;
(b) Whenever reference is made to shares "on a parity with"
Cumulative Preferred Shares or Noncumulative Preferred Shares, such reference
shall mean all shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends or as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation rank equally (except as to the amounts
fixed therefor) with the rights of the holders of Cumulative Preferred Shares
or Noncumulative Preferred Shares, as the case may be; and
(c) Whenever reference is made to shares "ranking junior to"
Cumulative Preferred Shares or Noncumulative Preferred Shares, such reference
shall mean all shares of the Corporation other than those defined under
Subsections (a) and (b) of this Section as shares "ranking prior to" or "on a
parity with" Cumulative Preferred Shares or Noncumulative Preferred Shares,
as the case may be.
IV. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT. The Cumulative
Preferred Shares and the Noncumulative Preferred Shares are subject to the
restrictions on transfer set forth with respect to those shares in Division C
of this Article FOURTH.
DIVISION B: COMMON SHARES
The Common Shares are subject to the express terms of the Cumulative
Preferred Shares and any series thereof and to the express terms of the
Noncumulative Preferred Shares and any series thereof, and have the following
express terms:
Section 1. DIVIDEND RIGHTS. The holders of Common Shares shall be
entitled to receive, when, as and if declared by the Board of Directors of
the Corporation, out of the assets of the Corporation which are by law
available therefor, dividends or distributions payable in cash, in property
or in securities of the Corporation.
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Section 2. RIGHTS UPON LIQUIDATION. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of, or any distribution
of the assets of, the Corporation, each holder of Common Shares shall be
entitled to receive, ratably with each other holder of Common Shares, that
portion of the assets of the Corporation available for distribution to its
holders of Common Shares as the number of Common Shares held by such holder
bears to the total number of Common Shares then outstanding.
Section 3. VOTING RIGHTS. The holders of Common Shares shall be
entitled to vote on all matters presented to the shareholders of the
Corporation (except any matter expressly reserved in these Amended and
Restated Articles of Incorporation to holders of shares other than Common
Shares), and shall be entitled to one vote for each Common Share entitled to
vote thereon.
Section 4. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT. The
Common Shares are subject to the restrictions on transfer set forth with
respect to those shares in Division C of this Article FOURTH.
DIVISION C: RESTRICTIONS ON TRANSFER OF PREFERRED SHARES
AND COMMON SHARES
I. RESTRICTIONS ON TRANSFER.
Section 1. DEFINITIONS. For purposes of this Division C of this
Article FOURTH, the following terms shall have the following meanings set
forth below:
"Beneficial Ownership" shall mean ownership of Equity Shares by a
Person who would be treated as an owner of such Equity Shares either directly
or indirectly through the application of Section 544 of the Internal Revenue
Code, as modified by Section 856(h)(1)(B) of the Internal Revenue Code. The
terms "Beneficial Owner," "Beneficially Owns," and "Beneficially Owned" shall
have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clause
(vii) or (viii) thereof) and Section 170(c)(2) of the Internal Revenue Code
that are named by the Corporation as the beneficiary or beneficiaries of such
Trust, in accordance with Section (1) of Division C.II. hereof.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Boykin Hotel Properties, L.P. Agreement" shall mean the Amended
and Restated Agreement of Limited Partnership of Boykin Hotel Properties,
L.P., an Ohio limited partnership.
"Constructive Ownership" shall mean ownership of Equity Shares by a
Person who would be treated as an owner of such Equity Shares either directly
or indirectly through the application of Section 318 of the Internal Revenue
Code, as modified by Section 856(d)(5) of the Internal Revenue Code. The
terms "Constructive Owner," "Constructively Owns," and "Constructively Owned"
shall have correlative meanings.
"Equity Shares" shall mean Cumulative Preferred Shares,
Noncumulative Preferred Shares and Common Shares of the Corporation. The
term "Equity Shares" shall include all Cumulative Preferred Shares,
Noncumulative Preferred Shares and Common Shares of the Corporation that are
held as Shares-in-Trust in accordance with this Division C of this Article
FOURTH.
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"Initial Public Offering" means the sale of Common Shares pursuant
to the Corporation's first effective registration statement for Common Shares
filed under the Securities Act of 1933, as amended.
"Market Price" on any date shall mean the average of the Closing
Price for the five consecutive Trading Days ending on such date. The
"Closing Price" on any date shall mean the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the applicable
Equity Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which those Equity Shares are listed or admitted to trading or,
if those Equity Shares are not listed or admitted to trading on any national
securities exchange, the last quoted price, or if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the shares of
Equity Shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in those Equity Shares selected by the Board of Directors.
"Non-Transfer Event" shall mean an event other than a purported
Transfer that would cause any Person to Beneficially Own or Constructively
Own Equity Shares in excess of the Ownership Limit, including, but not
limited to, the issuance, granting of any option or entering into of any
agreement for the sale, transfer or other disposition of Equity Shares or the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Equity Shares.
"Ownership Limit" shall mean 9% of the number of outstanding shares
of any class of Equity Shares.
"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with this Division C.
"Person" shall mean an individual, corporation, partnership,
estate, trust, a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Internal
Revenue Code, association, private foundation within the meaning of Section
509(a) of the Internal Revenue Code, joint stock company or other entity and
also includes a "group" as that term is used for purposes of Section 12(d)(3)
of the Securities Exchange Act of 1934, as amended.
"Prohibited Owner" shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who, but for this Division C of
this Article FOURTH, would own record title to Equity Shares.
"Redemption Rights" shall mean the rights granted under the Boykin
Hotel Properties, L.P. Agreement to the limited partners to exchange, under
certain circumstances, their limited partnership interests for cash (or, at
the option of the Corporation, for Common Shares).
"Restriction Termination Date" shall mean the first day after the
date of the Initial Public Offering on which the Board of Directors
determines that it is no longer in the best interests of the Corporation to
attempt to, or continue to, qualify as a REIT.
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"Shares-in-Trust" shall mean any Equity Shares designated as
Shares-in-Trust pursuant to this Division C.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the applicable Equity Shares are listed or
admitted to trading is open for the transaction of business or, if those
Equity Shares are not listed or admitted to trading on any national
securities exchange, shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of Equity Shares, whether voluntary
or involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created pursuant to this
Division C for the exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both
the Corporation and any Prohibited Owner, such Trustee to be designated by
the Corporation to act as trustee of any Trust, or any successor trustee
thereof.
Section 2. RESTRICTION ON TRANSFERS AND NON-TRANSFER EVENT.
(a) Except as set forth in Section 7 below and subject to Section
8 below, from the date of the Initial Public Offering to the Restriction
Termination Date, (i) no Person shall Beneficially Own or Constructively Own
outstanding Equity Shares in excess of the Ownership Limit, but any Transfer
or Non-Transfer Event that, if effective, would result in any Person
Beneficially Owning or Constructively Owning outstanding Equity Shares in
excess of the Ownership Limit shall be void AB INITIO as to the Transfer or
Non-Transfer Event affecting that number of Equity Shares which would be
otherwise Beneficially Owned or Constructively Owned by such Person in excess
of the Ownership Limit and the intended transferee shall acquire no rights in
such excess Equity Shares.
(b) Except as set forth in Section 7 below, from the date of the
Initial Public Offering to the Restriction Termination Date, any Transfer or
Non-Transfer Event that, if effective, would result in any class of Equity
Shares being beneficially owned by fewer than 100 Persons (determined without
reference to any rules of attribution) shall be void AB INITIO as to the
Transfer or Non-Transfer Event affecting that number of shares which would be
otherwise beneficially owned (determined without reference to any rules of
attribution) by the transferee, and the intended transferee shall acquire no
rights in such Equity Shares.
(c) From the date of the Initial Public Offering to the
Restriction Termination Date, any Transfer of or Non-Transfer Event affecting
Equity Shares that, if effective, would result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code shall be void AB INITIO as to the Transfer of or Non-Transfer Event
affecting that number of Equity Shares which would cause the Corporation to
be "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code, and the intended transferee shall acquire no rights in such
Equity Shares.
(d) From the date of the Initial Public Offering to the
Restriction Termination Date, any Transfer of or Non-Transfer Event affecting
Equity Shares that, if effective, would cause the Corporation to
Constructively Own 10% or more of the ownership interests in a tenant of the
real property of the Corporation or of any direct or indirect subsidiary of
the Corporation (a "Subsidiary"), within the
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meaning of Section 856(d)(2)(B) of the Internal Revenue Code, shall be void
AB INITIO as to the Transfer of or Non-Transfer Event affecting that number
of Equity Shares which would cause the Corporation to Constructively Own 10%
or more of the ownership interests in a tenant of the Corporation's or of a
Subsidiary's real property, within the meaning of Section 856(d)(2)(B) of the
Internal Revenue Code, and the intended transferee shall acquire no rights in
such excess Equity Shares.
Section 3. TRANSFER TO TRUST.
(a) If, notwithstanding the other provisions contained in this
Division C, at any time after the Initial Public Offering and prior to the
Restriction Termination Date there is a purported Transfer or Non-Transfer
Event such that any Person would either Beneficially Own or Constructively
Own Equity Shares in excess of the Ownership Limit, then, (i) except as set
forth in Section 7 below, the purported transferee shall acquire no right or
interest (or, in the case of a Non-Transfer Event, the Person holding record
title to the Equity Shares Beneficially Owned or Constructively Owned by such
Beneficial Owner or Constructive Owner, shall cease to own any right or
interest) in such number of Equity Shares which would cause such Beneficial
Owner or Constructive Owner to Beneficially Own or Constructively Own Equity
Shares in excess of the Ownership Limit, (ii) such number of Equity Shares in
excess of the Ownership Limit (rounded up to the nearest whole share) shall
be designated Shares-in-Trust and, in accordance with this Division C,
transferred automatically by operation of the terms of this Section IV.C.I.3.
to a Trust to be held in accordance with this Division C, and (iii) the
Prohibited Owner shall submit such number of Equity Shares to the Corporation
for registration in the name of the Trustee. Such transfer to a Trust and
the designation of shares as Shares-in-Trust shall be effective as of the
close of business on the business day prior to the date of the Transfer or
Non-Transfer Event, as the case may be.
(b) If, notwithstanding the other provisions contained in this
Division C, at any time after the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer or Non-Transfer
Event that, if effective, would (i) result in any class of the Equity Shares
being beneficially owned by fewer than 100 Persons (determined without
reference to any rules of attribution), (ii) result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code, or (iii) cause the Corporation to Constructively Own 10% or more of the
ownership interests in a tenant of the Corporation's or of a Subsidiary's
real property, within the meaning of Section 856(d)(2)(B) of the Internal
Revenue Code, then (x) the purported transferee shall not acquire any right
or interest (or, in the case of a Non-Transfer Event, the Person holding
record title to the Equity Shares with respect to which such Non-Transfer
Event occurred, shall cease to own any right or interest) in such number of
Equity Shares, the ownership of which by such purported transferee or record
holder would (A) result in any class of Equity Shares being beneficially
owned by fewer than 100 Persons (determined without reference to any rules of
attribution), (B) result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Internal Revenue Code, or (C) cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the Corporation's or of a Subsidiary's real property, within the
meaning of Section 856(d)(2)(B) of the Internal Revenue Code, (y) such number
of Equity Shares (rounded up to the nearest whole share) shall be designated
Shares-in-Trust and, in accordance with this Division C, transferred
automatically by operation of the terms of this Section IV.C.I.3. to a Trust
to be held in accordance with this Division C, and (z) the Prohibited Owner
shall submit such number of Equity Shares to the Corporation for registration
in the name of the Trustee. Such transfer to a Trust and the designation of
shares as Shares-in-Trust shall be effective as of the close of business on
the business day prior to the date of the Transfer or Non-Transfer Event, as
the case may be.
Section 4. REMEDIES FOR BREACH. If the Corporation, or its
designee, shall at any time determine in good faith that a Transfer or
Non-Transfer Event has taken place in violation of this Division C or that a
Person intends to acquire or has attempted to acquire Beneficial Ownership or
Constructive Ownership of any Equity Shares in violation of this Division C,
the Corporation shall take such action as
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it considers advisable to refuse to give effect to or to prevent such
Transfer or Non-Transfer Event or acquisition, including, but not limited to,
refusing to give effect to such Transfer on the books of the Corporation or
instituting proceedings to enjoin such Transfer or Non-Transfer Event or
acquisition.
Section 5. NOTICE OF RESTRICTED TRANSFER. Any Person who acquires
or attempts to acquire Equity Shares in violation of this Division C, or any
Person who owned Equity Shares that were transferred to a Trust pursuant to
this Division C, shall immediately give written notice to the Corporation of
such event and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
event on the Corporation's status as a REIT.
Section 6. OWNERS REQUIRED TO PROVIDE INFORMATION. From the date
of the Initial Public Offering to the Restriction Termination Date:
(a) Every Beneficial Owner or Constructive Owner of more than 5%,
or such lower percentage as is specified pursuant to regulations issued under
the Internal Revenue Code, of the outstanding shares of any class of shares
of the Corporation shall, within 30 days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the name
and address of such Beneficial Owner or Constructive Owner, the number of
Equity Shares Beneficially Owned or Constructively Owned, and a description
of how such shares are held.
(b) Each Person who is a Beneficial Owner or Constructive Owner of
Equity Shares and each Person (including the shareholder of record) who is
holding Equity Shares for a Beneficial Owner or Constructive Owner shall
provide to the Corporation a written statement or affidavit stating such
information as the Corporation may request in order to determine the
Corporation's status as a REIT and to ensure compliance with the Ownership
Limit as applicable.
Section 7. EXCEPTIONS. The Ownership Limit shall not apply to the
acquisition of Equity Shares by an underwriter that participates in a public
offering of such shares for a period of 90 days following the purchase by
such underwriter of such shares. In addition, the Board of Directors, upon
receipt of a ruling from the Internal Revenue Service or an opinion of
counsel, in either case to the effect that the Corporation's status as a REIT
would not be jeopardized thereby, may allow a Person to own a certain amount
in excess of the Ownership Limit if (i) the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary
to ascertain that no Person's Beneficial Ownership or Constructive Ownership
of Equity Shares could result in the REIT (a) losing its REIT status for
federal income tax purposes, or (b) being "related" to any tenant or lessee
under the REIT rules of the Internal Revenue Code, and (ii) such Person
agrees in writing that any violation or attempted violation that could cause
such a result will cause a transfer to a Trust of Equity Shares pursuant to
this Division C.
Section 8. NEW YORK STOCK EXCHANGE TRANSACTIONS. Notwithstanding
any provision contained herein to the contrary, nothing in these Amended and
Restated Articles of Incorporation shall preclude the settlement of any
transaction entered into through the facilities of the New York Stock
Exchange.
II. SHARES-IN-TRUST.
Section 1. TRUST. Any Equity Shares transferred to a Trust and
designated Shares-in-Trust pursuant to this Division C shall be held for the
exclusive benefit of the Beneficiary. The Corporation shall name a
Beneficiary for each Trust within five days after the Corporation first has
actual notice of the existence thereof. Any transfer to a Trust, and
designation of Equity Shares as Shares-in-Trust, shall be effective as of the
close of business on the business day prior to the date of the Transfer or
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Non-Transfer Event that results in the transfer to the Trust.
Shares-in-Trust shall continue to constitute issued and outstanding Equity
Shares of the Corporation and shall be entitled to the same rights and
privileges as are all other issued and outstanding Equity Shares of the same
class and series. When transferred to a Permitted Transferee in accordance
with this Division C, such Shares-in-Trust shall cease to be designated as
Shares-in-Trust.
Section 2. DIVIDEND RIGHTS. The Trust, as record holder of
Shares-in-Trust, shall be entitled to receive all dividends and distributions
declared by the Board of Directors on such Shares-in-Trust and shall hold
such dividends and distributions in trust for the benefit of the Beneficiary.
The Prohibited Owner with respect to Shares-in-Trust shall repay to the
Trust the amount of any dividends or distributions received by it that (i)
are attributable to those Shares-in-Trust and (ii) the record date of which
was on or after the date that such shares became Shares-in-Trust. The
Corporation shall take all measures that it determines reasonably necessary
to recover the amount of any such dividend or distribution paid to a
Prohibited Owner, including, if necessary, withholding any portion of future
dividends or distributions payable on Equity Shares Beneficially Owned or
Constructively Owned by the Person who, but for the provisions of this
Division C, would Constructively Own or Beneficially Own the Shares-in-Trust;
and, as soon as reasonably practicable following the Corporation's receipt or
withholding thereof, shall pay over to the Trust for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.
Section 3. RIGHTS UPON LIQUIDATION. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of, or any distribution
of the assets of, the Corporation, each holder of Shares-in-Trust shall be
entitled to receive, ratably with each other holder of Equity Shares of the
same class or series, that portion of the assets of the Corporation which is
available for distribution to the holders of such class and series of Equity
Shares. The Trust shall distribute to the Prohibited Owner the amounts
received upon such liquidation, dissolution, or winding up, or distribution;
PROVIDED, HOWEVER, that the Prohibited Owner shall not be entitled to receive
amounts pursuant to this Division C in excess of, in the case of a purported
Transfer in which the Prohibited Owner gave value for Equity Shares and which
Transfer resulted in the transfer of the shares to the Trust, the price per
share, if any, such Prohibited Owner paid for the Equity Shares and, in the
case of a Non-Transfer Event or Transfer in which the Prohibited Owner did
not give value for such shares (E.G., if the shares were received through a
gift or devise) and which Non-Transfer Event or Transfer, as the case may be,
resulted in the transfer of shares to the Trust, the price per share equal to
the Market Price on the date of such Non-Transfer Event or Transfer. Any
remaining amount in such Trust shall be distributed to the Beneficiary.
Section 4. VOTING RIGHTS. The Trustee shall be entitled to vote
all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of Equity
Shares prior to the discovery by the Corporation that the Equity Shares are
Shares-in-Trust shall, so far as is practicable under applicable law, be
rescinded and shall be void AB INITIO with respect to such Shares-in-Trust
and the Prohibited Owner shall be deemed to have given, as of the close of
business on the business day prior to the date of the Transfer or
Non-Transfer Event that results in the transfer to the Trust of Equity Shares
pursuant to this Division C, an irrevocable proxy to the Trustee to vote the
Shares-in-Trust in the manner in which the Trustee, in its sole and absolute
discretion, considers advisable.
Section 5. DESIGNATION OF PERMITTED TRANSFEREE. The Trustee shall
have the exclusive and absolute right to designate a Permitted Transferee of
any Shares-in-Trust. In an orderly fashion so as not to materially adversely
affect the Market Price of the Shares-in-Trust, the Trustee shall designate a
Person as Permitted Transferee, so long as (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or
private sale) the Shares-in-Trust and (ii) the Permitted Transferee so
designated can acquire such Shares-in-Trust without such acquisition
resulting in a transfer to a Trust and the redesignation of such Equity
Shares as Shares-in-Trust. Upon the designation by the
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Trustee of a Permitted Transferee, the Trustee shall (i) cause to be
transferred to the Permitted Transferee that number of Shares-inTrust
acquired by the Permitted Transferee, (ii) cause to be recorded on the books
of the Corporation that the Permitted Transferee is the holder of record of
such number of Equity Shares, (iii) cause the Shares-in-Trust to be canceled,
and (iv) distribute to the Beneficiary any and all amounts held by the
Trustee with respect to the Shares-in-Trust after making any payment to the
Prohibited Owner required under Sections IV.C.II.3. and IV.C.II.6.
Section 6. COMPENSATION TO RECORD HOLDER OF EQUITY SHARES THAT
BECOME SHARES-IN-TRUST. Any Prohibited Owner shall be entitled (following
designation of Equity Shares proposed or purported to be held by that
Prohibited Owner as Shares-in-Trust and subsequent designation of a Permitted
Transferee or the Trustee's acceptance of an offer to purchase such shares)
to receive from the Trustee following the sale or other disposition of such
Shares-in-Trust the lesser of (i) in the case of (a) a purported Transfer in
which the Prohibited Owner gave value for Equity Shares and which Transfer
resulted in the transfer of the shares to the Trust, the price per share, if
any, such Prohibited Owner paid for the Equity Shares, or (b) a Non-Transfer
Event or Transfer in which the Prohibited Owner did not give value for such
shares (E.G., if the shares were received through a gift or devise) and which
Non-Transfer Event or Transfer, as the case may be, resulted in the transfer
of shares to the Trust, the price per share equal to the Market Price on the
date of such Non-Transfer Event or Transfer, and (ii) the price per share
received by the Trustee from the sale or other disposition of such
Shares-in-Trust. Any amounts received by the Trustee in respect of such
Shares-in-Trust and in excess of such amounts to be paid to the Prohibited
Owner shall be distributed to the Beneficiary. Each Beneficiary and
Prohibited Owner waive any and all claims that they may have against the
Trustee and the Trust arising out of the disposition of Shares-in-Trust,
except for claims arising out of the gross negligence or willful misconduct
of, or any failure to make payments in accordance with this Division C, by
such Trustee or the Corporation.
Section 7. PURCHASE RIGHT IN SHARES-IN-TRUST. Shares-in-Trust
shall be considered to have been offered for sale to the Corporation, or its
designee, on the date of the event that created such Shares-in-Trust status
at a price per share equal to the lesser of (i) the price per share in the
event that created such Shares-in-Trust status (or, in the case of a devise,
gift or Non-Transfer Event, the Market Price at the time of such devise, gift
or Non-Transfer Event) and (ii) the Market Price on the date the Corporation,
or its designee, accepts such offer. The Corporation shall have the right to
accept such offer for a period of ninety days after the later of (i) the date
of the event which created such Shares-in-Trust status and (ii) the date the
Corporation determines in good faith that an event occurred that created such
Shares-in-Trust status, if the Corporation does not receive a notice of such
event.
III. REMEDIES NOT LIMITED. Subject to Article I, Sections 7 and 8,
nothing contained in this Division C shall limit the authority of the
Corporation to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its shareholders by preservation
of the Corporation's status as a REIT and to ensure compliance with the
Ownership Limit.
IV. AMBIGUITY. In the case of any ambiguity in the application of any
provision of this Division C, including any definition contained herein, the
Board of Directors shall have the power to determine the application of that
provision.
V. LEGEND. Each certificate for Equity Shares shall bear the
following legend:
"The [Common Shares or Cumulative Preferred Shares or
Noncumulative Preferred Shares] represented by this certificate
are subject to restrictions on transfer for the purpose of the
Corporation's maintenance of its status as a real estate
investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"). No Person may (i) Beneficially Own or
Constructively Own
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Common Shares in excess of 9% of the number of outstanding Common
Shares, (ii) Beneficially Own or Constructively Own shares of any
class or series of Preferred Shares in excess of 9% of the number
of outstanding shares of that class or series of Preferred Shares,
(iii) beneficially own Equity Shares that would result in the
Equity Shares being beneficially owned by fewer than 100 Persons
(determined without reference to any rules of attribution), (iv)
Beneficially Own Equity Shares that would result in the Corporation
being "closely held" under Section 856(h) of the Code, or (v)
Constructively Own Equity Shares that would cause the Corporation
to Constructively Own 10% or more of the ownership interests in a
tenant of the Corporation's or of a Subsidiary's real property,
within the meaning of Section 856(d)(2)(B) of the Code. Each
holder of Equity Shares is required to furnish the Corporation such
information as the Corporation may request pursuant to Section 6 of
the Corporation's Amended and Restated Articles of Incorporation.
Any Person who attempts to Beneficially Own or Constructively Own
Equity Shares in excess of the above limitations must immediately
notify the Corporation in writing. If those restrictions are
violated, the Equity Shares represented hereby in excess of those
limitations will be transferred automatically by operation of the
Corporation's Amended and Restated Articles of Incorporation to a
Trust and will be designated Shares-in-Trust. All capitalized
terms in this legend have the meanings defined in the Corporation's
Amended and Restated Articles of Incorporation, as they may be
amended from time to time, a copy of which, including the
restrictions on transfer, will be sent without charge to each
shareholder who so requests."
VI. SEVERABILITY. Each provision of this Article FOURTH shall be
several, and an adverse determination as to any such provision shall in no
way affect the validity of any other provision.
FIFTH: At all times following the consummation of the Initial Public
Offering (as defined in Article FOURTH), at least a majority of the members
of the Board of Directors shall, except as may result from a vacancy or
vacancies therein, be Independent Directors. An "Independent Director" shall
mean a person who is (i) independent of management of the Corporation, (ii)
not employed by or an officer of the Corporation, (iii) not an "affiliate"
(as defined in Rule 405 under the Securities Act of 1933, as amended) of the
Corporation or of any Subsidiary of the Corporation, and (iv) not a person
who acts on a regular basis as an individual or representative of an
organization serving as a professional advisor, legal counsel or consultant
to management if, in the opinion of the Board of Directors, the relationship
is material to the Corporation, that person, or the organization represented.
Any determination to be made by the Board of Directors in connection with
any matter presenting a conflict of interest for any officer of the
Corporation or any director of the Corporation who is not an Independent
Director shall be made by the Independent Directors.
SIXTH: No holder of shares of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase shares
of any class, now or hereafter authorized, or to subscribe for or purchase
securities convertible into or exchangeable for shares of the Corporation or
to which shall be attached or appertain any warrants or rights entitling the
holder thereof to subscribe for or purchase shares, except such rights of
subscription or purchase, if any, for such considerations and upon such terms
and conditions as its Board of Directors from time to time may determine.
SEVENTH: Notwithstanding any provision of Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code, or any successor statutes now or
hereafter in force, requiring for the authorization or taking of any action
the vote or consent of the holders of shares entitling them to exercise
two-thirds or
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any other proportion of the voting power of the Corporation or of any class
or classes of shares thereof, such action, unless otherwise expressly
required by law or these Amended and Restated Articles of Incorporation, may
be authorized or taken by the vote or consent of the holders of shares
entitling them to exercise a majority of the voting power of the Corporation
or of such class or classes of shares thereof.
EIGHTH: To the extent permitted by law, the Corporation, by action of
its Board of Directors, may purchase or otherwise acquire shares of any class
issued by it at such times, for such consideration and upon such terms and
conditions as its Board of Directors may determine.
NINTH: No person who is serving or has served as a director of the
Corporation shall be personally liable to the Corporation or any of its
shareholders for monetary damages for breach of any fiduciary duty of such
person as a director by reason of any act or omission of such person as a
director; but the foregoing provision shall not eliminate or limit the
liability of any person (a) for any breach of such person's duty of loyalty
as a director to the Corporation or its shareholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 1701.95 of the Ohio Revised Code,
(d) for any transaction from which such person derived any improper personal
benefit, or (e) to the extent that such liability may not be limited or
eliminated by virtue of Section 1701.13 of the Ohio Revised Code or any
successor section or statute. Any repeal or modification of this Article
NINTH by the shareholders of the Corporation shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or
modification.
TENTH: Section 1701.831 of the Ohio Revised Code shall not apply to the
Corporation.
ELEVENTH: Chapter 1704 of the Ohio Revised Code shall not apply to the
Corporation.
TWELFTH: If any provision (or portion thereof) of these Amended and
Restated Articles of Incorporation shall be found to be invalid, prohibited,
or unenforceable for any reason, the remaining provisions (or portions
thereof) of these Amended and Restated Articles of Incorporation shall remain
in full force and effect, and shall be construed as if such invalid,
prohibited, or unenforceable provision had been stricken herefrom or
otherwise rendered inapplicable, it being the intent of the Corporation and
its shareholders that each such remaining provision (or portion thereof) of
these Amended and Restated Articles of Incorporation remain, to the fullest
extent permitted by law, applicable and enforceable as to all shareholders,
notwithstanding any such finding.
THIRTEENTH: No shareholder of the Corporation may cumulate his voting
power in the election of directors.
FOURTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Amended and Restated Articles of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation.
FIFTEENTH: These Amended and Restated Articles of Incorporation shall
take the place of and supersede the Corporation's existing Articles of
Incorporation.
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CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BOYKIN LODGING COMPANY
Robert A. Weible, Secretary, of Boykin Lodging Company, an Ohio
corporation (the "Corporation"), does hereby certify that the Executive
Committee of the Board of Directors of the Corporation adopted the following
resolution to amend the Amended and Restated Articles of Incorporation (the
"Articles") of the Corporation by written action pursuant Section 1701.63(D)
of the Ohio Revised Code and pursuant to the authority granted by Section
1701.70(B)(1) of the Ohio Revised Code and Section I.1. of Division A of the
Articles:
RESOLVED, that the Amended and Restated Articles of Incorporation
of the Corporation be, and they hereby are, amended by adding at the end of
Division A.I. of Article FOURTH a new Section 6 that reads as follows:
SECTION 6. CLASS A CUMULATIVE PREFERRED SHARES, SERIES 1999-A.
A. DESIGNATION AND AMOUNT. Of the 5,000,000 authorized Class A
Cumulative Preferred Shares, 75,000 are designated as "Class A Cumulative
Preferred Shares, Series 1999-A" (the "Series 1999-A Preferred Shares"). The
Series 1999-A Preferred Shares have the express terms set forth in this
Division as being applicable to all Class A Cumulative Preferred Shares as a
class and, in addition, the following express terms. The number of Series
1999-A Preferred Shares may be increased or decreased by resolution of the
Board of Directors and by the filing of a certificate of amendment pursuant
to the General Corporation Law of the State of Ohio stating that the increase
or reduction has been so authorized, but no decrease may reduce the number of
Series 1999-A Preferred Shares to a number less than that of the Series
1999-A Preferred Shares then outstanding plus the number of Series 1999-A
Preferred Shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the
Corporation.
B. DIVIDENDS AND DISTRIBUTIONS.
(1) Subject to the rights of the holders of any series of
preferred shares (or any similar shares) ranking prior to the Series 1999-A
Preferred Shares with respect to dividends, the holders of Series 1999-A
Preferred Shares, in preference to the holders of Common Shares and of any
other shares ranking junior to the Series 1999-A Preferred Shares, will be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, (1) quarterly dividends payable
in cash on the same day as the quarterly dividend payment date for any
regular quarterly dividend payable on the Common Shares with respect to
<PAGE>
the same period or, if no such regular quarterly dividend is payable on the
Common Shares, on the fifth day of May, August, November and February in each
year (each such date, a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a Series
1999-A Preferred Share or fraction thereof, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $47.00 or (b) subject to
adjustment as hereinafter set forth, 100 times the per share amount of all
regular quarterly cash dividends, and 100 times the per share value of all
regular quarterly noncash dividends or other distributions (as determined by
the Board of Directors in good faith), other than any dividend payable in
Common Shares or a subdivision of the outstanding Common Shares (by
reclassification or otherwise), declared on the Common Shares with respect to
the same period, and (2) if a dividend or distribution other than a regular
quarterly dividend and other than a dividend payable in Common Shares or a
subdivision of the outstanding Common Shares (by reclassification or
otherwise) is authorized, declared or paid to the holders of Common Shares
(including without limitation a dividend or distribution of cash, rights,
options or other securities or any noncash property), a per share cash
dividend in an amount equal to the value of the per share amount payable on
each Common Share (as determined by the Board of Directors in good faith)
multiplied by the Dividend Multiple (as defined below), payable on the same
day as the payment date for that dividend on the Common Shares. The multiple
of dividends declared on the Common Shares to which holders of the Series
1999-A Preferred Shares are entitled, which is 100 initially but which will
be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple." If the Company at any time after
February 1, 1999: (i) declares or pays any dividend on the Common Shares
payable in Common Shares, or (ii) effects a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise than by payment of a dividend in Common Shares) into a greater or
lesser number of Common Shares, then in each such case the Dividend Multiple
will thereafter be the Dividend Multiple applicable immediately prior to that
event multiplied by a fraction, the numerator of which is the number of
Common Shares outstanding immediately after that event and the denominator of
which is the number of Common Shares that were outstanding immediately prior
to that event.
(2) The Board of Directors may fix in accordance with applicable
law a record date for the determination of holders of Series 1999-A Preferred
Shares entitled to receive payment of a dividend or other distribution
declared thereon, which will be the same day as the record date for any
dividend or distribution payable on the Common Shares with respect to the
same period if any such dividend or distribution is so payable. Dividends on
the Series 1999-A Preferred Shares will accrue and be cumulative (i) with
respect to shares included in the initial issuance of Series 1999-A Preferred
Shares and shares issued any time thereafter to and including the record date
for the payment of the first dividend on the shares included in that initial
issuance (the "First Record Date"), from the date of that initial issuance,
(ii) with respect to shares issued any time after the First Record Date and
not between a record date and the dividend payment date to which that record
date applies (that period, the "Ex-dividend Period"), from the dividend
payment date immediately preceding the date of issue of those shares, and
(iii) with respect to shares issued after the First Record Date and during an
Ex-dividend Period, from the dividend payment date on which that Ex-dividend
Period ends. Accrued but unpaid dividends will not bear interest. Dividends
paid on the Series 1999-A Preferred Shares in an amount less than the total
amount of dividends at the time accrued and payable on those shares
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will be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The amount of accrued and unpaid dividends on any
Series 1999-A Preferred Share at any date is the amount of any dividends
payable thereon in accordance with this Section 6.B. (whether or not
declared) that have not been paid.
C. REDEMPTION. The Series 1999-A Preferred Shares are
redeemable, in whole but not in part, in accordance with Section 3 of
Division A.1.of Article FOURTH, at any time on or after (but not before) the
fifth anniversary of the initial issuance of a Series 1999-A Preferred Share,
at the option of the Board of Directors, upon payment of an amount in cash
for each share redeemed equal to the Conversion Multiple (as defined in
Section E.1., below) times the Adjusted Share Price, together with all
accrued and unpaid dividends thereon to the redemption date (the "Redemption
Price"). The Board of Directors may, at its option, pay all or any portion
of the Redemption Price for any Series 1999-A Preferred Shares redeemed in
accordance with this Section 6.C. by delivering to the holder thereof the
number of Common Shares derived by dividing the portion of the redemption
price to be so paid by the Adjusted Share Price, so long as that form of
payment will not result in the holder beneficially owning more than nine
percent (9.0%) of the total number of the outstanding Common Shares
(determined pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended), or violating Division C of this Article FOURTH, whichever is
more restrictive. For purposes of this Section 6.C., "Adjusted Share Price"
means a dollar amount equal to the average last sale price (or bid price if
there were no sales) per Common Share on the NYSE over the twenty-one (21)
days on which the NYSE is open and for which trades in Common Shares are
reported immediately preceding the date on which the Corporation delivers the
applicable redemption notice (adjusted to take into account any splits,
combinations, reclassifications, or other changes in the Corporation's
capitalization that occur between the date of that notice and the redemption
date). If the Common Shares are no longer trading on the NYSE, then the
Adjusted Share Price will be determined using the prices reported on the
exchange or automated quotation system on which the Common Shares then trade.
Each holder of Series 1999-A Preferred Shares may exercise the conversion
rights described in Section 6.E. for those shares at any time prior to the
date set for redemption of those shares.
D. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution may be made (x) to the holders of shares ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the Series
1999-A Preferred Shares unless, prior thereto, the holders of Series 1999-A
Preferred Shares shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,648.00 per share
or (2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Shares, or (y) to the holders of
shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series 1999-A Preferred Shares, except
distributions made ratably on the Series 1999-A Preferred Shares and all
other such parity shares in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up (the holders of Series 1999-A Preferred Shares being entitled to
receive, for this purpose, the amount determined pursuant to clause (x) of
this sentence). If the Corporation at any time after February 1, 1999 (i)
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declares or pays any dividend on Common Shares payable in Common Shares, or
(ii) effects a subdivision or combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise than by payment of a dividend
in Common Shares) into a greater or lesser number of Common Shares, then in
each such case the aggregate amount per share to which holders of Series
1999-A Preferred Shares were entitled immediately prior to such event under
clause (x)(2) of the immediately preceding sentence will be adjusted by
multiplying that amount by a fraction, the numerator of which is the number
of Common Shares outstanding immediately after that event and the denominator
of which is the number of Common Shares that were outstanding immediately
prior to that event.
Neither the consolidation of nor merger of the Corporation with or
into any other corporation or corporations, nor the sale or other transfer of
all or substantially all of the assets of the Corporation, will be considered
a liquidation, dissolution or winding up of the Corporation within the
meaning of this paragraph D.
E. CONVERSION RIGHTS.
(1) The holders of Series 1999-A Preferred Shares have the right,
at their option, to convert all or any portion of their Series 1999-A
Preferred Shares into Common Shares at any time and from time to time, on the
basis set forth below, but (a) no such holder may so convert Series 1999-A
Preferred Shares if, immediately after that conversion, that holder would be
the record or beneficial owner of more than nine percent (9.0%) of the total
number of the outstanding Common Shares (determined pursuant to Section 13(d)
of the Securities Exchange Act of 1934, as amended), or violate Division C of
this Article FOURTH, whichever is more restrictive, and (b) the right to
convert Series 1999-A Preferred Shares that have been called for redemption
pursuant to Section 6.C. terminates at the close of business on the
redemption date for those Series 1999-A Preferred Shares pursuant to Section
6.C., unless the Corporation defaults in making payment of any cash payable
on that redemption. Each Series 1999-A Preferred Share is initially
convertible into 100 Common Shares (the number of Common Shares into which
each Series 1999-A Preferred Share is convertible, the "Conversion
Multiple"). If the Corporation, at any time after February 1, 1999: (i)
declares or pays any dividend on the Common Shares payable in Common Shares,
or (ii) effects a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by payment
of a dividend in Common Shares) into a greater or lesser number of Common
Shares, then in each such case the Conversion Multiple will thereafter be the
Conversion Multiple applicable immediately prior to that event multiplied by
a fraction, the numerator of which is the number of Common Shares outstanding
immediately after that event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to that event.
(2) In order for a holder of Series 1999-A Preferred Shares to
convert Series 1999-A Preferred Shares into Common Shares, that holder shall
surrender the certificate or certificates for those Series 1999-A Preferred
Shares at the office of the transfer agent for the Series 1999-A Preferred
Shares (or at the principal office of the Corporation if the Corporation
serves as its own transfer agent), together with written notice that the
holder elects to convert all or any number of the Series 1999-A Preferred
Shares represented by that certificate or certificates. That notice must
state the holder's name or the names of the nominees in which the
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holder wishes the certificate or certificates for Common Shares to be issued
and the number of Series 1999-A Preferred Shares to be converted. If
required by the Corporation, certificates surrendered for conversion must be
endorsed or accompanied by a written instrument or instruments of transfer,
in form satisfactory to the Corporation, duly executed by the registered
holder or his or its attorney duly authorized in writing. The date of
receipt of those certificates and notice by the transfer agent or by the
Corporation (if the Corporation serves as its own transfer agent) will be the
conversion date (the "Conversion Date") and the conversion will be effective
as of the close of business on the Conversion Date. The Corporation shall, as
soon as practicable after the Conversion Date, issue and deliver at that
office, or send, on the converting holder's written instruction, to that
holder or to his or its nominees, a certificate or certificates for the
number of Common Shares to which that holder is entitled, together with cash
in lieu of any fraction of a share.
(3) The Corporation shall at all times when any Series 1999-A
Preferred Shares are outstanding, reserve and keep available out of its
authorized but unissued shares, for the purpose of effecting the conversion
of the Series 1999-A Preferred Shares, such number of its duly authorized
Common Shares as are from time to time sufficient to effect the conversion of
all outstanding Series 1999-A Preferred Shares.
(4) Upon any conversion effected in accordance with this Section
6.E., the Corporation shall pay all accrued and unpaid dividends on the
Series 1999-A Preferred Shares surrendered for conversion.
(5) All Series 1999-A Preferred Shares that have been surrendered
for conversion as herein provided will no longer be considered outstanding,
and all rights with respect to those shares, including the rights, if any, to
receive notices and to vote, will cease and terminate at the close of
business on the Conversion Date, except only the right of the holders thereof
to receive Common Shares in exchange therefor and the dividend payment
provided for in paragraph (4), above. If certificates representing more than
one Series 1999-A Preferred Share are surrendered for conversion at one time
by the same holder, the number of Common Shares issuable on conversion
thereof will be computed on the basis of the aggregate number of Series
1999-A Preferred Shares so surrendered.
F. FRACTIONAL SHARES. Series 1999-A Preferred Shares may be issued
in whole shares or in any fraction of a share, which will entitle the holder,
in proportion to that holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and have the benefit of all
other rights of holders of Series 1999-A Preferred Shares. In lieu of
issuing fractional shares of less than one one-hundredth (1/100) of a
Preferred Share, the Corporation may elect to make a cash payment in an
amount equal to the same fraction of the last sale price (or bid price if
there were no sales) per Common Share on the New York Stock Exchange on the
business day that immediately precedes the Conversion Date or, if the Common
Shares are not the listed on the New York Stock Exchange, of the market price
per share determined using the prices reported on the exchange or automated
quotation system on which the Common Shares then trade, as equitably adjusted
to reflect any change or adjustment to the Conversion Multiple after February
1, 1999.
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G. CERTAIN TRANSACTIONS. If the Corporation is a party to any
transaction (including without limitation a merger, consolidation, statutory
share exchange, self tender offer for all or substantially all Common Shares
outstanding, sale of all or substantially all of the Corporation's assets or
recapitalization of the Common Shares but excluding the payment of any
dividend payable in Common Shares or a subdivision, combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise)) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which Common Shares are converted
into the right to receive shares, securities or other property (including
cash or any combination thereof), each Series 1999-A Preferred Share that is
not redeemed or converted into the right to receive shares, securities or
other property in connection with that Transaction will thereafter be
convertible into the kind and amount of shares, securities and other property
(including cash or any combination thereof) receivable upon the consummation
of that Transaction by a holder of that number of Common Shares into which
one Series 1999-A Preferred Share was convertible immediately prior to that
Transaction, assuming that holder of Common Shares (i) is not a Person with
which the Corporation consolidated or into which the Corporation merged or
that merged into the Corporation or to which that sale or transfer was made,
as the case may be (a "Constituent Person"), or an affiliate of a Constituent
Person and (ii) failed to exercise his or her rights of election, if any, as
to the kind or amount of shares, securities and other property (including
cash) receivable upon that Transaction (but if the kind or amount of shares,
securities and other property (including cash) receivable upon that
Transaction is not the same for each Common Share held immediately prior to
that Transaction by other than a Constituent Person or an affiliate thereof
and in respect of which those rights of election have not been exercised
("Non-Electing Share"), then for the purpose of this Section 6.G., the kind
and amount of shares, securities and other property (including cash)
receivable upon that Transaction by each Non-Electing Share will be
considered to be the kind and amount so receivable per share by a plurality
of the Non-Electing Shares). The Corporation shall not be a party to any
Transaction unless the terms of that Transaction are consistent with the
provisions of this Section 6.G. and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into an
agreement with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the Series 1999-A Preferred Shares that will
contain provisions enabling the holders of the Series 1999-A Preferred Shares
that remain outstanding after that Transaction to convert their Series 1999-A
Preferred Shares into the consideration received by holders of Common Shares
at the Conversion Multiple in effect immediately prior to that Transaction.
The provisions of this Section 6.G. similarly apply to successive
Transactions.
H. NOTICE. Whenever the Dividend Multiple or the Conversion
Multiple is adjusted as herein provided, the Corporation shall promptly
deliver to each holder of the Series 1999-A Preferred Shares, at that
holder's last address shown on the share records of the Corporation, a notice
of that adjustment, setting forth the adjusted Dividend Multiple or
Conversion Multiple, as applicable, and the effective date of that adjustment
and a brief statement of the facts requiring that adjustment.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument as
of February 1, 1999.
/s/ Robert A. Weible
--------------------------------------
Robert A. Weible, Secretary
Boykin Lodging Company
-7-
<PAGE>
Exhibit 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Name State Ownership Percent
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Boykin Hotel Properties, L.P. ("BHPLP") Ohio 92.1%
BoyStar Ventures, L.P. Ohio 91% (by BHPLP)
Shawan Road Hotel L.P. Maryland 91% (by BHPLP)
Boykin San Diego LLC Ohio 91% (by BHPLP)
RadBoy Mt. Laurel LLC Ohio 85% (by BHPLP)
Boykin Kansas City LLC Ohio 80% (by BHPLP)
Boykin/AEW LLC Delaware 25% (by BHPLP)
Red Lion Inns Operating L.P. Delaware 100% (by BHPLP)
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-39369.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 31, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001015859
<NAME> BOYKIN LODGING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,643
<SECURITIES> 0
<RECEIVABLES> 5,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 627,844
<DEPRECIATION> 32,712
<TOTAL-ASSETS> 615,062
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 286,000
0
0
<COMMON> 0
<OTHER-SE> 286,216
<TOTAL-LIABILITY-AND-EQUITY> 615,062
<SALES> 0
<TOTAL-REVENUES> 70,122
<CGS> 0
<TOTAL-COSTS> 33,423
<OTHER-EXPENSES> 2,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,498
<INCOME-PRETAX> 20,142
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,142
<DISCONTINUED> 0
<EXTRAORDINARY> (1,138)
<CHANGES> 0
<NET-INCOME> 19,004
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
<FN>
<F1>REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE TOTAL CURRENT
ASSETS AND TOTAL CURRENT LIABILITIES ARE NOT APPLICABLE.
</FN>
</TABLE>
