<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, For Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
</TABLE>
BOYKIN LODGING COMPANY
(Name of Registrant as Specified in Its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing fee (Check the appropriate box):
<TABLE>
<C> <S> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated
and state how it was determined):
---------------------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
---------------------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
Not Applicable
(2) Form, Schedule or Registration Statement No.:
Not Applicable
(3) Filing Party:
Not Applicable
(4) Date Filed:
Not Applicable
</TABLE>
<PAGE>
PROXY STATEMENT
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION
AND ANALYSIS
1998 CONSOLIDATED
FINANCIAL
STATEMENTS AND NOTES
- --------------------------------------------------------------------------------
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
To our Shareholders:
The 1999 annual meeting of shareholders of Boykin Lodging Company will be
held at the Cleveland Airport Marriott, 4277 West 150(th) Street, Cleveland,
Ohio 44135, on Tuesday, May 25, 1999, beginning at 10:00 a.m., local time, for
the following purposes:
1. To elect seven directors, each for a term of one year;
2. To consider a proposal to approve an increase in the number of
common shares reserved for issuance under our Long-Term Incentive Plan by
seven hundred thousand (700,000), from one million (1,000,000) to one
million seven hundred thousand (1,700,000);
3. To receive reports at the meeting. No action constituting approval
or disapproval of the matters referred to in the reports is contemplated;
and
4. Any other matters that properly come before the meeting.
Only shareholders of record at the close of business on April 7, 1999, will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
Shareholders are urged to complete, date and sign the enclosed proxy and return
it in the enclosed envelope. The principal address of Boykin Lodging Company is
Guildhall Building, Suite 1500, 45 W. Prospect Avenue, Cleveland, Ohio 44115.
By order of the Board of Directors,
[SIGNATURE]
Andrew C. Alexander,
ASSISTANT SECRETARY
Dated: April 19, 1999
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
BOYKIN LODGING COMPANY
PROXY STATEMENT
------------------------
QUESTIONS AND ANSWERS
WHAT IS THE PURPOSE OF THIS PROXY STATEMENT?
Our Board of Directors is sending you this proxy statement to ask for your vote
as a shareholder of Boykin Lodging Company on certain matters to be voted on at
the upcoming annual meeting of shareholders. We are mailing this proxy statement
and the accompanying notice and proxy, along with our Summary Annual Report to
Shareholders, to you on or about April 19, 1999.
WHERE AND WHEN IS THE ANNUAL MEETING OF SHAREHOLDERS?
Our annual meeting of shareholders will be held at the Cleveland Airport
Marriott, 4277 West 150(th) Street, Cleveland, Ohio 44135, on Tuesday, May 25,
1999, at 10:00 a.m., local time.
WHAT AM I VOTING ON?
You will vote on the election of seven directors and a proposal to approve an
increase in the number of common shares reserved for issuance under our
Long-Term Incentive Plan from 1,000,000 to 1,700,000. We are not aware of any
other matter that will be presented for your vote at the meeting.
HOW DO I VOTE?
You can vote either in person by ballot at the annual meeting of shareholders or
by completing and mailing the enclosed proxy card. If the enclosed proxy card is
returned, the common shares represented by it will be voted as you direct.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record date, April
7, 1999, are entitled to receive notice of the annual meeting of shareholders
and to vote the common shares that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding common share
entitles its holder to cast one vote on each matter to be voted upon.
HOW MANY COMMON SHARES ARE ENTITLED TO VOTE?
As of the record date 17,061,638 common shares, without par value, were entitled
to vote at the annual meeting of shareholders.
WHAT CONSTITUTES A QUORUM?
The presence at the annual meeting of shareholders, either in person or by
proxy, of the holders of a majority of the outstanding common shares on the
record date will constitute a quorum, permitting the conduct of the business of
the meeting. Proxies received but marked as abstentions and broker non-votes
will be included in the calculation of the number of shares considered to be
present at the annual meeting of shareholders.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
You can change your vote at any time before your proxy is exercised by executing
and delivering a later-dated proxy or by giving notice to us in writing at the
address indicated on the attached Notice of Annual Meeting of Shareholders, or
in open meeting. However, your presence alone at the annual meeting of
shareholders will not operate to revoke your proxy.
WHAT HAPPENS IF I SIGN AND RETURN MY PROXY CARD BUT I DO NOT MARK ANY VOTE?
In the absence of any specification on your proxy card, the common shares
represented by your proxy card will be voted to elect the director
1
<PAGE>
nominees set forth under the heading "Election of Directors" and FOR the
proposal to increase the number of common shares reserved for issuance under our
Long-Term Incentive Plan.
WHO CAN ATTEND THE ANNUAL MEETING OF SHAREHOLDERS?
All shareholders, or their duly appointed proxies, may attend the annual meeting
of shareholders. Please note that if you hold your shares in "street name" (that
is, through a broker or other nominee), you will need to bring a copy of your
brokerage statement reflecting your ownership as of the record date.
WHO IS PAYING FOR THIS PROXY STATEMENT AND THE SOLICITATION EXPENSES?
We will pay the cost of this proxy statement and the cost of the solicitation of
your proxies. In addition to solicitation of proxies by mail, regular employees
of Boykin Lodging Company or its affiliates may solicit proxies by telephone or
facsimile. Those employee will not receive any additional compensation for their
participation in the solicitation.
WHAT ELSE AM I RECEIVING WITH THIS PROXY STATEMENT?
In addition to the attached Notice of Annual Meeting of Shareholders and the
enclosed proxy card, we are sending you our Summary Annual Report to
Shareholders for the fiscal year ended December 31, 1998. Our audited
consolidated financial statements and certain other financial information for
the fiscal year ended December 31, 1998, are included as pages F-1 to F-34,
inclusive, attached to this proxy statement.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
The Board of Directors recommends a vote for the election of the nominated slate
of directors (see page 4) and for the proposal to increase the number of common
shares reserved for issuance under our Long-Term Incentive Plan.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the amount of our common shares beneficially owned
as of February 28, 1999, by: (a) our directors (all of whom are also nominees
for director); (b) each other person who is known by us to own beneficially more
than 5% of our outstanding common shares; (c) our chief executive officer and
the four other most highly compensated executive officers named in the Summary
Compensation Table; and (d) our executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER(1) OWNED OF CLASS
- ------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Robert W. Boykin(2).................................................................. 212,766(3) 1.25%
Mark L. Bishop....................................................................... 56,980(4) *
Richard C. Conti..................................................................... 3,212 *
Paul A. O'Neil(2).................................................................... 58,109(5) *
Albert T. Adams...................................................................... 10,000(6) *
Raymond P. Heitland(2)............................................................... 41,667(7) *
Lee C. Howley, Jr.................................................................... 14,500(6)(8) *
Frank E. Mosier...................................................................... 14,000(6) *
William H. Schecter.................................................................. 11,000(6) *
Ivan J. Winfield..................................................................... 11,000(6) *
All Executive Officers and Directors as a Group (11 persons)......................... 433,234 2.54%
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated, a beneficial owner has sole voting and
investment power with respect to all common shares set forth opposite his
name.
(2) Robert W. Boykin owns 577,112 limited partnership interests ("Units") in
Boykin Hotel Properties, L.P., an Ohio limited partnership (the
"Partnership"); John E. Boykin and William J. Boykin, Robert W. Boykin's
brother and father, own 484,381 and 150,000 Units, respectively; and Raymond
P. Heitland and Paul A. O'Neil own 10,650 and 1,400 Units, respectively.
Each of them may cause the Partnership to purchase his Units on or after
November 4, 1999, for cash (the purchase price of one Unit, subject to
certain factors, being equal to the market value of one common share of
Boykin Lodging Company). However, we may elect, subject to certain
conditions, to deliver our common shares, in lieu of cash, in exchange for
tendered Units. Assuming conversion of their Units into common shares,
Robert W. Boykin and John E. Boykin would beneficially own 4.36% and 2.78%,
respectively, of our common shares. Each of William J. Boykin, Raymond P.
Heitland and Paul A. O'Neil would beneficially own less than 1% of the
outstanding common shares. Currently, we own a 92.1% general partnership
interest in the Partnership.
(3) Includes 171,666 common shares which Mr. Boykin has the right to acquire
through the exercise of share options, 20,000 common shares which are owned
by Boykin Management Company Limited Liability Company, an Ohio limited
liability company, of which Mr. Boykin indirectly owns approximately a 54%
equity interest, and 21,000 common shares owned by Rowboy Trading Holdings
LLC, a Delaware limited liability company, of which Mr. Boykin is the
managing member.
(4) Represents 55,000 common shares which Mr. Bishop has the right to acquire
through the exercise of share options and 1,980 common shares held by the
estate of Mr. Bishop's father, of which Mr. Bishop is the trustee.
(5) Includes 55,000 common shares which Mr. O'Neil has the right to acquire
through the exercise of share options.
3
<PAGE>
(6) Includes 10,000 common shares that each of Messrs. Adams, Howley, Mosier,
Schecter and Winfield the right to acquire through the exercise of share
options.
(7) Includes 31,666 common shares, which Mr. Heitland has the right to acquire
through the exercise of share options.
(8) Includes 4,500 common shares owned by the Howley Family Partnership, which
is owned equally by Mr. Howley and his wife.
ELECTION OF DIRECTORS
In accordance with our Code of Regulations, the number of directors has been
fixed at seven. At the annual meeting of shareholders, the shares represented by
proxies, unless otherwise specified, will be voted for the election of the seven
nominees hereinafter named, each to serve until the next annual meeting of
shareholders. Under Ohio law and our Amended and Restated Articles of
Incorporation, as amended, abstentions and broker non-votes, if any, will not be
counted in favor of or against any nominee. Director nominees who receive the
greatest number of affirmative votes will be elected directors.
The director nominees are identified in the following table. Each is
currently a director and was elected as a director at last year's annual meeting
of shareholders.
If for any reason any of the nominees is not a candidate when the election
occurs (which is not expected), the Board of Directors expects that proxies will
be voted for the election of a substitute nominee designated by management. The
following information is furnished with respect to each person nominated for
election as a director.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
EXPIRATION
PERIOD OF TERM
PRINCIPAL OCCUPATION OF SERVICE FOR WHICH
NAME AGE AND BUSINESS EXPERIENCE AS A DIRECTOR PROPOSED
- --------------------------- --- -------------------------------------------------- -------------- ----------
<S> <C> <C> <C> <C>
Robert W. Boykin 49 Chairman of the Board of Directors, 1996 to date 2000
President and Chief Executive Officer of
Boykin Lodging Company
Raymond P. Heitland 63 Retired Chief Financial Officer of 1996 to date 2000
Boykin Lodging Company
Albert T. Adams 48 Partner, Baker & Hostetler LLP 1996 to date 2000
Lee C. Howley, Jr. 51 Owner and President, Howley & Company 1996 to date 2000
Frank E. Mosier 68 Retired Vice Chairman BP America, Inc. 1996 to date 2000
William H. Schecter 56 President, National City Capital 1998 to date 2000
Corporation; Senior Vice President,
National City Corporation
Ivan J. Winfield 64 Associate Professor at Baldwin-Wallace 1996 to date 2000
College
</TABLE>
Each of the nominees for election as a director has engaged in the principal
occupation or activity indicated for at least five years, except as described
below.
4
<PAGE>
Mr. Boykin served as the President and Chief Executive Officer of Boykin
Management Company from 1985 until November 1996. Mr. Heitland served as the
Chief Financial Officer of Boykin Management Company from 1970 until November
1996 and as our Chief Financial Officer from November 1996 until his retirement
in May 1998. Mr. Winfield served as managing partner of Coopers & Lybrand,
L.L.P.'s Northeast Ohio practice from 1990 until October 1994.
Mr. Adams is a director of Developers Diversified Realty Corporation,
Associated Estates Realty Corporation, Captec Net Lease Realty, Inc., Dairy Mart
Convenient Stores, Inc. and American Industrial Properties REIT. Mr. Howley is a
director of Captec Net Lease Realty, Inc., LESCO, Inc. and International Total
Services, Inc., and serves as Co-Chairman of the Rock and Roll Hall of Fame and
Museum in Cleveland, Ohio. Mr. Mosier is a director of Associated Estates Realty
Corporation. Mr. Schecter is a director of NatCity Investments, a registered
investment company. Mr. Winfield is a director of HMI Industries, Inc.,
International Total Services, Inc., OfficeMax, Inc. and Rainbow Rental, Inc.
Last year the Board of Directors held eight meetings. The Board of Directors
has appointed an Audit Committee, an Executive Committee, a Compensation
Committee and a Long-Term Incentive Plan Committee. The Board of Directors does
not have a nominating committee. Each member of the Board of Directors attended
at least 75% of the meetings of the Board of Directors and of the committees on
which he served.
The Audit Committee comprises Messrs. Adams, Howley, Heitland, Mosier,
Schecter and Winfield. Last year the Audit Committee held two meetings. The
Audit Committee recommends annually to the Board of Directors our independent
public accountants, reviews with the independent public accountants the
arrangements for and scope of the audits to be conducted by them and the results
of those audits, and reviews various financial and accounting matters affecting
us.
The Executive Committee comprises Messrs. Boykin, Heitland and Adams. Last
year the Executive Committee did not hold any meetings but took action by
unanimous written consent on five occasions. The Executive Committee, during the
intervals between the meetings of the Board of Directors, possesses and may
exercise all of the powers of the Board of Directors in the management of our
business and affairs, except as otherwise provided (i) by law, (ii) in our
Amended and Restated Articles of Incorporation, as amended, or in our Code of
Regulations, or (iii) by action of the Board of Directors.
The Compensation Committee comprises Messrs. Adams, Howley, Heitland,
Mosier, Schecter and Winfield. Last year the Compensation Committee held two
meetings. The Compensation Committee periodically reviews and determines the
compensation, including fringe benefits and incentive compensation, of our
officers and management personnel.
The Long-Term Incentive Plan Committee, which comprises Messrs. Howley,
Heitland, Mosier, Schecter and Winfield, administers our Long-Term Incentive
Plan and determines the employees who may participate in the grant of any award
(including share options), and the terms thereof, under the Long-Term Incentive
Plan. Last year Long-Term Incentive Plan Committee held one meeting and took
action by unanimous written consent on four occasions.
DIRECTORS' COMPENSATION. Each director is compensated at the rate of
$20,000 per year. Each director also receives $1,000 for attendance at each
meeting of the Board of Directors and for each meeting of any committee on which
he serves. Our employees and officers who are also directors are not paid any
director fees. On December 2, 1998, each director who was not an employee of
ours (Messrs. Adams, Howley, Heitland, Mosier, Schecter and Winfield) received
an option for 5,000 common shares, exercisable at $13.47 per share on December
2, 1999 until the option expires in December 2008.
5
<PAGE>
Non-employee directors are permitted to defer all or a portion of their fees
pursuant to our Directors' Deferred Compensation Plan. This plan, which is
administered by our officers who are not eligible to participate in it, is
unfunded and participants' contributions are converted to units, the value of
which fluctuate according to the market value of our common shares. During their
terms as directors, Mr. Adams and Mr. Heitland have deferred compensation
represented by 4,309 and 1,828 units, respectively. On March 3, 1999, those
units were valued at $54,805 and $23,250 respectively.
COMPENSATION COMMITTEE REPORT
INTRODUCTION. Our Compensation Committee (the "Committee") is responsible
for determining the compensation to be paid to our executive officers. The
Committee is also responsible for making major policy decisions with respect to
health care and other benefit plans. The Long-Term Incentive Plan is
administered by our Long-Term Incentive Plan Committee.
The Committee's philosophy with respect to the compensation of our executive
officers is (i) to provide a competitive total compensation package that enables
us to attract and retain qualified executives and align their compensation with
our overall business strategies, and (ii) through the Long-Term Incentive Plan
Committee, to provide each executive officer with a significant equity stake in
us.
To this end, the Committee determined executive compensation for 1998 with a
focus on compensating executive officers based on their responsibilities and the
Company's performance. The primary components of the Company's executive
compensation program were (i) base salaries and certain other annual
compensation, (ii) bonuses and (iii) share options.
BASE SALARIES AND OTHER ANNUAL COMPENSATION. The base salaries and certain
other compensation for our executive officers in 1998 were determined with
reference to their experience in the industry, together with comparisons of
compensation paid by companies of similar size in the real estate investment
trust industry--including certain, but not all, of the companies included in
NAREIT (the National Association of Real Estate Investment Trusts). The
Committee also commissioned and considered a comprehensive survey of executive
compensation in the lodging industry prepared by HVS International.
The base salaries for Messrs. Boykin and Bishop are set forth in employment
agreements entered into between us and them on November 4, 1996 in connection
with our initial public offering. Under these agreements Messrs. Boykin and
Bishop received annual base salaries in 1998 of $300,385 and $147,342,
respectively. Messrs. Conti's and O'Neil's annual base salaries in 1998 were
$168,269 and $153,602, respectively, and were paid under employment arrangements
with them. See "Employment Agreements and Arrangements." In addition, the
employment agreements and arrangements provide for use of an automobile, health
insurance and certain other benefits. The Committee believes that these annual
compensation packages are commensurate with Messrs. Boykin's, Bishop's, Conti's
and O'Neil's experience and responsibility.
BONUSES. Mr. Boykin is entitled to a bonus of from 10% to 90% of his annual
base salary, Mr. Conti is entitled to a bonus of from 5% to 70% of his annual
base salary and Messrs. Bishop and O'Neil are entitled to bonuses of from 5% to
45% of their annual base salaries, if funds from operations ("FFO") per common
share for the year exceed, by 3% to 12% or more, the FFO per common share for
the immediately preceding year. FFO means income (loss) before minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains (losses) from debt restructuring and sales of property
(including furniture and equipment), plus real estate-related depreciation and
amortization (excluding amortization of financing costs), and after adjustments
for unconsolidated partnerships and joint ventures.
6
<PAGE>
SHARE OPTIONS. All of our executive officers are eligible to receive
options to purchase common shares under our Long-Term Incentive Plan. Share
options granted by the Long-Term Incentive Plan Committee are designed to
encourage and enable our key employees to acquire a larger share ownership and
personal financial interest in our company. The Compensation Committee believes
that share option awards subject to periodic vesting enable us to attract and
retain qualified individuals for service with us. Individual option grants, with
exercise prices at least equal to the fair market value of our common shares on
the date of grant, are determined by the Long-Term Incentive Plan Committee
based on the executive's current performance, potential for future
responsibility, and the impact of the particular executive officer's performance
on our operational results. Share option awards made during the last fiscal year
to our named executive officers are set forth in "Option Grants in Last Fiscal
Year" on page 10 of this proxy statement.
Albert T. Adams
Raymond P. Heitland
Lee C. Howley, Jr.
Frank E. Mosier
William H. Schecter
Ivan J. Winfield
7
<PAGE>
EXECUTIVE COMPENSATION
The following information is set forth with respect to our Chief Executive
Officer and each of our four other most highly compensated executive officers.
We sometimes refer to the people listed in the table below as our "named
executive officers." The amounts for 1996 reflect compensation paid by us from
November 4, 1996 (the date of our initial public offering) through the end of
the year. We did not pay compensation for any period prior to November 4, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
OTHER -------------------- ALL
ANNUAL COMPENSATION ANNUAL RESTRICTED OTHER
--------------------------- COMPEN- SHARE SHARE COMPEN-
FISCAL SALARY BONUS SATION AWARD(S) OPTIONS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#)(2) ($)(3)
- --------------------------------------------- ------ -------- -------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert W. Boykin 1998 $300,385 $ 30,000 -- -- 50,000 $156,394
Chairman, President and 1997 251,181 225,000 -- -- 25,000 158,727
Chief Executive Officer 1996 41,896 18,853 -- -- 250,000 1,046
Richard C. Conti(4) 1998 168,269 86,655(5) -- -- 170,139 1,390
Chief Operating Officer 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --
Paul A. O'Neil(6) 1998 153,602 42,662 -- -- 10,000 30,000
Chief Financial Officer 1997 87,453 88,625(7) -- -- 80,000 20,015
and Treasurer 1996 -- -- -- -- -- --
Mark L. Bishop 1998 147,342 42,350 -- -- 10,000 34,500
Senior Vice President-- 1997 140,454 63,000 -- -- 5,000 30,947
Acquisition 1996 23,462 4,962 -- -- 75,000 --
Michael D. Murphy(8) 1998 140,769 25,000 -- -- 59,316 --
Senior Vice President-- 1997 -- -- -- -- -- --
Acquisition 1996 -- -- -- -- -- --
</TABLE>
- ------------------------
(1) No named executive officer received total perquisites and other personal
benefits above the threshold amounts specified in the regulations of the
Securities and Exchange Commission.
(2) See the Option table on page 10 for a schedule of options vesting.
(3) Amounts shown in 1998 represent our contributions on behalf of Messrs.
Boykin, O'Neil and Bishop to our money purchase pension plan and on behalf
of Mr. Boykin ($6,600) and Mr. Bishop ($4,500) to our nonqualified savings
plan. Of the amount shown for Mr. Boykin in 1998, $119,794 constitutes the
aggregate amount of life insurance premiums paid by us on two split-dollar
life insurance policies. The amount shown for Mr. Conti in 1998 represents
life insurance premiums paid by us on Mr. Conti's behalf. Amounts shown in
1997 represent our contribution on behalf of Messrs. Boykin, O'Neil and
Bishop to our money purchase pension plan and on behalf of Mr. Boykin
($6,600) and Mr. Bishop ($2,625) to our nonqualified savings plan. In
addition, of the amount shown for Mr. Boykin in 1997, $122,127 constitutes
the aggregate amount of life insurance premiums paid by the us on two
split-dollar life insurance policies.
(4) Mr. Conti started his employment with us on May 1, 1998.
8
<PAGE>
(5) Includes 2,000 shares granted to Mr. Conti in May 1998 under our Long-Term
Incentive Plan.
(6) Mr. O'Neil started his employment with us on May 20, 1997.
(7) Includes 1,000 shares granted to Mr. O'Neil on December 2, 1997 under our
Long-Term Incentive Plan.
(8) Mr. Murphy started his employment with us on January 26, 1998. Mr. Murphy
resigned his employment on February 26, 1999.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
Robert W. Boykin and Mark L. Bishop entered into employment contracts with
us in connection with our November 1996 initial public offering. Mr. Boykin's
agreement provides for an initial three-year term that is automatically extended
for an additional year at the end of each year of the agreement, subject to the
right of either party to terminate the agreement by giving two years' prior
written notice. The agreement for Mr. Bishop 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. Boykin and Mr. Bishop are
prohibited from competing with us during the terms of their respective
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.
Both agreements provide for the annual base salary and bonus described under
the Compensation Committee Report, and for the use of an automobile, medical and
dental benefits, vacation and sick leave and certain additional compensation.
Mr. Boykin's employment agreement also provides for membership in a country
club, a golf club and a downtown business club, and for certain life insurance
benefits.
In May 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 arrangement by giving six months' prior
written notice. Mr. O'Neil is entitled to the use of an automobile, medical and
dental benefits, vacation and sick leave, and certain additional benefits
available to our other executive officers.
In May 1998, we entered into an employment arrangement with Richard C.
Conti. The arrangement provides for the annual base salary and bonus described
under the Compensation Committee Report, and for the use of an automobile,
medical and dental benefits, vacation and sick leave and certain additional
compensation.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION FOR
EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED(1) YEAR(2) ($/SHARE) DATE 5% 10%
- ---------------------------------- ----------- --------------- ----------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Boykin.................. 50,000 14.7% $ 13.47 December 2008 $ 423,500 $ 1,073,500
Richard C. Conti.................. 150,000(4) 44.1% $ 23.53 May 2008 $ 2,220,000 $ 5,625,000
20,139 5.9% $ 13.47 December 2008 $ 170,577 $ 432,384
Paul A. O'Neil.................... 10,000 2.9% $ 13.47 December 2008 $ 84,700 $ 214,700
Mark L. Bishop.................... 10,000 2.9% $ 13.47 December 2008 $ 84,700 $ 214,700
Michael D. Murphy................. 50,000(5) 14.6% $ 24.56 February 2008 $ 772,500 $ 1,957,000
9,316(5) 2.7% $ 13.47 December 2008 $ 78,906 $ 200,014
</TABLE>
- ------------------------
(1) Options are not exercisable during the first 12 months after the date of
grant, except as noted in footnotes 4 and 5, below.
(2) Based on 340,483 share options granted to all employees during 1998.
(3) These amounts are based on hypothetical appreciation rates of 5% and 10% and
are not intended to forecast the actual future appreciation of our common
shares. No gain to optionees is possible without an actual increase in the
price of our common shares, which would benefit all of our shareholders. All
calculations are based on a ten-year option period.
(4) The option was granted in May 1998 in connection with Mr. Conti's
commencement of employment. The option provides for vesting with respect to
50,000 shares in each of May 1999, May 2000 and May 2001.
(5) The option was granted in February 1998 in connection with Mr. Murphy's
commencement of employment. The option provides for vesting with respect to
16,667 shares in each of February 1999 and February 2000 and 16,666 shares
in February 2001. Mr. Murphy resigned his employment with us on February 26,
1999. Therefore, the vested portion of his options (16,667 shares) will not
be exercisable after May 27, 1999 and the unvested portions of his options
effectively terminated upon his resignation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
SHARES VALUE YEAR-END(#) YEAR-END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------ --------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Robert W. Boykin...................................... -- -- 171,666/153,334 -0-/-0-
Richard C. Conti...................................... -- -- --/170,139 -0-/-0-
Paul A. O'Neil........................................ -- -- 55,000/35,000 -0-/-0-
Mark L. Bishop........................................ -- -- 55,000/35,000 -0-/-0-
Michael D. Murphy..................................... -- -- --/59,316 -0-/-0-
</TABLE>
10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Albert T. Adams, a member of the Compensation Committee, is a partner in
Baker & Hostetler LLP, which acts as our general outside legal counsel. We
expect that Baker & Hostetler LLP will continue to provide legal services in
that capacity in 1999. Raymond P. Heitland, a member of the Compensation
Committee, was our Chief Financial Officer until his retirement in May 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We own a 92.1% general partnership interest ("Units") in Boykin Hotel
Properties, L.P. (the "Partnership"). We conduct all our business through the
Partnership. Robert W. Boykin, our Chairman, President and Chief Executive
Officer, owns, directly and indirectly, 577,112 Units (a 3.5% limited
partnership interest) in the Partnership. John E. Boykin and William J. Boykin,
Robert W. Boykin's brother and father, own 484,381 and 150,000 Units,
respectively. Raymond P. Heitland, one of our directors and our Chief Financial
Officer until his retirement in May 1998, and Paul A. O'Neil, our Chief
Financial Officer and Treasurer, own 10,650 and 1,400 Units, respectively. The
Partnership owns 25 hotels that it leases, under percentage leases, to Boykin
Management Company Limited Liability Company and its wholly owned subsidiary,
Westboy LLC (together, "BMC"). Robert W. Boykin and his brother John E. Boykin
indirectly own approximately 53.8% and 46.2% equity interests, respectively, in
BMC. John E. Boykin is a director and the secretary of BMC, and Robert W. Boykin
and Paul A. O'Neil are directors of BMC. For the fiscal year ended December 31,
1998, BMC paid to the Partnership approximately $56.7 million in rent. In 1999,
BMC will continue to pay the Partnership rent under the percentage leases. We
believe that the leases with BMC are as favorable to the Partnership and us as
leases with independent third parties would be.
We paid Spectrum Design Services, a wholly owned subsidiary of BMC, $672,000
for services in 1998. Of this amount $290,000 was for design services, $285,000
was for purchasing services and $97,000 was for the reimbursement of expenses
incurred while performing services for our hotels in 1998. Robert W. Boykin's
wife is the President of Spectrum Design Services. We expect to continue to do
business with Spectrum Design Services in 1999.
Albert T. Adams, one of our directors, is a partner in Baker & Hostetler
LLP, which acts as our general outside legal counsel. We expect that Baker &
Hostetler LLP will continue to provide legal services in that capacity in 1999.
11
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return of a
hypothetical investment in our common shares with the cumulative total return of
a hypothetical investment in each of the New York Stock Exchange Market Index
and the Media General Financial Services, Inc. Industry Group 443
(REIT--Hotels/Motels) Index(1) based on the respective market price of each such
investment at the dates indicated below and assuming in each case an initial
investment of $100 on October 30, 1996, and reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BOYKIN LODGING CO. REIT - HOTEL/MOTEL NYSE MARKET INDEX
<S> <C> <C> <C>
10/30/96 100.00 100.00 100.00
12/31/96 121.50 117.40 105.25
3/31/97 112.93 122.68 107.11
6/30/97 125.98 128.44 124.42
9/30/97 143.19 155.18 134.45
12/31/97 144.01 149.15 138.58
3/31/98 137.43 146.87 155.72
6/30/98 120.65 131.00 157.86
9/30/98 88.21 90.45 137.53
12/31/98 75.17 77.84 163.82
</TABLE>
- ------------------------
(1) As a result of an internal restructuring of its industry group
classification system in 1998, Media General Financial Services no longer
supports the Industry Group 432 (Real Estate Investment Trusts) Index that
was included in last year's proxy statement. We are now using a similar
industry group, Industry Group 443 (REIT--Hotels/Motels), as our peer group.
The index figures for the old Industry Group 432 are no longer available.
12
<PAGE>
PROPOSAL ONE--AMENDMENT TO THE LONG-TERM INCENTIVE PLAN TO INCREASE THE NUMBER
OF COMMON SHARES AVAILABLE FOR AWARDS.
Our Long-Term Incentive Plan, which is referred to as the "Plan," was
adopted by our Board of Directors and approved by our shareholder on June 18,
1996. At that time, a total of one million common shares were reserved for
issuance pursuant to awards granted under the Plan. This represented about 10.5%
of our outstanding common shares at the end of 1996. By the end of 1998, we had
granted options or other awards under the Plan for 888,983 common shares.
SUMMARY OF THE PLAN
- - The purpose of the Plan is to promote our long-term growth and profitability
by enabling us to attract, retain and reward key employees and to strengthen
the common interests of such employees and our shareholders by offering our
employees equity or equity-based incentives. Approximately 13 employees are
currently eligible to participate in the Plan.
- - Grants of incentive or nonqualified share options, restricted shares, deferred
shares, share purchase rights, share appreciation rights in tandem with
options, other share-based awards, or any combination thereof, may be made
under the Plan.
- - The Long-Term Incentive Plan Committee (the "Plan Committee") administers the
Plan and determines who receives awards, the type and amount of awards, the
consideration, if any, to be paid for awards, the timing of awards and the
terms and conditions of awards. The Plan Committee has the authority to adopt,
alter and repeal such rules, guidelines and practices governing the Plan as it
considers advisable and to interpret the terms and provisions of the Plan and
any award issued under the Plan. The Plan Committee is composed of members of
the Board of Directors, each of whom is a "non-employee" director under Rule
16b-3 of the Securities Exchange Act of 1934, as amended, and an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended.
- - Share options granted under the Plan are exercisable at such time or times as
the Plan Committee determines at the time of grant. However, share options
granted under the Plan may not be exercised for a period of six month and one
day from the date of grant. Unless otherwise determined by the Plan Committee,
the unexercised portion of any share option granted under the Plan will
terminate 90 days after the grantee of such option ceases to be an employee of
ours.
- - The exercise price of a share option granted under the Plan may not be less
than 100% of the fair market value of our common shares on the date the option
is granted.
- - No participant in the Plan may be granted share options or other share awards
in any calendar year for more than 250,000 common shares.
- - The Plan is not qualified under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
- - The Plan provides for vesting, exercise or forfeiture of rights granted under
the Plan on retirement, death, disability, termination of employment or a
change of control.
- - The Board of Directors may modify, suspend or terminate the Plan as long as it
does not impair the rights thereunder of any participant.
- - The Plan expires on May 30, 2006.
MATERIAL CHANGE EFFECTED BY THE AMENDMENT
We are seeking shareholder approval to amend the Plan only to increase the
number of common shares available for awards under the Plan. On March 2, 1999,
in the belief that the Plan is
13
<PAGE>
accomplishing its objectives, our Board of Directors unanimously approved an
amendment to the Plan, subject to shareholder approval, to increase by 700,000
the number of common shares available for awards under the Plan. As described
under the section heading "Compensation Committee Report," we have made annual
grants of share options to our executive officers. We believe that the use of
share-based benefits as part of our compensation package is of great importance
in promoting our growth and continued success and is thus of substantial benefit
to our shareholders and us.
The authorization of the additional 700,000 common shares is expected to
help us achieve our goal of promoting our long-term growth and profitability by
enabling us to attract, retain and reward key employees. Without the additional
shares being available under the Plan we would have insufficient shares to make
annual grants of share options to our executive officers and could be
disadvantaged in attracting and retaining key employees.
The proposed increase represents approximately 4.1% of our outstanding
common shares. If the increase is approved the total amount of common shares
authorized under the Plan would be less than 10.0% of our outstanding common
shares.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of our common shares present at the
annual meeting of shareholders, either in person or by properly executed proxy,
is required to approve Proposal One.
Under Ohio law and our Amended and Restated Articles of Incorporation, as
amended, abstentions and broker non-votes, if any, with respect to Proposal One
will in effect be votes against the proposal.
The Board of Directors recommends that you vote FOR Proposal One.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders intended to be presented pursuant to Rule 14a-8
under the Securities Exchange Act of 1934 (the "Exchange Act") at our 2000
annual meeting of shareholders must be received by us at Guildhall Building,
Suite 1500, 45 W. Prospect Avenue, Cleveland, Ohio 44115, on or before December
21, 1999, for inclusion in our proxy statement and form of proxy relating to the
2000 annual meeting of shareholders. In order for a shareholder's proposal
outside of Rule 14a-8 under the Exchange Act to be considered timely within the
meaning of Rule 14a-4(c) of the Exchange Act, such proposal must be received by
us at that address not later than March 5, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and owners of more than 10% of our common
shares, to file with the Securities and Exchange Commission (the "SEC") and the
New York Stock Exchange initial reports of ownership and reports of changes in
ownership of common shares and other equity securities of the Company. Executive
officers, directors and owners of more than 10% of the common shares are
required by SEC regulations to furnish us with copies of all forms they file
pursuant to Section 16(a).
To our knowledge, based solely on our review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater-than-10% beneficial owners were complied with, except that Mr. Howley
failed to report three transactions on a timely basis.
14
<PAGE>
OTHER MATTERS
We have not selected our independent accountants for the current fiscal
year. This selection will be made later in the year by the Board of Directors.
Representatives of Arthur Andersen LLP, which served as our independent public
accountants during 1998, are expected to be present at the annual meeting of
shareholders and will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
The form of proxy permits specification of a vote for the election of
directors as set forth under the heading "Election of Directors," the
withholding of authority to vote in the election of directors, or the
withholding of authority to vote for one or more specified nominees. In
addition, the form of proxy permits specification of a vote for, against or to
abstain on the proposal to increase the number of common shares available for
issuance under the Long-Term Incentive Plan.
If any other matter properly comes before the meeting, the persons named in
the proxy will vote thereon in accordance with their judgment. We do not know of
any other matter that will be presented for action at the annual meeting of
shareholders.
By order of the Board of Directors,
[SIGNATURE]
ANDREW C. ALEXANDER,
ASSISTANT SECRETARY
Dated: April 19, 1999
15
<PAGE>
BOYKIN LODGING COMPANY
AS OF DECEMBER 31, 1998 AND 1997
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SELECTED FINANCIAL DATA:
Boykin Lodging Company Selected Historical Operating and Financial Data.............. F-2
Boykin Lodging Company Selected Pro Forma Operating and Financial Data............... F-3
Boykin Management Company Limited Liability Company Selected Historical and
Pro Forma Operating and Financial Data............................................. F-5
Initial Hotels Selected Combined Historical Financial Data........................... F-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................... F-6
CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY:
Report of Independent Public Accountants............................................. F-14
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-15
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-16
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-17
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-18
Notes to Consolidated Financial Statements........................................... F-19
</TABLE>
F-1
<PAGE>
BOYKIN LODGING COMPANY
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 4,
YEAR ENDED YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31, 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>
F-2
<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 a 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 requirements to conserve funds for capital expenditures
and property acquisitions, and
F-3
<PAGE>
other commitments and uncertainties. The following is a reconciliation
between net income and FFO (in thousands):
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
YEAR ENDED PERIOD ENDED PRO FORMA FOR YEARS
DECEMBER 31, DECEMBER 31, 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.
F-4
<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 (UNAUDITED)
HISTORICAL YEAR ENDED OF PRO FORMA YEAR ENDED
DECEMBER 31, OPERATIONS) TO DECEMBER 31,
---------------------- DECEMBER 31, ----------------------
1998 1997 1996 1998 1997
---------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
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 JANUARY 1,
DECEMBER 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.
F-5
<PAGE>
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.
F-6
<PAGE>
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 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 "Selected Financial Data" on page F-3.
F-7
<PAGE>
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:
- 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
F-8
<PAGE>
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 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.
F-9
<PAGE>
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 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
F-10
<PAGE>
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 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
F-11
<PAGE>
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.
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.
F-12
<PAGE>
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.
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 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.
F-13
<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 are the
responsibility of Boykin Lodging'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 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.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 12, 1999.
F-14
<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-15
<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>
YEAR ENDED YEAR ENDED PERIOD FEBRUARY 8,
DECEMBER 31, DECEMBER 31, 1996 THROUGH
1998 1997 DECEMBER 31, 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
sharesoutstanding:
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-16
<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-17
<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
YEAR ENDED YEAR ENDED FEBRUARY 8, 1996
DECEMBER 31, DECEMBER 31, THROUGH
1998 1997 DECEMBER 31, 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-18
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 million 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 alliances with four hotel operators
and purchased five hotels with them through joint venture
F-19
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. BACKGROUND: (CONTINUED)
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.
F-20
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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.
F-21
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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."
F-22
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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, respectively. 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.
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.
F-23
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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>
PERCENTAGE
NUMBER OF PURCHASE OWNED BY
HOTEL LOCATION ACQUISITION DATE ROOMS PRICE PARTNERSHIP
- -------------------------------------------------- ------------------ ---------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Knoxville Hilton.................................. Knoxville, TN March 1998 317 $ 26,400 100%
High Point Radisson............................... High Point, NC March 1998 251 $ 10,600 100%
Pink Shell Beach Resort........................... Fort Myers, FL May 1998 208 $ 19,250 100%
DoubleTree Portfolio.............................. Various May 1998 3,062 $ 271,300 100%
Radisson Hotel Mt. Laurel......................... Mt. Laurel, NJ June 1998 283 $ 23,240 85%
<CAPTION>
HOTEL LESSEE
- -------------------------------------------------- ----------
<S> <C>
Knoxville Hilton.................................. BMC
High Point Radisson............................... BMC
Pink Shell Beach Resort........................... MeriStar
DoubleTree Portfolio.............................. Westboy
Radisson Hotel Mt. Laurel......................... Radisson
</TABLE>
1997 ACQUISITIONS
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF PURCHASE OWNED BY
HOTEL LOCATION ACQUISITION DATE ROOMS PRICE PARTNERSHIP
- -------------------------------------------------- ------------------ ---------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Melbourne Hilton Oceanfront....................... Melbourne, FL March 1997 118 $ 9,300 100%
Holiday Inn Crabtree.............................. Raleigh, NC March 1997 176 $ 7,500 100%
French Lick Springs Resort........................ French Lick, IN April 1997 485 $ 20,000 100%
Holiday Inn Minneapolis West...................... Minneapolis, MN July 1997 196 $ 12,300 91%
Marriott's Hunt Valley Inn........................ Baltimore, MD July 1997 392 $ 27,300 91%
DoubleTree Kansas City............................ Kansas City, MO November 1997 388 $ 25,000 80%
Hampton Inn San Diego Airport/ Sea World.......... San Diego, CA November 1997 199 $ 8,900 91%
<CAPTION>
HOTEL LESSEE
- -------------------------------------------------- ----------
<S> <C>
Melbourne Hilton Oceanfront....................... BMC
Holiday Inn Crabtree.............................. BMC
French Lick Springs Resort........................ BMC
Holiday Inn Minneapolis West...................... MeriStar
Marriott's Hunt Valley Inn........................ Davidson
DoubleTree Kansas City............................ MeriStar
Hampton Inn San Diego Airport/ Sea World.......... 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.
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.
F-24
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
4. INTERCOMPANY CONVERTIBLE NOTE: (CONTINUED)
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.
F-25
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
6. TERM NOTE PAYABLE. (CONTINUED)
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>
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.
F-26
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
8. LIMITED PARTNERSHIP INTERESTS: (CONTINUED)
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.
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.
F-27
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
10. PERCENTAGE LEASE AGREEMENTS: (CONTINUED)
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.
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
--------------------------
OFFICERS
AND NON-EMPLOYEE WEIGHTED AVERAGE FAIR OPTIONS EXERCISED PRICE
YEAR EMPLOYEES DIRECTORS VALUE OF OPTIONS GRANTED EXERCISED PER SHARE
- ---------------- ----------- ------------- ------------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
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
------------------------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS PER SHARE REMAINING OPTIONS PER SHARE
YEAR OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE OUTSTANDING EXERCISE PRICE
- --------------- ----------- ----------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
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.
F-28
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
11. SHARE COMPENSATION PLANS: (CONTINUED)
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
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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>
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:
----------------------
1998 1997
---------- ----------
<S> <C> <C>
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.
F-29
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
13. COMMITMENTS: (CONTINUED)
Under 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.
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.
F-30
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
15. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES: (CONTINUED)
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 of 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 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;
F-31
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
17. PRO FORMA FINANCIAL INFORMATION (UNAUDITED): (CONTINUED)
- Boykin's common share repurchase of 114,500 shares in 1998;
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
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.
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
F-32
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
18. QUARTERLY OPERATING RESULTS (UNAUDITED): (CONTINUED)
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
-----------------------------------------------------
(RESTATED) (RESTATED) (RESTATED)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
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-33
<PAGE>
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
19. FINANCIAL INFORMATION OF BMC:
Percentage lease revenue payable by BMC represented $56.7 million and $34.8
million, or 81.3% and 91.9% of total percentage lease revenue in 1998 and 1997.
Certain information related to BMC's financial statements is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents........................................... $ 12,973 $ 6,862
Due from related party lessors...................................... 2,971 1,069
Total assets........................................................ 29,344 14,381
Rent payable to related party lessors............................... 4,748 897
Members' capital.................................................... 4,039 4,273
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 4,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Total hotel revenues............................ $ 235,653 $ 110,548 $ 12,280
Hotel operating expenses........................ 170,162 75,891 9,748
Percentage lease expense........................ 67,424 34,834 3,258
Net income (loss)............................... 47 1,681 (446)
</TABLE>
20. FINANCIAL INFORMATION OF THE INITIAL HOTELS:
The Initial Hotels represent the hotels acquired upon the completion of the
IPO. Certain financial information related to the Initial Hotels, for the period
from January 1, 1996 through November 3, 1996 (before Boykin Lodging's IPO) is
as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
THROUGH
NOVEMBER 3, 1996
----------------
<S> <C>
Total revenues.............................................................. $ 75,837
Income before extraordinary item............................................ 536
Net loss.................................................................... (779)
Cash flows provided by operating activities................................. 8,314
Cash flows used for investing activities.................................... (12,462)
Cash flows provided by financing activities................................. 6,541
</TABLE>
F-34
<PAGE>
BOYKIN LODGING COMPANY
LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Boykin Lodging Company Long-Term Incentive Plan (the
"Plan") is to enable Boykin Lodging Company (the "Company") to attract, retain
and reward key employees of the Company and of its Affiliates and to strengthen
the mutuality of interests between such key employees and the Company's
shareholders by offering such key employees equity or equity-based incentives.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "AFFILIATE" means any entity (other than the Company and its
Subsidiaries) that is designated by the Board as a participating
employer under the Plan.
(b) "AWARD" means any award of Stock options, Restricted Shares,
Deferred Shares, Share Purchase Rights, Share Appreciation Rights or
Other Share-Based Awards under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHANGE IN CONTROL" has the meaning set forth in Section 11(b).
(e) "CHANGE IN CONTROL PRICE" has the meaning set-forth in Section
11(d).
(f) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(g) "COMMITTEE" means the Committee referred to in Section 2 of the
Plan.
(h) "COMPANY" means Boykin Lodging Company, an Ohio corporation, or
any successor corporation.
(i) "DEFERRED SHARES" means an award of the right to receive Shares
at the end of a specified period granted pursuant to Section 7.
(j) "DISABILITY" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(k) "DISINTERESTED PERSON" has the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission
(the "Commission") under the Exchange Act, or any successor definition
adopted by the Commission.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the mean between the
highest and lowest quoted selling price, regular way, of the Shares on
such date on the New York Stock Exchange or, if no such sale of the
Shares occurs on the New York Stock Exchange on such date, then such
mean price on the next preceding day on which the
<PAGE>
Shares were traded. If the Shares are no longer traded on the New York
Stock Exchange, then the Fair Market Value of the Shares shall be
determined by the Committee in good faith.
(n) "INCENTIVE STOCK OPTION" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code or any successor section thereto.
(o) "NON-QUALIFIED STOCK OPTION", means any Stock Option that is not
an Incentive Stock Option.
(p) "OTHER SHARE-BASED AWARD" means an award granted pursuant to
Section 10 that is valued, in whole or in part, by reference to, or is
otherwise based on, Shares.
(q) "OUTSIDE DIRECTOR" has the meaning set forth in Section 162(m) of
the Code and the regulations promulgated thereunder.
(r) "PLAN" means the Boykin Lodging Company Long-Term Incentive Plan,
as amended from time to time.
(s) "POTENTIAL CHANGE IN CONTROL" has the meaning set forth in
Section 11(c).
(t) "RESTRICTED SHARES" means an award of shares that is granted
pursuant to Section 6 and is subject to restrictions.
(u) "SECTION 16 PARTICIPANT", means a participant under the Plan who
is then subject to Section 16 of the Exchange Act.
(v) "SHARES" mean, the common shares, without par value, of the
Company.
(w) "SHARE APPRECIATION RIGHT" means an award of a right to receive
an amount from the Company that is granted pursuant to Section 9.
(x) "STOCK OPTION" or "OPTION" means any option to purchase Shares
(including Restricted Shares and Deferred Shares, if the Committee so
determines) that is granted Pursuant to Section 5.
(y) "SHARE PURCHASE RIGHT" means an award of the right to purchase
Shares that is granted pursuant to Section 8.
(z) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Long-Term Incentive Plan
Committee of the Board (the "Committee"). The Committee shall consist of three
or four directors of the Company, as designated
- --------------------------------------------------------------------------------
Page 2
<PAGE>
by the Board from time to time, all of whom shall be Disinterested Persons and
Outside Directors. Such directors shall be appointed by the Board and shall
serve as the Committee at the pleasure of the Board. The functions of the
Committee specified in the Plan shall be exercised by the Board if and to the
extent that no Committee exists which has the authority to so administer the
Plan.
The Committee shall have full power to interpret and administer the
Plan and full authority to select the individuals to whom Awards will be granted
and to determine the type and amount of Awards to be granted to each
participant, the consideration, if any, to be paid for such Awards, the timing
of such Awards, the terms and conditions of Awards granted under the Plan, the
terms and conditions of the related agreements which will be entered into with
participants and to certify that any performance goals are satisfied. As to the
selection of and grant of Awards to participants who are not Section 16
participants, the Committee may delegate its responsibilities to members of the
Company's management consistent with applicable law.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
Award issued under the Plan (and any agreements relating thereto); to direct
employees of the Company or other advisors to prepare such materials or perform
such analyses as the Committee deems necessary or appropriate; and otherwise to
supervise the administration of the Plan.
Any interpretation and administration of the Plan by the Committee, and
all actions and determinations of the Committee, shall be final, binding and
conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all
participants in the Plan, their respective legal representatives, successors and
assigns, and all persons claiming under or through any of them. No member of the
Board or of the Committee shall incur any liability for any action taken or
omitted, or any determination made, in good faith in connection with the Plan.
SECTION 3. SHARES SUBJECT TO THE PLAN.
(a) AGGREGATE SHARES SUBJECT TO THE PLAN. Subject to adjustment as
provided below in Section 3(c), the total number of Shares reserved and
available for Awards under the Plan is 1,000,000. Any Shares issued
hereunder may consist, in whole or in part, of authorized and unissued
shares or treasury shares.
(b) FORFEITURE OR TERMINATION OF AWARDS OF SHARES. If any Shares
subject to any Award granted hereunder are forfeited or an Award
otherwise terminates or expires without the issuance of Shares, the
Shares subject to such Award shall again be available for distribution
in connection with future Awards under the Plan as set forth in Section
3(a), unless the participant who had been awarded such forfeited Shares
or the expired or terminated Award has theretofore received dividends
or other benefits of ownership with respect to such Shares. For
purposes hereof, a participant shall not be deemed to have received a
benefit of ownership with respect to such Shares by the exercise of
voting rights or the accumulation of dividends which are not realized
because of the forfeiture of such Shares or the expiration or
termination of the related Award without issuance of such Shares.
(c) ADJUSTMENT. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split,
combination of shares or other change in corporate structure of the
Company affecting the Shares, such substitution or adjustment shall be
made in the aggregate number of Shares reserved for issuance under the
Plan, in the number and option price of shares subject to outstanding
options granted under the
- --------------------------------------------------------------------------------
Page 3
<PAGE>
Plan, in the number and purchase price of shares subject to outstanding
Share Purchase Rights granted under the Plan, and in the number of
shares subject to Restricted Share Awards, Deferred Share Awards and
any other outstanding Awards granted under the Plan as may be approved
by the Committee, in its sole discretion; provided that the number of
shares subject to any Award shall always be a whole number.
(d) ANNUAL AWARD LIMIT. No Participant may be granted Stock Options
or Awards under the Plan with respect to an aggregate of more than
300,000 Shares (subject to adjustment as provided in Section 3(c)
hereof) during any calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its Subsidiaries
and Affiliates, if any, who are responsible for or contribute to the management,
growth or profitability of the business of the Company or its Subsidiaries or
Affiliates, if any, are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS.
(a) GRANT. Stock Options may be granted alone, in addition to or in
tandem with other Awards granted under the Plan or cash awards made
outside the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, grants of Stock Options will be
made, the number of Shares purchasable under each Stock Option and the
other terms and conditions of the Stock Option in addition to those set
forth in Sections 5(b) and 5(c). Any Stock Option granted under the
Plan shall be in such form as the Committee may from time to time
approve.
Stock Options granted under the Plan may be of two types, which shall
be indicated on their face: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. Subject to Section 5(c) hereof, the
Committee shall have the authority to grant to any participant
Incentive Stock Options, Non-Qualified Stock Options or both types of
Stock Options.
(b) TERMS AND CONDITIONS. Options granted under the Plan shall be
evidenced by Option Agreements, shall be subject to the following terms
and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:
(1) OPTION PRICE. The option price per share of Shares
purchasable under a Non-Qualified Stock Option or an Incentive Stock
Option shall be determined by the Committee at the time of grant and
shall be not less than 100% of the Fair Market Value of the Shares at
the date of grant (or, with respect to an incentive stock option, 110%
of the Fair Market Value of the Shares at the date of grant in the case
of a participant who at the date of grant owns Shares possessing more
than ten percent of the total combined voting power of all classes of
stock of the Company or its parent or Subsidiary corporations (as
determined under Section 424(d), (e) and (f) of the Code)).
(2) OPTION TERM. The term of each Stock Option shall be fixed
by the Committee and may not exceed ten years from the date the Option
is granted (or, with respect to an Incentive Stock Options, five years
in the case of a participant who at the date of grant owns Shares
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or subsidiary
corporations (as determined under Section 424(d), (e) and (f) of the
Code)).
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(3) EXERCISE. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that,
except as provided in Section 5(b)(6) and Section 11, unless otherwise
determined by the Committee at or after grant, no Stock Option shall be
exercisable prior to six months and one day following the date of
grant. If any Stock Option is exercisable only in installments or only
after specified exercise dates, the Committee may waive, in whole on in
part, such installment exercise provisions, and may accelerate any
exercise date or dates, at any time at or after grant based on such
factors as the Committee shall determine, in its sole discretion.
(4) METHOD OF EXERCISE. Subject to any installment exercise
provisions that apply with respect to such Stock Option, and the six
month and one day holding period set forth in Section 5(b)(3), Stock
Options may be exercised in whole or in part, at any time during the
option period, by giving to the Company written notice of exercise
specifying the number of Shares to be purchased.
Such notice shall be accompanied by payment in full of the
option price of the Shares for which the Option is exercised, in cash
or Shares or by check or such other instrument as the Committee may
accept. The value of each such Share surrendered or withheld shall be
100% of the Fair Market Value of the Shares on the date the option is
exercised.
No Shares shall be issued pursuant to an exercise of an Option
until full payment has been made. A participant shall not have rights
to dividends or any other rights of a shareholder with respect to any
Shares subject to an Option unless and until the participant has given
written notice of exercise, has paid in full for such Shares, has
given, if requested, the representation described in Section 14(a) and
such Shares have been issued to him.
(5) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the participant other than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the participant's lifetime, only by the Participant or, subject
to Sections 5(b)(3) and 5(c), by the participant's authorized legal
representative if the participant is unable to exercise an option as a
result of the participant's Disability; provided, however, that if so
provided in the instrument evidencing the Option, the Committee may
permit any optionee to transfer the Option during his lifetime to one
or more members of his family, or to one or more trusts for the benefit
of one or more members of his family, provided that no consideration is
paid for the transfer and that such transfer would not result in the
loss of any exemption under Rule 16b-3 for any Option that the
Committee does not permit to be so transferred. The transferee of an
Option shall be subject to all restrictions, terms, and conditions
applicable to the Option prior to its transfer, except that the Option
shall not be further transferable INTER VIVOS by the transferee. The
Committee may impose on any transferable Option and on the Common
Shares to be issued upon the exercise of the Option such limitations
and conditions as the Committee deems appropriate.
(6) TERMINATION BY DEATH. Subject to Section 5(c), if any
participant's employment by the Company or any Subsidiary or Affiliate
terminates by reason of death, any Stock Option held by such
Participant may thereafter be exercised, to the extent such Option was
exercisable at the time of death or would have become exercisable
within one year from the time of death had the participant continued to
fulfill
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all conditions of the Option during such period (or on such accelerated
basis as the Committee may determine at or after grant), by the estate
of the participant (acting through its fiduciary), for a period of one
year (or such other period as the Committee may specify at or grant)
from the date of such death. The balance of the Stock Option shall be
forfeited.
(7) TERMINATION BY REASON OF DISABILITY. Subject to Sections
5(b)(3) and 5(c), if a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any Stock
Option held by such participant may thereafter be exercised, to the
extent such Option was exercisable at the time of termination or would
have become exercisable within one year from the time of termination
had the participant continued to fulfill all conditions of the Option
during such period (or on such accelerated basis as the Committee may
determine at or after grant), by the participant or by the
participant's duly authorized legal representative if the participant
is unable to exercise the Option as a result of the participant's
Disability, for a period of one year (or such other period as the
Committee may specify at or after grant), from the date of such
termination of employment; provided, however, that in no event may any
such Option be exercised prior to six months and one day from the date
of grant; and provided, further, that if the participant dies within
such one-year period (or such other period as the Committee shall
specify at or after grant), any unexercised Stock Option held by such
participant shall thereafter be exercisable by the estate of the
participant (acting though its fiduciary) to the same extent to which
it was exercisable at the time of death for a period of one year from
the date of such termination of employment. The balance of the Stock
Option shall be forfeited.
(8) OTHER TERMINATION. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option, if a
participant's employment by the Company or any Subsidiary or Affiliate
is terminated for any reason other than death or Disability, all Stock
Options held by such participant shall thereupon terminate 90 days
after the date of such termination.
(c) INCENTIVE STOCK OPTIONS. Notwithstanding Sections 5(b)(6) and
(7), an Incentive Stock Option shall be exercisable by (i) a
participant's authorized legal representative (if the participant is
unable to exercise the Incentive Stock Option as a result of the
participant's Disability) only if, and to the extent, permitted by
Section 422 of the Code and Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder and (ii) by the
participant's estate, in the case of death, or authorized legal
representative, in the case of Disability, no later than 10 years from
the date the Incentive Stock Option was granted (in addition to any
other restrictions or limitations which may apply). Anything in the
Plan to the contrary notwithstanding, no term or provision of the Plan
relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan
be exercised, so as to disqualify the Plan under Section 422 of the
Code, or, without the consent of the participants affected, to
disqualify any Incentive Stock Option under such Section 422 or any
successor section thereto.
(d) BUYOUT PROVISIONS. The Committee may at any time buy out for a
payment in cash, Shares, Deferred Shares or Restricted Shares an option
previously granted, based on such terms and conditions as the Committee
shall establish and agree upon with the participant, provided that no
such transaction involving a Section 16 participant shall be structured
or effected in a manner that would violate, or result in any liability
on the part
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of the participant under, Section 16 of the Exchange Act or the rules
and regulations promulgated thereunder.
SECTION 6. RESTRICTED SHARES.
(a) GRANT. Restricted Shares may be issued alone, in addition to or
in tandem with other Awards under the Plan or cash awards made outside
of the Plan. The Committee shall determine the individuals to whom, and
the time or times at which, grants of Restricted Shares will be made,
the number of Restricted Shares to be awarded to each Participant, the
price (if any) to be paid by the participant (subject to Section 6(b)),
the date or dates upon which Restricted Share Awards will vest and the
period or periods within which such Restricted Share Awards may be
subject to forfeiture, and the other terms and conditions of such
Awards in addition to those set forth in Section 6(b).
The Committee may condition the grant of Restricted Shares upon the
attainment of specified performance goals or such other factors as the
Committee may determine in its sole discretion.
(b) TERMS AND CONDITIONS. Restricted Shares awarded under the Plan
shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable. A
Participant who receives a Restricted Share Award shall not have any
rights with respect to such Award, unless and until such participant
has executed an agreement evidencing the Award in the form approved
from time to time by the Committee and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
(1) The purchase price (if any) for Restricted Shares shall be
determined by the Committee at the time of grant.
(2) Awards of Restricted Shares must be accepted by executing
a Restricted Share Award agreement and paying any price required under
Section 6(b)(1).
(3) Each participant receiving a Restricted Share Award shall
be issued a stock certificate in respect of such Restricted Shares.
Such certificate shall be registered in the name of such participant,
and shall bear an appropriate legend referring to the terms, conditions
and restrictions applicable to such Award.
(4) The Committee shall require that the stock certificates
evidencing such Restricted Shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Shares Award the Participant shall have
delivered to the Company a stock power, endorsed in blank, relating to
the Shares covered by such Award.
(5) Subject to the provisions of this Plan and the Restricted
Share Award agreement, during a period set by the committee commencing
with the date of such Award (the "Restriction Period"), the participant
shall not be permitted to sell, transfer, pledge, assign or otherwise
encumber the Restricted Shares awarded under the Plan. Subject to these
limitations, the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate or waive
such restrictions, in
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whole or in part, based on service, performance or such other factors
and criteria as the Committee may determine, in its sole discretion.
(6) Except as provided in this Section 6(b)(6), Section
6(b)(5) and Section 6(b)(7) the participant shall have, with respect to
the Restricted Shares awarded, all of the rights of a shareholder of
the Company, including the right to vote the Shares, and the right to
receive any dividends. The Committee, in its sole discretion, as
determined at the time of award, may permit or require the payment of
cash dividends to be deferred and, if the Committee so determines,
reinvested, subject to Section 14(f), in additional Restricted Shares
to the extent Shares are available under Section 3, or otherwise
reinvested. Unless the Committee or Board determines otherwise, share
dividends issued with respect to Restricted Shares shall be treated as
additional Restricted Shares that are subject to the same restrictions
and other terms and conditions that apply to the Shares with respect to
which such dividends are issued.
(7) No Restricted Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(8) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any Restricted
Shares held by such participant shall thereupon vest and all
restrictions thereon shall lapse, to the extent such Restricted Shares
would have become vested or no longer subject to restriction within one
year from the time of death had the participant continued to fulfill
all of the conditions of the Restricted Share Award during such period
(or on such accelerated basis as the Committee may determine at or
after grant). The balance of the Restricted Shares shall be forfeited.
(9) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any
Restricted Shares held by such participant shall thereupon vest and all
restrictions thereon shall lapse, to the extent such Restricted Shares
would have become vested or no longer subject to restriction within one
year from the time of termination had the participant continued to
fulfill all of the conditions of the Restricted Share Award during such
period (or on such accelerated basis as the Committee may determine at
or after grant). The balance of the Restricted Shares shall be
forfeited.
(10) Unless otherwise determined by the Committee at or after
the time of granting any Restricted Shares, if a participant's
employment by the Company or any Subsidiary or Affiliate terminates for
any reason other than death or Disability, the Restricted Shares held
by such participant which are unvested or subject to restriction at the
time of termination shall thereupon be forfeited.
(c) MINIMUM VALUE PROVISIONS. In order to better ensure that award
payments actually reflect the performance of the Company and service of
the participant, the Committee may provide in its sole discretion for a
tandem performance-based or other award designed to guarantee a minimum
value, payable in cash or Shares to the recipient of a Restricted Share
Award, subject to such performance, future service, deferral and other
terms and conditions as may be specified by the Committee.
SECTION 7. DEFERRED SHARES.
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(a) GRANT. Deferred Shares may be awarded alone, in addition to or in
tandem with other Awards granted under the Plan or cash awards made
outside the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, Deferred Shares shall be awarded,
the number of Deferred Shares to be awarded to any participant, the
duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the Shares will be deferred, and the
other terms and conditions of the Award in addition to those set forth
in Section 7(b).
The Committee may condition the grant of Deferred Shares upon the
attainment of specified performance goals or such other factors as the
Committee shall determine, in its sole discretion.
(b) TERMS AND CONDITIONS. Deferred Share Awards shall be subject to
the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as
the Committee considers desirable:
(1) The purchase price for Deferred Shares shall be determined
at the time of grant by the Committee. Subject to the provisions of the
Plan and the Award agreement referred to in Section 7(b)(9), Deferred
Share Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of
the Deferral Period (or the Elective Deferral Period referred to in
Section 7(b)(8), when applicable), stock certificates shall be
delivered to the participant, or his legal representative, for the
shares covered by the Deferred Share Award. The Deferral period
applicable to any Deferred Share Award shall not be less than six
months and one day ("Minimum Deferral Period").
(2) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of Shares covered by a
Deferred Share Award will be paid to the participant currently, or
deferred and deemed to be reinvested in additional Deferred Shares, or
otherwise reinvested, all as determined at or after the time of the
Award by the Committee, in its sole discretion.
(3) No Deferred Shares shall be transferable by a participant
other than by will or by the laws of descent and distribution.
(4) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any Deferred
Shares awarded to by such participant shall thereafter vest and all
restrictions thereon shall lapse, to the extent such Deferred Shares
would have become vested or no longer subject to restriction within one
year from the time of death had the participant continued to fulfill
all of the conditions of the Deferred Share Award during such period
(or on such accelerated basis as the Committee may determine at or
after grant). The balance of the Deferred Shares shall be forfeited.
(5) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any
Deferred Shares awarded to such participant shall thereafter vest and
all restrictions thereon shall lapse, to the extent such Deferred
Shares would have become vested or no longer subject to restriction
within one year from the time of termination had the participant
continued to fulfill all of the conditions of the Deferred Shares Award
during such period (or on such accelerated basis
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as the Committee may determined at or after grant), subject in all
cases to the Minimum Deferral Period requirement. The balance of the
Deferred Shares shall be forfeited.
(6) Unless otherwise determined by the Committee at or after
the time of granting any Deferred Share Award, if a participant's
employment by the Company or any Subsidiary or Affiliate terminates for
any reason other than death or Disability, all Deferred Shares held by
such participant which are unvested or subject to restriction shall
thereupon be forfeited.
(7) Based on service, performance or such other factors or
criteria as the Committee may determine, the Committee may, at or after
grant, accelerate the vesting of all or any part of any Deferred Share
Award or waive a portion of the Deferral Period for all or any part of
such Award, subject in all cases to the Minimum Deferral Period
requirement.
(8) A participant may elect to further defer receipt of a
Deferred Share Award (or an installment of an Award) for a specified
period or until a specified event (the "Elective Deferral Period"),
subject in each case to the Committee's approval and the terms of this
Section 7 and such other terms as are determined by the Committee, all
in its sole discretion. Subject to any exceptions approved by the
Committee, such election must be made at least 12 months prior to
completion of the Deferral Period for such Deferred Share Award (or
such installment).
(9) Each such Award shall be confirmed by, and subject to the
terms of, a Deferred Share Award agreement evidencing the Award in the
form approved from time to time by the Committee.
(c) MINIMUM VALUE PROVISIONS. In order to better ensure that award
payments actually reflect the performance of the Company and service of
the Participant, the Committee may provide, in its sole discretion, for
a tandem performance-based or other Award designed to guarantee a
minimum value, payable in cash or Shares to the recipient of a Deferred
Share Award, subject to such performance, future service, deferral and
other terms and conditions as may be specified by the Committee.
SECTION 8. SHARE PURCHASE RIGHTS.
(a) GRANT. Share Purchase Rights may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside the Plan. The committee shall determine the individuals to
whom, and the time or times at which, grants of Share Purchase Rights
will be made, the number of Shares which may be purchased pursuant to
Share Purchase Rights, and the other terms and conditions of the Share
Purchase Rights in addition to those set forth in Section 8(b). The
Shares subject to the Share Purchase Rights may be purchased at the
Fair Market Value of such Shares on the date of grant;
Subject to Section 8(b) hereof, the Committee may also impose such
deferral, forfeiture or other terms and conditions as it shall
determine, in its sole discretion, on such Share Purchase Rights or the
exercise thereof.
Each Share Purchase Right Award shall be confirmed by, and be subject
to the terms of, a Share Purchase Rights Agreement which shall be in
form approved by the Committee.
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(b) TERMS AND CONDITIONS. Share Purchase Rights may contain such
additional terms and conditions not inconsistent with the terms of the
Plan as the Committee shall deem desirable, and shall generally be
exercisable for such period as shall be determined by the Committee.
However, Share Purchase Rights granted to Section 16 participants shall
not become exercisable earlier than six months and one day after the
grant date. Share Purchase Rights shall not be transferable by a
participant other than by will or by the laws of descent and
distribution.
SECTION 9. SHARE APPRECIATION RIGHTS.
(a) GRANT. Share Appreciation Rights may be granted in connection
with all or any part of an Option, either concurrently with the grant
of the Option or, if the Option is a Non-Qualified Stock Option, by an
amendment to the Option at any time thereafter during the term of the
Option. Share Appreciation Rights may be exercised in whole or in part
at such times under such conditions as may be specified by the
Committee in the participant's Option Agreement.
(b) TERMS AND CONDITIONS. The following terms and conditions will
apply to all Share Appreciation Rights:
(1) Share Appreciation Rights shall entitle the participant,
upon exercise of all or any part of the Share Appreciation Rights, to
surrender to the Company unexercised that portion of the underlying
Option relating to the same number of Shares as is covered by the Share
Appreciation Rights (or the portion of the Share Appreciation Rights so
exercised) and to receive in exchange from the Company an amount (paid
as provided in Section 9(b)(5)) equal to the excess of (x) the Fair
Market Value, on the date of exercise, of the Shares covered by the
surrendered portion of the underlying Option over (y) the exercise
price of the Shares covered by the surrendered portion of the
underlying Option. The Committee may limit the amount that the
participant will be entitled to receive upon surrender of a Share
Appreciation Right.
(2) Upon the exercise of the Share Appreciation Right and
surrender of the related portion of the underlying Option, the Option,
to the extent surrendered, will not thereafter be exercisable. The
underlying Option may provide that such Share Appreciation Rights will
be payable solely in cash. The terms of the underlying Option shall
provide a method by which an alternative fair market value of the
Shares on the date of exercise shall be calculated based on one of the
following: (x) the closing price of the Shares on the national exchange
on which they are then traded on the business day immediately preceding
the day of exercise; (y) the highest closing price of the Shares on the
national exchange on which they have been traded, during the 90 days
immediately preceding the Change in Control; or (z) the greater of (x)
and (y).
(3) In addition to any further conditions upon exercise that
may be imposed by the Committee, the Share Appreciation Rights shall be
exercisable only to the extent that the related Option is exercisable,
except that in no event will a Share Appreciation Right held by a
Section 16 Participant be exercisable within the first six months after
it is awarded even though the related Option is or becomes exercisable,
and each Share Appreciation Right will expire no later than the date on
which the related Option expires. A Share Appreciation Right may only
be exercised at a time when the Fair Market Value of the Shares covered
by the Share Appreciation Right exceeds the exercise price of the
Shares covered by the underlying Option. No Share Appreciation Right
held by a
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Section 16 Participant shall be exercisable by its terms within the
first six months after it is granted, and a Section 16 Participant may
only exercise a Share Appreciation Right during a period beginning on
the third business day and ending on the twelfth business day following
the release for publication of quarterly or annual summary statements
of the Company's sales and earnings.
(4) Share Appreciation Rights may be exercised by the
participant's giving written notice of the exercise to the Company,
stating the number of Share Appreciation Rights he has elected to
exercise and surrendering the portion of the underlying Option relating
to the same number of Shares as the number of Share Appreciation Rights
elected to be exercised.
(5) The manner in which the Company's obligation arising upon
the exercise of the Share Appreciation Right will be paid will be
determined by the Committee and shall be set forth in the participant's
Option Agreement. The Committee may provide for payment in Shares or
cash, or a fixed combination of Shares or cash, or the Committee may
reserve the right to determine the manner of payment at the time the
Share Appreciation Right is exercised. Shares issued upon the exercise
of a Share Appreciation Right will be valued at their Fair Market Value
on the date of exercise.
SECTION 10. OTHER SHARE-BASED AWARDS.
(a) GRANT. Other Awards of Shares and other Awards that are valued,
in whole or in part, by reference to, or are otherwise based on,
Shares, including, without limitation, performance shares, convertible
preferred shares, convertible debentures, exchangeable securities and
Share Awards or options valued by reference to Book Value or subsidiary
performance, may be granted alone, in addition to or in tandem with
other Awards granted under the Plan or cash awards made outside of the
Plan.
At the time the Shares or Other Share-Based Award is granted, the
Committee shall determine the individuals to whom and the time or times
at which such Shares or other Share-Based Awards shall be awarded, the
number of Shares to be used in computing an Award or which are to be
awarded pursuant to such Awards, the consideration, if any, to be paid
for such Shares or other Share-Based Awards, and all other terms and
conditions of the Awards in addition to those set forth in Section
10(b).
The provisions of other Share-Based Awards need not be the same with
respect to each participant.
(b) TERMS AND CONDITIONS. Other Share-Based Awards shall be subject
to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable.
(1) Subject to the provisions of this Plan and the Award
agreement referred to in Section 10(b)(5) below, Shares awarded or
subject to Awards made under this Section 10 may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on which
the Shares are issued, or, if later, the date on which any applicable
restriction, performance, holding or deferral period or requirement is
satisfied or lapses. All Shares or Other Share-Based Awards granted
under this Section 10 shall be subject to a minimum holding period
(including any applicable restriction, performance and/or deferral
periods ) of six months and one day ("Minimum Holding Period").
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(2) Subject to the provisions of this Plan and the Award
agreement and unless otherwise determined by the Committee at the time
of grant, the recipient of an Other Share-Based Award shall be entitled
to receive, currently or on a deferred basis, interest or dividends or
interest or dividend equivalents with respect to the number of Shares
covered by the Award, as determined at the time of the Award by the
Committee, in its sole discretion, and the Committee may provide that
such amounts (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested.
(3) Subject to the Minimum Holding Period, any Other
Share-Based Award and any Shares covered by any such Award shall vest
or be forfeited to the extent, at the times and subject to the
conditions, if any, provided in the Award agreement, as determined by
the Committee, in its sole discretion.
(4) In the event of the participant's Disability or death, or
in cases of special circumstances, the Committee may, in its sole
discretion, waive, in whole or in part, any or all of the remaining
limitations imposed hereunder or under any related Award agreement with
respect to any part of all of any Award under this Section 10, provided
that the Minimum Holding Period requirement may not be waived, except
in case of a participant's death.
(5) Each Award shall be confirmed by, and subject to the terms
of, an agreement or other instrument evidencing the Award in the form
approved from time to time by the Committee, the Company and the
participant.
(6) Shares (including securities convertible into Shares)
issued on a bonus basis under this Section 10 shall be issued for no
cash consideration. Shares (including securities convertible into
Shares) purchased pursuant to a purchase right awarded under this
Section 10 shall bear a price of at least 85% of the Fair Market Value
of the Shares on the date of grant. The purchase price of such Shares,
and of any Other Share-Based Award granted hereunder, or the formula by
which such price is to be determined, shall be fixed by the Committee
at the time of grant.
(7) In the event that any "derivative security", as defined in
Rule 16a-1(c) (or any successor thereof) promulgated by the Securities
and Exchange Commission under Section 16 of the Exchange Act, is
awarded pursuant to this Section 10 to any Section 16 participant, such
derivative security shall not be transferable other than by will or by
the laws of descent and distribution.
SECTION 11. CHANGE IN CONTROL PROVISION.
(a) IMPACT OF EVENT. At any time during the 365 days commencing with
the date of either (1) a "Change in Control" as defined in Section 11(b) or
(2) a "Potential Change in Control" as defined in Section 11(c), a majority
of the "Continuing Directors" as defined in Section 11(e) (or one of the
two Continuing Directors if only two Continuing Directors are then serving
on the Board of Directors or the sole Continuing Director if only one
Continuing Director is then serving on the Board of Directors) may cause
the following provisions to take effect as stated and as of the date set
forth in a Written Action (the "Written Action") adopted to that effect
(that date, the "Accelerated Vesting Date") and if there are no Continuing
Directors, the following provisions will automatically take effect:
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(1) Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(2) Any Share Appreciation Rights shall become immediately
exercisable;
(3) The restrictions applicable to any Restricted Shares,
Deferred Shares Awards, Share Purchase Rights Awards and Other Share
Based Awards shall lapse and such shares and awards shall be deemed
fully vested; and
(4) The value of all outstanding Awards, in each case to the
extent vested, shall, unless otherwise determined by the Committee in
its sole discretion at or after grant but prior to any Change in
Control or Potential Change in Control, be paid to the participant in
cash in exchange for the surrender of those Awards on the basis of the
"Change in Control Price" as defined in Section 11(d) as of the
Accelerated Vesting Date;
but the provisions of Sections 11(a)(1) through (3) shall not apply with
respect to Awards granted to any Section 16 Participant which have been
held by such participant for less than six months and one day as of the
Accelerated Vesting Date.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of Section 11(a), a
"Change in Control" means the occurrence of any of the following: (i)
the Board or shareholders of the Company approve a consolidation or
merger that results in the shareholders of the Company immediately
prior to the transaction giving rise to the consolidation or merger
owning less than 50% of the total combined voting power of all classes
of stock entitled to vote of the surviving entity immediately after the
consummation of the transaction giving rise to the merger or
consolidation; (ii) the Board or shareholders of the Company approve
the sale of substantially all of the assets of the Company or the
liquidation or dissolution of the Company; (iii) any person or other
entity (other than the Company or a Subsidiary or any Company employee
benefit plan (including any trustee of any such plan acting in its
capacity as trustee)) purchases any Shares (or securities convertible
into Shares) pursuant to a tender or exchange offer without the prior
consent of the Board of Directors, or becomes the beneficial owner of
securities of the Company representing 25% or more of the voting power
of the Company's outstanding securities; or (iv) during any two-year
period, individuals who at the beginning of such period constitute the
entire Board of Directors cease to constitute a majority of the Board
of Directors, unless the election or the nomination for election of
each new director is approved by at least two-thirds of the directors
then still in office who were directors at the beginning of that
period.
(c) DEFINITION OF POTENTIAL CHANGE IN CONTROL. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of
any one of the following:
(1) The approval by the shareholders of the Company of an
agreement by the Company, the consummation of which would result in a
Change in Control of the Company as defined in Section 11(b); or
(2) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or a
Subsidiary or any Company employee benefit plan (including any trustee
of any such plan acting in its capacity as trustee)) of securities of
the Company representing [15%] or more of the combined
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voting power of the Company's outstanding securities and the adoption
by the Board of a resolution to the effect that a Potential Change in
Control of the Company has occurred for purposes of this Plan.
(d) CHANGE IN CONTROL PRICE. For purposes of this Section 11, "Change
in Control Price", means the greater of: (a) the highest price per
share paid in any transaction reported on the New York Stock Exchange
Composite Index (or, if the Shares are not then traded on the New York
Stock Exchange, the highest price paid as reported for any national
exchange on which the Shares are then traded) or paid or offered in any
bona fide transaction related to a Change in Control or Potential
Change in Control of the Company, at any time during the 60-day period
immediately preceding the occurrence of the Change in Control (or, when
applicable, the occurrence of the Potential Change in Control event),
and (b) the highest price per share paid in any transaction reported on
the New York Stock Exchange Composite Index (or, if the Shares are not
then traded on the New York Stock Exchange, the highest price paid as
reported for any national exchange on which the Shares are then
traded), at any time during the 60-day period immediately preceding the
date on which the Continuing Directors execute a Written Action
relating to that Change in Control or Potential Change in Control, in
each case as determined by the Committee.
(e) DEFINITION OF CONTINUING DIRECTOR. For purposes of this Section
11, a "Continuing Director" means an individual who was a member of the
Board of Directors immediately prior to the date of a Change in Control
or a Potential Change in Control and is a member of the Board of
Directors at the time a Written Action relating to that Change in
Control or Potential Change in Control is taken.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend, alter or
discontinue the Plan, but no such amendment, alteration or discontinuation shall
be made which would impair the rights of a participant under an Award
theretofore granted, without the participant's consent. The Company shall submit
to the shareholders of the Company for their approval any amendments to the Plan
which are required by Section 16 of the Exchange Act or the rules and
regulations thereunder, or Section 162(m) of the Code, to be approved by the
shareholders.
The Committee may at any time, in its sole discretion, amend the terms
of any Award, but no such amendment shall be made which would impair the rights
of a participant under an Award theretofore granted, without the participant's
consent; nor shall any such amendment be made which would make the applicable
exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any
Section 16 participant holding the Award without the participant's consent.
Subject to the above provisions, the Board shall have all necessary
authority to amend the Plan to make into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.
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<PAGE>
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each Participant acquiring Shares
pursuant to an Award under the Plan to represent to and agree with the
Company in writing that the participant is acquiring the Shares without
a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All Shares or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock
exchange upon which the Shares is then listed, and any applicable
federal or state securities laws, and the Committee may cause a legend
or legends to be put on any certificates for such shares to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor any
document describing, implementing or referring to the Plan, or any part
thereof, shall confer upon any participant under the Plan any right to
continue in the employ, or as a director, of the Company or any
Subsidiary or Affiliate, or shall in any way affect the right and power
of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, of any participant under the Plan
at any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a participant between
the Company and its Subsidiaries and Affiliates shall not be deemed a
termination of employment.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income
tax purposes with respect to any award under the Plan, the Participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment, of, any federal, state or local taxes
or other items of any kind required by law to be withheld with respect
to such amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled
with Shares, including unrestricted Shares previously owned by the
participant or Shares that are part of the Award that gives rise to the
withholding requirement. Notwithstanding the foregoing, any election by
a Section 16 participant to settle such tax withholding obligation with
Shares that is part of such Award shall be subject to approval by the
Committee, in its sole discretion. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and the
Company and its Subsidiaries and Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Shares (or in Deferred Shares or
other types of Awards) at the time of any dividend payment shall only
be permissible if sufficient Shares are available under
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<PAGE>
Section 3 for such reinvestment (taking into account then outstanding
Stock Options, Share Purchase Rights and other Plan Awards).
(g) The Plan, all Awards made and actions taken thereunder and any
agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to the
Plan shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect to
each participant.
SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on June 18, 1996 and is subject to
approval by the holders of the Company's outstanding Shares, in accordance with
applicable law. The Plan will become effective on the date of such approval.
SECTION 16. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after May 30,
2006, but Awards granted prior to such date may extend beyond that date.
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<PAGE>
BOYKIN LODGING COMPANY
P_R_O_X_Y
The undersigned hereby appoints ROBERT W. BOYKIN, PAUL A. O'NEIL and ROBERT
A. WEIBLE, and each of them, attorneys and proxies of the undersigned, with full
power of substitution, to attend the annual meeting of shareholders of Boykin
Lodging Company to be held at the Cleveland Airport Marriott, 4277 West 150(th)
Street, Cleveland, Ohio 44135, on Tuesday, May 25, 1999, at 10:00 a.m., local
time, or any adjournment thereof, and to vote the number of common shares of
Boykin Lodging Company which the undersigned would be entitled to vote, and with
all the power the undersigned would possess if personally present, as follows:
1. / / FOR (except as noted below), or / / WITHHOLD AUTHORITY to vote for,
the following nominees for election as directors, each to serve until the
next annual meeting of the shareholders and until his successor has been
duly elected and qualified: Robert W. Boykin, Raymond P. Heitland, Albert
T. Adams, Lee C. Howley, Jr., Frank E. Mosier, William H. Schecter and
Ivan J. Winfield.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY PARTICULAR NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.)
_________________________________________________________________________
2. / / FOR, / / ABSTAIN, or / / AGAINST the proposal to approve an
increase of 700,000 in the number of common shares reserved for issuance
under the Boykin Lodging Company Long-Term Incentive Plan.
3. On such other business as may properly come before the meeting.
<PAGE>
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR, IF A CHOICE IS NOT SPECIFIED,
THEY WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1 AND FOR ITEM 2.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
Receipt of the Notice of Annual
Meeting of Shareholders and Proxy
Statement dated April 19, 1999,
is hereby acknowledged.
Dated ____________________ , 1999
_________________________________
_________________________________
_________________________________
SIGNATURE(S)
(PLEASE SIGN EXACTLY AS YOUR NAME
OR NAMES APPEAR HEREON,
INDICATING, WHERE PROPER,
OFFICIAL POSITION OR
REPRESENTATIVE CAPACITY.)
