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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 1-13079
GAYLORD ENTERTAINMENT COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0664379
- --------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gaylord Drive
Nashville, Tennessee 37214
- --------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(615) 316-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of July 31, 1999
----- -------------------------------
Common Stock, $.01 par value 32,833,665 shares
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GAYLORD ENTERTAINMENT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PAGE NO.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
For the Three Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Statements of Income -
For the Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998
--------- ---------
Revenues $ 128,362 $ 126,963
Operating expenses:
Operating costs 81,763 73,431
Selling, general and administrative 30,800 29,922
Depreciation and amortization 12,374 10,600
--------- ---------
Operating income 3,425 13,010
Interest expense (3,870) (7,661)
Interest income 947 6,524
Other gains and losses 569 34
--------- ---------
Income before provision for income taxes 1,071 11,907
Provision for income taxes 413 4,585
--------- ---------
Net income $ 658 $ 7,322
========= =========
Net income per share $ 0.02 $ 0.22
========= =========
Net income per share - assuming dilution $ 0.02 $ 0.22
========= =========
Dividends per share $ 0.20 $ 0.15
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998
--------- ---------
Revenues $ 241,501 $ 234,984
Operating expenses:
Operating costs 156,254 139,787
Selling, general and administrative 62,072 61,295
Depreciation and amortization 24,398 20,430
--------- ---------
Operating income (loss) (1,223) 13,472
Interest expense (7,018) (14,557)
Interest income 1,394 12,944
Other gains and losses 130,268 3,362
--------- ---------
Income before provision for income taxes 123,421 15,221
Provision for income taxes 42,971 5,860
--------- ---------
Net income $ 80,450 $ 9,361
========= =========
Net income per share $ 2.45 $ 0.29
========= =========
Net income per share - assuming dilution $ 2.43 $ 0.28
========= =========
Dividends per share $ 0.40 $ 0.30
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DEC. 31,
1999 1998
----------- -----------
ASSETS
Current assets:
Cash $ 11,255 $ 18,746
Trade receivables, less allowance of $5,173 and $5,517, respectively 89,931 94,429
Inventories 28,743 27,018
Other assets 45,255 49,009
----------- -----------
Total current assets 175,184 189,202
----------- -----------
Property and equipment, net of accumulated depreciation 597,328 586,898
Intangible assets, net of accumulated amortization 117,302 117,529
Investments 82,570 78,140
Long-term notes receivable 36,768 9,015
Other assets 36,759 31,208
----------- -----------
Total assets $ 1,045,911 $ 1,011,992
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,125 $ 6,269
Accounts payable and accrued liabilities 93,138 115,837
----------- -----------
Total current liabilities 94,263 122,106
----------- -----------
Long-term debt 272,011 276,712
Deferred income taxes 51,146 52,747
Other liabilities 33,620 33,039
Minority interest 2,294 2,228
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 150,000 shares authorized,
32,826 and 32,808 shares issued and outstanding, respectively 328 328
Additional paid-in capital 500,608 500,434
Retained earnings 94,022 26,699
Other stockholders' equity (2,381) (2,301)
----------- -----------
Total stockholders' equity 592,577 525,160
----------- -----------
Total liabilities and stockholders' equity $ 1,045,911 $ 1,011,992
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
1999 1998
--------- --------
Cash Flows from Operating Activities:
Net income $ 80,450 $ 9,361
Amounts to reconcile net income to net cash flows
used in operating activities:
Depreciation and amortization 24,398 20,430
Deferred income taxes (1,601) 387
Gain on equity participation rights (129,875) --
Noncash interest income -- (12,470)
Gain on sale of investments -- (19,155)
Write-off of Z Music note receivable -- 23,616
Changes in:
Trade receivables 4,498 (5,351)
Accounts payable and accrued liabilities (19,820) (25,741)
Other assets and liabilities (1,830) (10,176)
--------- --------
Net cash flows used in operating activities (43,780) (19,099)
--------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (29,957) (21,279)
Proceeds from equity participation rights 130,000 --
Acquisition of businesses, net of cash acquired -- (22,462)
Proceeds from sale of property and equipment -- 6,113
Proceeds from sale of investments -- 20,130
Investments in, advances to and distributions from affiliates (34,274) (9,691)
Other investing activities (6,630) (4,376)
--------- --------
Net cash flows provided by (used in) investing activities 59,139 (31,565)
--------- --------
Cash Flows from Financing Activities:
Repayment of debt (8,850) (984)
Proceeds from issuance of debt 500 500
Net (repayments) borrowings under revolving credit agreements (1,495) 62,095
Proceeds from exercise of stock options 122 294
Dividends paid (13,127) (9,849)
--------- --------
Net cash flows provided by (used in) financing activities (22,850) 52,056
--------- --------
Net change in cash (7,491) 1,392
Cash, beginning of period 18,746 8,712
--------- --------
Cash, end of period $ 11,255 $ 10,104
========= ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of Gaylord
Entertainment Company and subsidiaries (the "Company") and have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the financial information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, filed with the Securities and
Exchange Commission. In the opinion of management, all adjustments necessary for
a fair statement of the results of operations for the interim period have been
included. The results of operations for such interim period are not necessarily
indicative of the results for the full year.
2. INCOME PER SHARE:
The Company calculates income per share using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". Under the
standards established by SFAS No. 128, earnings per share is measured at two
levels: basic earnings per share and diluted earnings per share. Basic earnings
per share is computed by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
outstanding after considering the additional dilution related to stock options.
The weighted average number of common shares outstanding is calculated as
follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
------ ------ ------ ------
Weighted average shares outstanding 32,817 32,806 32,813 32,802
Effect of dilutive stock options 343 448 300 425
------ ------ ------ ------
Weighted average shares outstanding -
assuming dilution 33,160 33,254 33,113 33,227
====== ====== ====== ======
3. COMPREHENSIVE INCOME:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires that changes in the amounts of certain
items, including gains and losses on certain securities, be shown in the
financial statements. The Company adopted the provisions of SFAS No. 130 on
January 1, 1998. The Company's comprehensive income is substantially equivalent
to net income for the three month and six month periods ended June 30, 1999 and
1998.
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4. OTHER GAINS AND LOSSES:
The Company recognized a pretax gain of $129,875 during the first six months of
1999 related to the collection of $130,000 in proceeds from the redemption of
certain equity participation rights in cable television systems which the
Company sold during 1995. The Company recognized a current provision for income
taxes of $45,456 related to the gain during the first six months of 1999.
5. LONG-TERM NOTES RECEIVABLE:
The Company owns a minority limited partnership interest in Bass Pro, L.P.
("Bass Pro"). During the first six months of 1999, the Company advanced $28,080
to Bass Pro under an unsecured note agreement which bears interest at 8%
annually and is due in 2003. Interest under the note agreement is payable
annually.
6. FINANCIAL REPORTING BY BUSINESS SEGMENTS:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
Hospitality and attractions $ 74,318 $ 75,599 $ 141,719 $ 137,040
Broadcasting and music 53,240 50,455 97,973 93,895
Cable networks 804 909 1,809 4,049
--------- --------- --------- ---------
Total $ 128,362 $ 126,963 $ 241,501 $ 234,984
========= ========= ========= =========
Depreciation and amortization:
Hospitality and attractions $ 7,511 $ 7,043 $ 15,276 $ 13,730
Broadcasting and music 2,911 1,948 5,552 3,589
Cable networks 484 443 961 884
Corporate 1,468 1,166 2,609 2,227
--------- --------- --------- ---------
Total $ 12,374 $ 10,600 $ 24,398 $ 20,430
========= ========= ========= =========
Operating income (loss):
Hospitality and attractions $ 10,090 $ 14,421 $ 13,449 $ 18,185
Broadcasting and music 2,835 7,233 3,468 12,696
Cable networks (2,564) (2,613) (4,450) (5,671)
Corporate (6,936) (6,031) (13,690) (11,738)
--------- --------- --------- ---------
Total $ 3,425 $ 13,010 $ (1,223) $ 13,472
========= ========= ========= =========
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS
The Company operates in the following business segments: hospitality and
attractions; broadcasting and music; and cable networks. The hospitality and
attractions segment primarily consists of the Opryland Hotel located in
Nashville, Tennessee and the Company's Nashville-based attractions. The
broadcasting and music segment includes the Company's television station; radio
stations; music publishing business; Word Entertainment ("Word"), the Company's
contemporary Christian music company; and Pandora Investments, S.A. ("Pandora"),
a Luxembourg based company which acquires, distributes and produces theatrical
feature film and television programming primarily for markets outside of the
United States. The cable networks segment consists primarily of CMT
International, a country music video cable network operated in Latin America and
the Pacific Rim. The Company's unallocated corporate expenses are reported
separately.
PENDING SALE OF KTVT
During April 1999, the Company announced it had entered into an agreement to
sell its television station KTVT in Dallas-Ft. Worth to CBS Corporation in
exchange for $485 million of CBS common stock and other consideration. The
transaction is anticipated to close during the third quarter of 1999 and result
in a gain of approximately $280 million, net of deferred taxes.
GET DIGITALMEDIA
During July 1999, the Company announced the creation of GET digitalmedia, a new
division formed to initiate a focused Internet strategy, and the acquisition of
a 51% equity interest in two online operations, Musicforce.com and
Lightsource.com, for $15 million in cash. The parties have entered into option
agreements regarding the additional equity interests in the online operations.
The acquisition was financed through borrowings under a revolving credit
agreement and will be accounted for using the purchase method of accounting. The
Company expects that GET digitalmedia will have operating losses of $15 million
to $20 million (excluding goodwill amortization) over the next eighteen months.
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RESULTS OF OPERATIONS
The following table contains unaudited selected summary financial data for the
three month and six month periods ended June 30, 1999 and 1998 (amounts in
thousands). The table also shows the percentage relationships to total revenues
and, in the case of segment operating income, its relationship to segment
revenues.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ---------------------------------------
1999 % 1998 % 1999 % 1998 %
--------- ----- -------- ----- -------- ----- -------- ------
Revenues:
Hospitality and attractions $ 74,318 57.9 $ 75,599 59.5 $141,719 58.7 $137,040 58.3
Broadcasting and music 53,240 41.5 50,455 39.8 97,973 40.6 93,895 40.0
Cable networks 804 0.6 909 0.7 1,809 0.7 4,049 1.7
--------- ----- -------- ----- -------- ----- -------- ------
Total revenues 128,362 100.0 126,963 100.0 241,501 100.0 234,984 100.0
--------- ----- -------- ----- -------- ----- -------- ------
Operating expenses:
Operating costs 81,763 63.7 73,431 57.8 156,254 64.7 139,787 59.5
Selling, general & administrative 30,800 24.0 29,922 23.6 62,072 25.7 61,295 26.1
Depreciation and amortization:
Hospitality and attractions 7,511 7,043 15,276 13,730
Broadcasting and music 2,911 1,948 5,552 3,589
Cable networks 484 443 961 884
Corporate 1,468 1,166 2,609 2,227
--------- ----- -------- ----- -------- ----- -------- ------
Total depreciation and amortization 12,374 9.6 10,600 8.4 24,398 10.1 20,430 8.7
--------- ----- -------- ----- -------- ----- -------- ------
Total operating expenses 124,937 97.3 113,953 89.8 242,724 100.5 221,512 94.3
--------- ----- -------- ----- -------- ----- -------- ------
Operating income (loss):
Hospitality and attractions 10,090 13.6 14,421 19.1 13,449 9.5 18,185 13.3
Broadcasting and music 2,835 5.3 7,233 14.3 3,468 3.5 12,696 13.5
Cable networks (2,564) -- (2,613) -- (4,450) -- (5,671) --
Corporate (6,936) -- (6,031) -- (13,690) -- (11,738) --
--------- ----- -------- ----- -------- ----- -------- ------
Total operating income $ 3,425 2.7 $ 13,010 10.2 $ (1,223) -- $ 13,472 5.7
========= ===== ======== ===== ======== ===== ======== ======
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PERIODS ENDED JUNE 30, 1999 COMPARED TO PERIODS ENDED JUNE 30, 1998
Revenues
Total Revenues - Total revenues increased $1.4 million, or 1.1%, to $128.4
million in the second quarter of 1999, and increased $6.5 million, or 2.8%, to
$241.5 million in the first six months of 1999. The increase for the first six
months of 1999 results primarily from increased revenues in the hospitality and
attractions segment, principally the Opryland Hotel, and increases in the
broadcasting and music segment, principally from Word, offset in part by
decreased revenues in the cable networks segment as a result of CMT
International ceasing its European operations effective March 31, 1998.
Hospitality and Attractions - Revenues in the hospitality and attractions
segment decreased $1.3 million, or 1.7%, to $74.3 million in the second quarter
of 1999, and increased $4.7 million, or 3.4%, to $141.7 million in the first six
months of 1999. Opryland Hotel revenues increased $4.2 million, or 4.0%, to
$109.8 million in the first six months of 1999. The hotel's occupancy rate
increased to 78.1% in the first six months of 1999 compared to 76.3% in the
first six months of 1998. The hotel sold 392,300 rooms in the first six months
of 1999 compared to 383,900 rooms sold in the same period of 1998, reflecting a
2.2% increase from 1998. The hotel's average guest room rate decreased to
$135.74 in the first six months of 1999 from $139.17 in the first six months of
1998. The increase in revenues for the first six months of 1999 is also due to
revenues from the Wildhorse Saloon in Orlando, Florida, which opened in April
1998, of $2.3 million. These increases are partially offset by a decrease
related to the Company's investment in Bass Pro, L.P. ("Bass Pro") of $1.2
million.
Broadcasting and Music - Revenues in the broadcasting and music segment
increased $2.8 million, or 5.5%, to $53.2 million in the second quarter of 1999,
and increased $4.1 million, or 4.3%, to $98.0 million in the first six months of
1999. The increase for the first six months of 1999 is primarily due to an
increase in revenues of Word of $3.2 million and Pandora, which was acquired in
July 1998, of $3.4 million. This increase is partially offset by a decrease in
KTVT's revenues of $3.5 million. The decrease in KTVT revenues is primarily
related to the carriage of the 1998 Winter Olympics. Revenues for KTVT for the
first six months of 1999 were $24.0 million.
Cable Networks - Revenues in the cable networks segment decreased $0.1 million,
or 11.6%, to $0.8 million in the second quarter of 1999, and decreased $2.2
million, or 55.3%, to $1.8 million in the first six months of 1999. The decrease
for the first six months of 1999 is primarily the result of CMT International
ceasing its European operations effective March 31, 1998.
Operating Expenses
Total Operating Expenses - Total operating expenses increased $11.0 million, or
9.6%, to $124.9 million in the second quarter of 1999, and increased $21.2
million, or 9.6%, to $242.7 million in the first six months of 1999. Operating
costs, as a percentage of revenues, increased to 64.7% during the first six
months of 1999 as compared to 59.5% during the first six months of 1998.
Selling, general and administrative expenses, as a percentage of revenues,
decreased to 25.7% during the first six months of 1999 as compared to 26.1%
during the first six months of 1998.
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Operating Costs - Operating costs increased $8.3 million, or 11.3%, to $81.8
million in the second quarter of 1999, and increased $16.5 million, or 11.8%, to
$156.3 million in the first six months of 1999. The increase in the first six
months of 1999 is primarily attributable to increased operating costs of Word of
$3.1 million related to increased revenues. The operating costs of Pandora,
which was acquired in July 1998, were $3.2 million in the first six months of
1999. Additionally, operating costs of the Wildhorse Saloon in Orlando, Florida,
which opened in April 1998, increased $1.9 million in the first six months of
1999. The operating costs of the Opryland Hotel increased $1.8 million in the
first six months of 1999. Costs associated with the growth strategy of CMT
International and Z Music increased operating costs of the cable networks
segment by $1.6 million in the first six months of 1999.
Selling, General and Administrative - Selling, general and administrative
expenses increased $0.9 million, or 2.9%, to $30.8 million in the second quarter
of 1999, and increased $0.8 million, or 1.3%, to $62.1 million in the first six
months of 1999. The increase in the first six months of 1999 is primarily
attributable to lower selling, general and administrative expenses of the
European operations of CMT International, which ceased operations on March 31,
1998, of $1.6 million and the recognition of a valuation reserve of $2.6 million
on a long-term note receivable from Z Music, Inc. during the first six months of
1998. These decreases are partially offset by an increase of $2.6 million in
selling, general and administrative expenses of Word in the first six months of
1999.
Depreciation and Amortization - Depreciation and amortization increased $1.8
million, or 16.7%, to $12.4 million in the second quarter of 1999, and increased
$4.0 million, or 19.4%, to $24.4 million in the first six months of 1999. The
increase is primarily attributable to the depreciation expense of acquisitions
and capital expenditures made in 1998. Depreciation and amortization for KTVT
for the first six months of 1999 was $1.3 million.
Operating Income
Total Operating Income - Total operating income decreased $9.6 million to $3.4
million in the second quarter of 1999, and decreased $14.7 million to an
operating loss of $1.2 million in the first six months of 1999. Operating income
in the hospitality and attractions segment decreased $4.7 million during the
first six months of 1999 as a result of lower earnings from the Company's
investment in Bass Pro partially offset by increased operating income of the
Opryland Hotel. Broadcasting and music segment operating income decreased $9.2
million during the first six months of 1999 primarily due to a decrease at KTVT
and Word. The operating income of KTVT for the first six months of 1999 was $6.4
million. Operating losses of the cable networks segment decreased $1.2 million
during the first six months of 1999 primarily as a result of CMT International
ceasing its European operations effective March 31, 1998. Corporate operating
losses increased $2.0 million during the first six months of 1999 as a result of
increased administrative costs.
Interest Expense
Interest expense decreased $3.8 million to $3.9 million in the second quarter of
1999, and decreased $7.5 million to $7.0 million in the first six months of
1999. The decrease in the first six months of 1999 is primarily attributable to
lower average borrowing levels during the first six months of 1999 than in the
first six months of 1998. The Company's weighted average interest rate on its
borrowings was 6.3% in the first six months of 1999 compared to 6.7% in the
first six months of 1998.
Interest Income
Interest income decreased $5.6 million to $0.9 million in the second quarter of
1999, and decreased $11.6 million to $1.4 million in the first six months of
1999. The decrease in the first six months of 1999 relates to the December 1998
collection of a long-term note receivable which originated from the sale of the
Company's cable television systems.
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Other Gains and Losses
During the first six months of 1999, the Company recognized a pretax gain of
$129.9 million related to the collection of $130 million in proceeds from the
redemption of certain equity participation rights in cable television systems
which the Company sold during 1995.
Income Taxes
The provision for income taxes decreased $4.2 million to $0.4 million in the
second quarter of 1999, and increased $37.1 million to $43.0 million in the
first six months of 1999. The effective tax rate on income before provision for
income taxes was 34.8% for the first six months of 1999 compared to 38.5% for
the first six months of 1998. The Company recognized a current provision for
income taxes of $45.5 million related to the non-recurring gain from the equity
participation rights discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an unsecured revolving loan (the "Revolver") which provides for
borrowings of up to $600 million until its maturity in July 2002. At July 31,
1999, the Company had approximately $322 million in available borrowing capacity
under the Revolver. The terms and conditions of the Revolver require the Company
to maintain certain financial ratios and minimum stockholders' equity levels and
subject the Company to limitations on, among other things, mergers and sales of
assets, additional indebtedness, capital expenditures, investments,
acquisitions, liens, and transactions with affiliates. The $130 million proceeds
from the equity participation rights were used to reduce outstanding
indebtedness under the Revolver. Acquisitions and operating losses of GET
digitalmedia, the Company's new Internet division, of approximately $35 million
will be financed through borrowings under the Revolver.
The Company currently projects capital expenditures of approximately $55 million
for 1999, of which $30 million had been spent as of June 30, 1999. Depending
upon the financing structure of the development of the Opryland Hotel - Florida
and the Opryland Hotel - Texas, capital expenditures for 1999 could increase by
approximately $50 million. The Company's management believes that the net cash
flows from operations, together with the amount expected to be available for
borrowing under the Revolver, will be sufficient to satisfy anticipated future
cash requirements of the Company on both a short-term and long-term basis.
YEAR 2000
Without programming modifications or embedded technology replacements, certain
computer systems (hardware, software and equipment) will not operate properly
when using the two digits used in date calculations for the year 2000. These
computer systems interpret the "00" used in date calculations to represent the
year 1900. During 1996, the Company formed an internal task force responsible
for assessing, testing and correcting the Company's information technology and
systems risks associated with the year 2000. The task force has completed its
assessment of the Company's systems, has identified the Company's hardware,
software and equipment that will not operate properly in the year 2000, and is
taking the appropriate action to ensure compliance. In certain instances,
hardware, software and equipment that will not operate properly in the year 2000
are being replaced.
As of July 31, 1999, the task force has determined and confirmed through testing
that approximately 90% of the Company's systems, in certain circumstances
following completed programming changes or replacements, will operate properly
in the year 2000. As of July 31, 1999, all of the Company's internally developed
software applications are considered year 2000 compliant.
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As to the approximately 10% of systems not currently determined to be year 2000
compliant, the Company is currently replacing or repairing hardware, software
and equipment that it anticipates will not work properly in the year 2000. The
Company expects that replacements and repairs of hardware, software and
equipment for systems that are not currently considered year 2000 compliant will
be completed during August 1999. The Company is testing all of its systems to
ensure their proper operation upon the arrival of the year 2000. The Company
expects that the testing phase of its year 2000 remediation effort will be
completed during August 1999.
The Company has requested written documentation from vendors and suppliers with
whom the Company has a material relationship regarding their ability to operate
properly in the year 2000. In many cases, the Company is considering
alternatives related to vendors and suppliers that do not confirm their year
2000 readiness. There can be no assurance that the Company's significant vendors
and suppliers will have remedied their year 2000 issues in a timely manner. The
failure of a significant supplier to remedy its year 2000 issues could have a
material adverse effect on the Company's operations, financial position or
liquidity. The Company will continue to monitor its significant vendors and
suppliers to mitigate its risks. Contingency plans are being developed for
vendors and suppliers that are deemed critical to the Company's operations.
Based upon the Company's current estimates, the costs of the Company's year 2000
remediation efforts are between $7 million and $9 million. Included in the
Company's cost estimates are the costs of replacing hardware and software of
approximately $6 million, which are capitalized and amortized over their
estimated useful lives. Certain software replacements included in these cost
estimates were planned prior to the assessment of the year 2000 issue and were
accelerated as part of the Company's year 2000 remediation effort. The remaining
costs are expensed as incurred. These projected costs are based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events. There can be no guarantee, however, that these cost estimates
will be achieved and actual results could differ materially.
Management's estimate of the Company's most reasonably likely worst case
scenario involves the replacement of hardware, software or equipment during the
third and fourth quarters of 1999 that is determined during the testing phase of
the remediation effort to not be correctable. The foregoing notwithstanding,
management does not currently believe that the costs of assessment, remediation
or replacement of the Company's systems, or the potential failure of third
parties' systems, will have a material adverse effect on the Company's business,
financial condition, results of operations or liquidity.
SEASONALITY
Certain of the Company's operations are subject to seasonal fluctuation. The
first calendar quarter is the weakest quarter for most television and radio
broadcasters, including the Company, as advertising revenues are lower in the
post-Christmas period. Revenues in the music business are typically weakest in
the first calendar quarter following the Christmas buying season.
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FORWARD-LOOKING STATEMENTS/RISK FACTORS
This report contains certain forward-looking statements regarding, among other
things, the anticipated financial and operating results of the Company. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions investors that future
financial and operating results may differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance, or achievements of
the Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. The
Company's future operating results depend on a number of factors which were
derived utilizing numerous assumptions and other important factors that, if
altered, could cause actual results to differ materially from those projected in
forward-looking statements. These factors, many of which are beyond the
Company's control, include growth in the popularity of country music and country
lifestyles; growth in the popularity of Christian music and family values
lifestyles; the ability to control costs relating to the development of the Opry
Mills retail complex; the ability to integrate acquired operations into the
Company's businesses; the ability of the Company to implement successfully its
focused Internet strategy; the ability of the Opryland Hospitality Group to
develop successfully hotel properties in other markets; the advertising market
in the United States in general and in the Company's Dallas television and
Nashville radio markets in particular; the perceived attractiveness of
Nashville, Tennessee and the Company's properties as convention and tourist
destinations; consumer tastes and preferences for the Company's programming and
other entertainment offerings; competition; the impact of weather on
construction schedules; the ability of the Company to avoid operational problems
associated with year 2000 compliance; and consolidation in the broadcasting and
cable distribution industries.
In addition, investors are cautioned not to place undue reliance on
forward-looking statements contained in this report because they speak only as
of the date hereof. The Company undertakes no obligation to release publicly any
modifications or revisions to forward-looking statements contained in this
report to reflect events or circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Based on the Company's overall market interest rate and foreign currency
exchange rate exposure at June 30, 1999, the Company believes that the effect,
if any, of reasonably possible near-term changes in interest rates or
fluctuation in foreign currency exchange rates on the Company's financial
position, results of operations or cash flows would not be material.
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Part II - Other Information
Item 1. LEGAL PROCEEDINGS
Inapplicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Inapplicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 13,
1999 (the "Annual Meeting"). At the Annual Meeting, the
stockholders of the Company voted to elect three Class II
directors, Martin C. Dickinson, Christine Gaylord Everest, and
Howard L. Wood, for three-year terms and until their
successors are duly elected and qualified. The following table
sets forth the number of votes cast for and withheld/abstained
with respect to each of the nominees:
Withheld/
Nominee For Abstained
------- ---------- ---------
Martin C. Dickinson 26,227,814 60,371
Christine Gaylord Everest 26,226,352 61,833
Howard L. Wood 26,251,637 36,548
The stockholders of the Company also voted to amend the
Company's Amended and Restated 1997 Stock Option and Incentive
Plan to increase the number of shares authorized for grant and
issuance pursuant thereto. A total of 22,238,482 votes were
cast for such proposal, 2,051,524 votes were cast against such
proposal, and 12,018 votes abstained with respect to such
proposal. There were 1,986,161 broker nonvotes with respect to
the proposal.
The third proposal submitted to the stockholders of the
Company was the approval and adoption of the Company's
Employee Stock Purchase Plan. A total of 24,202,231 votes were
cast for such proposal, 87,032 votes were cast against such
proposal, and 12,761 votes abstained with respect to such
proposal. There were 1,986,161 broker nonvotes with respect to
the proposal.
The fourth proposal submitted to the stockholders of the
Company was the ratification of the appointment of Arthur
Andersen LLP as the independent public accountants for the
Company in 1999. A total of 26,269,235 votes were cast for
such proposal, 5,388 votes were cast against such proposal,
and 13,562 votes abstained with respect to such proposal.
There were no broker nonvotes with respect to the proposal.
Item 5. OTHER INFORMATION
Inapplicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits following the Signatures page.
(b) A Current Report on Form 8-K, dated April 19, 1999,
reporting the Company's execution of a definitive
agreement to sell its ownership in KTVT-TV located in
Dallas-Fort Worth to CBS Corporation was filed with
the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GAYLORD ENTERTAINMENT COMPANY
Date: August 16, 1999 By: /s/ Joseph B. Crace
--------------- -----------------------------------------
Joseph B. Crace
Executive Vice President, Chief Operating Officer,
and Chief Financial Officer
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INDEX TO EXHIBITS
10.1 Gaylord Entertainment Company 1997 Stock Option and Incentive Plan
Amended and Restated as of May 13, 1999.
27 Financial Data Schedule (for SEC use only).
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EXHIBIT 10.1
GAYLORD ENTERTAINMENT COMPANY
1997 STOCK OPTION AND INCENTIVE PLAN
AMENDED AND RESTATED AS OF MAY 13, 1999
1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION.
The purpose of this Amended and Restated 1997 Stock Option and Incentive
Plan of Gaylord Entertainment Company (the "Plan") is to afford an incentive to
officers, directors, key employees, consultants and advisors of Gaylord
Entertainment Company (the "Company"), or any Subsidiary (as defined herein)
which now exists or hereafter is organized or acquired by the Company, to
acquire a proprietary interest in the Company, to continue as officers,
directors, employees, consultants and advisors, to increase their efforts on
behalf of the Company and to promote the success of the Company's business.
It is further intended that options granted by the Compensation or other
Committee (the "Committee") of the Board of Directors of the Company (the
"Board") pursuant to Section 8 of the Plan shall constitute "incentive stock
options" ("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and options granted by
the Committee pursuant to Section 7 of the Plan shall constitute "nonqualified
stock options" ("Nonqualified Stock Options"). The Committee may also grant
stock appreciation rights ("Stock Appreciation Rights" or "SARs") pursuant to
Section 9 of the Plan and shares of restricted stock ("Restricted Stock")
pursuant to Section 10 of the Plan.
The provisions of the Plan are intended to satisfy the requirements of
Section 16(b) of the Securities Exchange Act of 1934, and shall be interpreted
in a manner consistent with the requirements thereof, as now or hereafter
construed, interpreted, and applied by regulations, rulings, and cases. The Plan
is also designated so that awards granted hereunder intended to comply with the
requirements for "performance-based" compensation under Section 162(m) of the
Code may comply with such requirements. The creation and implementation of the
Plan shall not diminish or prejudice other compensation plans or programs
approved from time to time by the Board.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Common Stock" shall mean shares of Common Stock, par value $.01
per share, of the Company.
(b) "Disability" shall mean a Grantee's (as defined in Section 3
hereof) inability to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that can be
expected to result in death or that has lasted or can be expected to last
for a continuous period of not less than twelve (12) months.
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(c) "Fair Market Value" per share of Common Stock as of a particular
date shall mean (i) the closing sales price per share of Common Stock on
the national securities exchange on which the Common Stock is principally
traded, for the last preceding date on which there was a sale of such
Common Stock on such exchange, or (ii) if the shares of Common Stock are
then traded in an over-the-counter market, the average of the closing bid
and asked prices for the shares of Common Stock in such over-the-counter
market for the last preceding date on which there was a sale of such Common
Stock in such market, or (iii) if the shares of Common Stock are not then
listed on a national securities exchange or traded in an over-the-counter
market, such value as the Committee, in its sole discretion, shall
determine.
(d) "Immediate Family" shall mean any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, and shall include adoptive relationships.
(e) "Option" or "Options" shall mean a grant to a Grantee of an option
or options to purchase shares of Common Stock. Options granted by the
Committee pursuant to the Plan shall constitute either Incentive Stock
Options or Nonqualified Stock Options.
(f) "Parent" shall mean any company (other than the Company) in an
unbroken chain of companies ending with the Company if, at the time of
granting an Option, each of the companies other than the Company owns stock
or equity interests (including partnership interests) possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock or equity interests in one of the other companies in such chain.
(g) "Performance Goals" means performance goals based on one or more
of the following criteria: (i) pre-tax income or after-tax income; (ii)
operating cash flow; (iii) operating profit; (iv) return on equity, assets,
capital, or investment; (v) earnings or book value per share; (vi) sales or
revenues; (vii) operating expenses; (viii) cost of capital; (ix) Common
Stock price appreciation; and (x) implementation or completion of critical
projects or processes. Where applicable, the Performance Goals may be
expressed in terms of attaining a specified level of the particular
criteria or the attainment of a percentage increase or decrease in the
particular criteria, and may be applied to one or more of the Company or
any Subsidiary, or a division or strategic business unit of the Company, or
may be applied to the performance of the Company relative to a market
index, a group of other companies, or a combination thereof, all as
determined by the Committee. The Performance Goals may include a threshold
level of performance below which no payment will be made (or no vesting
will occur), levels of performance at which specified payments will be made
(or specified vesting will occur), and a maximum level of performance above
which no additional payment will be made (or at which full vesting will
occur). Each of the foregoing Performance Goals shall be determined, to the
extent applicable, in accordance with generally accepted accounting
principles and shall be subject to certification by the Committee;
provided, that the Committee shall have the authority to make equitable
adjustments to the Performance Goals in recognition of unusual or
non-recurring events affecting the Company or any Subsidiary or the
financial statements of the Company or any Subsidiary, in response to
changes in applicable laws or regulations, or to account for items of gain,
loss, or expense determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a segment of
business or related to a change in accounting principles.
(h) "Subsidiary" shall mean any company (other than the Company) in an
unbroken chain of companies beginning with the Company if, at the time of
granting an Option, each of the companies other than the last company in
the unbroken chain owns stock or equity interests (including partnership
interests) possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock or equity interests in one of the
other companies in such chain.
(i) "Ten Percent Stockholder" shall mean a Grantee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or any Parent or Subsidiary.
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(j) "Retirement" means retirement by an employee from active
employment with the Company or any Subsidiary (i) on or after attaining age
65, or (ii) with the express written consent of the Company on or after
attaining age 55.
(k) "Voting Trust" shall mean the trust created by that certain Voting
Trust Agreement, dated as of October 3, 1990, as amended October 7, 1991,
and as may be amended hereafter from time to time, and "Voting Trustees"
shall mean the trustees of the Voting Trust.
3. ADMINISTRATION.
The Plan shall be administered by the Committee, which will be comprised
solely of "Non-Employee Directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or by the
Board if for any reason the Committee is not so comprised, in which case all
references herein to the Committee shall refer to the Board.
The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Options, SARs, and
Restricted Stock; to determine which Options shall constitute Incentive Stock
Options and which Options shall constitute Nonqualified Stock Options and
whether such Options will be accompanied by Stock Appreciation Rights; to
determine the purchase price of the shares of Common Stock covered by each
Option (the "Option Price") and SARs, the kind of consideration payable (if any)
with respect to awards, and the various methods for payment; to determine the
period during which Options may be exercised and during which Restricted Stock
shall be subject to restrictions, and whether in whole or in installments; to
determine the persons to whom, and the time or times at which awards shall be
granted (such persons are referred to herein as "Grantees"); to determine the
number of shares to be covered by each award; to determine the terms,
conditions, and restrictions of any Performance Goals and the number of Options,
SARs, or shares of Restricted Stock subject thereto; to interpret the Plan; to
prescribe, amend, and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the agreements (which need not be
identical) entered into in connection with awards granted under the Plan (the
"Agreements"); to cancel or suspend awards, as necessary; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee or
any person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations, and
interpretations of the Committee shall be final and binding on all Grantees of
any awards under this Plan.
The Board shall fill all vacancies, however caused, in the Committee. The
Board may from time to time appoint additional members to the Committee, and may
at any time remove one or more Committee members and substitute others. One
member of the Committee shall be selected by the Board as chairman. The
Committee shall hold its meetings at such times and places as it shall deem
advisable. All determinations of the Committee shall be made by a majority of
its members either present in person or participating by conference telephone at
a meeting or by written consent. The Committee may appoint a secretary and make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings.
No members of the Board or Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any award
granted hereunder.
4. ELIGIBILITY.
Directors, officers, key employees, consultants and advisors of the Company
or any Subsidiary shall be eligible to receive awards hereunder; provided,
however, that only consultants or advisors who have rendered bona fide services
to the Company or any Subsidiary in connection with its business operations, and
not in
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connection with the offer or sale of securities in capital-raising transactions,
shall be eligible to receive awards hereunder. In determining the persons to
whom awards shall be granted and the number of shares to be covered by each
award, the Committee, in its sole discretion, shall take into account the
contribution by the eligible participants to the management, growth, and
profitability of the business of the Company and such other factors as the
Committee shall deem relevant.
5. STOCK.
The maximum number of shares of Common Stock reserved for the grant of
awards under the Plan shall be 4,250,000 (including shares of Common Stock
reserved for the grant of awards issued in connection with the Distribution
Agreement (as defined below)), subject to adjustment as provided in Section 11
hereof. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by the Company.
If any outstanding award under the Plan should, for any reason, expire or
be canceled, forfeited, or terminated, without having been exercised in full,
the shares of Common Stock allocable to the unexercised, canceled, forfeited, or
terminated portion of such award shall (unless the Plan shall have been
terminated) become available for subsequent grants of awards under the Plan.
The maximum number of shares of Common Stock with respect to which awards
(including Options, SARs, and Restricted Stock) may be granted under the Plan to
any eligible employee during any consecutive three-year period shall be 500,000,
subject to adjustment as provided in Section 11 hereof. Notwithstanding the
foregoing, shares of Common Stock issued or issuable to any person in connection
with the Agreement and Plan of Distribution, dated as of September 30, 1997,
between the Company and Gaylord Entertainment Company, a Delaware corporation
(the "Distribution Agreement") shall not be counted for purposes of the maximum
number of shares limitation in the preceding sentence.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by a written
agreement between the Company and the Grantee (the "Option Agreement"), in such
form as the Committee shall from time to time approve, which Option Agreement
shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically state
that the Option constitutes an Incentive Stock Option or a Nonqualified
Stock Option.
(c) Option Price. Each Option Agreement shall state the Option Price,
which, in the case of an Incentive Stock Option, shall not be less than one
hundred percent (100%) of the Fair Market Value of the shares of Common
Stock covered by the Option on the date of grant. The Option Price shall be
subject to adjustment as provided in Section 11 hereof. Unless otherwise
stated in the resolution, the date on which the Committee adopts a
resolution expressly granting an Option shall be considered the day on
which such Option is granted.
(d) Medium and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in any manner that the Committee shall deem
appropriate or that the Option Agreement shall provide for, including, in
cash, in shares of Common Stock having a Fair Market Value equal to such
Option Price, in cash provided through a broker-dealer sale and remittance
procedure, approved by the Committee, in a combination of cash and Common
Stock, or in such other manner as the Committee shall determine.
(e) Term and Exercisability of Options. Each Option shall be
exercisable at such times and under such conditions as the Committee, in
its discretion, shall determine; provided, however, that in the case of an
Incentive Stock Option, such exercise period shall not exceed ten (10)
years from the date of grant of
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such Option. The exercise period shall be subject to earlier termination as
provided in Section 6(f) hereof. An Option may be exercised, as to any or
all full shares of Common Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the Committee or
its designated agent.
(f) Termination of Employment.
(i) Generally. Except as otherwise provided herein or as
determined by the Committee, an Option may not be exercised unless the
Grantee is then in the service or employ of the Company or a Parent or
Subsidiary (or a company or a parent or subsidiary company of such
company issuing or assuming the Option in a transaction to which Section
424(a) of the Code applies), and unless the Grantee has remained
continuously in such service or employ since the date of grant of the
Option. Unless otherwise determined by the Committee at or after the
date of grant, in the event that the employment of a Grantee or the
service provided to the Company by the Grantee terminates (other than by
reason of death, Disability, Retirement, or for Cause) all Options that
are exercisable at the time of such termination may be exercised for a
period of 90 days from the date of such termination or until the
expiration of the stated term of the Option, whichever period is
shorter. For purposes of interpreting this Section 6(f) only, the
service of a director as a non-employee member of the Board shall be
deemed to be employment by the Company.
(ii) Death or Disability. If a Grantee's employment with, or
service to, the Company or a Parent or Subsidiary terminates by reason
of death, or if the Grantee's employment or service terminates by reason
of Disability, all Options theretofore granted to such Grantee will
become fully vested and exercisable (notwithstanding any terms of the
Options providing for delayed exercisability) and may be exercised by
the Grantee, by the legal representative of the Grantee's estate, or by
the legatee under the Grantee's will at any time until the expiration of
the stated term of the Option. In the event that an Option granted
hereunder is exercised by the legal representative of a deceased or
disabled Grantee, written notice of such exercise must be accompanied by
a certified copy of letters testamentary or equivalent proof of the
right of such legal representative or legatee to exercise such Option.
(iii) Retirement. If a Grantee's employment with, or service to,
the Company or a Parent or Subsidiary terminates by reason of
Retirement, any Option held by the Grantee may thereafter be exercised,
to the extent it was exercisable at the time of such Retirement or on
such accelerated basis as the Committee may determine at or after the
date of grant (but before the date of such Retirement), at any time
until the expiration of the stated term of the Option.
(iv) Cause. If a Grantee's employment with, or service to, the
Company or a Parent or Subsidiary terminates for "Cause" (as determined
by the Committee in its sole discretion) the Option, to the extent not
theretofore exercised, shall terminate on the date of termination of
employment.
(v) Committee Discretion. Notwithstanding the provisions of
subsections (i) through (iv) above, the Committee may, in its sole
discretion, at or after the date of grant (but before the date of
termination), establish different terms and conditions pertaining to the
effect on any Option of termination of a Grantee's employment with, or
service to, the Company or a Parent or Subsidiary, to the extent
permitted by applicable federal and state law.
(g) Other Provisions. The Option Agreements evidencing Options under
the Plan shall contain such other terms and conditions, not inconsistent
with the Plan, as the Committee may determine.
7. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
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8. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 8 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in Section
6 hereof
(a) Value of Shares. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of equity
securities of the Company with respect to which Incentive Stock Options
granted under this Plan and all other option plans of any Parent or
Subsidiary become exercisable for the first time by each Grantee during any
calendar year shall not exceed $100,000. To the extent such $100,000 limit
has been exceeded with respect to any Options first becoming exercisable,
including acceleration upon a Change in Control, and notwithstanding any
statement in the Option Agreement that it constitutes an Incentive Stock
Option, the portion of such Option(s) that exceeds such $100,000 limit
shall be treated as a Nonqualified Stock Option.
(b) Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the
shares of Common Stock on the date of grant of such Incentive Stock Option,
and (ii) the exercise period shall not exceed five (5) years from the date
of grant of such Incentive Stock Option.
9. STOCK APPRECIATION RIGHTS.
The Committee is authorized to grant SARs to Grantees on the following
terms and conditions:
(a) In General. Unless the Committee determines otherwise, an SAR (i)
granted in tandem with a Nonqualified Stock Option may be granted at the
time of grant of the related Nonqualified Stock Option or at any time
thereafter, and (ii) granted in tandem with an Incentive Stock Option may
only be granted at the time of grant of the related Incentive Stock Option.
An SAR granted in tandem with an Option shall be exercisable only to the
extent the underlying Option is exercisable and shall terminate when the
underlying Option terminates.
(b) SARs. An SAR shall confer on the Grantee a right to receive an
amount with respect to each share subject thereto, upon exercise thereof,
equal to the excess of (i) the Fair Market Value of one share of Common
Stock on the date of exercise over (ii) the grant price of the SAR (which
in the case of an SAR granted in tandem with an Option shall be equal to
the exercise price of the underlying Option, and which in the case of any
other SAR shall be such price as the Committee may determine).
(c) Performance Goals. The Committee may condition the exercise of
any SAR upon the attainment of specified Performance Goals, in its sole
discretion.
10. RESTRICTED STOCK.
The Committee may award shares of Restricted Stock to any eligible employee
or director. Each award of Restricted Stock under the Plan shall be evidenced by
an instrument, in such form as the Committee shall from time to time approve
(the "Restricted Stock Agreement"), and shall comply with the following terms
and conditions (and with such other terms and conditions not inconsistent with
the terms of this Plan as the Committee, in its discretion, shall establish
including, without limitation, the requirement that a Grantee provide
consideration for Restricted Stock upon the lapse of restrictions):
(a) The Committee shall determine the number of shares of Common Stock
to be issued to the Grantee pursuant to the award.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the laws
of descent and distribution, for such period as the Committee shall
determine from the date on which the award is granted (the "Restricted
Period"). The Committee may impose such other restrictions and conditions
on the shares as it deems appropriate including the satisfaction of
Performance Goals. Certificates for shares of stock issued pursuant to
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Restricted Stock awards shall bear an appropriate legend referring to such
restrictions, and any attempt to dispose of any such shares of stock in
contravention of such restrictions shall be null and void and without
effect. During the Restricted Period, such certificates shall be held in
escrow by an escrow agent appointed by the Committee. In determining the
Restricted Period of an award, the Committee may provide that the foregoing
restrictions lapse at such times, under such circumstances, and in such
installments, as the Committee may determine.
(c) Subject to such exceptions as may be determined by the Committee,
if the Grantee's continuous employment with the Company or any Parent or
Subsidiary shall terminate for any reason prior to the expiration of the
Restricted Period of an award, any shares remaining subject to restrictions
(after taking into account the provisions of Subsection (f) of this Section
10.) shall thereupon be forfeited by the Grantee and transferred to, and
reacquired by, the Company or a Parent or Subsidiary at no cost to the
Company or such Parent or Subsidiary.
(d) During the Restricted Period the Grantee shall possess all
incidents of ownership of such shares, subject to Subsection (b) of this
Section 10, including the right to receive cash dividends with respect to
such shares and to vote such shares; provided, that shares of Common Stock
distributed in connection with a stock split or stock dividend shall be
subject to restriction and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such shares are distributed.
(e) Upon the occurrence of any of the events described in Section
11(c), all restrictions then outstanding with respect to shares of
Restricted Stock awarded hereunder shall automatically expire and be of no
further force or effect.
(f) The Committee shall have the authority (and the Restricted Stock
Agreement may so provide) to cancel all or any portion of any outstanding
restrictions prior to the expiration of the Restricted Period with respect
to any or all of the shares of Restricted Stock awarded on such terms and
conditions as the Committee shall deem appropriate.
11. EFFECT OF CERTAIN CHANGES.
(a) If there is any change in the shares of Common Stock through the
declaration of extraordinary cash dividends, stock dividends,
recapitalization, stock splits, or combinations or exchanges of such
shares, or other similar transactions, the number of shares of Common Stock
available for awards (both the maximum number of shares issuable under the
Plan as a whole and the maximum number of shares issuable on a per-employee
basis, each as set forth in Section 5 hereof), the number of such shares
covered by outstanding awards, the Performance Goals, and the price per
share of Options or SARs shall be proportionately adjusted by the Committee
to reflect such change in the issued shares of Common Stock; provided, that
any fractional shares resulting from such adjustment shall be eliminated;
and provided, further, that, with respect to Incentive Stock Options, such
adjustment shall be made in accordance with Section 424(h) of the Code.
(b) In the event of the dissolution or liquidation of the Company; in
the event of any corporate separation or division, including but not
limited to, split-up, split-off or spin-off; or in the event of other
similar transactions, the Committee may, in its sole discretion, provide
that either:
(i) the Grantee of any award hereunder shall have the right to
exercise an Option (at its then Option Price) and receive such property,
cash, securities, or any combination thereof upon such exercise as would
have been received with respect to the number of shares of Common Stock
for which such Option might have been exercised immediately prior to
such dissolution, liquidation, or corporate separation or division; or
(ii) each Option shall terminate as of a date to be fixed by the
Committee and that not less than thirty (30) days' written notice of the
date so fixed shall be given to each Grantee, who shall have the right,
during the period of thirty (30) days preceding such termination, to
exercise all or part of such Option.
7
8
In the event of a proposed sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation, any award then outstanding shall be assumed or an equivalent
award shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless such successor corporation
does not agree to assume the award or to substitute an equivalent award, in
which case the Committee shall, in lieu of such assumption or substitution,
provide for the realization of such outstanding awards in the manner set
forth in Section 11(b)(i) or 11(b)(ii) above.
(c) If, while any awards remain outstanding under the Plan, any of the
following events shall occur (which events shall constitute a "Change in
Control" of the Company):
(i) the "beneficial ownership," as defined in Rule 13d-3 under the
Exchange Act, of securities representing more than a majority of the
combined voting power of the Company are acquired by any "person" as
defined in Sections 13(d) and 14(d) of the Exchange Act (other than (A)
the Company, (B) any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, (C) the Voting Trust and the
Voting Trustees, (D) Edward L. Gaylord or any member of his Immediate
Family, or any "person" controlled by, controlling or under common
control with Edward L. Gaylord or any member of his Immediate Family; or
(E) any corporation owned, directly or indirectly, by the shareholders
of the Company in substantially the same proportions as their ownership
of stock of the Company); or
(ii) the shareholders of the Company approve a definitive agreement
to merge or consolidate the Company with or into another company (other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) a majority of
the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation), or to sell or otherwise dispose of all or substantially
all of its assets, or adopt a plan of liquidation; or
(iii) during any period of two consecutive years, individuals who
at the beginning of such period were members of the Board cease for any
reason to constitute at least a majority thereof (unless the election,
or the nomination for election by the Company's shareholders, of each
new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period);
then from and after the date on which any such Change in Control shall have
occurred (the "Acceleration Date"), any Option, SAR, and share of
Restricted Stock awarded pursuant to this Plan shall be exercisable or
otherwise nonforfeitable in full, as applicable, whether or not otherwise
exercisable or forfeitable.
Following the Acceleration Date, the Committee shall, in the case of a
merger, consolidation, or sale or disposition of assets, promptly make an
appropriate adjustment to the number and class of shares of Common Stock
available for awards, and to the amount and kind of shares or other
securities or property receivable upon exercise or other realization of any
outstanding awards after the effective date of such transaction, and, if
applicable, the price thereof.
(d) In the event of a change in the Common Stock of the Company as
presently constituted that is limited to a change of all of its authorized
shares of Common Stock into the same number of shares with a different par
value or without par value, the shares resulting from any such change shall
be deemed to be the Common Stock within the meaning of the Plan.
(e) Except as herein before expressly provided in this Section 11, the
Grantee of an award hereunder shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class or the payment
of any stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution, liquidation,
merger, or consolidation or spin-off of assets or stock of another company;
and any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be
8
9
made with respect to, the number or price of shares of Common Stock subject
to an award. The grant of an award pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structures or to merge or to consolidate or to dissolve, liquidate, or
sell, or transfer all or part of its business or assets or engage in any
similar transactions.
12. SURRENDER AND EXCHANGES OF AWARDS.
The Committee may permit the voluntary surrender of all or a portion of any
Option granted under the Plan or any option granted under any other plan,
program, or arrangement of the Company or any Subsidiary ("Surrendered Option"),
to be conditioned upon the granting to the Grantee of a new Option for the same
number of shares of Common Stock as the Surrendered Option, or may require such
voluntary surrender as a condition precedent to a grant of a new Option to such
Grantee. Subject to the provisions of the Plan, such new Option (1) may be an
Incentive Stock Option or a Nonqualified Stock Option and (2) shall be
exercisable at the price, during such period, and on such other terms and
conditions as are specified by the Committee at the time the new Option is
granted. The Committee may also grant Restricted Stock in exchange for
Surrendered Options to any holder of such Surrendered Option.
13. PERIOD DURING WHICH AWARDS MAY BE GRANTED.
Awards may be granted pursuant to the Plan from time to time within a
period of ten (10) years from the date of the Distribution (as defined in the
Distribution Agreement), provided that awards granted prior to such tenth
anniversary date may be extended beyond such date.
14. LIMITS ON TRANSFERABILITY OF AWARDS.
Awards of Incentive Stock Options (and any SAR related thereto) shall not
be transferable otherwise than by will or by the laws of descent and
distribution, and all Incentive Stock Options are exercisable during the
Grantee's lifetime only by the Grantee. Awards of Nonqualified Stock Options
(and any SAR related thereto) shall not be transferable, without the prior
written consent of the Committee, other than (i) by will or by the laws of
descent and distribution, (ii) by a Grantee to a member of his or her Immediate
Family, or (iii) to a trust for the benefit of the Grantee or a member of his or
her Immediate Family. Awards of Restricted Stock shall be transferable only to
the extent set forth in the Restricted Stock Agreement.
15. EFFECTIVE DATE.
The Plan shall be deemed to have taken effect on October 1, 1997.
16. AGREEMENT BY GRANTEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise of an Option
or SAR or other realization of an award, each Grantee shall agree that no later
than the date of exercise or other realization of an award granted hereunder,
the Grantee will pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state, or local taxes of any kind
required by law to be withheld upon the exercise of an Option or other
realization of an award. Alternatively, the Committee may provide that a Grantee
may elect, to the extent permitted or required by law, to have the Company
deduct federal, state, and local taxes of any kind required by law to be
withheld upon the exercise of an Option or realization of any award from any
payment of any kind due to the Grantee. The Committee may, in its sole
discretion, permit withholding obligations to be satisfied in shares of Common
Stock subject to the award.
17. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate, modify,
or amend the Plan without stockholder approval to the fullest extent permitted
by the Exchange Act and the rules and regulations thereunder; provided, however,
that no suspension, termination, modification, or amendment of the Plan may
adversely affect any award previously granted hereunder, unless the written
consent of the Grantee is obtained.
9
10
18. RIGHTS AS A SHAREHOLDER.
Except as provided in Section 10(d) hereof, a Grantee or a transferee of an
award shall have no rights as a shareholder with respect to any shares covered
by the award until the date of the issuance of a stock certificate to him or her
for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, or other property) or distribution
of other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 11 hereof.
19. NO RIGHTS TO SERVICE OR EMPLOYMENT.
Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any Grantee the right to continue in the
employ of the Company or any Subsidiary or to be entitled to any remuneration or
benefits not set forth in the Plan or such Agreement or to interfere with or
limit in any way the right of the Company or any such Subsidiary to terminate
such Grantee's service to or employment by the Company or such Subsidiary.
Awards granted under the Plan shall not be affected by any change in duties or
position of a Grantee as long as such Grantee continues to provide service to or
is in the employ of the Company or any Subsidiary.
20. BENEFICIARY.
A Grantee may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Grantee, the executor or administrator of the Grantee's estate
shall be deemed to be the Grantee's beneficiary.
21. 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 Grantee by
the Company, nothing contained herein shall give any such Grantee any rights
that are greater than those of a general creditor of the Company. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Stock or payments in lieu of or with respect to awards hereunder; provided,
however, that, unless the Committee otherwise determines with the consent of the
affected participant, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
22. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
10
5
1,000
6-MOS
DEC-31-1999
JAN-01-1999
JUN-30-1999
11,255
0
95,104
5,173
28,743
175,184
597,328
0
1,045,911
94,263
273,136
0
0
328
592,249
1,045,911
241,501
241,501
0
242,724
0
0
7,018
123,421
42,971
80,450
0
0
0
80,450
2.45
2.43
