<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10/A
(AMENDMENT NO. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
BRISTOL HOTELS & RESORTS, INC.
14295 MIDWAY ROAD
DALLAS, TEXAS 75244
ATTENTION: JOEL M. EASTMAN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
TELEPHONE: (972) 391-3910
(Exact name, address and telephone number of Registrant)
INCORPORATED IN DELAWARE IRS EMPLOYER ID. NO.: 75-2754805
---------------------
Copies to:
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
ATTENTION: ROBERT A. PROFUSEK, ESQ.
TELEPHONE: (212) 326-3939
---------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH CLASS
TO BE SO REGISTERED IS TO BE SO REGISTERED
------------------- ----------------------
<S> <C>
Common Stock, par Application will be made
value $0.01 per share to list the Common Stock on
the New York Stock Exchange
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
================================================================================
<PAGE> 2
INFORMATION INCLUDED IN INFORMATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION
STATEMENT AND ITEMS ON FORM 10
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
1 Business................................... "Questions and Answers about the Spin-Off
and the Company;" and "Summary -- Business
and Strategy of the Company;"
"-- Agreements with FelCor;"
"-- Management;" "-- Recent Acquisitions;"
"Risks Factors;" "The Spin-Off --
Background of the Spin-Off;" "-- The
Spin-Off;" "Business;" "Management's
Discussion and Analysis of Results of
Operations"
2 Financial Information...................... "Summary -- Summary Historical and
Unaudited Pro Forma Financial Data;" "Pro
Forma Financial Data;" "Selected Historical
and Unaudited Pro Forma Financial Data;"
and "Index to Financial Information"
3 Properties................................. "Summary -- Recent Acquisitions;" and
"Business -- Company Properties"
4 Security Ownership of Certain Beneficial
Owners and Management...................... "Security Ownership of Certain Beneficial
Owners and Management"
5 Directors and Executive Officers........... "Summary -- Management;" and
"Management -- Directors and Executive
Officers"
6 Executive Compensation..................... "Management -- Compensation Plans and
Arrangements"
7 Certain Relationships and Related
Transactions............................... " Summary -- Redemption of a Portion of
Bass Shares;" "-- Agreements with FelCor;"
"Risk Factors -- Conflicts of Interest;"
"Business -- FelCor Leases;" and
"Management -- Certain Relationships and
Related Party Transactions"
8 Legal Proceedings.......................... "Business -- Legal Proceedings"
9 Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ "Questions and Answers about the Spin-Off
and the Company;" "Risk Factors -- Absence
of Prior Trading Market for Company Shares;
Potential Volatility;" "-- Anti-Takeover
Provisions;" "Management -- Certain
Relationships and Related Party
Transactions -- Preemptive Rights;" and
"Description of Capital Stock"
10 Recent Sales of Unregistered Securities.... Not applicable
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
11 Description of Registrant's Securities to
be Registered.............................. "Questions and Answers about the Spin-Off
and the Company;" and "Description of
Capital Stock"
12 Indemnification of Directors and
Officers................................... "Description of Capital Stock -- Additional
Corporate Governance and Takeover-Related
Matters -- Indemnification of Officers and
Directors"
13 Financial Statements and Supplementary
Data....................................... "Index to Financial Information"
14 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. Not applicable
</TABLE>
ii
<PAGE> 4
INFORMATION STATEMENT
RELATING TO THE SPIN-OFF
OF
BRISTOL HOTELS & RESORTS, INC.
We are sending you this document to describe the proposed spin-off of
Bristol Hotels & Resorts, Inc. from our parent company, Bristol Hotel Company,
and the business and financial condition of Bristol Hotels & Resorts, Inc.
following this transaction. In the spin-off, you will receive one common share
of Bristol Hotels & Resorts, Inc. for every two Bristol common shares you own at
the time the spin-off occurs.
Bristol is doing the spin-off in connection with its proposed merger with
FelCor Suite Hotels, Inc. Prior to the spin-off, Bristol will separate its hotel
operating business from the hotel properties that will be acquired by FelCor in
the merger. The Company will be one of the leading independent hotel operating
companies in the U.S., and FelCor will be the largest non-paired share lodging
REIT measured by market capitalization. Although FelCor and the Company will be
separately owned and managed, they expect to continue to work closely together
in the acquisition and leasing of hotels.
The spin-off will not occur if Bristol and FelCor stockholders do not
approve the merger and the other conditions to the merger are not met. FelCor
and Bristol have described the merger transactions in detail in the proxy
statement/prospectus that accompanies this information statement. You should
read that document and this information statement carefully, in particular, the
section captioned "Risk Factors" in the enclosed document which begins on page 9
of the information statement.
If the merger and spin-off occur, you will receive Company shares
automatically, without taking any further action. We have received preliminary
approval to list the common stock of the Company for trading on the New York
Stock Exchange.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED IF THIS DOCUMENT IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We first mailed this Information Statement to Bristol stockholders on June
, 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF AND THE COMPANY.... 3
SUMMARY..................................................... 5
RISK FACTORS................................................ 9
Lack of Control over Hotel Properties..................... 9
Expiration or Termination of Third Party Management
Contracts.............................................. 9
Conflicts of Interest..................................... 9
Fixed Obligations under the Leases and Debt............... 10
Matters that Could Adversely Affect the Hotel Industry.... 10
Absence of Prior Trading Market for Company Shares;
Potential Volatility................................... 11
Leverage and Limited Financial Resources.................. 12
Substantial Reliance on Key Personnel..................... 12
Anti-Takeover Provisions.................................. 12
THE SPIN-OFF................................................ 13
Background of the Spin-Off................................ 13
The Spin-Off.............................................. 13
Distribution Agent........................................ 14
Federal Income Tax Consequences of the Spin-Off........... 14
BUSINESS.................................................... 16
Business and Strategy..................................... 16
Liquidity and Capital Resources........................... 16
Employees................................................. 17
Company Properties........................................ 17
Year 2000 Compliance...................................... 21
FelCor Leases............................................. 21
Government Regulation..................................... 23
Environmental Matters..................................... 23
Legal Proceedings......................................... 23
PRO FORMA FINANCIAL DATA.................................... 24
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL
DATA...................................................... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS................................................ 35
Overview.................................................. 35
Results of Operations -- Three Months Ended March 31, 1998
Compared with Three Months Ended March 31, 1997........ 35
Results of Operations -- Year Ended December 31, 1997
Compared with Year Ended December 31, 1996............. 36
Results of Operations -- Year Ended December 31, 1996
Compared with Pro Forma Year Ended December 31, 1995... 37
Liquidity and Capital Resources........................... 39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 39
MANAGEMENT.................................................. 41
Directors and Executive Officers.......................... 41
Compensation Plans and Arrangements....................... 42
Certain Relationships and Related Party Transactions...... 45
DESCRIPTION OF CAPITAL STOCK................................ 46
Capital Stock............................................. 46
Stock Exchange Listing.................................... 47
Shares Available for Resale............................... 47
Dividends................................................. 47
Additional Corporate Governance and Takeover-Related
Matters................................................ 48
WHERE YOU CAN FIND MORE INFORMATION......................... 49
FORWARD-LOOKING STATEMENTS.................................. 50
INDEX TO FINANCIAL INFORMATION.............................. F-1
</TABLE>
2
<PAGE> 6
QUESTIONS AND ANSWERS
ABOUT THE SPIN-OFF AND THE COMPANY
References to "we," "us," or the "Company" mean Bristol Hotels & Resorts,
Inc. and its subsidiaries after the spin-off, and references to "Bristol" mean
Bristol Hotel Company and its subsidiaries, which will be merged into FelCor
Suite Hotels, Inc. when Bristol's proposed merger with FelCor is completed.
Q: WHAT WILL HAPPEN IN THE SPIN-OFF?
A: In the spin-off, Bristol Hotel Company will separate its hotel operating
business from its hotel properties to create a separate publicly traded
hotel operating company. At the time of the spin-off, Bristol Hotels &
Resorts, Inc. will change its name to Bristol Hotels & Resorts.
Q: WHY WILL BRISTOL SPIN OFF ITS HOTEL OPERATING BUSINESS?
A: The spin-off is a condition to the proposed merger of Bristol and FelCor.
The spin-off will permit you to continue to own an equity stake in
Bristol's hotel operating business, which FelCor is not permitted to own
under the special limitations that apply to REITs.
Q: WHAT DO I GET IN THE SPIN-OFF?
A: You will receive one Company share for every two Bristol shares you own
when the spin-off occurs. We will not issue any fractional shares. Instead,
you will receive cash based on the market value of any fractional shares.
EXAMPLE: If you own 75 Bristol shares, then after the spin-off you will
receive 37 Company shares and a check for the market value of the
.50 fractional share.
In the FelCor-Bristol merger, you will receive 0.685 FelCor shares for each
Bristol share you own. In addition, all persons who hold FelCor shares on
the expected December 1998 record date will participate in a special
distribution of Bristol's current and accumulated earnings and profits as
of the merger date. The merger consideration is described in detail in the
accompanying proxy materials.
Q: WHEN WILL THE SPIN-OFF OCCUR?
A: If the stockholder approval and other conditions to the merger are
satisfied, the spin-off will occur on the business day before the merger.
We expect that the spin-off will occur promptly after Bristol's and
FelCor's stockholders approve the merger. If the merger is not approved or
is terminated, the spin-off will not occur.
Q: WHAT ARE MY SPIN-OFF SHARES WORTH?
A: The value of the spin-off Company shares, after giving effect to the
spin-off transactions, was estimated to be $6.38 per share (or $3.19 per
Bristol common share) by the Bristol Board in connection with its approval
of the merger and spin-off. The actual trading value of the Company shares
may be higher or lower than the estimated value and will depend on many
factors.
Until an orderly trading market develops, the market price for our stock
may fluctuate significantly. Please obtain current market quotations prior
to deciding whether to purchase or sell Company shares.
Q: DO I HAVE TO PAY TAXES ON THE SHARES I RECEIVE IN THE SPIN-OFF?
A: Yes. The spin-off will be treated as a dividend and the fair market value
of the shares you receive in the spin-off will be taxed to you as ordinary
income. The amount of that dividend is based on various factors. While the
Company has assigned an estimated value of $6.38 per share, the Company
believes the actual value of the spin-off dividend could be between $5.00
and $7.00 per spin-off Company share (or $2.50 to $3.50 per Bristol share).
The final value of the spin-off dividend cannot be determined until after
the dividend is completed. We will make a public announcement of the amount
of the dividend promptly after it is determined and will furnish you the
required IRS information as promptly as practicable. To review the tax
consequences to you in more detail, see page 13.
3
<PAGE> 7
Q: WHAT DO I HAVE TO DO TO PARTICIPATE IN THE SPIN-OFF?
A: Stockholder approval is not required for the spin-off to occur. However,
Bristol is asking you to vote to adopt the merger agreement with FelCor.
Unless the conditions to the merger are satisfied, the spin-off will not
occur. Instructions for voting your proxy in the merger are described in
the joint proxy statement/prospectus that accompanies this document.
Q: WHEN WILL I RECEIVE MY COMPANY SHARES?
A: If the spin-off occurs, Bristol will deliver the shares to which you are
entitled as quickly as possible following the spin-off. Your shares will be
either credited electronically to your brokerage account or Bristol will
mail a stock certificate to you.
Q: WHEN WILL I BE ABLE TO BUY AND SELL COMPANY SHARES?
A: You may buy and sell Company shares once the spin-off occurs. In addition,
we believe that it is likely that the Company shares will be traded on a
"when-issued" basis beginning about the time stockholders approve the
merger. While we do not control this, if when-issued trading begins, you
will in effect be entitled to sell your right to receive Company shares.
You would then have to deliver the Company shares to your broker promptly
after you receive them. You should consult your broker or financial advisor
before you attempt to sell your Company shares.
Q: WHERE WILL THE COMPANY SHARES TRADE?
A: We have received preliminary approval to list the Company shares on the New
York Stock Exchange. If they do not grant final approval of the listing, we
will seek to list the Company shares on another major national exchange or
quotation system.
Q: WILL THE COMPANY PAY DIVIDENDS ON ITS SHARES?
A: The Company does not currently intend to pay any cash dividends, but rather
intends to reinvest available cash in its business.
Q: WILL THE COMPANY SHARES BE CLIPPED OR PAIRED TO FELCOR STOCK LIKE A NUMBER
OF OTHER REITS AND RELATED OPERATING COMPANIES?
A: Company and FelCor shares will trade separately and will not be traded
together (like "paired" shares) or permitted so to trade (like "clipped
shares"). Furthermore, the Company's business is not expected to be limited
to primarily operating hotels owned by FelCor, although at least initially
we will substantially be doing so.
Q: WHAT WILL BE THE RELATIONSHIP BETWEEN THE COMPANY AND FELCOR AFTER THE
MERGER?
A: FelCor will lease to the Company all of the Bristol hotels acquired in the
merger pursuant to leases having initial terms of five to ten years, with
renewal options on the same terms for a total of 15 years, with an
additional option for five years at then-current market terms. After the
merger, the two companies intend to work together in the acquisition and
leasing of hotels, but neither party will be contractually obligated to do
so.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have questions about the spin-off or if you would like additional
copies of this document or any document referred to, you should contact Ed
Nolan, Vice President, Corporate Finance, at Bristol at (972) 391-3231 or
by e-mail to "[email protected]".
4
<PAGE> 8
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
description of the legal terms of these transactions, you should read this
entire information statement and the joint proxy statement/prospectus
accompanying this information statement, as well as the additional documents we
refer to under the heading "Where You Can Find More Information."
THE SPIN-OFF
Bristol will distribute one Company share for every two Bristol shares you
own at the time the spin-off occurs. We expect the distribution to occur
promptly following Bristol's and FelCor's annual meetings of stockholders to
approve the merger of Bristol and FelCor. There are, however, other customary
conditions to the merger that need to be satisfied. As a result, the effective
time of the spin-off and the merger could be delayed.
REDEMPTION OF A PORTION OF BASS SHARES
Companies affiliated with Bass plc presently own approximately 31% of
Bristol's shares and will participate proportionately in the spin-off. Following
the merger and the spin-off, and based on the present ownership by the Bass
companies of Bristol, the Bass companies would own approximately 13% of FelCor
and 31% of the Company. The REIT rules prevent FelCor from leasing hotels to the
Company if the Bass companies own 10% or more of both FelCor's and the Company's
shares. To assure compliance with these REIT requirements FelCor required that
we agree to purchase, immediately after the spin-off, all of the Company shares
held by the Bass companies that exceed the 9.9% limitation. The purchase price
for these shares totals $25.8 million (or $4.86 per Company share). The price to
be paid by the Company for the redemption of these shares was based upon the per
share value of the Company at the time of the spin-off giving effect to all
outstanding shares before the redemption. The value of the Company shares
outstanding after the redemption reflects the increase in per share value as a
result of the redemption. This will also mean that the other stockholders'
percentage ownership interest in the Company will be approximately 31% higher
than it was in Bristol.
CONDITIONS TO THE SPIN-OFF
The spin-off is subject to the satisfaction or waiver of the same
conditions as the merger. Accordingly, the spin-off will not occur if the merger
does not occur. Please read the joint proxy statement/prospectus that
accompanies this document for a more complete description of the merger.
BUSINESS AND STRATEGY OF THE COMPANY
After the spin-off, we will own Bristol's hotel operating business and
Bristol's employees and management will generally become our employees and
management. We will operate 124 primarily full-service hotels in the upscale and
midscale segments of the hotel market, of which 111 will be operated under
long-term leases. We will remain the franchisee of the largest number of Holiday
Hospitality branded hotels including Crowne Plaza(R), Holiday Inns(R), and
Holiday Inns Select(R) hotels. We will also operate 28 hotels under other hotel
brands, including Hampton Inn(R), Homewood Suites(R), Courtyard by Marriott(R)
and Fairfield Inn(R).
With FelCor's and the Company's substantial experience in the upscale and
midscale segments of the lodging industry, the two companies expect to work
together after the spin-off in the acquisition and leasing of additional hotels.
Both companies believe that there remain attractive opportunities for the
ownership and operation of hotels in this industry segment, especially utilizing
the Holiday Hospitality brand names. We expect to combine our reputation as one
of the premier operators of Crowne Plaza and Holiday Inn hotels and our
redevelopment skills with FelCor's acquisition skills, access to capital and
rapid growth strategy to pursue new opportunities. There is no contractual
obligation to jointly pursue these opportunities. However, we believe that our
position after the merger as the largest tenant-operator of FelCor-owned hotels,
coupled with the potential economic benefits and the alignment of interests
created by the significant common stock
5
<PAGE> 9
ownership in the two companies by Bristol's former stockholders and the FelCor
stock options held by the Company's management, will create an environment in
which we will do so.
We also intend to develop relationships with other property owners,
including other REITs, institutional investors and private investors, to lease
or manage their hotels. However, at the date of this document, we have not
entered into any material agreements or arrangements with other hotel owners. We
are considering ways in which we may offer various real estate
management-related services, including construction management, procurement and
marketing/advertising services, to FelCor and other hotel owners and
managers/operators.
At the spin-off, substantially all of Bristol's employees are expected to
become employees of the Company.
The principal office of the Company will be located at 14295 Midway Road,
Dallas, Texas 75244.
AGREEMENTS WITH FELCOR
After the spin-off and the merger, we will become one of FelCor's two major
tenants and will lease and operate all of the hotels FelCor acquires from
Bristol in the merger. The leases are for initial terms of five to ten years,
with optional renewals on the same terms that we may exercise for a total,
including the initial terms, of 15 years. If a lease has been extended to 15
years, we may renew the lease for an additional five years at then current
market rates. Each lease will provide for a monthly rent equal to the greater of
base rent or percentage rent. The percentage rent will be based on specified
percentages of certain revenue streams. Those percentages will vary within the
following ranges:
<TABLE>
<S> <C>
Room Revenues: 0% to 10% up to a revenue breakpoint amount
specified for each hotel, then 60% to 75%
above such breakpoint.
Food and Beverage Revenues: 5% to 25%.
Phone Revenues: 5% to 10%.
Other Revenues: Varying percentages depending on the nature
and source of such revenues.
</TABLE>
The base rent and the revenue breakpoint in each lease will be adjusted
annually to reflect changes in the Consumer Price Index.
As between FelCor and us, we will be responsible for the liabilities
associated with Bristol's management and leasing business and FelCor will assume
all of Bristol's other liabilities, including all of Bristol's existing
indebtedness other than trade accounts payable.
MANAGEMENT
There initially will be eight persons on our board of directors, five of
whom are currently Bristol directors. J. Peter Kline, Bristol's current
President and Chief Executive Officer, is our Chairman of the Board and Chief
Executive Officer, and John A. Beckert, Bristol's current Chief Operating
Officer, is our President and Chief Operating Officer.
RECENT ACQUISITIONS
On April 30, 1998, Bristol acquired 20 hotels with a total of 3,450 rooms
located in the midwest. Since March 31, 1998, Bristol has also acquired the 187
room Sheraton Four Points Hotel in Leominister, Massachusetts, entered into a
third-party management agreement for the operation of the Meadowlands Hilton in
Secaucus, New Jersey with 301 rooms, and leased the Hampton Inn-Las Vegas, which
has 128 rooms. After the spin-off, the Company will operate these 23 hotels
pursuant to leases.
6
<PAGE> 10
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the spin-off. The following tables set
forth summary historical financial data for Bristol for the three months ended
March 31, 1998 and 1997 and, the years ended December 31, 1997 and 1996, and the
11 months ended December 31, 1995 and for Bristol's predecessor entities for the
two years ended December 31, 1994 and 1993, and for the month ended January 31,
1995. The summary balance sheet data for Bristol is presented as of March 31,
1998 and December 31, 1997, 1996 and 1995. The summary balance sheet data for
the predecessor entities is presented as of December 31, 1994 and 1993.
The summary financial data for Bristol set forth below is qualified in its
entirety by, and should be read in conjunction with, the consolidated financial
statements and notes thereto for Bristol included elsewhere in this information
statement.
The 1996 and 1997 summary financial data for Bristol has been derived from
financial statements audited by Arthur Andersen LLP and the remainder of the
summary financial data for Bristol (other than the quarterly data, which are not
audited) and the predecessor entities has been derived from financial statements
audited by Price Waterhouse LLP, independent accountants, each of which
financial statements is included elsewhere in this information statement. The
summary financial data for the predecessor entities set forth below is qualified
in its entirety by, and should be read in conjunction with, the financial
statements included elsewhere in this information statement.
The pro forma information assumes completion of the merger, the spin-off,
the Omaha acquisition and the purchase of a portion of the Bass companies'
shares as of January 1, 1997 in the case of the Income Statement Data, and on
March 31, 1998 in the case of the Balance Sheet Data. The information is only in
summary form and you should read it in conjunction with the historical financial
data and more detailed pro forma financial information appearing elsewhere in
this document. The pro forma financial data are not necessarily indicative of
the results that actually would have occurred had the merger, the spin-off, the
Omaha acquisition and the Bass purchase been consummated on the dates indicated
or that may occur in the future.
7
<PAGE> 11
SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
FOR THE
THREE
MONTHS FOR THE
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA
Total revenues............................................ $170,410 $672,295
Operating income.......................................... 2,747 13,746
Tenant lease expense...................................... 51,754 202,501
Income before extraordinary items......................... 1,525 7,769
Diluted earnings per common share:
Income before extraordinary items....................... 0.09 0.48
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................. $15,000
Working capital........................................... 16,934
Total assets.............................................. 95,383
Long-term debt, including current portion................. 193
Total equity.............................................. 30,000
</TABLE>
<TABLE>
<CAPTION>
BRISTOL PREDECESSOR
----------------------------------------------------------------- ---------------------------------
THREE MONTHS ENDED YEAR ENDED ELEVEN MONTHS ONE MONTH YEAR ENDED
MARCH 31, DECEMBER 31, ENDED ENDED DECEMBER 31,
------------------------- --------------------- DECEMBER 31, JANUARY 31, -------------------
1998 1997 1997 1996 1995 1995 1994 1993
----------- ----------- ---------- -------- ------------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues....... $158,802 $58,261 $ 504,518 $211,840 $165,195 $5,943 $ 70,351 $ 64,022
Operating income..... 30,897 13,301 97,896 46,766 26,595 1,932 15,438 12,792
Tenant lease
expense............ -- -- -- -- -- -- -- --
Income before
extraordinary
items.............. 11,362 4,410 33,214 17,749 4,969 1,280 8,144 5,296
Diluted earnings per
common share:
Income before
extraordinary
items............ 0.26 0.17 0.87 0.70 0.28 -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---------- -------- ------------ -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............ $ 79,649 $ 86,167 $ 4,666 $ 7,906 $ 4,118 $ 395
Working capital...................... 57,137 71,308 (20,779) (8,426) 3,246 (17,412)
Total assets......................... 1,693,167 1,666,638 592,788 512,901 109,874 99,635
Long-term debt, including current
portion............................ 714,890 717,319 232,694 170,544 114,054 112,963
Total equity......................... 661,873 648,794 252,157 236,122 (11,988) (20,604)
</TABLE>
8
<PAGE> 12
RISK FACTORS
You should carefully read and evaluate all of the information in this
document, including the risk factors listed below.
LACK OF CONTROL OVER HOTEL PROPERTIES
Following the spin-off, we will no longer own or control all matters with
respect to the hotels we lease. Our rights over the hotels we lease will be
limited to those specified in the leases with FelCor. Under the FelCor leases,
FelCor will have the right to approve and control certain key decisions relating
to each hotel, including the right to approve annual capital budgets, to sell
the hotels, to place additional debt on the hotels and to make decisions
regarding the franchise agreements for the hotels. This creates additional risks
to you if there is a dispute between us, as tenant, and FelCor, as owner of the
hotels, or if FelCor takes certain actions that are not in your best interests.
For example, FelCor could decide to delay or not make certain capital
improvements to hotels that we think appropriate, including the 51-hotel
redevelopment and rebranding program Bristol initiated toward the end of last
year. FelCor has informed us that it intends to complete this redevelopment
program, but we cannot assure you that it will do so. Moreover, many details of
the program must be agreed to by FelCor and FelCor could request changes to the
program that we may not necessarily support. Any changes to the redevelopment
program could adversely affect the leased hotels and our results of operations.
Our results of operations could also be adversely affected if FelCor
decided to sell one or more of the hotels and terminate our lease. We will not
be entitled to any damages if FelCor sells the following hotels and terminates
our leases without our consent: Days Inn -- Flagstaff, Holiday Inn
Express -- Colorado Springs Central, Ramada Inn -- Colorado Springs North,
Holiday Inn -- Orlando North/Winter Park, Holiday Inn Express -- Atlanta I-20
East, Holiday Inn Express -- Atlanta Northeast, Holiday Inn -- Spartanburg West,
and Holiday Inn -- Chattanooga Southeast I-75. If FelCor sells one of the other
hotels it acquires in the merger (other than Leominster) and terminates our
lease without our consent, our damages would be limited to monthly termination
payments during the remainder of the lease term equal to one-twelfth of 75% of
the average monthly profit and allocable overhead contribution associated with
operating the hotel for the 12 months ending on the termination date. If FelCor
sells any other hotel we lease from them and terminates our lease without our
consent, our damages would be limited to monthly termination payments during the
remainder of the lease term equal to one-twelfth of the average monthly profit
and allocable overhead contribution associated with operating the hotel for the
12 months ending on the termination date.
The leases are terminable by FelCor in certain events, including, among
others, if we breach the leases, if we fail to satisfy certain performance
tests, if the hotels are sold to a third party, if there is a change of control
of the Company without our Board's consent or if a lender forecloses on the
hotel. Certain of these events are beyond our control and, depending on the
circumstances, we may not be entitled to termination payments if the leases are
terminated. See "Risk Factors -- Conflicts of Interest."
EXPIRATION OR TERMINATION OF THIRD PARTY MANAGEMENT CONTRACTS
Many of the third party management agreements allow the third party owner
to terminate the contract at any time, including if the property is sold. The
Company has been advised by certain owners of their intention to sell their
properties within the next 12 months. If a property is sold, the related
management contract would likely be terminated. In addition, each of those
contracts will expire by the end of 1998 unless renewed or extended. Management
fee income for these six contracts for the pro forma 12 months ended December
31, 1997, was $2.5 million. Amortization expense related to those six contracts
was $0.8 million for the same period.
CONFLICTS OF INTEREST
All of the Bristol hotels to be acquired by FelCor in the merger will be
leased back to the Company. It is not anticipated that any person who is an
officer or director of the Company will at the same time be an officer
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<PAGE> 13
or director of FelCor. However, Donald J. McNamara, who is currently the
Chairman of the Board of Bristol, will become the Chairman of the Board of
FelCor following the merger. Mr. McNamara is a principal in a firm that, after
the spin-off and merger, will beneficially own 40% of the Company's shares and
that will be the general partner of two partnerships that will beneficially own
13% of FelCor's common shares. Richard North, who will join FelCor's Board upon
completion of the merger, is an affiliate of Bass plc, whose subsidiary, Holiday
Hospitality Franchising, Inc., will be the franchisor of most of the hotels we
will lease from FelCor and whose other subsidiaries will be the beneficial
owners of 9.9% of the Company shares and 13% of FelCor's common shares after the
spin-off and the merger. Each of these two stockholders will have the right to
nominate one director of the Company and, at the time of the merger, to nominate
two directors to serve on the FelCor Board. In addition, Messrs. Kline and
Beckert, our CEO and COO, will receive in the FelCor-Bristol merger a
substantial amount of FelCor stock and will have options to purchase FelCor
stock.
Issues may arise under our leases, franchise agreements and other
agreements, and in the allocation of acquisition and leasing opportunities,
which would present conflicts of interest due to the affiliations of these
directors and executives. For example, any increase in lease rental rates
payable by the Company may increase FelCor's profits at the expense of the
Company. Increases in franchise fees charged by Holiday Hospitality would
increase the revenues of the Bass companies at the expense of the Company. It is
anticipated that a director will abstain from voting upon issues to which he has
a conflict of interest, although directors will have no legal obligation to do
so. The Company's bylaws and charter do not require interested directors to
abstain from voting on an issue in which they have an interest, although each
director has a duty of loyalty to the Company. It is possible that a director
would vote upon an issue in which he or one of his affiliates has an interest
and that his vote would be contrary to the best interests of the Company.
Moreover, a director's participation in the meeting and discussion relating to
an issue in which he or an affiliate has an interest could influence the vote of
the other directors in respect of the matter.
FIXED OBLIGATIONS UNDER THE LEASES AND DEBT
Certain of our obligations under the FelCor leases will be fixed regardless
of the actual results of operations of the hotels and we will have to make
scheduled payments on debt we expect to incur at the time of or following the
spin-off. If our results of operations decline or flatten out, we may be forced
to reduce our overhead and other expenses, which could adversely affect our
future prospects and may not be sufficient in light of our substantial fixed
obligations under the FelCor leases and any indebtedness we may incur.
MATTERS THAT COULD ADVERSELY AFFECT THE HOTEL INDUSTRY
FEWER GROWTH OPPORTUNITIES. There has been substantial consolidation in,
and capital allocated to, the U.S. lodging industry since the early 1990s. This
has generally resulted in higher prices for hotels and fewer attractive
acquisition opportunities. An important part of the Company's growth strategy is
to work with FelCor in the acquisition and leasing of hotels, even though
neither party is contractually obligated to do so. Continued industry
consolidation and competition for acquisitions could adversely affect our and
FelCor's growth prospects. The Company and FelCor compete for hotel investment
opportunities with other companies, some of which have greater financial or
other resources. Certain competitors may be able to pay higher prices or assume
greater risks than would be appropriate for the Company.
OPERATING RISKS. The hotels to be leased by the Company from FelCor are
subject to all of the risks common to the hotel industry. These risks could
adversely affect hotel occupancy and the rates that can be charged for hotel
rooms, and generally include:
- The existence of competition from other hotels;
- The construction of more hotel rooms in a particular area than are needed
to meet demand;
- The increase in energy costs and other travel expenses that reduce
business and leisure travel;
- The adverse effects of declines in general and local economic activity;
and
- The risks generally associated with the operation of leased real estate.
10
<PAGE> 14
In addition, annual adjustments (based on changes in the Consumer Price Index)
are made to the base rent and the thresholds that will be used to compute
percentage rent under the leases between us and FelCor. These adjustments,
unless offset by increases in hotel revenues, could adversely affect the
Company's results of operations.
COMPETITION. Each of our leased hotels will compete with other hotels in
its geographic area. A number of additional hotel rooms have been or may be
built in a number of the geographic areas in which the hotels are located, which
could adversely affect the results of operations of these hotels. According to
Smith Travel Research, total hotel room supply in the United States increased by
3.4%, or approximately 116,000 rooms, from 1996 to 1997. This is compared to an
average annual increase in hotel room supply in the United States of 1.1% from
1991 to 1996. We believe that most of the increase in United States hotel room
supply has been in the limited service or extended stay segments of the hotel
industry which, following the merger, will include approximately 11.3% of the
Company's hotel rooms. It is possible that a significant increase in the supply
of midscale and upscale hotel rooms could occur which, if demand fails to
increase proportionately, could have an adverse effect on the Company's
operations. In addition, the Company will compete with other hotel operating
companies for management contracts and hotel leases.
SEASONALITY. The hotel industry is seasonal in nature. Generally, hotel
revenues are highest in the second and third quarters of each year. Seasonality
causes quarterly fluctuations in our revenue. We may be able to reduce, but not
eliminate, the effects of seasonality by continuing to diversify the geographic
location and primary customer base of its hotels.
INVESTMENT CONCENTRATION IN A SINGLE INDUSTRY. Our entire business is
hotel-related. In the event of a downturn in the hotel industry, the adverse
effect on us may be greater than on a more diversified company with assets or
activities outside of the hotel industry.
REQUIREMENTS OF FRANCHISE AGREEMENTS. Most of our hotels are and, following
the proposed spin-off will be, operated under franchise licenses, predominantly
with Holiday Hospitality Franchising, Inc. Any significant decline in the
reputation of any of the Company's franchisors could adversely affect our
results of operations. Each license agreement requires that the franchised hotel
be maintained and operated in accordance with certain standards. The franchisors
also may require substantial improvements to the franchised hotels, for which
FelCor would be responsible under our leases with it, as a condition to the
renewal or continuation of these franchise licenses. The consents of franchisors
(other than Holiday Hospitality) to the transfer of Bristol's hotels to FelCor
in the merger has not yet been obtained. If a consent is withheld, the merger
could result in the termination of those licenses. If a franchise license
terminates due, among others, to FelCor's failure to make required improvements
or to obtain necessary consents, our results of operations could be adversely
affected.
GOVERNMENTAL REGULATION. The lodging industry is subject to extensive
governmental regulation, including laws which regulate the licensing of hotels
and restaurants, the sale of liquor, the disposal of hazardous wastes and the
adaption of public accommodations for use by the disabled. Although we believe
that we are in substantial compliance with these laws, the failure to comply
with, or the imposition of liability under, these laws could impose additional
costs on us that could have an adverse effect on our business.
ABSENCE OF PRIOR TRADING MARKET FOR COMPANY SHARES; POTENTIAL VOLATILITY
There is currently no public trading market for our shares. Although we
have received preliminary approval to list our shares for trading on the New
York Stock Exchange, we cannot be sure that final approval will be granted or
that our shares will be actively traded. We also cannot predict what the market
price for our shares might be. Until an orderly trading market develops, the
market price for our shares may fluctuate significantly. You should not view the
current trading price of Bristol shares as a reflection of what the trading
price of our shares will be. Following the spin-off and the merger, we will be
significantly smaller than Bristol was prior to its merger with FelCor.
11
<PAGE> 15
In general, lenders will not make margin loans in respect of stock which
trades below $5.00 per share. Accordingly, if the Company's shares were to trade
below that level, investors' ability to finance the acquisition or maintenance
of Company shares would be adversely affected.
Some of the Bristol stockholders who receive Company shares may decide that
they do not want shares in a hotel operating company, and may sell their shares.
Our two largest stockholders will have the right under certain circumstances to
require us to register their shares for resale. Any sales of stock by these or
other stockholders could lower the trading price of our stock and delay the
development of an orderly trading market.
LEVERAGE AND LIMITED FINANCIAL RESOURCES
Following the spin-off, we may have difficulty obtaining additional
financing because our asset base will be smaller and we will no longer own the
Bristol hotels or other real estate that Bristol historically used as collateral
for prior loans. Accordingly, we will not necessarily be able to rely on
Bristol's prior relationships with lenders. If we cannot obtain financing in
amounts or on terms acceptable to us, we may not have enough capital resources
to pay our obligations under the leases, to satisfy our cash requirements or to
pursue additional opportunities. We have obtained a commitment from Bankers
Trust, as Agent, for a $40 million revolving credit facility. See
"Business -- Liquidity and Capital Resources." Further, FelCor has agreed to
provide us with a short-term loan to the extent our cash balances upon
completion of the spin-off are less than $15 million. Neither FelCor nor any
third-party financial institution is obligated to provide us with additional
funds or to assist us in obtaining additional financing in the future.
If we were to draw down the full amount under such credit facility, we
would be highly leveraged with substantial indebtedness at a floating rate of
interest. Changes in economic conditions could result in higher interest rates,
increasing our interest expense.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
We will be dependent on the efforts of our executive management team.
Although we believe that we could find replacements for these key personnel, the
loss of their services could have an adverse effect on our operations. We have
entered into employment agreements only with J. Peter Kline, Chairman of the
Board and Chief Executive Officer, and John A. Beckert, President and Chief
Operating Officer.
ANTI-TAKEOVER PROVISIONS
The leases with FelCor give FelCor the right to terminate the leases upon a
change in control of the Company that is not approved by our Board. In addition,
our Certificate of Incorporation and Bylaws contain provisions that might make
it more difficult for someone to obtain control of us or replace our management
without the approval of our Board. These include provisions that prohibit
stockholders from acquiring, other than in the spin-off, more than 9.9% of our
outstanding shares until December 31, 2000, that provide for a staggered Board,
that permit our Board to issue preferred stock without your approval, that
prohibit you from taking action other than at a stockholders meeting and that
limit the right to call a stockholders meeting generally to our Board. These
provisions could delay or prevent a change in control of our Board or
transaction in which you could receive a price for your shares that is greater
than the then current market prices or is otherwise in your best interests.
12
<PAGE> 16
THE SPIN-OFF
BACKGROUND OF THE SPIN-OFF
On March 23, 1998, the Bristol Board approved the merger of Bristol into
FelCor. The Bristol Board approved the merger in part because FelCor, as a REIT,
has a lower overall cost of capital than Bristol, which is a C-corporation, and
greater financial flexibility to finance the acquisition of hotels.
FelCor is a REIT and cannot operate its owned hotels under the special
limitations that apply to REITs. Accordingly, and to provide Bristol
stockholders the opportunity to continue to have an equity stake in Bristol's
hotel operating business, prior to the merger, Bristol will separate its hotel
operating business from the hotel assets that FelCor will acquire in the merger
and spin-off this business to you.
The Bristol Board recognized that the spin-off would be taxable to you
based on the fair market value of the stock distributed to you on the date of
the spin-off. However, the Bristol Board believed that the benefits of the
merger outweighed any negative tax consequences to you from the spin-off.
The value of the spin-off company shares, after giving effect to the
spin-off transactions, was estimated to be $6.38 per share (or $3.19 per Bristol
share based on a spin-off ratio of one-for-two) by the Bristol Board in
connection with its approval of the merger and spin-off.
The final value of the spin-off dividend cannot be determined until after
the dividend is completed. We will make a public announcement of the amount of
the dividend promptly after it is determined and will furnish you the required
IRS information as early as we can so that you can complete your tax returns.
The actual trading value of the Company shares may be higher or lower and
the estimated value will depend on many factors. Until an orderly trading market
develops, the market price for our stock may fluctuate significantly. Please
obtain current market quotations prior to deciding whether to purchase or sell
Company shares.
THE SPIN-OFF
Each holder of record of Bristol shares as of the close of business on the
date of the spin-off will receive one Company share for every two Bristol shares
held by them.
The terms and conditions of the spin-off are set forth in an agreement we
entered into with Bristol (the "Spin-Off Agreement"). FelCor will assume
Bristol's obligations under the Spin-Off Agreement in the merger. The Spin-Off
Agreement has been filed with the SEC as an exhibit to this document. Please see
"Where You Can Find More Information" for instructions on how to obtain a copy
of the Spin-Off Agreement.
Prior to the spin-off, Bristol will separate its management and operating
business from its hotel properties. Bristol will do this through a series of
mergers, asset and stock transfers and liability assumptions among Bristol, the
Company and our respective subsidiaries. We will generally acquire all assets
and assume all liabilities associated with Bristol's hotel operating business
and Bristol will retain all other assets and all other liabilities, including
all of Bristol's existing indebtedness other than trade accounts payable. Each
party will indemnify the other for losses relating to liabilities that it has
assumed, other than liabilities relating to the intentional misconduct or gross
negligence of the other that have not been previously disclosed.
Each of the Bass companies and United/Harvey Holdings, L.P. presently owns
approximately 31% of Bristol's shares and will participate proportionately in
the spin-off. Following the spin-off, we will redeem all of the Company shares
held by the Bass companies that exceed 9.9% of our outstanding shares for $25.8
million (or $4.86 per share). We are required to redeem these shares as part of
the merger transactions between Bristol and FelCor. As a result of the merger
and the spin-off, the Bass companies and United/Harvey Holdings would each own
approximately 13% of FelCor and 31% of the Company. The REIT rules prohibit
FelCor from leasing its hotels to the Company if a stockholder owns 10% or more
of both FelCor's and the Company's shares. Accordingly, as a condition to the
FelCor merger and FelCor leasing the hotels it acquires from Bristol in the
merger, we must redeem some of the Bass companies' shares. This will mean that
all other stockholders' percentage interest in the Company will be approximately
31% higher than it was in Bristol. To prevent United/Harvey Holdings from
holding more than 10% of both FelCor's and the Company's shares,
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<PAGE> 17
after the spin-off but before the merger, United/Harvey Holdings will contribute
its Bristol shares to two newly formed partnerships. As a result, none of
United/Harvey Holdings or the two new partnerships will be deemed to own more
than 10% of both FelCor's and the Company's shares for purposes of the
applicable REIT rules. No other shareholder of Bristol is expected to receive
10% or more of FelCor's shares in the merger.
If the spin-off had occurred on May 28, 1998, based on the then 45,234,972
outstanding Bristol shares and giving effect to the Bass redemption described
above, 17,310,217 Company shares would have been distributed to Bristol
stockholders. YOU SHOULD NOT SEND CASH, CERTIFICATES OR ANY OTHER CONSIDERATION
TO THE COMPANY OR TAKE ANY OTHER ACTION TO RECEIVE YOUR COMPANY SHARES IN THE
SPIN-OFF.
We will not issue fractional shares in the spin-off. The distribution agent
will either distribute to you an amount of cash for your fractional interest
based on the market price of the Company shares at the time of the spin-off or
it will aggregate and sell in the open market promptly after the spin-off all
fractional shares at then prevailing prices and distribute to you the net
proceeds to which you are entitled. You will not have to pay any fees in
connection with such sales.
DISTRIBUTION AGENT
The distribution agent for the spin-off will be American Stock Transfer &
Trust Company, Stock Transfer Department, 40 Wall Street, 46th Floor, New York,
N.Y. 10005, telephone (800) 937-5449. You may contact them if you have any
questions regarding delivery of your Company shares in the spin-off.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
Introduction. The following discussion summarizes the material federal
income tax consequences of the spin-off to you. This summary is not a complete
analysis of all of the potential tax effects of the spin-off to you or your
ownership of Company shares. We have based this summary upon current provisions
of the tax code, currently applicable Treasury regulations and judicial and
administrative decisions and rulings, all of which could change, possibly with
retroactive effect. The IRS could also disagree with our summary of these
provisions. We do not intend to obtain a ruling from the IRS.
In addition, we have not addressed tax consequences that may apply to
particular stockholders in light of their individual circumstances, such as life
insurance companies, tax-exempt organizations, regulated investment companies,
S-corporations, financial institutions, broker-dealers in securities,
stockholders who hold their shares as part of a hedge, straddle or conversion
transaction, stockholders who do not hold their shares as capital assets for
federal income tax purposes (which, in general, are assets held for investment),
stockholders who have acquired their shares upon the exercise of options or
otherwise as compensation, foreign entities and nonresident alien individuals.
Receipt of Company Shares. The spin-off will be taxable to you for federal
income tax purposes based on the fair market value of the Company shares
(including cash you receive for fractional shares) you receive as of the
spin-off date. This amount will be taxable to you as ordinary income to the
extent of your pro rata share of Bristol's current and accumulated earnings and
profits. Based on Bristol's current estimates of its accumulated earnings and
profits, we believe that the fair market value of the Company shares distributed
to you will be taxable as ordinary income. You will acquire an initial tax basis
in your shares equal to its fair market value as of the spin-off date. Your
holding period for your shares will begin on the spin-off date.
Bristol will determine the fair market value of the shares you receive as
of the spin-off date based on a number of factors, including the trading price
of the Company shares at or near the spin-off date. Bristol will report the
amount received by you to the IRS and you on IRS Form 1099-DIV. There is no
assurance that the IRS or the courts will agree that the amount received by you
is equal to the amount determined by Bristol. If the IRS were to challenge the
amount reportable by you on your federal income tax return, you would have to
bear the expense and effort of defending against or otherwise resolving such
challenge.
Special Rules Applicable to Corporate Stockholders -- Deduction for
Dividends Received. In computing its taxable income for the tax year in which
the spin-off occurs, a corporate holder of Bristol shares generally
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<PAGE> 18
will be entitled to deduct 70% of the amount of the value of the Company shares
received by that holder that constitutes a dividend. However, the availability
of such deduction may be limited based on a number of specific circumstances
that may apply to a particular corporate holder, including the length of time
the corporate holder has held its Bristol shares, certain risk-reducing
arrangements the corporate holder may have entered into with respect to its
Bristol shares, the existence of corporate indebtedness attributable to the
holding of those shares, and the applicability of alternative minimum tax rules.
The corporate taxpayer's basis in the Company shares may also be reduced with
respect to such deduction. Corporate stockholders should consult their tax
advisors to ascertain whether, under their specific circumstances, the
availability or benefits of the corporate dividends received deduction may be
subject to limitation.
Backup Withholding. Bristol generally will be required to withhold 31% of
the Company shares to be distributed to you if (i) you fail to furnish or
certify a taxpayer identification number to Bristol, (ii) the IRS notifies
Bristol that the taxpayer identification number furnished by you is incorrect,
(iii) the IRS notifies Bristol that you have underreported interest and/or
dividend income, or (iv) you fail to certify to Bristol that you are not subject
to withholding for underreporting interest or dividend income. Any amounts
withheld from you under these backup withholding rules will be allowed as a
credit against your federal income tax liability or as a refund.
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<PAGE> 19
BUSINESS
BUSINESS AND STRATEGY
After the spin-off we will own Bristol's hotel operating business and
Bristol's employees and management will generally become our employees and
management. We will operate under long-term leases 111 hotels currently owned,
leased, or managed by Bristol containing 29,131 rooms. We will also assume all
of Bristol's obligations under Bristol's third-party management contracts,
pursuant to which we will operate an additional 13 hotels containing 3,765
rooms. The hotels are located in 27 states and Canada, with hotels clustered in
major metropolitan areas with concentrations in the South, East, Southwest and
Pacific regions of the United States.
We will operate primarily full-service hotels in the upscale and midscale
hotel segments. We will remain the world's largest franchisee of Holiday
Hospitality's Crowne Plaza and Holiday Inn hotels and will be committed to enter
into franchise agreements with Holiday Hospitality or its affiliates for hotels
with an additional 8,700 rooms during the next five years under one or more of
their brands, including Inter-Continental(R), Crowne Plaza, Holiday Select(R),
Holiday Inn, and Holiday Express(R). We will also operate 28 hotels under other
hotel brands, including Hampton Inn, Homewood Suites, Courtyard by Marriott and
Fairfield Inn.
With FelCor's and the Company's substantial experience in the upscale and
midscale hotel segments, the two companies expect to work together after the
spin-off and merger in the acquisition and leasing of additional hotels. Both
companies believe that there remain attractive opportunities for the ownership
and operation of hotels in these market segments, especially utilizing the
Holiday Hospitality brand names. We expect to combine our reputation as one of
the premier operators of Crowne Plaza and Holiday Inn hotels and our
redevelopment skills with FelCor's acquisition skills, access to capital, and
rapid growth strategy to pursue new opportunities. There is no contractual
obligation to jointly pursue these opportunities. However, we believe that our
position after the merger as the largest tenant-operator of FelCor's owned
hotels, coupled with the potential economic benefits and the alignment of
interests created by the significant common stock ownership in the two companies
by Bristol's former stockholders and the FelCor stock options held by the
Company's management will create an environment in which we will do so.
We also intend to develop relationships with other property owners,
including other REITs, institutional investors and private investors to lease
and manage their hotels. However, we have not yet entered into any material
agreements or arrangements with other hotel owners. We are also considering ways
in which we may offer various real estate management related services, including
construction management, procurement and marketing/advertising services, to
FelCor and other hotel owners and managers/operators.
We will cooperate with FelCor to continue the redevelopment and
repositioning program Bristol initiated for its hotels. We believe the
redevelopment and repositioning of those hotels will enhance the hotels'
performance. Pursuant to the leases with FelCor, FelCor will devote at least 3%
of the revenues from the hotels acquired from Bristol to fund capital
improvements to those hotels.
Our senior management team has extensive experience in the hospitality
industry, with most of them working together for over 15 years. Our executive
officers are among the largest individual owners of our shares.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are expected to be cash on hand, cash
flow from operations and borrowings under a $40 million revolving credit
facility (the "Credit Facility"), which Bankers Trust Company has committed to
provide or arrange for, and which will be effective at the time the spin-off is
completed. The borrowers under the Credit Facility (the "Borrowers") will
include the Company's primary management company and all our other subsidiaries
that own or lease hotels. The Borrowers will be jointly and severally liable for
all obligations under the Credit Facility. The Credit Facility will be secured
by essentially all of our assets, including the stock of our subsidiaries, and
all the assets of our subsidiaries, including their rights under leases with
FelCor. The Credit Facility will also be guaranteed by essentially all of our
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<PAGE> 20
subsidiaries that are not Borrowers. Loans under the Credit Facility will bear
interest at a rate of LIBOR plus 1.875% or Base Rate plus 0.875% and will mature
one year after the spin-off is completed, with two one-year extension options.
The $40 million of commitments under the Credit Facility may be used for working
capital and other general corporate purposes. Additionally, a sub-limit of up to
$20 million of such commitments is available to issue letters of credit to
secure our obligations under the leases with FelCor and other owners, subject to
the reduction of such sub-limit to reflect our achievement of liquid net worth
requirements related to such leases. The Credit Facility contains
representations and warranties, covenants and events of default customary for
credit facilities of this type. In particular, the Credit Facility contains
covenants requiring us to maintain a minimum consolidated net worth and to
satisfy, on a consolidated basis, certain other financial ratio tests, including
a maximum total leverage ratio test, a minimum fixed charges coverage ratio test
and a minimum debt service coverage ratio test. The Credit Facility also
contains covenants, among others, limiting our ability and the ability of our
subsidiaries to incur additional indebtedness, to place liens on assets, to pay
dividends and make distributions, to make investments, to incur contingent
obligations, to sell and acquire assets, to enter into mergers or make other
fundamental organizational changes, to engage in transactions with shareholders
and affiliates, to change the nature of our business, and to amend or otherwise
change the terms of the contractual arrangements relating to the leases. Based
on our sources of liquidity, we believe that we will have access to sufficient
capital resources to operate and manage the hotels in our portfolio for the
foreseeable future.
EMPLOYEES
We will employ most of the employees at the hotels we manage or operate as
well as those at our corporate offices. Immediately prior to the spin-off, we
expect to have 17,000 employees, 350 of whom are employed at our Dallas
headquarters. Fourteen of the properties we manage, employing approximately
1,600 workers, are subject to labor union contracts. We have not experienced any
union strikes or other material labor disruptions and believe that our ongoing
labor relations are good.
COMPANY PROPERTIES
Executive Offices. Our principal executive offices are located in Dallas,
Texas under a lease that expires on June 30, 2004. We have the right to
terminate our lease annually beginning in the year 2000 by paying termination
fees.
The Company's Hotels. The following table sets forth certain information
with respect to each hotel Bristol operated as of May 28, 1998, which if the
spin-off had occurred on that date, would be operated by the Company:
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
BRISTOL'S OWNED/LEASED HOTELS
Holiday Inn -- Montgomery................................... Montgomery, AL 213
Holiday Inn -- Texarkana I-30............................... Texarkana, AR 210
Days Inn -- Flagstaff....................................... Flagstaff, AZ 157
Fairfield Inn -- Downtown Scottsdale........................ Scottsdale, AZ 218
Holiday Inn -- Santa Barbara................................ Santa Barbara, CA 160
Holiday Inn Select -- Irvine/Orange County Airport(2)....... Irvine, CA 335
Crowne Plaza -- Pleasanton.................................. Pleasanton, CA 244
Holiday Inn -- San Diego on the Bay(2)...................... San Diego, CA 600
Holiday Inn -- San Jose North............................... San Jose, CA 305
Holiday Inn -- San Francisco Financial District(7).......... San Francisco, CA 566
Holiday Inn -- San Francisco Fisherman's Wharf.............. San Francisco, CA 584
Holiday Inn Select -- San Francisco Union Square(1)......... San Francisco, CA 400
Holiday Inn Express -- Colorado Springs Central............. Colorado Springs, CO 207
Ramada Inn -- Colorado Springs North........................ Colorado Springs, CO 220
</TABLE>
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<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
Holiday Inn -- Hartford Downtown(1)......................... Hartford, CT 342
Holiday Inn Select -- Stamford.............................. Stamford, CT 383
Holiday Inn -- Cocoa Beach Oceanfront Resort................ Cocoa Beach, FL 500
Holiday Inn -- Nikki Bird................................... Kissimmee, FL 529
Holiday Inn Select -- Miami International Airport(1)........ Miami, FL 304
Holiday Inn Select -- Orlando International Airport......... Orlando, FL 288
Holiday Inn -- Orlando International Drive Resort........... Orlando, FL 652
Holiday Inn -- Orlando North/Winter Park.................... Orlando, FL 200
Holiday Inn -- Near Busch Gardens(R) Tampa.................. Tampa, FL 395
Courtyard by Marriott -- Downtown Atlanta................... Atlanta, GA 211
Fairfield Inn -- Downtown Atlanta........................... Atlanta, GA 242
Holiday Inn -- Atlanta Airport North........................ Atlanta, GA 493
Harvey Hotel -- Atlanta Powers Ferry(1)..................... Atlanta, GA 296
Crowne Plaza -- Atlanta Airport............................. Atlanta, GA 378
Holiday Inn Select -- Atlanta Perimeter Dunwoody............ Atlanta, GA 250
Holiday Inn Express -- Atlanta I-20 East.................... Atlanta, GA 167
Holiday Inn Express -- Atlanta Northeast.................... Atlanta, GA 199
Holiday Inn -- Atlanta South/Jonesboro...................... Atlanta, GA 180
Holiday Inn -- Columbus Airport North....................... Columbus, GA 223
Hampton Inn -- Marietta..................................... Marietta, GA 140
Allerton Hotel -- Chicago(2)................................ Chicago, IL 378
Holiday Inn -- New Orleans French Quarter................... New Orleans, LA 276
Holiday Inn Select -- Boston Government Center.............. Boston, MA 303
Holiday Inn -- Kansas City Northeast........................ Kansas City, MO 167
Holiday Inn -- Westport(2).................................. St. Louis, MO 320
Holiday Inn -- Jackson Southwest............................ Jackson, MS 289
Crowne Plaza -- Downtown Jackson............................ Jackson, MS 354
Hampton Inn -- Jackson...................................... Jackson, MS 119
Harvey Hotel & Suites -- Jackson North(3)................... Jackson, MS 224
Whispering Woods Hotel and Conference Center................ Olive Branch, MS 181
Holiday Inn -- Albuquerque Mountainview..................... Albuquerque, NM 360
Holiday Inn Select -- Philadelphia Center City(1)........... Philadelphia, PA 445
Holiday Inn -- Independence Mall............................ Philadelphia, PA 364
The Mills House Hotel -- Charleston Holiday Inn............. Charleston, SC 214
Holiday Inn -- Columbia Airport............................. Columbia, SC 148
Holiday Inn Select -- Greenville (Roper)(1)................. Greenville, SC 208
Holiday Inn -- Spartanburg West............................. Spartanburg, SC 224
Holiday Inn -- Chattanooga Southeast I-75................... Chattanooga, TN 230
Holiday Inn -- Knoxville West............................... Knoxville, TN 242
Holiday Inn Select -- Nashville Opryland/Airport(2)......... Nashville, TN 384
Holiday Inn -- Amarillo I-40................................ Amarillo, TX 248
Holiday Inn -- Austin Town Lake............................. Austin, TX 320
Holiday Inn -- Beaumont Midtown I-10........................ Beaumont, TX 190
Bristol House............................................... Dallas, TX 127
Fairfield Inn -- Dallas Regal Row........................... Dallas, TX 204
Harvey Hotel -- Dallas...................................... Dallas, TX 313
Harvey Hotel -- Addison(1).................................. Dallas, TX 429
Crowne Plaza Suites -- Dallas............................... Dallas, TX 295
Hampton -- Downtown Dallas/West End......................... Dallas, TX 311
Harvey Hotel -- Dallas Brookhollow(1)....................... Dallas, TX 354
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
Courtyard by Marriott -- Houston Near The Galleria.......... Houston, TX 209
Fairfield Inn -- Houston Near The Galleria.................. Houston, TX 107
Holiday Inn Select -- Houston Near Greenway Plaza........... Houston, TX 355
Holiday Inn -- Medical Center(1)............................ Houston, TX 297
Fairfield Inn -- Houston I-10 East.......................... Houston, TX 160
Holiday Inn -- Houston Intercontinental Airport............. Houston, TX 413
Hampton Inn -- Houston I-10 East............................ Houston, TX 90
Holiday Inn Select -- Houston I-10 West(2).................. Houston, TX 349
Harvey Suites -- Houston Medical Center(3).................. Houston, TX 285
Harvey Suites -- DFW Airport................................ Irving, TX 164
Harvey Hotel -- DFW Airport................................. Irving, TX 506
Harvey Hotel -- Plano....................................... Plano, TX 279
Holiday Inn -- Plano........................................ Plano, TX 161
Holiday Inn -- San Antonio Downtown......................... San Antonio, TX 315
Holiday Inn Select -- San Antonio International
Airport(2)................................................ San Antonio, TX 397
Holiday Inn -- Waco I-35.................................... Waco, TX 171
Holiday Inn -- Salt Lake City Airport....................... Salt Lake City, UT 191
Holiday Inn -- Cambridge.................................... Cambridge, Ontario 139
Holiday Inn Select -- Toronto Airport....................... Toronto, Ontario 444
Holiday Inn -- Kitchener Waterloo........................... Kitchener, Ontario 182
Holiday Inn -- Peterborough -- Waterfront................... Peterborough, Ontario 155
Holiday Inn -- Sarnia....................................... Sarnia, Ontario 151
Holiday Inn -- Toronto Yorkdale............................. Toronto, Ontario 370
BRISTOL'S MANAGED HOTELS
Holiday Inn -- Hollywood(4)................................. Hollywood, CA 470
Holiday Inn -- City Center(5)............................... Los Angeles, CA 195
Holiday Inn -- Woodland Hills............................... Woodland Hills, CA 124
Holiday Inn -- San Francisco Civic Center................... San Francisco, CA 393
Holiday Inn -- Torrance..................................... Torrance, CA 329
Holiday Inn -- South Bend University Area(4)(5)............. South Bend, IN 229
Holiday Inn -- Lexington North(4)(5)........................ Lexington, KY 303
Holiday Inn -- Cincinnati North(4)(5)....................... Cincinnati, OH 407
Holiday Inn Select -- Pittsburgh University Center.......... Pittsburgh, PA 251
Holiday Inn -- Memphis East(4)(5)........................... Memphis, TN 243
Holiday Inn -- Nashville Vanderbilt......................... Nashville, TN 300
Holiday Inn -- San Antonio Riverwalk(4)(5).................. San Antonio, TX 313
BRISTOL'S JOINT VENTURE HOTELS
Holiday Inn -- Washington D.C. Downtown(6).................. Washington, D.C. 208
Chateau LeMoyne -- New Orleans Holiday Inn.................. New Orleans, LA 171
</TABLE>
- ---------------
(1) These hotels are expected to be converted to Crowne Plaza hotels during
1998.
(2) These hotels are expected to be converted to Crowne Plaza hotels during
1999.
(3) These hotels are expected to be converted to Holiday Inn and Suites
hotels during 1998.
(4) Based on discussions with the property owner, termination of the
management contract is possible due to a pending sale of the hotel.
(5) The hotel management agreement's existing term expires during 1998.
(6) This property has been the subject of litigation which is likely to
result in termination of the joint venture.
19
<PAGE> 23
(7) This hotel is expected to convert to a Holiday Inn Select during 1999.
The following table sets forth certain information with respect to each
hotel Bristol has acquired, leased or agreed to manage in 1998; which will be
operated by the Company after the Spin-Off.
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
BRISTOL'S OWNED/LEASED HOTELS
Holiday Inn -- Omaha Central................................ Omaha, NE 384
Hampton Inn -- Omaha Central................................ Omaha, NE 132
Homewood Suites -- Omaha.................................... Omaha, NE 108
Holiday Inn -- Old Mill..................................... Omaha, NE 213
Hampton Inn -- Omaha Southwest.............................. Omaha, NE 132
Holiday Inn Express & Suites -- Omaha Southwest............. Omaha, NE 78
Hampton Inn -- Moline....................................... Moline, IL 138
Holiday Inn Express -- Moline Airport....................... Moline, IL 111
Holiday Inn -- Moline Airport............................... Moline, IL 216
Holiday Inn Davenport....................................... Davenport, IA 287
Hampton Inn Davenport....................................... Davenport, IA 132
Holiday Inn Hays............................................ Hays, KS 190
Hampton Inn -- Hays......................................... Hays, KS 116
Holiday Inn -- Salina....................................... Salina, KS 192
Holiday Inn Express & Suites -- Salina...................... Salina, KS 93
Holiday Inn -- Great Bend................................... Great Bend, KS 175
Holiday Inn Express -- Colby(1)............................. Colby, KS 72
Holiday Inn -- Midland Country Villa........................ Midland, TX 250
Holiday Inn -- Odessa Center................................ Odessa, TX 245
Holiday Inn Express -- Odessa Parkway....................... Odessa, TX 186
Sheraton Four Points -- Leominster.......................... Leominster, MA 187
Hampton Inn -- Las Vegas.................................... Las Vegas, NV 128
BRISTOL'S MANAGED HOTEL
Meadowlands Hilton(2)....................................... Secaucus, NJ 301
</TABLE>
- ---------------
(1) Under construction.
(2) Currently operated pursuant to a management agreement which we expect
will convert to a lease with FelCor prior to the Spin-Off.
The following tables set forth the pro forma information indicated below
concerning Bristol's owned/leased, managed and joint venture hotels.
HOTEL STATISTICS FOR THE PRO FORMA QUARTER ENDED MARCH 31, 1998(1)
<TABLE>
<CAPTION>
AVERAGE 1998
NUMBER OF PLANNED AVERAGE AVERAGE
GUEST ROOMS RENOVATIONS OCCUPANCY RATE REVPAR
----------- ------------ --------- ------- ------
<S> <C> <C> <C> <C> <C>
Owned/Leased...................... 264 $164,500,416 65.1% $ 77.29 $50.32
Managed........................... 297 -- 68.3% $ 80.68 $55.07
Joint Ventures.................... 190 -- 71.6% $106.39 $76.17
--- ------------ ----- ------- ------
Total Portfolio................... 266 $164,500,416 65.6% $ 78.09 $51.20
=== ============ ===== ======= ======
</TABLE>
- ---------------
(1) Includes statistics for properties acquired/leased in 1998 for the
entire quarter, other than Hampton Inn -- Las Vegas and Holiday Inn
Express -- Colby, which were under construction.
20
<PAGE> 24
HOTEL STATISTICS FOR THE PRO FORMA YEAR ENDED DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
AVERAGE 1997
NUMBER OF ACTUAL AVERAGE AVERAGE
GUEST ROOMS RENOVATIONS OCCUPANCY RATE REVPAR
----------- ----------- --------- ------- ------
<S> <C> <C> <C> <C> <C>
Owned/Leased....................... 264 $27,569,380 68.7% $ 73.95 $50.82
Managed............................ 297 -- 74.1% $ 79.74 $59.11
Joint Ventures..................... 190 -- 74.8% $ 98.79 $73.91
--- ----------- ----- ------- ------
Total Portfolio.................... 266 $27,569,380 69.4% $ 75.00 $52.07
=== =========== ===== ======= ======
</TABLE>
- ---------------
(1) Includes statistics for properties acquired in 1998 for the entire 1997
year, other than Hampton Inn -- Las Vegas and Holiday Inn
Express -- Colby, which were under construction.
YEAR 2000 COMPLIANCE
The year 2000 issue relates to computer programs that were written using
two digits rather than four to define the applicable year. In those programs,
dates after December 31, 1999 may be incorrectly identified and could cause
system failures or miscalculations causing a disruption of operations, including
a temporary inability to process transactions, prepare financial statements or
engage in other normal business operations. Bristol has recently assessed its
information technology systems and believes that a majority of these systems
will properly utilize dates beyond the Year 2000.
Bristol expects to cause its desktop systems to be compliant by continuing
its existing program of replacing all desktop computers every two to three
years. This desktop replacement program is expected to make all desktop
computers Year 2000 compliant. Bristol is also evaluating whether to upgrade or
replace various automated time clock systems to make them Year 2000 compliant.
Bristol and the hotel owners expects to spend approximately $4 million over the
next 18 months on these programs.
Bristol has begun to evaluate its non-information technology systems to
determine whether they are Year 2000 compliant, including embedded systems that
operate elevators, phone systems, energy management systems, security systems
and other systems. Bristol is also surveying its major vendors to determine
whether they are Year 2000 compliant. The Company expects that these studies
will be completed by December 31, 1998. At that time, the Company will determine
the extent to which additional actions will be required by the Company,
including the extent to which the Company will replace non-compliant vendors.
Holiday Inns and Promus, franchisors for 106 of the Company's hotels, have
indicated to the Company that their reservation systems will be Year 2000
compliant by the end of 1998. Year 2000 compliance surveys have been sent to the
Company's other franchisors. After the spin-off, the Company will work with
FelCor and the other hotel owners to continue the program initiated by Bristol
to insure that the Company's and its principal vendors' systems are Year 2000
compliant. The Company anticipates that all reprogramming efforts and hardware
replacement will be implemented and tested by June 30, 1999. This gives adequate
time prior to January 1, 2000 for the Company to correct any problems that did
not surface during the implementation and testing.
FELCOR LEASES
The principal terms of the FelCor leases are summarized below, although
certain terms will vary from hotel to hotel.
TERM. The leases are for initial terms of five to ten years, with renewal
options on the same terms for a total of 15 years. If a lease has been extended
to 15 years, we may renew the lease for an additional five years at then current
market rates.
21
<PAGE> 25
RENT. We will pay a monthly rent equal to the greater of base rent or
percentage rent. The percentage rent will be based on specified percentages of
various revenue streams. Those percentages will vary within the following
ranges:
<TABLE>
<S> <C>
Room Revenues: 0% to 10% up to a revenue breakpoint amount
specified for each hotel, then 60% to 75%
above such breakpoint.
Food and Beverage Revenues: 5% to 25%.
Phone Revenues: 5% to 10%.
Other Revenues: Varying percentages depending on the nature
and source of such revenues.
</TABLE>
The base rent and the thresholds for computing percentage rent under the
leases will be adjusted annually to reflect changes in the Consumer Price Index.
We have the right to require FelCor to renegotiate the rent for all the
hotels in a particular region if there is a material reduction in midscale hotel
occupancy rates in the U.S. and such region. If FelCor and the Company are
unable to agree on a reduction in rent, we may terminate all leases in the
region. We may also require FelCor to renegotiate the rent for a particular
hotel if there is an extended general decline in the travel or hotel business
and a material reduction in the occupancy rate of such hotel and the hotel's
competitive set. If FelCor and the Company are unable to agree on a change in
rent, we may terminate the lease for such hotel.
TERMINATION. A lease may also be terminated for the following reasons,
among others:
- By FelCor, if we fail to satisfy certain performance targets for any
one hotel and all other hotels in the aggregate during any three
consecutive years based on budgeted room revenues, unless we pay
FelCor the difference between the actual rent paid and 80% or 90% of
the budgeted rent;
- By FelCor, upon a change in control of the Company (defined as the
acquisition of more than 50% of Company stock by any person or group
not approved by the Company's board or the election of a majority of
directors not supported by the Company's Board);
- By FelCor or us, if FelCor or we breach agreements under the lease
and do not cure such breach within certain specified periods;
- By FelCor, if we fail to maintain a minimum liquid net worth or
provide other credit support for our lease obligations;
- By FelCor, if a franchisor terminates our franchise license as a
result of our default under the lease; and
- By FelCor if it sells the hotel to a third party.
We will not be entitled to any damages if FelCor sells the following hotels and
terminates our leases without our consent: Days Inn -- Flagstaff, Holiday Inn
Express -- Colorado Springs Central, Ramada Inn -- Colorado Springs North,
Holiday Inn -- Orlando North/Winter Park, Holiday Inn Express -- Atlanta I-20
East, Holiday Inn Express -- Atlanta Northeast, Holiday Inn -- Spartanburg West,
and Holiday Inn -- Chattanooga Southeast I-75. If FelCor sells one of the other
hotels it acquires in the merger (other than Leominster) and terminates our
lease without our consent, our damages would be limited to monthly termination
payments during the remainder of the lease term equal to one-twelfth of 75% of
the average monthly profit and allocable overhead contribution associated with
operating the hotel for the 12 months ending on the termination date. If FelCor
sells any other hotel we lease from them and terminates our lease without our
consent, our damages would be limited to monthly termination payments during the
remainder of the lease term equal to one-twelfth of the average monthly profit
and allocable overhead contribution associated with operating the hotel for the
12 months ending on the termination date.
22
<PAGE> 26
INDEMNIFICATION. We will indemnify FelCor for certain losses relating to
the hotels, including losses relating to any accident or injury to persons or
property at the hotel, our breach of the lease and certain environmental and tax
liabilities not assumed by FelCor. FelCor will indemnify the Company for its
breach of the lease, liability for the environmental condition of the hotel at
the time the lease commences and its acts of gross negligence or willful
misconduct.
MAINTENANCE AND CAPITAL IMPROVEMENTS. We are responsible for maintaining
the leased hotels in good order and repair and for making all repairs that do
not constitute capital improvements. We must supply and maintain the inventory
that is necessary to operate the leased hotel. FelCor is responsible for all
hotel capital improvements (including those required under applicable laws or
the applicable franchise license) and for maintaining the underground utilities
and all hotel improvements, furniture, fixtures and equipment owned by FelCor to
the extent such maintenance constitutes capital expenditures in accordance with
generally accepted accounting principles or the capital improvements policy
approved by FelCor and us. FelCor must make available at least 3% of each
hotel's gross revenues, on a cumulative basis, for approved capital
expenditures.
INSURANCE AND PROPERTY TAXES. FelCor will pay all real estate and personal
property taxes and property insurance premiums on the leased hotels (other than
with respect to our personal property). We will pay for all liability insurance
on the leased hotels, which includes extended coverage, comprehensive general
public liability, workers' compensation and other insurance appropriate and
customary for properties similar to the leased hotels.
GOVERNMENT REGULATION
The lodging industry is subject to extensive government regulations,
including laws which regulate the licensing of hotels and restaurants, the sale
of liquor and the disposal of hazardous wastes. Under the Americans with
Disabilities Act, all public accommodations are required to meet certain
technical requirements related to access and use by disabled persons. Although
Bristol has expended significant amounts in ADA required upgrades to the hotels
we will operate, a determination that such properties are not in compliance with
the ADA could result in a judicial order requiring compliance, the imposition of
fines or an award of damages to private litigants. The hotels are likely to
require additional costs in complying with the ADA, but under the leases with
FelCor these costs will be borne by the owner of the hotel and should not have a
material effect on our business.
ENVIRONMENTAL MATTERS
Various laws impose liability for the costs of removal or remediation of
hazardous or toxic substances on the properties we own or operate, regardless of
whether or not we knew of or were responsible for, the presence of such
hazardous or toxic substances. Depending on the circumstances, we could also be
liable for personal injury associated with exposure to asbestos-containing
materials. Environmental laws also may restrict the manner in which property may
be used or businesses may be operated, and these restrictions may result in
expenditures and require interruption of such businesses. The cost of defending
against, and ultimately paying or settling, claims of liability or of
remediating a contaminated property could have a material adverse effect on our
financial condition or results of operations. FelCor has agreed to assume
environmental liabilities arising from the hotels that it will acquire from
Bristol in the merger or as to which Bristol otherwise would have been
responsible prior to the merger.
LEGAL PROCEEDINGS
In the ordinary course of its hotel operations business, Bristol is named
as a defendant in legal proceedings resulting from incidents at its hotels.
Liability for pending proceedings, other than employee claims, will be assumed
by FelCor in the merger. However, the Company would be liable for proceedings
resulting from the operation of the hotels where the incidents occurred and
employee-related claims. Legal actions for which the Company is liable that are
not covered by insurance or a contractual right to indemnification from another
party could have a material adverse effect on the Company's financial condition
or results of operations.
23
<PAGE> 27
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect to Bristol's
contribution of its hotel operating business to the Company, the spin-off, the
merger and the transactions described in the Notes below as if each event had
occurred on January 1, 1998, with respect to the Unaudited Pro Forma
Consolidated Statement of Income, for the three months ended March 31, 1998; on
January 1, 1997, with respect to the Unaudited Pro Forma Consolidated Statement
of Income, year ended December 31, 1997; on March 31, 1998 with respect to the
Unaudited Pro Forma Condensed Consolidated Balance Sheet, March 31, 1998; and on
December 31, 1997, with respect to the Unaudited Pro Forma Consolidated Balance
Sheet, December 31, 1997. The pro forma financial data are presented for
illustrative purposes only and do not purport to be indicative of the results
that would have actually been obtained had such transactions been completed as
of the assumed dates and for the periods presented or that may be obtained in
the future. The pro forma financial data should be read in conjunction with the
financial information appearing elsewhere in this document. See "Management's
Discussion and Analysis of Results of Operations" and "Index to Financial
Information."
24
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
BRISTOL PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 79,649 $ (64,649)(A) $15,000
Accounts receivable, net.................................. 36,407 10,592(B) 46,999
Inventory................................................. 8,393 -- 8,393
Deposits and other current assets......................... 10,673 (1,591)(C) 9,082
---------- ----------- -------
Total current assets............................... 135,122 (55,648) 79,474
---------- ----------- -------
Property and equipment...................................... 1,468,407 (1,459,420)(D) 8,987
Other assets:
Restricted cash........................................... 8,670 (7,000)(E) 1,670
Investments in joint ventures, net........................ 12,659 (12,659)(F) --
Goodwill, net............................................. 52,394 (52,394)(G) --
Deferred charges and other noncurrent assets, net......... 15,915 (10,663)(H)(K) 5,252
---------- ----------- -------
Total assets....................................... $1,693,167 $(1,597,784) $95,383
========== =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 8,025 $ (7,982)(I) $ 43
Accounts payable and accrued expenses..................... 45,957 (1,429)(J) 44,528
Accrued property, sales and use taxes..................... 13,230 (6,034)(J) 7,196
Accrued insurance reserves................................ 10,773 -- 10,773
---------- ----------- -------
Total current liabilities.......................... 77,985 (15,445) 62,540
Long-term debt, excluding current portion................... 706,865 (706,715)(I) 150
Deferred income taxes....................................... 243,751 (243,751)(K) --
Other....................................................... 2,693 -- 2,693
---------- ----------- -------
Total liabilities.................................. 1,031,294 (965,911) 65,383
---------- ----------- -------
Common stock................................................ 438 (92)(L) 346
Additional paid-in capital.................................. 608,529 (64,649)(A) 29,654
63,092(B)
(1,591)(C)
(1,459,014)(D)
(7,000)(E)
(12,659)(F)
(52,394)(G)
(12,531)(H)
714,697(I)
7,463(J)
245,619(K)
92(L)
Foreign currency translation................................ 406 (406)(D) --
Retained earnings........................................... 52,500 (52,500)(B) --
---------- ----------- -------
Total stockholders' equity......................... 661,873 (631,873) 30,000
---------- ----------- -------
Total liabilities and stockholders' equity......... $1,693,167 $(1,597,784) $95,383
========== =========== =======
</TABLE>
25
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(A) Represents the adjustment to implement the concept in the Spin-Off Agreement
providing for the Company's ending cash balance to be $15 million as of the
spin-off date.
(B) Represents working capital adjustments to implement the concept in the
Spin-Off Agreement providing for the Company's beginning equity being $30
million as of the spin-off date.
(C) Reflects deposits for property insurance for the real estate assets which
will be transferred to FelCor as a result of the merger.
(D) Reflects the real estate assets and related foreign currency translation
adjustment which will be transferred to FelCor as a result of the merger.
The remaining property and equipment relates to the Company's corporate
headquarters.
(E) Reflects deposits held by lenders for capital and replacement reserves,
guest advance deposits and ground rent pursuant to various debt agreements
transferred to FelCor as a result of the merger.
(F) Reflects the joint venture interests transferred to FelCor as a result of
the merger.
(G) Reflects the elimination of goodwill related to the real estate assets
acquired in the 1997 Holiday Acquisition with Bristol and transferred to
FelCor as a result of the merger.
(H) Reflects a reduction of $12.9 million in unamortized deferred financing and
acquisition costs related to the real estate and associated mortgage debt to
be transferred to FelCor as a result of the merger, and an increase in
deferred financing costs related to the Company's new credit facility.
(I) Reflects the principal balance of mortgage debt associated with the real
estate assets to be assumed by FelCor as a result of the merger.
(J) Relates to accrued expenses related to the real estate assets, including
accrued interest on mortgage debt ($4.3 million), ground rent payable
($679,000) and construction costs ($2.1 million) assumed by FelCor as a
result of the merger. Also includes Bristol's income tax benefit of $5.6
million.
(K) Represents deferred tax liabilities that relate to the allocation of the
purchase price of hotel assets and tax timing differences related to the
real estate assets to be transferred to FelCor as a result of the merger.
The deferred tax benefit of $1.9 million represents tax timing differences
that relate to the Company's assets.
(L) Reflects the issuance of Bristol shares as consideration for the Omaha
acquisition that included 20 hotels and was closed in the second quarter of
1998 and the purchase after the spin-off of Company shares owned by the Bass
companies to reduce their combined ownership percentage to 9.9% of the
outstanding Company shares.
26
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRED
BRISTOL BUSINESSES PRO FORMA COMPANY
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rooms.................................... $120,372 $ 8,304 $ -- $ 128,676
Food and beverage........................ 28,050 2,767 -- 30,817
Management fees.......................... 1,516 -- -- 1,516
Construction management fee.............. -- -- 880(B) 880
Other.................................... 8,864 442 (785)(C) 8,521
-------- ------- -------- -----------
Total revenue.................... 158,802 11,513 95 170,410
-------- ------- -------- -----------
Operating costs and expenses:
Departmental expenses:
Rooms................................. 33,424 2,912 -- 36,336
Food and beverage..................... 21,239 2,059 -- 23,298
Other................................. 2,455 117 -- 2,572
Undistributed operating expenses:
Administrative and general............ 15,737 968 -- 16,705
Marketing............................. 11,380 858 -- 12,238
Property operating costs.............. 14,032 1,584 -- 15,616
Property taxes, rent and insurance.... 10,442 618 (10,233)(D) 827
Tenant lease expense.................. -- -- 51,754(E) 51,754
Depreciation and amortization......... 12,906 -- (11,509)(F) 1,397
Corporate expense..................... 6,290 -- 630(G) 6,920
-------- ------- -------- -----------
Operating income........................... 30,897 2,397 (30,547) 2,747
-------- ------- -------- -----------
Other (income) expense:
Interest expense......................... 12,513 -- (12,308)(H) 205
Equity in income of joint ventures....... (554) -- 554(I) --
-------- ------- -------- -----------
Income before income taxes and
extraordinary items...................... 18,938 2,397 (18,793) 2,542
Income taxes............................... 7,576 -- (6,559)(J) 1,017
-------- ------- -------- -----------
Income before extraordinary items.......... $ 11,362 $ 2,397 $(12,234) $ 1,525
======== ======= ======== ===========
Earnings per common and common equivalent
share:
Income before extraordinary item:
Basic.................................... $ 0.09
Diluted.................................. $ 0.09
Weighted average number of common and
common equivalent shares outstanding:
Basic.................................... 17,266,309
Diluted.................................. 17,565,343
</TABLE>
27
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(A) Reflects the results of operations for the assets included in the Omaha
acquisition that included 20 hotels and closed in the second quarter of
1998.
(B) Represents fees to be charged to FelCor for construction management
services in connection with the renovation and rebuilding program.
(C) Represents interest income recorded by Bristol on cash assumed to be
transferred to FelCor pursuant to the merger.
(D) Represents property taxes, rent, property insurance and management fees
related to the real estate assets transferred to FelCor pursuant to the
merger, as follows (dollars in thousands):
<TABLE>
<S> <C>
Property taxes......................................... $ 5,909
Rent................................................... 3,605
Property insurance..................................... 688
Management fees........................................ 31
-------
$10,233
=======
</TABLE>
(E) Represents lease expense to be paid by the Company to FelCor under the
leases of the hotels transferred to FelCor pursuant to the merger. The
leases require the payment of rent at the greater of a base rate and
percentage rate, with percentage rent being based on specified percentages
of certain revenue categories. The leases have initial terms ranging from
five to ten years and each lease can be renewed on the same terms at the
Company's option to a total of 15 years from the beginning of the initial
term. If a lease has been extended to 15 years, we may renew the lease for
an additional five years at then current market rates.
(F) Reflects depreciation of real estate assets and the related amortization of
goodwill.
(G) Reflects the changes in corporate expenses as a result of the spin-off as
follows (dollars in thousands):
<TABLE>
<S> <C>
Design & Construction costs............................ $ 880
Transfer of corporate overhead to FelCor............... (250)
-----
$ 630
=====
</TABLE>
Design and construction costs represents costs previously capitalized by
Bristol and allocated to hotel renovations. FelCor will pay the Company for
these services pursuant to a construction services contract to be entered
into before the spin-off.
(H) Represents a reduction in interest expense for mortgages on real estate
assets being transferred to FelCor pursuant to the merger of $12.5 million,
offset by financing fees and amortization of deferred financing costs
related to the Company's credit facility.
(I) Reflects joint venture interests transferred to FelCor pursuant to the
merger.
(J) Taxes are based on Bristol's effective 1998 rate of 40.0%.
28
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
BRISTOL PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 86,167 $ (71,167)(A) $ 15,000
Trading securities........................................ 103 -- 103
Accounts receivable, net.................................. 31,305 1,922(B) 33,227
Inventory................................................. 8,286 -- 8,286
Deposits and other current assets......................... 9,195 (427)(C) 8,768
---------- ----------- --------
Total current assets............................... 135,056 (69,672) 65,384
---------- ----------- --------
Property and equipment...................................... 1,439,167 (1,430,702)(D) 8,465
Other assets:
Restricted cash........................................... 9,283 (7,639)(E) 1,644
Investments in joint ventures, net........................ 12,396 (12,396)(F) --
Goodwill, net............................................. 52,773 (52,773)(G) --
Deferred charges and other noncurrent assets, net......... 17,963 (11,832)(H)(K) 6,131
---------- ----------- --------
Total assets....................................... $1,666,638 (1,585,014) $ 81,624
========== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 8,455 $ (8,413)(I) $ 42
Accounts payable and accrued expenses..................... 27,366 5,069(J) 32,435
Accrued construction costs................................ 1,330 (1,330)(J) --
Accrued property, sales and use taxes..................... 15,911 (10,310)(J) 5,601
Accrued insurance reserves................................ 9,530 -- 9,530
Advance deposits.......................................... 1,156 -- 1,156
---------- ----------- --------
Total current liabilities.......................... 63,748 (14,984) 48,764
---------- ----------- --------
Long-term debt, excluding current portion................... 708,864 (708,706)(I) 158
Deferred income taxes....................................... 242,530 (242,530)(K) --
Other....................................................... 2,702 -- 2,702
---------- ----------- --------
Total liabilities.................................. 1,017,844 (966,220) 51,624
---------- ----------- --------
Common stock................................................ 436 (92)(L) 344
Additional paid-in capital.................................. 606,935 (71,167)(A) 29,656
43,059(B)
(427)(C)
(1,430,416)(D)
(7,639)(E)
(12,396)(F)
(52,773)(G)
(13,700)(H)
717,118(I)
6,572(J)
244,398(K)
92(L)
Foreign currency translation................................ 286 (286)(D) --
Retained earnings........................................... 41,137 (41,137)(B) --
---------- ----------- --------
Total stockholders' equity......................... 648,794 (618,794) 30,000
---------- ----------- --------
Total liabilities and stockholders' equity......... $1,666,638 (1,585,014) $ 81,624
========== =========== ========
</TABLE>
29
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(A) Represents the adjustment to implement the concept in the Spin-Off
Agreement providing for the Company's ending cash balance to be $15 million
as of the spin-off date.
(B) Represents working capital adjustments to implement the concept in the
Spin-Off Agreement providing for the Company's beginning equity being $30
million as of the spin-off date.
(C) Reflects deposits for property insurance for the real estate assets which
will be transferred to FelCor as a result of the merger.
(D) Reflects the real estate assets and related foreign currency translation
adjustment which will be transferred to FelCor as a result of the merger.
The remaining property and equipment relates to the Company's corporate
headquarters.
(E) Reflects deposits held by lenders for capital and replacement reserves,
guest advance deposits and ground rent pursuant to various debt agreements
transferred to FelCor as a result of the merger.
(F) Reflects the joint venture interests transferred to FelCor as a result of
the merger.
(G) Reflects the elimination of goodwill related to the real estate assets
acquired in the 1997 merger of Holiday Inn, Inc. (the "Holiday
Acquisition") with Bristol and transferred to FelCor as a result of the
merger.
(H) Reflects a reduction of $14.1 million in unamortized deferred financing and
acquisition costs related to the real estate and associated mortgage debt
to be transferred to FelCor as a result of the merger, and an increase in
deferred financing costs related to the Company's new credit facility.
(I) Reflects the principal balance of mortgage debt associated with the real
estate assets to be assumed by FelCor as a result of the merger.
(J) Relates to accrued expenses related to the real estate assets, including
accrued interest on mortgage debt ($3.7 million), ground rent payable
($443,000) and construction costs assumed by FelCor as a result of the
merger. Also includes Bristol's income tax benefit of $9.2 million.
(K) Represents deferred tax liabilities that relate to the allocation of the
purchase price of hotel assets and tax timing differences related to the
real estate assets to be transferred to FelCor as a result of the merger.
The deferred tax benefit of $1.9 million represents tax timing differences
that relate to the Company's assets.
(L) Reflects the issuance of Bristol shares as consideration for the Omaha
acquisition that included 20 hotels and was closed in the second quarter of
1998 and the purchase after the spin-off of Company shares owned by the
Bass companies to reduce their combined ownership percentage to 9.9% of the
outstanding Company shares.
30
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRED
BRISTOL BUSINESSES PRO FORMA COMPANY
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rooms............................... $377,380 $125,719 $ -- $ 503,099
Food and beverage................... 92,596 30,170 -- 122,766
Management fees..................... 4,948 1,782 (430)(B) 6,300
Construction management fee......... -- -- 2,927(C) 2,927
Other............................... 29,594 9,909 (2,300)(D) 37,203
-------- -------- --------- -----------
Total revenue............... 504,518 167,580 197 672,295
-------- -------- --------- -----------
Operating Costs and Expenses:
Departmental expenses:
Rooms............................ 105,063 36,695 1,013(E) 142,771
Food and beverage................ 69,766 24,554 -- 94,320
Other............................ 9,326 4,417 -- 13,743
Undistributed operating expenses:
Administrative and general....... 44,255 16,037 -- 60,292
Marketing........................ 34,439 11,682 356(E) 46,477
Property operating costs......... 44,303 18,460 -- 62,763
Property taxes, rent and
insurance...................... 35,330 11,622 (40,267)(F) 6,685
Tenant lease expense............. -- -- 202,501(G) 202,501
Depreciation and amortization.... 39,690 13,659 (51,066)(H) 2,283
Corporate expense................ 24,450 3,449 (1,185)(I) 26,714
-------- -------- --------- -----------
Operating income...................... 97,896 27,005 (111,155) 13,746
-------- -------- --------- -----------
Other (income) expense:
Interest expense.................... 44,591 121 (43,893)(J) 819
Equity in income of joint
ventures......................... (1,916) (747) 2,663(K) --
-------- -------- --------- -----------
Income before income taxes and
extraordinary items................. 55,221 27,631 (69,925) 12,927
Income taxes.......................... 22,007 7,387 (24,236)(L) 5,158
-------- -------- --------- -----------
Income before extraordinary items..... $ 33,214 $ 20,244 $ (45,689) $ 7,769
======== ======== ========= ===========
Earnings per common and common
equivalent share:
Income before extraordinary item:
Basic............................... $ 0.48
Diluted............................. $ 0.47
Weighted average number of common and
common equivalent shares
outstanding:
Basic............................... 16,337,180
Diluted............................. 16,667,121
</TABLE>
\
31
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1997
(A) Reflects the results of operations for the hotels acquired in the Holiday
Acquisition from January 1, 1997 through April 28, 1997 and 12 months of
operations excluding depreciation, amortization and interest for the assets
included in the Omaha acquisition that included 20 hotels and closed in the
second quarter of 1998, and excluding intercompany interest for the Holiday
Acquisition.
(B) Reflects management fee income and contract termination fee income for
hotels no longer managed by Bristol for terminated management contracts.
(C) Represents fees to be charged to FelCor for construction management
services in connection with the renovation and rebuilding program.
(D) Represents interest income recorded by Bristol on cash assumed to be
transferred to FelCor pursuant to the merger.
(E) Represents estimated franchise fee payments and advertising fee payments to
Holiday Hospitality in respect of the assets acquired in the Holiday
Acquisition for the period January 1, 1997 to April 28, 1997. Franchise
fees and advertising fees are generally based on 5% and 2% of room
revenues, respectively.
(F) Represents property taxes, rent, property insurance and management fees
related to the real estate assets transferred to FelCor pursuant to the
merger, as follows (dollars in thousands):
<TABLE>
<S> <C>
Property taxes............................................. 21,779
Rent....................................................... 15,472
Property insurance......................................... 2,892
Management fees............................................ 124
-------
$40,267
=======
</TABLE>
(G) Represents lease expense to be paid by the Company to FelCor under the
leases of the hotels transferred to FelCor pursuant to the merger. The
leases require the payment of rent at the greater of a base rate and
percentage rate, with percentage rent being based on specified percentages
of certain revenue categories. The leases have initial terms ranging from
five to ten years and each lease can be renewed on the same terms at the
Company's option to a total of 15 years from the beginning of the initial
term. If a lease has been extended to 15 years, we may renew the lease for
an additional five years at then current market rates.
(H) Reflects depreciation of real estate assets and the related amortization of
goodwill.
(I) Reflects the changes in corporate expenses as a result of the spin-off as
follows (dollars in thousands):
<TABLE>
<S> <C>
Design & Construction costs................................ $ 2,927
Transfer of corporate overhead to FelCor................... (1,000)
Elimination of one-time acquisition costs of Holiday
Acquisition.............................................. (3,112)
-------
$(1,185)
=======
</TABLE>
Design and construction costs represents costs previously capitalized by
Bristol and allocated to hotel renovations. FelCor will pay the Company for
these services pursuant to a construction services contract to be entered
into before the spin-off. Also reflected is a reduction in corporate
expenses for the $3.1 million of one-time costs related to the Holiday
Acquisition in April 1997.
(J) Represents a reduction in interest expense for mortgages on real estate
assets being transferred to FelCor pursuant to the merger of $55.6 million,
offset by financing fees and amortization of deferred financing costs
related to the Company's credit facility.
(K) Reflects joint venture interests transferred to FelCor pursuant to the
merger.
(L) Taxes are based on Bristol's effective 1997 rate of 39.9%.
32
<PAGE> 36
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following tables set forth our selected historical financial data for
three months ended March 31, 1998, the years ended December 31, 1997 and 1996
and the 11 months ended December 31, 1995, unaudited pro forma financial data
for the year ended December 31, 1995 and historical combined financial data for
Harvey Hotel Companies, Bristol's predecessor, for the two years ended December
31, 1994 and 1993, and for the month ended January 31, 1995. Although we are a
new company, we have adopted Bristol's historical financial statements in this
document because we are succeeding to Bristol's business and operations, except
for its owned hotels and certain liabilities that will be assumed by FelCor as a
result of the merger, and our financial statements are very similar to
Bristol's. The historical financial information has been derived from Bristol's
audited consolidated and combined financial statements included elsewhere in
this document. The unaudited pro forma financial data for the year ended
December 31, 1995 gives effect to the February 1995 combination of Harvey Hotel
Companies and United Inns, Inc., certain financing transactions entered into in
late 1995 and Bristol's December 1995 initial public offering, as if all these
transactions had been completed at the beginning of the period, but do not give
pro forma effect to Bristol's acquisition of Holiday Inn's North American Hotels
in April 1997. Pro forma operating results for 1995 include the operations of
the Sheraton -- Atlanta, a 368 room hotel purchased by Bristol in June 1995 and
exclude the operations of the Holiday Inn-West Loop, which was sold by Bristol
in July 1995. The selected balance sheet data is presented as of March 31, 1998,
December 31, 1997, 1996 and 1995, and for Harvey Hotel Companies as of December
31, 1994 and 1993.
The pro forma financial information presented is not necessarily indicative
of what the actual financial position and results of operations would have been
as of and for the periods indicated, nor does it purport to represent our future
financial position and results of operations.
33
<PAGE> 37
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PREDECESSOR
---------------------------------- ------------ -------------------------------
THREE MONTHS MONTH
ENDED YEAR ENDED ELEVEN MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31, ENDED YEAR ENDED JANUARY 31, DECEMBER 31,
------------ ------------------- DECEMBER 31, DECEMBER 31, ----------- -----------------
1997 1997 1996 1995 1995(1) 1995 1994 1993
------------ -------- -------- ------------- ------------ ----------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms..................... $120,372 $377,380 $149,794 $115,771 $127,670 $4,006 $44,972 $39,968
Food, beverage and
other................... 38,430 127,138 62,046 49,424 54,012 1,937 25,379 24,054
-------- -------- -------- -------- -------- ------ ------- -------
Total revenue....... 158,802 504,518 211,840 165,195 181,682 5,943 70,351 64,022
-------- -------- -------- -------- -------- ------ ------- -------
Operating Costs and
Expenses:
Departmental expenses:
Rooms................... 33,424 105,063 37,706 32,692 36,240 1,124 10,344 9,469
Food, beverage and
other................. 23,694 79,092 35,810 31,376 34,312 1,055 14,835 14,600
Undistributed operating
expenses:
Administration and
general, marketing.... 27,117 78,694 33,821 28,254 30,504 579 11,369 10,285
Property operating
costs................. 24,474 79,633 28,402 24,738 26,804 629 10,563 10,086
Depreciation and
amortization.......... 12,906 39,690 18,377 13,505 14,387 309 4,041 3,963
Corporate expense....... 6,290 24,450 10,958 8,035 8,691 315 3,761 2,827
-------- -------- -------- -------- -------- ------ ------- -------
Operating income...... 30,897 97,896 46,766 26,595 30,744 1,932 15,438 12,792
-------- -------- -------- -------- -------- ------ ------- -------
Other (income) expenses:
Interest expense........ 12,513 44,591 18,616 18,374 16,133 652 7,631 7,737
Other non-operating
(income) expenses..... -- -- -- 430 93 -- (337) (241)
Equity in income of
joint ventures........ (554) (1,916) -- -- -- -- -- --
Income taxes............ 7,576 22,007 10,401 2,822 5,226 -- -- --
-------- -------- -------- -------- -------- ------ ------- -------
Income before extraordinary
item...................... 11,362 33,214 17,749 4,969 9,292 $1,280 $ 8,144 $ 5,296
Extraordinary loss on early
extinguishment of debt,
net of income taxes....... -- (12,741) -- (1,908) --
-------- -------- -------- -------- -------- ------ ------- -------
Net income.................. 11,362 $ 20,473 $ 17,749 $ 3,061 $ 9,292 -- -- --
======== ======== ======== ======== ======== ====== ======= =======
Earnings per common and
common equivalent share:
Income before
extraordinary items:
Basic................... $ 0.26 $ 0.89 $ 0.71 $ 0.28 $ 0.37
Diluted................. $ 0.26 $ 0.87 $ 0.70 $ 0.28 $ 0.37
Net income
Basic................... $ 0.26 $ 0.55 $ 0.71 $ 0.17 $ 0.37
Diluted................. $ 0.26 $ 0.53 $ 0.70 $ 0.17 $ 0.37
Weighted average number of
common and common
equivalent shares
outstanding:
Basic................... 43,719 37,359 24,849 17,858 24,849
Diluted................. 44,535 38,332 25,526 17,909 24,892
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
MARCH 31, DECEMBER 31, DECEMBER 31,
----------- ---------------------------------- --------------------
1998 1997 1996 1995 1994 1993
----------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 79,649 $ 86,167 $ 4,666 $ 7,906 $ 4,118 $ 395
Property and equipment -- net............. 1,468,407 1,439,167 552,564 470,705 80,635 72,387
Total assets.............................. 1,693,167 1,666,638 592,788 512,901 109,874 99,635
Long-term debt, including current
portion................................. 714,890 717,319 232,694 170,544 114,054 112,963
Total equity.............................. 661,873 648,794 252,157 236,122 (11,988) (20,604)
</TABLE>
- ---------------
(1) Pro forma results for 1995 include the operations of the Sheraton-Atlanta, a
368 room hotel purchased by Bristol in June 1995 and exclude the operations
of the Holiday Inn-West Loop, which was sold by Bristol in July 1995.
34
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
OVERVIEW
The Company is succeeding to Bristol's business and operations.
Accordingly, Bristol's historical financial statements most accurately reflect
the historical operation of the business to which the Company will succeed. The
material difference between Bristol's business and that of the Company is that
Bristol owns the hotels it operates while following the spin-off the Company
will be the tenant and manager of the same hotels that will then be owned by
others. The principal effect of this difference is that Bristol's results of
operations reflect mortgage interest and other costs and expenses associated
with the ownership of the hotels instead of the rental payments and other costs
and expenses passed through to the tenant that the Company will incur under the
leases.
Historical results for three months ended March 31, 1998 and the year ended
December 31, 1997, include the 37 hotels owned by Bristol as of January 1, 1996
(the "Original Bristol Portfolio") and Holiday Inn -- Plano, as well as the
assets (the "Holiday Inn Assets") acquired by Bristol in the Holiday Acquisition
completed in April, 1997 (except for Holiday Inn -- San Jose) and the three
individual hotels acquired during 1997 (the "1997 Single Asset Purchases"), from
their respective acquisition dates. Historical results for the year ended
December 31, 1997, also reflect the management and the 50% joint venture
ownership of the Holiday Inn -- San Jose from the Holiday Inn Acquisition date
to November 1997 and the full ownership of the hotel for the month of December
1997. Historical results for the year ended December 31, 1996, include the
Original Bristol Portfolio and Holiday Inn -- Plano (as of May 31, 1996). The 45
owned hotels included in the Holiday Inn Assets are referred to below as the
"Acquired Hotels."
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1997
Total revenue increased 172.6% to $158.8 million for the three months ended
March 31, 1998, as compared to 1997 as a result of the inclusion of the Holiday
Inn Assets, and the 1997 Single Asset Purchases as well as the improved
operating performance of the Original Bristol Portfolio. Revenue per available
room ("RevPAR") for the Original Bristol Portfolio was $50.56 for the three
months ended March 31, 1998, compared to $48.31 for 1997, representing a 4.7%
increase. The improvement in RevPAR is primarily attributable to the successful
repositioning and/or redevelopment of several hotels in the Original Bristol
Portfolio. Occupancy and average daily room rate ("ADR") for the Original
Bristol Portfolio was 67.8% and $74.60, respectively, for the three months ended
March 31, 1998, compared to 70.3% and $68.73, respectively, for the three months
ended March 31, 1997. The 2.5 percentage point ("pp") decline in occupancy is
primarily attributable to an increase in rooms out of service as a result of the
Redevelopment and Rebranding Program. RevPar increased 8.9% for the three months
ended March 31, 1998 compared to the three months ended March 31, 1997, for the
hotels in the Original Bristol Portfolio which were not undergoing renovations
during 1998.
Rooms revenue as a percent of total revenue was 75.8% for the three months
ended March 31, 1998, as compared to 71.6% for the three months ended March 31,
1997, resulting from the Acquired Hotels having proportionally lower food and
beverage business than the Original Bristol Portfolio. This is also evidenced by
the 188.4% increase in rooms revenue for the three months ended March 31, 1998,
compared to the same period in 1997 as compared to a 124.8% increase in food and
beverage revenue.
Food and beverage revenue increased primarily due to the increase in the
number of hotels and also due to higher food and beverage revenues for the
Original Bristol Portfolio. Food and beverage revenue for the Original Bristol
Portfolio for the three months ended March 31, 1998 was $13.5 million,
representing a 7.9% increase over first quarter 1997. This increase is primarily
attributable to the effective redevelopment of several hotels in the Original
Bristol Portfolio.
The increase in management fees relates primarily to the addition of the 15
management contracts acquired in the Holiday Inn Acquisition offset by the loss
of a management contract previously held by Bristol in the first half of 1997.
35
<PAGE> 39
Gross operating margin (consisting of total revenue less department
expenses, administrative and general, marketing and property operating costs
divided by total revenue) was 31.5% for the three months ended March 31, 1998,
compared to 36.9% for the three months ended March 31, 1997. The 5.4 pp decrease
in gross operating margin is primarily attributable to declines in departmental
operating margins and higher property operating costs related to property taxes
and land rentals. Declines in departmental margins relate primarily to the
integration of the Acquired Hotels, which have had historically lower margins.
Property tax increases relate to increased valuations as a result of the
significant capital improvements for several hotels in the Original Bristol
Portfolio as well as an increase in tax rates for certain hotels. Increased land
rentals relate to the Acquired Hotels having a proportionately higher number of
ground leases than the Original Bristol Portfolio.
Depreciation and amortization increased $7.7 million for the three months
ended March 31, 1998, compared to 1997 as a result of the Holiday Inn
Acquisition and the 1997 Single Asset Purchases. Depreciation expense also
increased as a result of the substantial capital improvements at several hotels
in the Original Bristol Portfolio.
Corporate expenses for the three months ended March 31, 1998, were $6.3
million compared to $3.0 million for 1997. The increase relates primarily to the
increase in the number of corporate employees and related costs and increased
travel expenses as a result of the Holiday Inn Acquisition.
Interest expense for the three months ended March 31, 1998, increased $6.2
million to $12.5 million from $6.3 million for the three months ended March 31,
1997. The increase relates primarily to the additional debt incurred to finance
the Holiday Inn Acquisition. The increase was offset by capitalized interest on
assets under redevelopment of approximately $2.7 million during the three months
ended March 31, 1998.
Equity in income of joint ventures of $.6 million for the three months
ended March 31, 1998 represents the Company's 50% interest in the earnings of
two joint ventures acquired in the Holiday Inn Acquisition.
As a result of the factors described above, net income increased 157.6% to
$11.4 million for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997 and diluted earnings per share increased 52.9% to
$.26 for the three months ended March 31, 1998, compared to $.17 for 1997.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED
DECEMBER 31, 1996
Total revenue increased 138.2% to $504.5 million for the year ended
December 31, 1997, as compared to 1996 as a result of the inclusion of the
Holiday Inn Assets and the 1997 Single Asset Purchases from their respective
acquisition dates and the improved operating performance of the Original Bristol
Portfolio. Revenue per available room ("RevPAR") for the Original Bristol
Portfolio was $47.53 for the year ended December 31, 1997, compared to $43.92
for 1996, representing an 8.2% increase. The improvement in RevPAR is primarily
attributable to the successful repositioning and/or redevelopment of several
hotels in the Original Bristol Portfolio. Occupancy and average daily room rate
("ADR") for the Original Bristol Portfolio was 70.0% and $67.91, respectively,
for the year ended December 31, 1997, compared to 64.4% and $68.21,
respectively, for 1996. The change from 1996 to 1997 was also impacted by
nonrecurring items in 1996 including the Atlanta Olympics and the renovations of
the hotels in the Original Bristol Portfolio. The Atlanta Olympics had a
positive impact on results in 1996 due to the 100% occupancy experienced by the
ten Atlanta hotels in the Original Bristol Portfolio during the 20 days of the
Olympic games. Results for 1996 were also impacted by the renovations of 13 of
the hotels in the Original Bristol Portfolio throughout the year.
Rooms revenue as a percent of total revenue was 74.8% for the year ended
December 31, 1997, as compared to 70.7% for the year ended December 31, 1996,
resulting from the Acquired Hotels having proportionally lower food and beverage
business than the Original Bristol Portfolio. This is also evidenced by the
151.9% increase in rooms revenue for the year ended December 31, 1997, compared
to the same period in 1996 as compared to a 108.8% increase in food and beverage
revenue.
Food and beverage revenue increased primarily due to the increase in the
number of hotels and also due to higher food and beverage revenues for the
Original Bristol Portfolio. Food and beverage revenue for the Original Bristol
Portfolio for the year ended December 31, 1997 was $51.6 million, representing a
36
<PAGE> 40
12% increase over 1996. This increase is primarily attributable to the
redevelopment of several hotels in the Original Bristol Portfolio.
The increase in management fees relates primarily to the addition of the 15
management contracts acquired in the Holiday Acquisition offset by the loss of
two management contracts held by Bristol in 1996.
Gross operating margin (consisting of total revenue less department
expenses, administrative and general, marketing and property operating costs,
divided by total revenue) was 32.1% for the year ended December 31, 1997,
compared to 35.9% for the year ended December 31, 1996. The 3.8 percentage point
decrease in gross operating margin is primarily attributable to declines in
departmental operating margins and higher property operating costs related to
property taxes and land rentals. Declines in departmental margins relate
primarily to the integration of the Acquired Hotels, which have had historically
lower margins. Property tax increases relate to increased valuations as a result
of the significant capital improvements for several hotels in the Original
Bristol Portfolio as well as an increase in tax rates for certain hotels.
Increased land rentals relate to the Acquired Hotels having a proportionately
higher number of ground leases than the Original Bristol Portfolio.
Depreciation and amortization increased $21.3 million for the year ended
December 31, 1997 compared to 1996 as a result of the Holiday Acquisition and
the 1997 Single Asset Purchases. Depreciation expense also increased as a result
of the substantial capital improvements at several hotels in the Original
Bristol Portfolio. Following the spin-off, the Company will not have
depreciation and amortization expense, but will have lease rental expense. See
"Pro Forma Financial Data."
Corporate expenses for the year ended December 31, 1997 were $24.5 million
compared to $11.0 million for 1996. Approximately $3.1 million of the increase
relates to one-time costs incurred during the second quarter of 1997 for the
closing and integration of the Holiday Acquisition. The remaining increase
relates primarily to the increase in the number of corporate employees and
related costs and increased travel expenses as a result of the Holiday
Acquisition.
Interest expense for the year ended December 31, 1997 increased $26.0
million to $44.6 million primarily as a result of additional debt incurred to
finance the Holiday Acquisition as well as borrowings increasing ratably in 1996
to fund acquisitions and certain redevelopment costs. Following the spin-off,
the Company's interest expense will decrease substantially. See "Pro Forma
Financial Data."
Equity in income of joint ventures of $1.9 million for the year ended
December 31, 1997 represents Bristol's 50% interest in the earnings of the three
joint ventures acquired in the Holiday Inn Acquisition (which will be acquired
by FelCor as a result of the Merger).
As a result of the factors described above, historical income before
extraordinary items increased 87.1% to $33.2 million for the year ended December
31, 1997, compared to the year ended 1996 and diluted earnings per share
increased 24.3% to $.87 for the year ended December 31, 1997, compared to $.70
for 1996. Recurring earnings for the year ended December 31, 1997 of $35.1
million, which exclude the extraordinary item of $12.7 million and the one-time
costs related to the Holiday Acquisition ($1.8 million, net of tax), represents
a 138.8% increase over recurring earnings for the year ended December 31, 1996
of $14.7 million, which excludes a one-time gain related to the sale of
marketable securities ($.3 million, net of tax), the positive impact of the
Atlanta Olympics ($2.2 million, net of tax), and the litigation settlement gain
($.6 million, net of tax). Recurring diluted earnings per share of $.92 for the
year ended December 31, 1997, represents a 58.6% improvement over 1996.
Following the Spin-off, the Company's earnings will be significantly different
by reason of the factors referred to above. See "Pro Forma Financial Data."
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1996 COMPARED WITH PRO FORMA
YEAR ENDED DECEMBER 31, 1995
Revenues increased from $181.7 million for the pro forma year ended
December 31, 1995 to $211.8 million, an increase of $30.1 million, or 16.6%, for
the year ended December 31, 1996. The increase is primarily attributable to the
addition of the Holiday Inn Plano in May 1996, the completion of the renovation
and redevelopment of 20 hotels the Original Bristol Portfolio and the
application of Bristol's operating strategies to
37
<PAGE> 41
the 26 hotels acquired in 1995. Seven of the hotels in the Original Bristol
Portfolio that had substantially completed renovations by the end of 1995 (the
"Phase I" hotels) posted gains in total hotel revenue in excess of 60%, with
only a 5.3% increase in available rooms from 1995 to 1996. The positive impact
of applying Bristol's operating strategies to these hotels is also evidenced by
the 17% increase in occupancy for the Phase I hotels and a 16.1% increase in
hotel revenue for those hotels. (Although Bristol took over management of these
hotels in February 1995, the operating strategy integration was a several month
process.) The Atlanta Olympics also had a positive impact on 1996 results as
compared to 1995. Increases in total hotel revenues were partially offset by
declines in total revenues for 13 of the hotels in the Original Bristol
Portfolio which were undergoing renovations in 1996. The increase in total
revenues reflects increases in all revenue categories, as discussed below.
Hotel room revenues were $149.8 million for the year ended December 31,
1996, an increase of $22.1 million, or 17.3%, from the pro forma year ended
December 31, 1995, due primarily to improved occupancy and average daily room
rates of 67.4% and $68.24, respectively, for the year ended December 31, 1996,
as compared to 64.1% and $62.67, respectively, for the pro forma year ended
December 31, 1995. Rooms department operating margins increased to 74.8% from
71.6%, benefiting from a higher number of occupied rooms and the availability of
rooms in 1996 which were undergoing renovation and unavailable during 1995.
Food and beverage revenues improved by $4.7 million to $44.3 million for
the year ended December 31, 1996, from $39.6 million for the pro forma year
ended December 31, 1995, due primarily to the higher occupancy levels in Bristol
hotels and increased focus on banquet and catering business for the Original
Bristol Portfolio. Food and beverage department margins increased to 29.5% from
24.8%, primarily as a result of applying Bristol's operating strategies to these
hotels.
Other revenues increased 23.1%, or by $3.3 million, to $17.7 million for
the year ended December 31, 1996. Bristol sold marketable securities in the
third quarter of 1996, resulting in a gain of approximately $0.5 million. In
addition, Bristol recognized gains of $0.9 million and $0.5 million as a result
of the settlement of certain litigation and the early termination of a
management agreement, respectively. Other revenues also increased as a result of
improved occupancy, and the increased emphasis on maximizing telephone revenue.
Gross operating income (consisting of total revenue less rooms, food,
beverage and other expense) was $138.3 million, a $27.2 million improvement for
the year ended December 31, 1996, as compared to the pro forma year ended
December 31, 1995. Gross operating margin for the year ended December 31, 1996
was 65.3% as compared to 61.2% for the pro forma period ended December 31, 1995,
an improvement of 6.7% as a result of the factors noted above.
Operating income increased to $46.8 million for the year ended December 31,
1996, from $30.7 million for the pro forma year ended December 31, 1995. This
$16.1 million, or 52.4%, increase was due primarily to increased revenues and
the improvements in departmental performance noted above. In addition,
administration and general and marketing expenses have stabilized. Combined
administrative and general and marketing expenses increased 10.9% for the year
ended December 31, 1996, compared to the pro forma year ended December 31, 1995,
in contrast to a 14.2% increase from the pro forma year ended December 31, 1994,
as compared to 1995.
Corporate expenses increased to $10.9 million for the year ended December
31, 1996, as compared to $8.7 million for the pro forma year ended December 31,
1995. The increase of $2.2 million is primarily related to additional costs
incurred during 1996 to establish Bristol as a public entity as well as costs
incurred in connection with the establishment of an acquisition department.
Depreciation expense was $18.4 million for the year ended December 31,
1996, a $3.9 million increase from the pro forma year ended December 31, 1995.
The increase is a result of the renovation costs associated with certain United
Hotels being placed in service during 1996. Following the spin-off, the Company
will not have depreciation and amortization expense, but will have lease rental
expense. See "Pro Forma Financial Data."
38
<PAGE> 42
Interest expense increased by $2.5 million to $18.6 million for the year
ended December 31, 1996, compared to the pro forma year ended December 31, 1995.
This increase was due primarily to increased borrowings during 1996 for the
costs of the United Hotels renovations and the acquisition of the Holiday
Inn -- Plano in May 1996. Following the spin-off, the Company's interest expense
will decrease substantially. See "Pro Forma Financial Data."
As a result of the factors described above, net income increased to $17.7
million for the year ended December 31, 1996, from $9.3 million for the pro
forma year ended December 31, 1995, an increase of 91.0%. Following the
Spin-off, the Company's earnings will be significantly different by reason of
the factors referred to above. See "Pro Forma Financial Data."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are expected to be cash on
hand, cash flow from operations and borrowings under a $40 million revolving
credit facility (the "Credit Facility"), which Bankers Trust Company has
committed to provide or arrange for, and which will be effective at the time the
spin-off is completed. The borrowers under the Credit Facility (the "Borrowers")
will include the Company's primary management company and all our other
subsidiaries that own or lease hotels. The Borrowers will be jointly and
severally liable for all obligations under the Credit Facility. The Credit
Facility will be secured by essentially all of the Company's assets, including
the stock of its subsidiaries, and all the assets of the Company's subsidiaries,
including their rights under leases with FelCor and other owners. The Credit
Facility will also be guaranteed by essentially all of the Company's
subsidiaries that are not Borrowers. Loans under the Credit Facility will bear
interest at a rate of LIBOR plus 1.875% or Base Rate plus 0.875% and will mature
one year after the spin-off is completed, with two one-year extension options.
The $40 million of commitments under the Credit Facility may be used for working
capital and other general corporate purposes. Additionally, a sub-limit of up to
$20 million of such commitments is available to issue letters of credit to
secure the Company's obligations under the leases with FelCor and other owners,
subject to the reduction of such sub-limit to reflect the Company's achievement
of liquid net worth requirements related to such leases. The Credit Facility
contains representations and warranties, covenants and events of default
customary for credit facilities of this type. In particular, the Credit Facility
contains covenants requiring the Company to maintain a minimum consolidated net
worth and to satisfy, on a consolidated basis, certain other financial ratio
tests, including a maximum total leverage ratio test, a minimum fixed charges
coverage ratio test and a minimum debt service coverage ratio test. The Credit
Facility also contains covenants, among others, limiting the Company's ability
and the ability of our subsidiaries to incur additional indebtedness, to place
liens on assets, to pay dividends and make distributions, to make investments,
to incur contingent obligations, to sell and acquire assets, to enter into
mergers or make other fundamental organizational changes, to engage in
transactions with shareholders and affiliates, to change the nature of the
Company's business, and to amend or otherwise change the terms of the
contractual arrangements relating to the leases. Based on these sources of
liquidity, the Company believes that it will have access to sufficient capital
resources to operate and manage the hotels in its portfolio for the foreseeable
future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Executive officers and directors will receive Company shares in the
spin-off in respect of their Bristol shares. The following table sets forth the
number of Company common shares that will be beneficially owned immediately
following the spin-off and the subsequent purchase of the Bass companies' shares
in excess of 9.9% of the Company's total shares by each person known to us to
own beneficially more than 5% of Bristol shares, each director and Named
Executive Officer of the Company and all our directors and executive officers as
a group. The Company is considering a stock purchase plan that would permit
certain of its salaried employees and directors to purchase Company shares at a
fixed price, which may be less than the then current trading price, and possibly
with financing provided or arranged by the Company. The table does not give
effect to any such purchases. Pro forma beneficial ownership percentages are
calculated giving effect to the spin-off ratio.
39
<PAGE> 43
Except as otherwise indicated, the address for each of the individuals
named below is 14295 Midway Road, Dallas, Texas 75244. For purposes of the
table, a person or group of persons is deemed to have "beneficial ownership" of
any shares as of a given date, if that person has the right to acquire the
shares within 60 calendar days after such date.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF COMPANY
COMPANY COMMON SHARES
COMMON SHARES OUTSTANDING
------------- -------------
<S> <C> <C>
United/Harvey Holdings, L.P.(1)............................. 7,029,839 40.6%
4200 Texas Commerce Tower W
2200 Ross Avenue
Dallas, Texas 75201
Bass plc.................................................... 1,713,629 9.9%
20 North Audley Street
London, W1Y1WE
Baron Capital(2)............................................ 2,692,100 15.6%
767 Fifth Avenue, 24th Floor
New York, New York 10153
Cohen & Steers Capital Management, Inc.(3).................. 1,219,250 7.0%
757 Third Avenue
New York, New York 10017
John A. Beckert(4).......................................... 424,302 2.5%
Richard N. Beckert(5)....................................... 167,380 *
Reginald K. Brack, Jr.(6)................................... 4,800 *
David A. Dittman(7)......................................... 11,250 *
J. Peter Kline(4)........................................... 671,801 3.9%
Jeffrey P. Mayer(7)......................................... 34,500 *
Robert L. Miars(8).......................................... 488,577 2.8%
Thomas R. Oliver(9)......................................... -- --
James J. Pinto.............................................. -- --
Kurt C. Read(10)............................................ -- --
Robert A. Whitman(10)....................................... -- --
All directors and executives officers
as a group (11 persons)................................... 1,802,610 10.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 671,395 shares which may be purchased upon exercise of a call
option.
(2) As reported in a Schedule 13G/A filed with the SEC on February 13, 1998.
(3) As reported in a Schedule 13G/A filed with the SEC on February 12, 1998.
(4) Includes 75,000 shares which each of Messrs. Kline and J. Beckert has the
right to acquire under options.
(5) Includes 78,000 shares which Mr. R. Beckert has the right to acquire
through the exercise of options.
(6) Includes 3,750 shares which Mr. Brack will have the right to acquire after
the 1998 Bristol Annual Meeting under options.
(7) Includes 34,500 shares which Mr. Mayer has the right to acquire under
options.
(8) Includes 1,500 shares which Mr. Miars has the right to acquire under
options.
(9) Mr. Oliver is a senior executive of Holiday Hospitality. He disclaims
beneficial ownership of the shares beneficially owned by Bass.
(10) Messrs. Read and Whitman are senior executives in a firm that controls
United/Harvey Holdings. They disclaim beneficial ownership of the shares
beneficially owned by that stockholder.
(11) Includes 11,250 shares which Mr. Dittman has the right to acquire under
options, including 3,750 shares which Mr. Dittman will have the right to
acquire after the 1998 Bristol Annual Meeting.
40
<PAGE> 44
We have granted each of United/Harvey Holdings and the Bass companies
demand registration rights for offerings of at least $5 million in equity
securities and piggyback registration rights under certain circumstances. We
have also agreed to pay the expenses related to such registrations, other than
underwriting commissions, and to indemnify these stockholders for any securities
law liabilities resulting from such sales on terms that are customary for
agreements of this type.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the current
and expected future directors and executive officers. At or before the spin-off,
the composition of the Board will be changed to include the directors listed
below. The Board will be classified into three classes, with the initial members
to serve for the periods identified below. Future directors will be elected for
three-year terms. Officers serve at the discretion of the board.
<TABLE>
<CAPTION>
YEAR TERM
NAME POSITION EXPIRES
---- -------- ---------
<S> <C> <C>
J. Peter Kline....................... Chairman, Chief Executive Officer and 1999
Director
John A. Beckert...................... President, Chief Operating Officer and 1999
Director
Robert A. Whitman.................... Director (effective upon the spin-off) 1999
Reginald K. Brack, Jr. .............. Director (effective upon the spin-off) 2000
James J. Pinto....................... Director (effective upon the spin-off) 2000
David A. Dittman..................... Director (effective upon the spin-off) 2001
Thomas R. Oliver..................... Director (effective upon the spin-off) 2001
Kurt C. Read......................... Director (effective upon the spin-off) 2001
Richard N. Beckert................... Senior Vice President -- Administration
Jeffrey P. Mayer..................... Senior Vice President and Chief Financial
Officer
Robert L. Miars...................... Senior Vice President -- Design,
Construction & Engineering
</TABLE>
J. Peter Kline, 50, has been a director of the Company since we were formed
in March 1998. Since February 1995, Mr. Kline has been a Director of Bristol.
Since 1981, Mr. Kline has been the President and Chief Executive Officer of
Bristol (and its predecessor, Harvey Hotel Company).
John A. Beckert, 44, has been a director of the Company since we were
formed in March 1998. Since February 1995, Mr. Beckert has been a Director of
Bristol. Since 1981, Mr. Beckert has been the Chief Operating Officer and
Executive Vice President of Bristol (and its predecessor, Harvey Hotel Company).
Mr. Beckert is the brother of Richard N. Beckert, the Senior Vice President,
Administration of the Company.
Richard N. Beckert, 41, has been Senior Vice President -- Administration of
Bristol (and its predecessor, Harvey Hotel Company) since September 1994. Prior
thereto, Mr. Beckert served as Vice President -- Development from 1992 to 1994,
Regional Vice President from 1986 to 1992 and General Manager for a Bristol
hotel from 1983 to 1986. Richard N. Beckert is the brother of John A. Beckert.
Jeffrey P. Mayer, 41, has been Senior Vice President and Chief Financial
Officer of Bristol since January 1996. Prior to joining Bristol, Mr. Mayer
served as Senior Vice President, Corporate Controller and Chief Accounting
Officer of Host Marriott Corporation (formerly Marriott Corporation)
("Marriott") from 1993 to 1996, as Vice President -- Project Finance of Marriott
from 1991 to 1993 and in various positions with Marriott's finance department
from 1986 to 1991. Prior to joining Marriott, Mr. Mayer was Audit Manager with
Arthur Andersen & Company in Atlanta, Georgia.
Robert L. Miars, 48, has been Senior Vice President -- Design, Construction
& Engineering of Bristol since February 1995. Prior to joining Bristol, Mr.
Miars was President of Huie Miars Custom Homes from 1989 to February 1995 and
President of Huie Miars Construction Company from 1989 to 1995.
41
<PAGE> 45
The following persons have consented to be elected as directors of the
Company upon consummation of the spin-off.
Robert A. Whitman, 44, has been President and Co-Chief Executive Officer of
The Hampstead Group since 1991. Prior to such period, Mr. Whitman was the
Managing Partner and Chief Executive Officer of Trammell Crow Ventures. Mr.
Whitman has served as Chairman of the Board of Malibu Entertainment Worldwide,
an AMEX-listed owner/operator of entertainment centers since 1996, and
previously served as Chairman of the Board of the Forum Group, Inc., a
Nasdaq-traded operator of retirement communities, from 1993 until the sale of
that company to Marriott International, Inc. in 1996. Mr. Whitman is a director
of Covey Leadership Center and served as a director of Wyndham Hotel Company
until the sale of Wyndham to Patriot American Hospitality, Inc. earlier this
year.
Reginald K. Brack, Jr., 60, has been a director of Bristol since May 1997.
Since July 1997, Mr. Brack has been the Chairman Emeritus of Time, Inc. From
December 1986 to July 1997, Mr. Brack was the Chairman and Chief Executive
Officer of Time, Inc.
James J. Pinto, 47, has been the President of the Private Finance Group
Corp., an investment firm, since 1990. He is also a Director of the following
public companies: Andersen Group, Inc. (electronics), Biscayne Holdings, Inc.
(apparel), Empire of Carolina, Inc. (toys) and National Capital Management Corp.
(finance). Mr. Pinto is J. Peter Kline's spouse's brother-in-law.
David A. Dittman, 52, has been a director of Bristol since December 1995.
Since 1990, Mr. Dittman is the Dean of the Cornell University School of Hotel
Administration and an E.M. Statler Professor.
Thomas R. Oliver, 57, is Chairman and Chief Executive Officer of Holiday
Hospitality. Mr. Oliver is also a member of the Bass plc Executive Committee and
Board of Directors. He previously was Chairman and CEO of AudioFAX, Inc. of
Atlanta, Georgia (a high-tech telecommunications company) and President and CEO
of VoiceCom (a supplier of large-scale messaging systems). Prior to joining
VoiceCom, Mr. Oliver held senior management positions at FedEx from 1978 to
1993, including serving as COO and Executive Vice President of Worldwide
Customer Operations for FedEx.
Kurt C. Read, 35, has been a director of Bristol since April 1997. Mr. Read
has been a Senior Vice President of The Hampstead Group since 1989, and is also
a director of Malibu Entertainment Worldwide.
COMPENSATION PLANS AND ARRANGEMENTS
The Company was formed in March 1998. None of our executive officers has
received compensation from us since we were formed. In the spin-off, we will
assume Bristol's obligations under its employment agreements with Messrs. Kline
and J. Beckert and initially will provide compensation to our executive officers
similar to that historically paid by Bristol to its executive officers.
Accordingly, the information in this section that relates to compensation paid
by Bristol is indicative of the types and amounts of compensation that the
Company initially expects to pay its executive officers. After the spin-off, the
Company's board or a compensation committee of the Board will establish
compensation policies that are appropriate for the Company's business.
Bristol Executive Compensation. The following table sets forth information
regarding the principal position and compensation paid to Bristol's Chief
Executive Officer and each of the four other most highly compensated executive
officers of Bristol who are expected to be executive officers of the Company and
who earned at least $100,000 in total salary and bonus in 1997 (the "Named
Executive Officers"):
42
<PAGE> 46
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
--------------------------- ---- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
J. Peter Kline.................. 1997 $457,307 $91,461 30,000 $ 4,750
President and Chief 1996 250,502 69,350 -- --
Executive Officer 1995 231,353 87,183 225,000 2,073
John A. Beckert................. 1997 457,307 91,461 30,000 4,750
Chief Operating Officer and 1996 250,502 69,350 -- --
Executive Vice President 1995 231,353 79,724 225,000 2,072
Jeffrey P. Mayer(4)............. 1997 257,115 51,423 25,000 44,723
Senior Vice President and 1996 188,159 56,448 195,000 46,633
Chief Financial Officer 1995 -- -- -- --
Robert L. Miars................. 1997 229,604 68,881 20,000 4,750
Senior Vice President, 1996 144,503 35,037 15,000 --
Design, Construction &
Engineering 1995 126,422 74,282 49,500 --
Richard N. Beckert.............. 1997 220,386 44,077 20,000 3,649
Senior Vice President, 1996 160,503 44,384 30,000 --
Administration 1995 150,461 76,715 199,500 1,821
</TABLE>
- ---------------
(1) The bonus amounts for all years are based on amounts earned during the
calendar year regardless of when paid.
(2) Reflects options to acquire Bristol shares granted pursuant to Bristol's
1995 Equity Incentive Plan, adjusted to reflect the 1997 stock split, but
does not reflect the spin-off or the merger.
(3) Consists entirely of contributions by Bristol to Bristol's 401(k) plan
except for Mr. Mayer, whose 1997 other compensation consists of $3,462 of
contributions to Bristol's 401(k) and $41,261 for relocation expenses. Mr.
Mayer's 1996 other compensation consists entirely of relocation expenses.
(4) Mr. Mayer joined Bristol in January 1996.
Bristol Stock Option Grants. The following table sets forth information
with respect to options granted to the executive officers of Bristol during 1997
(without adjustment for the spin-off or merger):
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(1)
OPTIONS TO EMPLOYEES OR BASE EXPIRATION -----------------------
NAME GRANTED IN 1997 PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Kline........ 30,000 6.09% $26.00 2007 $ 490,538 $1,243,119
John A. Beckert....... 30,000 6.09% 26.00 2007 490,538 1,243,119
Jeffrey P. Mayer...... 25,000 5.07% 26.00 2007 408,782 1,035,933
Robert L. Miars....... 20,000 4.06% 26.00 2007 327,025 828,746
Richard N. Beckert.... 20,000 4.06% 26.00 2007 327,025 828,746
------- ------ ---------- ----------
125,000 25.13% $2,043,908 $5,179,663
======= ====== ========== ==========
</TABLE>
- ---------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation over the term of the options. These numbers do not take into
account provisions of certain options providing for termination of the
option following termination of employment, nontransferability or vesting
over periods. The use of the assumed 5% and 10% returns is established by
the SEC and is not intended by Bristol to forecast possible future
appreciation of the price of Bristol shares.
43
<PAGE> 47
Management Bonus Plan. Our Management Bonus Plan will provide key
management employees with cash bonuses based upon the achievement of specified
targets and goals for the Company and for the particular employees. Each of our
officers will be eligible to receive annual bonus awards based on the
achievement of criteria to be established by the compensation committee of our
board of directors.
401(k) Plan. Effective as of the spin-off, we will assume the profit
sharing plan with a 401(k) feature currently offered by Bristol to its employees
and executive officers. Eligible employees may contribute to the 401(k) plan
through salary deferral elections of not less than 1% nor more than 16% of their
salary. We will match contributions with $.50 for each dollar contributed, up to
6% of a participant's salary. Our Board may, in its discretion, grant additional
matching contributions, subject to statutory limitations. Contributions by
participants are 100% vested and contributions by the Company vest over a period
of years, becoming fully vested after five years of continuous employment. The
401(k) plan is intended to qualify under Section 401 of the Code so that
contributions by participants or by the Company to the 401(k) plan, and income
earned on such contributions, are not taxable to the participants until
withdrawn from the Company 401(k) plan.
1998 Equity Incentive Plan. Our 1998 Equity Incentive Plan is designed to
attract and retain our qualified officers and other key employees. The plan
authorizes the grant of options to purchase Company shares, stock appreciation
rights, restricted stock, deferred stock, performance stock and performance
units. Our Board's Compensation Committee will administer the Equity Incentive
Plan and determine to whom awards will be granted, as well as the number of
shares, the exercise period and other terms and conditions of a particular
grant. No grants will be made under the plan unless the plan is approved by
Bristol's stockholders.
Possible Stock Purchase Plan. We are considering a stock purchase plan that
would permit certain of our employees and directors, including Mr. Kline and the
other executive officers, to purchase Company shares at a fixed price, which may
be less than the then-current market price, and possibly with financing provided
or arranged by the Company.
1998 Non-Employee Directors Stock Option Plan. Our 1998 Non-Employee
Directors Stock Option Plan is designed to encourage our outside directors to
own Company shares. Only directors who are not employees of the Company or any
9% affiliate of the Company will be eligible to participate in this Plan. The
persons expected to receive options under the plan are Messrs. Brack, Pinto and
Dittman. No grants will be made under the plan unless the plan is approved by
Bristol's stockholders.
Under this plan, we will automatically grant to each eligible director an
option to purchase 25,000 Company shares on the date the individual becomes a
director and at each annual meeting while that person remains a director. A
portion of the initial option will become exercisable at each of the following
three annual stockholders meetings if the director has continued to serve as a
director during that time. The annual options will be fully exercisable on the
date of the next annual stockholders meeting. The exercise price of the options
granted under the Directors Plan will generally be the market value of the
Company common shares on the day the option is granted and may be paid in cash,
Company common shares held by the eligible director for at least six months, or
a combination of cash and stock. This plan will be administered by the Directors
Plan Committee of the Company's Board.
Directors are not presently expected to receive any compensation for their
services as directors other than the options.
Employment Agreements. Messrs. Kline and J. Beckert have entered into
employment agreements with Bristol that expire in 2001 and provide for the
payment of an annual base salary of at least $450,000 and provide for certain
severance benefits on a change in control of Bristol. We will assume the
obligations under those employment agreements in the spin-off. Messrs. Kline and
J. Beckert are also eligible to receive future grants of stock-based incentive
awards and other benefits provided to our senior executives, including bonuses
of up to 50% of their base pay.
In connection with the spin-off and merger, Messrs. Kline and J. Beckert
waived the rights to treat the merger as a change of control, which otherwise
would have resulted in the acceleration of the vesting Bristol options
personally granted to them and would have given them certain severance rights.
44
<PAGE> 48
Existing Bristol Options. The following table sets forth certain
information with respect to options to purchase Bristol shares held at December
31, 1997 by Bristol's Chief Executive Officer and each of the Named Executives.
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
--------------------------- ---------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
J. Peter Kline....................... 255,000 -- $4,756,013 --
John A. Beckert...................... 255,000 -- 4,756,013 --
Jeffrey P. Mayer..................... 181,000 39,000 2,331,885 $563,831
Robert L. Miars...................... 81,500 3,000 1,223,314 33,989
Richard N. Beckert................... 243,500 6,000 4,468,693 67,977
</TABLE>
- ---------------
(1) Represents the total number of Bristol shares subject to stock options held
by the Named Executives at December 31, 1997. These options were granted on
various dates during the years 1995 through 1997.
(2) The closing price per share of Bristol shares as reported in the NYSE
Composite Transactions Report on December 31, 1997 was $29.0625. The value
of the options is calculated on the basis of the difference between the
option exercise price and $29.0625 multiplied by the number of Bristol
shares covered by the option.
Treatment of Bristol Stock Options after the Spin-Off and Merger. Upon
consummation of the spin-off, each outstanding option to purchase Bristol shares
under Bristol's stock plans will be redenominated into two options which will be
continuations of the original Bristol options. One of such options will be an
option to purchase Company shares and the other will be an option to purchase
FelCor shares. Each will have the same terms and conditions as the original
Bristol option. The Company option will be exercisable for that number of
Company shares that would have been issued had the original Bristol option been
exercised in full immediately prior to the spin-off. The FelCor option will be
exercisable for that number of FelCor shares that would have been issued had the
original Bristol option been exercised in full immediately prior to the merger.
The exercise price for the original Bristol options will be allocated between
the Company option and the FelCor option based on the relative values of the
Company and Bristol immediately following the spin-off and, in the case of the
Company option, adjusted by the ratio of shares distributed in the spin-off,
and, in the case of the FelCor option, adjusted by the merger exchange ratio.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Preemptive Rights. The Bass companies and United/Harvey Holdings will have
the right, in connection with any offering of equity securities of the Company
in excess of $10 million, to purchase on the same terms as such offering a
sufficient number of Company shares to maintain their respective percentage
ownership of Company shares immediately prior to such offering. This right does
not apply if such acquisition would violate rules which prohibit a stockholder
from owning 10% or more of the outstanding shares of a REIT and a related tenant
at the same time. This right will expire as to any stockholder who does not
exercise such right three times or as to all of those stockholders if any of
them owns less than 25% of its initial ownership of Company shares in the
spin-off, after taking into consideration the Company's redemption of the Bass
companies' Company shares that exceed 9.9% of the outstanding Company shares.
Board Representation and Voting. The Bass companies and United/Harvey
Holdings will each be entitled to nominate one director for election to serve on
the Company Board for so long as it owns at least 25% of the Company shares it
owned at the time of the spin-off, after taking into consideration the Company's
redemption of the Bass companies' shares that exceed 9.9% of the outstanding
Company shares. Each of such parties agreed to vote for the other's designee for
so long as they both own at least 25% of their initial shares. Our initial Board
includes two members originally nominated to the Bristol Board by the Bass
companies and United/Harvey Holdings.
45
<PAGE> 49
Holiday Inn Franchise Arrangements. The Company has agreed to add 8,700
Holiday-branded rooms to its portfolio of owned or operated hotels over the next
five years. If the Company fails to meet certain threshold targets for adding
rooms over that period, it will be required to pay Holiday Hospitality damages
in accordance with a specified formula unless certain exceptions apply. The
Company's obligation will terminate upon the earlier to occur of (i) six months
after notice from Holiday Hospitality of termination of its obligation to offer
us acquisition and development opportunities, as described below, and (ii)
Holiday Hospitality no longer holding a controlling equity interest in the
entity that franchises Holiday Inn Hotel brands or in the entity that directly
or indirectly holds the intellectual property rights related to the Holiday Inn,
Holiday Inn Express or Crowne Plaza brands.
Bristol has entered into franchise agreements with Holiday Hospitality
which generally require the payment of franchise fees equal to 5% of room
revenues. Bristol paid $19.5 million in franchise fees in 1997. The Company will
assume Bristol's obligations under these franchise agreements in the spin-off.
Right of First Offer for New Opportunities. Holiday Hospitality has agreed
to offer the Company any opportunity it has to acquire or develop a midscale
lodging facility located in the United States or Canada. Holiday Hospitality
will be permitted, however, to (i) terminate such obligations at any time after
October 28, 1998, upon six months' advance notice to the Company, and (ii)
acquire up to five hotels and develop an unlimited number of hotels in the
United States and Canada for research and training other than in the same
geographic markets as the Company's hotels. If Holiday Hospitality proposes to
sell any research and training hotel that it owns, it must first offer to sell
such hotel to the Company. At the time of the spin-off, the Hotel Properties
Agreement, dated April 28, 1997, between Holiday Corporation and Bristol will
terminate. The Hotel Properties Agreement required Bristol to offer Holiday
Hospitality or its affiliates franchise rights with respect to at least 85% of
Bristol's owned and managed hotel rooms.
DESCRIPTION OF CAPITAL STOCK
This summarizes the material provisions of the Company's Certificate of
Incorporation and Bylaws as they are contemplated to be in effect at the time of
the spin-off, but may not contain all of the information that is important to
you. See "Where You Can Find More Information" for information about how to
obtain a copy of the documents referred to in this section. The rights described
below are subject to any rights that may be granted to any holder of preferred
shares.
CAPITAL STOCK
We will be authorized to issue 100.0 million common shares and 25.0 million
preferred shares.
Common Stock. Holders of common shares will be entitled to receive
dividends that have been legally declared by our Board and to share ratably in
the assets of the Company that remain after we have paid our known debts and
liabilities if we liquidate or dissolve. Holders of common shares will be
entitled to one vote for each common share held by such holder on the record
date for the applicable stockholders meeting.
Preferred Stock. The preferred shares may be issued in one or more series,
with such rights and qualifications as our board of directors may determine
before such shares are issued.
Ownership Limit. Our Certificate of Incorporation will prohibit any person
from owning more than 9.9% of the outstanding shares of any class of our capital
stock before December 31, 2000 unless our Board previously approved such
ownership. Accordingly, United/Harvey Holdings and Baron Capital which will own
40.6% and 15.6%, respectively, of our shares after the spin-off will be exempted
from the ownership limit. See "Security Ownership of Certain Beneficial Owners
and Management." We have the right to take any lawful action that we believe is
necessary or advisable to ensure compliance with the ownership limit, including
refusing to recognize or record any transfer of shares in violation of these
limitations. The distribution of shares in the spin-off is exempt from the
ownership limit.
The ownership limitation in our Certificate of Incorporation will be
similar in effect to the ownership limitation in FelCor's charter, which is
designed to assure its continued qualification as a REIT. The
46
<PAGE> 50
ownership limit that will be in our Certificate of Incorporation is intended to
aid in assuring compliance by FelCor with the REIT requirements and to avoid
further concentration in the holdings of our shares. The ownership limit may
have the effect of discouraging or preventing a third party from attempting to
gain control of the Company without the approval of our Board of Directors.
Therefore, it is less likely that a change in control, even if beneficial to
stockholders, could be effected without the approval of our Board. See
"-- Additional Corporate Governance and Takeover-Related Matters."
If you hold or attempt to acquire shares in violation of the ownership
limit, any shares in excess of 9.9% of the total outstanding number of shares
will be transferred automatically and by operation of law to a charitable trust
for the benefit of a charitable beneficiary. The trustee will be entitled to
receive all dividends on, and exercise all voting rights of, the excess shares.
The trustee must sell the excess shares within 20 business days. You will have
no right or interest in such shares, except the right to receive from the
proceeds of any sale of the excess shares by the trustee the lesser of: (i) the
amount you paid for the excess shares (or the market value of the excess shares,
determined in accordance with the Company's Certificate of Incorporation, if you
received them by gift, bequest or otherwise without payment) and (ii) the amount
received by the trustee from a sale of such excess shares. Accordingly, if you
are the record owner of any excess shares you may suffer a financial loss if the
price at which the excess shares are sold by the trustee is less than what you
paid for them.
STOCK EXCHANGE LISTING
We have received preliminary approval to list our common stock for trading
on the New York Stock Exchange. If the New York Stock Exchange does not grant
final approval, we will apply to another national securities exchange or
quotation system.
There is currently no trading market for our shares. While the Company
shares were assigned an estimated value of $6.38 by the Bristol board in
connection with its evaluation of the merger, prices at which our shares will
trade after the spin-off cannot be predicted. Until our shares are fully
distributed and an orderly market develops, the prices at which trading in our
shares occur may fluctuate significantly. The prices at which our stock trades
will be determined by the marketplace and may be influenced by many factors,
including, among others, the depth and liquidity of the market for our stock,
investor perception of us and our businesses, our dividend policy, interest
rates and general economic and market conditions. See "Risk Factors -- Absence
of Prior Trading Market for Company Shares; Potential Volatility."
SHARES AVAILABLE FOR RESALE
Company shares distributed to you in the spin-off may be traded freely and
without restriction if you are not deemed to be an "affiliate" of the Company
under the rules of the SEC. Persons who may be deemed to be affiliates of the
Company after the spin-off generally include individuals or entities that
control, are controlled by or are under common control with the Company, and may
include certain officers and directors of the Company and Bristol as well as
certain principal stockholders of the Company and Bristol. Persons who are
affiliates of the Company will be permitted to sell their Company shares only
pursuant to an effective registration statement or an exemption from the
registration requirements of the securities laws. We have granted the Bass
companies and United/Harvey Holdings, two of our major stockholders, demand and
piggyback registration rights.
DIVIDENDS
Bristol did not pay any cash dividends since its initial public offering in
1995. We do not currently anticipate paying any cash dividends, but rather to
reinvest available cash in our business.
47
<PAGE> 51
ADDITIONAL CORPORATE GOVERNANCE AND TAKEOVER-RELATED MATTERS
The Certificate of Incorporation and Bylaws of the Company will be amended
to change the Company's name to "Bristol Hotels & Resorts", and to provide for
the following matters:
Actions of Stockholders. Our Certificate of Incorporation, as amended, will
not permit actions to be taken by written consent. Stockholder actions may only
be taken at annual or special meetings of the stockholders called in accordance
with our Certificate of Incorporation and Bylaws. Special meetings of
stockholders may only be called by (i) the Chairman or a Vice Chairman of our
Board or the President of the Company and (ii) the Secretary of Company upon the
written request of a majority of the total number of the directors then in
office. Annual meetings may be called by a majority of the Board. Only business
that is specified in the notice of the annual or special meeting or properly
brought before the meeting by the presiding officer or by a majority of the
entire board may be discussed at any meeting.
The first annual meeting of our stockholders will be held in 1999, on a
date and at a time designated by the Board.
Board of Directors. The business and affairs of the Company are managed
under the direction of our Board, which initially will consist of eight members.
The size of our Board may be increased or decreased only by (i) a majority
of the total number of directors that the Company would have if there were no
vacancies on the Board or (ii) the holders of at least 80% of the voting stock,
voting together as a single class. The Board may not have fewer than three nor
more than 15 members.
Our Board is divided into three classes, as nearly equal in number as
possible, designated Class I, Class II, and Class III. The term for the
directors first appointed to Class I will expire at the annual meeting of
stockholders to be held in 1999, the term of the directors first appointed to
Class II will expire at the annual meeting of the stockholders to be held in
2000 and the term for the directors first appointed to Class III will expire at
the annual meeting of stockholders to be held in 2001. At any meeting of
stockholders at which directors are elected, the number of directors elected may
not exceed the largest number of directors then in office in either class who
are not standing for election at the meeting. Accordingly, it will not be
possible to change a majority of the members of the Board.
The Bylaws provide that, except as granted to the Bass companies and to
United/Harvey Holdings in the stockholders agreement, directors may be nominated
only by the Company's Board or by any stockholder who has delivered notice of
his nominee not less than 60 days prior to the annual meeting of stockholders.
If public announcement of the date of the annual meeting is not made at least 75
calendar days prior to the annual meeting, notice must be received not later
than the close of business on the tenth calendar day following the day on which
the announcement of the meeting date is made. The stockholder's notice must
contain certain information concerning the stockholder and the stockholder's
nominees, including their names and addresses, proof that the stockholder is a
stockholder of record and plans to appear in person or by proxy at the annual
meeting, the class and number of shares of Company stock owned by such
stockholder and the stockholder's nominees, any agreements between the relevant
parties pursuant to which the nomination is to be made, any other information
regarding the stockholder's nominees that would be required to be included in a
proxy statement soliciting proxies for the election of the stockholder's
nominees and the signed consent of each nominee to serve as a director of the
Company, if so elected. The presiding officer of the annual meeting may refuse
to acknowledge the nomination of any person not made in compliance with these
requirements or the requirements of the securities laws.
Directors are elected by a plurality vote of all votes cast at a meeting
and will hold office for a three-year term. Directors may be elected by the
stockholders only at an annual meeting of stockholders.
Any vacancy that occurs on the Company's Board, including any vacancy that
results from an increase in the authorized number of directors, may be filled
only by a majority of the remaining directors then in office, even if less than
a quorum, or by a sole remaining director, except that any vacancy caused by the
death, removal or resignation of a director nominated by the Bass companies or
United/Harvey Holdings may only
48
<PAGE> 52
be filled by the person who nominated such director for as long as the
stockholders agreement is in effect. Any director elected to fill a vacancy will
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until the
director's successor is elected and qualified. A decrease in the number of the
directors may not shorten the term of any director then in office.
Any director may be removed from office with or without cause by a majority
of the entire Board or for cause by the stockholders. For the stockholders to
remove a director for cause, the notice of the annual or special meeting of the
stockholders must refer to the removal of such director and at least 80% of the
stockholders entitled to vote, voting together as a single class, must approve
such removal.
Indemnification of Officers and Directors. We have agreed to indemnify our
officers and directors to the maximum extent permitted or required under
applicable law. Delaware's corporation law permits us to indemnify our directors
and officers for liabilities, costs and expenses that such persons may incur as
a result of actions they may take in performing their duties as officers and
directors. In order to be indemnified under Delaware law, the person must have
acted in good faith and in a manner he believed was in, or not opposed to, the
best interests of the Company. In the case of any criminal proceeding, the
person must not have reasonable cause to believe that his conduct was unlawful.
In Delaware, if a person is found by a court to be liable to the corporation,
that court must approve any reimbursement of expenses to such person. The
foregoing limitations do not, however, apply to the indemnity contracts to which
all officers and directors are partners with the Company. Any amendment or
repeal of the Company's Certificate of Incorporation may not adversely affect
the rights of any person entitled to indemnification for any event occurring
prior to such amendment or repeal.
Amendment of the Bylaws. The Bylaws may be amended by the stockholders or
the Company's Board. Amendment by the stockholders must be approved at a meeting
where the notice of such meeting describes the proposed amendment. No amendment
adopted by the Board may conflict with any amendment adopted by the
stockholders.
Anti-Takeover Effects. All of the provisions discussed in this section, the
ownership limitation in our Amended Certificate of Incorporation and the ability
of FelCor to terminate the leases of the hotels might make it more difficult for
someone to obtain control of us unless the transaction is approved by our Board.
Certain of these provisions could also make it more difficult for a third party
to replace our management or Board without the approval of our Board of
Directors.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form 10 to register
the Company shares to be issued to you in the spin-off. As allowed by SEC rules,
this information statement does not contain all the information contained in the
registration statement or in the exhibits to the registration statement. For
further information you may read and copy documents at the principal office of
the SEC at 450 5th Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC at 7 World Trade Center, Suite 1300, New York, New York
10048, at Citicorp Center, Suite 1400, and 500 West Madison Street, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The SEC charges a fee for copies. Copies of this
material should also be available through the Internet by using the "Quick Forms
Lookup" at the SEC EDGAR Archive, the address of which is http://www.sec.gov. In
addition, our filings may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Following the spin-off, we will be required to file annual, quarterly and
other reports with the SEC. We will also be subject to the proxy rules and,
accordingly, will furnish audited financial statements to you in connection with
our annual meetings of stockholders.
No person is authorized by Bristol or the Company to give any information
or to make any representations other than those contained in this information
statement, and, if given or made, you should not rely upon such information.
49
<PAGE> 53
FORWARD-LOOKING STATEMENTS
In addition to historical information, this information statement contains
forward-looking statements and information that are based on our current views
of the Company and our assumptions concerning future events. Forward-looking
statements are typically identified by the words "believe," "expect,"
"anticipate," "intend," "estimate," "project" and similar expressions. These
statements are subject to risks and uncertainties that could cause the Company's
actual operations and results of operations to differ materially from those
reflected in our forward-looking statements.
Forward-looking statements are not guarantees of future performance and are
subject to the Company achieving its business strategy and the costs and
expected benefits of that strategy and having sufficient cash flow and other
sources of cash to fund our lease payments, debt service requirements, working
capital needs and other significant expenditures. Forward-looking statements are
also based on what we anticipate future trends in the lodging industry will be
and how those will be affected by industry capacity, the seasonal nature of the
lodging industry, product demand and pricing and the other matters referred to
in the "Risk Factors" section of this document. Accordingly, you are cautioned
not to place undue reliance on our forward-looking statements.
50
<PAGE> 54
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
Pro Forma Financial Data.................................... 23
Management's Discussion and Analysis of Results of
Operations................................................ 34
Report of Independent Public Accountants.................... F-2
Report of Independent Accountants........................... F-3
Financial Statements
Consolidated Balance Sheets............................... F-4
Consolidated and Combined Statements of Income............ F-5
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-6
Consolidated and Combined Statements of Cash Flows........ F-7
Notes to Consolidated and Combined Financial Statements... F-8
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Bristol Hotel Company
We have audited the accompanying consolidated balance sheets of Bristol
Hotel Company (a Delaware corporation) as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bristol Hotel Company as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 6, 1998 (except with respect
to the matter discussed in Note 20 as
to which the date is March 25, 1998)
F-2
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Bristol Hotel Company
In our opinion, the accompanying consolidated statements of income, of
changes in stockholders' equity and of cash flows for Bristol Hotel Company and
its subsidiaries ("Company") and the combined statements of income and cash
flows for Harvey Hotel Companies ("Predecessor") present fairly, in all material
respects, the results of operations and cash flows of the Company and its
Predecessor for the eleven months ended December 31, 1995 and for the one month
ended January 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company and
its Predecessor's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Bristol Hotel Company and its subsidiaries
for any period subsequent to December 31, 1995.
PRICE WATERHOUSE LLP
Dallas, Texas
February 23, 1996
F-3
<PAGE> 57
BRISTOL HOTEL COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 86,167 $ 4,666
Trading securities........................................ 103 116
Accounts receivable (net of allowance of $2,259 and
$344).................................................. 31,305 10,501
Inventory................................................. 8,286 3,320
Deposits.................................................. 7,569 5,404
Other current assets...................................... 1,626 950
---------- --------
Total current assets.............................. 135,056 24,957
---------- --------
Property and equipment (net of accumulated depreciation of
$76,172 and $31,071)...................................... 1,439,167 552,564
Other assets
Restricted cash........................................... 9,283 3,069
Investments in joint ventures, net........................ 12,396 --
Goodwill (net of accumulated amortization of $891)........ 52,773 --
Deferred charges and other noncurrent assets (net of
accumulated amortization of $1,965 and $2,144)......... 17,963 12,198
---------- --------
Total assets...................................... $1,666,638 $592,788
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 8,455 $ 15,769
Accounts payable and accrued expenses..................... 27,366 10,626
Accrued construction costs................................ 1,330 4,797
Accrued property, sales and use taxes..................... 15,911 7,346
Accrued insurance reserves................................ 9,530 6,920
Advance deposits.......................................... 1,156 278
---------- --------
Total current liabilities......................... 63,748 45,736
---------- --------
Long-term debt, excluding current portion................... 708,864 216,925
Deferred income taxes....................................... 242,530 75,619
Other liabilities........................................... 2,702 2,351
---------- --------
Total liabilities................................. 1,017,844 340,631
---------- --------
Common stock ($.01 par value; 150,000,000 shares authorized,
45,734,472 and 24,848,760 shares issued at December 31,
1997 and 1996, respectively, and 43,641,401 and 24,848,760
shares outstanding at December 31, 1997 and 1996,
respectively)............................................. 436 166
Additional paid-in capital.................................. 606,935 231,181
Cumulative translation adjustment........................... 286 --
Retained earnings........................................... 41,137 20,810
---------- --------
Total stockholders' equity........................ 648,794 252,157
---------- --------
Total liabilities and stockholders' equity........ $1,666,638 $592,788
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 58
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
HARVEY HOTEL COMPANIES (PREDECESSOR)
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HARVEY
BRISTOL HOTEL COMPANY HOTEL
------------------------------------------ COMPANIES
ELEVEN -----------
MONTHS MONTH
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUE:
Rooms..................................................... $ 377,380 $ 149,794 $ 115,771 $4,006
Food and beverage......................................... 92,596 44,344 36,070 1,505
Management fees........................................... 4,948 2,513 1,382 34
Other..................................................... 29,594 15,189 11,972 398
----------- ----------- ----------- ------
Total revenue....................................... 504,518 211,840 165,195 5,943
----------- ----------- ----------- ------
OPERATING COSTS AND EXPENSES:
Departmental expenses:
Rooms................................................... 105,063 37,706 32,692 1,124
Food and beverage....................................... 69,766 31,282 27,118 1,006
Other................................................... 9,326 4,528 4,258 49
Undistributed operating expenses:
Administrative and general.............................. 44,255 18,266 16,184 186
Marketing............................................... 34,439 15,555 12,070 393
Property operating costs................................ 44,303 17,499 16,313 360
Property taxes, rent and insurance...................... 35,330 10,903 8,425 269
Depreciation and amortization........................... 39,690 18,377 13,505 309
Corporate expense....................................... 24,450 10,958 8,035 315
----------- ----------- ----------- ------
Operating income............................................ 97,896 46,766 26,595 1,932
----------- ----------- ----------- ------
Other (income) expense:
Interest expense.......................................... 44,591 18,616 18,374 652
Equity in income of joint ventures........................ (1,916) -- -- --
Other..................................................... -- -- 257 --
----------- ----------- ----------- ------
Income before minority interest, income taxes, extraordinary
items and pro forma income taxes.......................... 55,221 28,150 7,964 1,280
Minority interest........................................... -- -- 173 --
----------- ----------- ----------- ------
Income before income taxes, extraordinary items and pro
forma income taxes........................................ 55,221 28,150 7,791 1,280
Income taxes................................................ 22,007 10,401 2,822 --
----------- ----------- ----------- ------
Income before extraordinary items and pro forma income
taxes..................................................... 33,214 17,749 4,969 1,280
Extraordinary loss on early extinguishment of debt, net of
tax....................................................... (12,741) -- (1,908) --
----------- ----------- ----------- ------
Net income before pro forma income taxes.................... $ 20,473 $ 17,749 $ 3,061 1,280
=========== =========== ===========
Pro forma income taxes (Unaudited).......................... 435
------
Net income after pro forma income tax expense (Unaudited)... $ 845
======
Earnings per common and common equivalent share:
Income before extraordinary item:
Basic................................................... $ 0.89 $ 0.71 $ 0.28 --
Diluted................................................. $ 0.87 $ 0.70 $ 0.28 --
Net income:
Basic................................................... $ 0.55 $ 0.71 $ 0.17 --
Diluted................................................. $ 0.53 $ 0.70 $ 0.17 --
Weighted average number of common and common equivalent
shares outstanding:
Basic..................................................... 37,359,364 24,848,760 17,857,936 --
Diluted................................................... 38,332,302 25,526,413 17,908,955 --
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-5
<PAGE> 59
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED CUMULATIVE RETAINED
------------------- PAID-IN GAIN (LOSS) TRANSLATION EARNINGS
SHARES AMOUNT CAPITAL ON SECURITIES ADJUSTMENT (DEFICIT) TOTAL
---------- ------ ---------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995......... 9,856,178 $ 99 $123,104 $ -- $ -- $ -- $123,203
Unrealized gain on securities,
net............................ -- -- -- 262 -- -- 262
Issuance of common stock.......... 6,709,662 67 109,529 -- -- -- 109,596
Net of income..................... -- -- -- -- -- 3,061 3,061
---------- ---- -------- ----- ---- ------- --------
Balance at December 31, 1995........ 16,565,840 166 232,633 262 -- 3,061 236,122
Reclass securities to trading..... -- -- -- (262) -- -- (262)
Employee stock options............ -- -- 216 -- -- -- 216
Adjustment to offering costs for
1995 common stock issuance..... -- -- (1,668) -- -- -- (1,668)
Net income........................ -- -- -- -- -- 17,749 17,749
---------- ---- -------- ----- ---- ------- --------
Balance at December 31, 1996........ 16,565,840 166 231,181 -- -- 20,810 252,157
Employee stock options............ -- -- 296 -- -- -- 296
Exercise of employee stock
options........................ 6,619 -- 114 -- -- -- 114
Issuance of stock in Holiday Inn
Acquisition.................... 9,361,308 93 267,874 -- -- -- 267,967
Issuance of common stock, net of
costs.......................... 3,162,500 31 107,470 -- -- -- 107,501
Stock split....................... 14,545,134 146 -- -- -- (146) --
Foreign currency translation...... -- -- -- -- 286 -- 286
Net income........................ -- -- -- -- -- 20,473 20,473
---------- ---- -------- ----- ---- ------- --------
Balance at December 31, 1997........ 43,641,401 $436 $606,935 $ -- $286 $41,137 $648,794
========== ==== ======== ===== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-6
<PAGE> 60
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
HARVEY HOTEL COMPANIES (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HARVEY HOTEL
BRISTOL HOTEL COMPANY COMPANIES
------------------------------------------ ------------
ELEVEN
YEAR ENDED YEAR ENDED MONTHS ENDED MONTH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 31,
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 20,473 $ 17,749 $ 3,061 $ 1,280
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 39,690 18,377 13,505 309
Amortization of deferred financing fees................. 2,749 2,062 -- --
Other................................................... -- -- 602 --
Equity in earnings of joint ventures.................... (1,399) -- -- --
Compensation expense recognized for employee stock
options............................................... 410 216 -- --
Unrealized gain on marketable securities................ -- (378) -- --
Non-cash portion of extraordinary item, net of tax...... 11,009 -- 1,908 --
Changes in assets and liabilities:
Changes in working capital.............................. 1,645 (684) (714) 641
Decrease (increase) in restricted cash.................. (6,214) (2,449) 2,860 (84)
Distributions from joint ventures....................... 650 -- -- --
Increase (decrease) in other liabilities................ 217 (460) (4,260) 421
Deferred tax provision.................................. 5,805 6,171 (326) --
--------- -------- --------- -------
Net cash provided by operating activities........... 75,035 40,604 16,636 2,567
--------- -------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment.................... (54,071) (93,936) (60,941) (721)
Purchases of property and equipment, net of associated
debt.................................................... (86,977) (6,300) (20,000) --
Sales of property and equipment........................... -- -- 4,711 --
Holiday Inn Acquisition, net of costs..................... (400,159) -- -- --
Sales of marketable securities............................ -- 726 -- 1,928
--------- -------- --------- -------
Net cash provided by (used in) investing
activities........................................ (541,207) (99,510) (76,230) 1,207
--------- -------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Refinancing................................. 600,000 -- -- --
Proceeds from New Credit Facility......................... 560,000 -- -- --
Repayment of New Credit Facility.......................... (560,000) -- -- --
Paydown of Senior Notes................................... (40,000) -- -- --
Proceeds from Offering, net of costs...................... 107,852 -- -- --
Early extinguishment of long-term debt.................... (133,540) -- -- --
Distributions to predecessor equity holders............... -- -- (4,140) (8,009)
Additions to notes receivable -- partners................. -- -- -- 488
Principal payments and extinguishment of long-term debt... (7,058) (4,826) (156,612) (121)
Proceeds from issuance of long-term debt.................. 43,410 66,976 123,387 --
Payment of offering costs................................. -- (1,342) -- --
Proceeds from affiliate................................... -- -- 19,900 --
Proceeds from initial public offering, net of offering
costs................................................... -- -- 88,557 --
Dividend paid to minority partner......................... -- -- (335) --
Decrease in accounts receivable affiliate................. -- -- 542 --
Decrease (increase) in deferred charges and other
non-current assets...................................... (22,991) (5,142) (9,212) 316
--------- -------- --------- -------
Net cash provided by (used in) financing
activities........................................ 547,673 55,666 62,087 (7,326)
--------- -------- --------- -------
Net increase (decrease) in cash and cash equivalents........ $ 81,501 $ (3,240) $ 2,493 $(3,552)
Cash and cash equivalents at beginning of period............ 4,666 7,906 5,413 4,118
--------- -------- --------- -------
Cash and cash equivalents at end of period.................. $ 86,167 $ 4,666 $ 7,906 $ 566
========= ======== ========= =======
Supplemental cash flow information:
Interest paid............................................. $ 39,706 $ 17,696 $ 17,111 $ 330
========= ======== ========= =======
Income taxes paid......................................... $ 10,942 $ 3,543 $ 2,685 $ --
========= ======== ========= =======
Non-cash investing and financing activities:
Debt assumed to acquire property and equipment............ $ 21,813 $ -- $ 12,100 $ --
========= ======== ========= =======
Sale of non-hotel properties for assumption of
liabilities............................................. $ -- $ -- $ 4,723 $ --
========= ======== ========= =======
Purchase of minority interest for common stock............ $ -- $ -- $ 1,110 $ --
========= ======== ========= =======
Common stock issued in Holiday Inn Acquisition.............. $ 267,967 $ -- $ -- $ --
========= ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-7
<PAGE> 61
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
Bristol Hotel Company (the "Company") is a Delaware corporation which was
incorporated in November 1994 and began operations after the acquisitions of
Harvey Hotel Company, Ltd. and its subsidiaries (together, "Harvey Hotel
Companies" or "Predecessor") and United Inns, Inc. ("United Inns")
(collectively, the "Combination"). The Company owns 86 hotels and manages 15
additional hotels, two of which are owned by joint ventures in which the Company
owns a 50% interest. The properties, which contain approximately 28,800 rooms,
are located in 22 states, the District of Columbia and Canada. The Company
acquired the ownership and/or management of 60 of these properties on April 28,
1997 (the "Holiday Inn Acquisition"). The Combination and the Holiday Inn
Acquisition are more fully described in Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. The combined financial statements of the
Predecessor include the accounts of Harvey Hotel Company and related entities,
all of which were under common control. The owners of these entities combined
their interests for the purpose of forming a new entity which was acquired by
the Company. The accounts of United Inns and its subsidiaries are included from
February 1, 1995, the date of acquisition. The results of operations of the
hotels acquired in the Holiday Inn Acquisition have been included in the
Company's financial statements since April 28, 1997. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include unrestricted cash in banks and cash on
hand. Liquid investments purchased with an original maturity of three months or
less are considered to be cash equivalents.
TRADING SECURITIES
Marketable securities consist primarily of equity securities and mutual
fund shares. Equity securities have been classified as either: (i)
available-for-sale, which are reported at fair value, with net unrealized gains
and losses excluded from earnings and reported as a separate component of
changes in equity; or (ii) trading securities, which are reported at fair value,
with unrealized holding gains and losses for trading securities included in
earnings. At December 31, 1997 and 1996, all marketable securities owned by the
Company were classified as trading securities.
ACCOUNTS RECEIVABLE
Accounts receivable in the balance sheets are expected to be collected
within one year and are net of estimated uncollectible amounts of $2,259,000 and
$344,000, at December 31, 1997 and 1996, respectively.
Valuation and qualifying accounts consist of allowance for doubtful
accounts as follows (in thousands):
<TABLE>
<CAPTION>
WRITE-OFF OF
BALANCE AT CHARGED TO AMOUNTS BALANCE AT
BEGINNING COSTS AND PREVIOUSLY END OF
OF PERIOD EXPENSES RESERVED PERIOD
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Company
Year ended December 31, 1997............ $344 $2,306 $(391) $2,259
Year ended December 31, 1996............ 620 251 (527) 344
Eleven months ended December 31, 1995... 221 796 (397) 620
</TABLE>
F-8
<PAGE> 62
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORY
Inventory, consisting primarily of food and beverage products as well as
consumable supplies, is carried at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS
Deferred charges and other noncurrent assets consist primarily of financing
costs which are amortized over the life of the related loan. The amounts
reported in the balance sheets at December 31, 1997 and 1996, are net of
accumulated amortization of $1,965,000 and $2,144,000, respectively.
PROPERTY AND EQUIPMENT
The Company recorded the Combination and the Holiday Inn Acquisition on the
basis of an allocation of the purchase price based on the fair market value of
the assets acquired at the date of acquisition. Subsequent additions and
improvements are capitalized at their cost, including interest costs associated
with the renovation of certain hotels. Interest capitalized during the years
ended December 31, 1997 and 1996 was $1,628,000 and $2,100,000, respectively.
The cost of normal repairs and maintenance that does not significantly
extend the life of the property and equipment is expensed as incurred.
Depreciation is computed on a straight-line method over the estimated useful
lives of the assets, as follows:
<TABLE>
<CAPTION>
BRISTOL HOTEL COMPANY HARVEY HOTEL COMPANIES
----------------------- -----------------------
<S> <C> <C>
Buildings.................................. 35-40 years 31-35 years
Furniture, fixtures and equipment.......... 3-15 years 7 years
Automobiles and trucks..................... 3 years 3 years
Leasehold improvements..................... Lease term or useful Lease term or useful
life, whichever is less life, whichever is less
</TABLE>
Depreciation and amortization expense recorded for the years ended December
31, 1997 and 1996, and the eleven months ended December 31, 1995 was $39.7
million, $18.4 million, and $13.5 million, respectively.
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"). SFAS 121 requires that an entity review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Should
circumstances support the possibility of impairment, the Company will prepare a
projection of the undiscounted future cash flows, without interest charges, of
the specific hotel property and determine if the investment in the hotel
property is recoverable based on the undiscounted future cash flows. If
impairment is indicated, an adjustment will be made to the carrying value of the
hotel based on discounted future cash flows. As of December 31, 1997 and 1996,
no impairment losses have been incurred. The assets, which were classified as
available for sale as of December 31, 1996, were reclassified to held and used
in the second quarter of 1997.
RESTRICTED CASH
Restricted cash consists of (i) funds placed in reserve for the replacement
of furniture, fixtures and equipment, and (ii) tax and insurance reserves. The
Company is required to deposit monthly with various lenders amounts of three to
four percent of hotel revenues for replacement reserves plus the tax and
insurance escrow. As tax and insurance payments are made and improvements are
completed, the Company is reimbursed from the reserves.
F-9
<PAGE> 63
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued. Under SFAS 128, basic earnings per
share ("EPS") is computed by dividing net earnings by the weighted average
number of shares of common stock outstanding during the period. SFAS 128
replaces fully diluted EPS, which the Company was not previously required to
report, with EPS, assuming dilution ("diluted EPS"). The Company calculates
diluted EPS assuming all outstanding options to purchase common stock have been
exercised at the beginning of the year (or the time of issuance, if later). The
dilutive effect of the outstanding options is reflected by application of the
treasury stock method, whereby the proceeds from the exercised options are
assumed to be used to purchase common stock at the average market price during
the period. The Company adopted SFAS 128 effective December 15, 1997. All prior
period EPS data have been restated. The effect of this accounting change on
previously reported EPS data is not significant. The following table reconciles
the computation of basic EPS to diluted EPS:
<TABLE>
<CAPTION>
PER SHARE
NET EARNINGS SHARES AMOUNT
------------ ---------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
For the year ended December 31, 1997:
Income before extraordinary item per share..... $33,214 37,359,364 $0.89
Effect of options.............................. -- 972,938
------- ----------
Income before extraordinary item per share,
assuming dilution........................... $33,214 38,332,302 $0.87
======= ==========
Net income per share........................... $20,473 37,359,364 $0.55
Effect of options.............................. -- 972,938
------- ----------
Net income per share, assuming dilution........ $20,473 38,332,302 $0.53
======= ==========
For the year ended December 31, 1996:
Income before extraordinary item per share..... $17,749 24,848,760 $0.71
Effect of options.............................. -- 677,653
------- ----------
Income before extraordinary item per share,
assuming dilution........................... $17,749 25,526,413 $0.70
======= ==========
Net income per share........................... $17,749 24,848,760 $0.71
Effect of options.............................. -- 677,653
------- ----------
Net income per share, assuming dilution........ $17,749 25,526,413 $0.70
======= ==========
For the 11 months ended December 31, 1995:
Income before extraordinary item per share..... $ 4,969 17,857,936 $0.28
Effect of options.............................. -- 51,019
------- ----------
Income before extraordinary item per share,
assuming dilution........................... $ 4,969 17,908,955 $0.28
======= ==========
Net income per share........................... $ 3,061 17,857,936 $0.17
Effect of options.............................. -- 51,019
------- ----------
Net income per share, assuming dilution........ $ 3,061 17,908,955 $0.17
======= ==========
</TABLE>
Earnings per share have been retroactively adjusted for the effect of stock
splits.
F-10
<PAGE> 64
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS
As part of the Holiday Inn Acquisition, the Company acquired six hotels in
Canada. Results of operations for those hotels are maintained in Canadian
dollars and translated using average exchange rates during the period. Currency
transaction losses are included in net income and were $303,000 for the year
ended December 31, 1997. Assets and liabilities are translated to U.S. dollars
using the exchange rate in effect at the balance sheet date. Resulting
translation adjustments are reflected in stockholders' equity as a cumulative
foreign currency translation adjustment. Cumulative currency translation gains
included in stockholders' equity at December 31, 1997 were $286,000.
INCOME TAXES
Company
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using currently enacted tax
rates in effect for the years in which the differences are expected to reverse.
Predecessor
Harvey Hotel Company and related entities are partnership or S-Corporation
entities, and income or loss for federal income tax purposes is allocated to the
individual partners or shareholders. Accordingly, no recognition has been given
to income taxes in the combined financial statements. However, pro forma income
tax expense, at an effective rate of 34%, has been included in the combined
statements of income in order to reflect the impact on the income of Harvey
Hotel Companies.
Harvey Hotel Corporation accounted for the tax effect of net income or loss
in accordance with SFAS 109. However, because of the changes in ownership (see
Note 1), realization of the benefit of the accumulated losses is uncertain and,
therefore, has not been recorded in the combined financial statements.
EARNINGS PER SHARE
Earnings per share is determined by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year. The 1995 weighted average shares outstanding has been calculated using the
treasury stock method and as if Holdings' shares of 1,768,000 (see Note 3) had
been outstanding since February 1, 1995. The 1997 and 1996 weighted average
shares is calculated using the treasury stock method, giving effect to the
common equivalent shares outstanding as of December 31, 1997 and 1996. The
common equivalent shares include officer and director stock options which have
been deemed exercised at the issue date using the treasury method for the
purposes of computing earnings per share. The Company has no other potentially
dilutive securities.
All weighted average share and per share data presented are calculated in
accordance with SFAS 128, which calls for both basic and diluted weighted
average share presentation. All prior period amounts have been restated in
accordance with SFAS 128. The Company believes that there has been no impact on
its financial statements from the implementation of SFAS 128, as the weighted
average shares previously used in calculating earnings per share are the same as
the diluted weighted average shares calculated under SFAS 128.
F-11
<PAGE> 65
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On June 23, 1997, the Company's Board of Directors declared a three-for-two
stock split, effective in the form of a stock dividend for shareholders of
record June 30, 1997, which was distributed July 15, 1997 (the "Stock Split").
All per share data and the average common and common equivalent shares issued
and outstanding have been adjusted to reflect the Stock Split for all periods
presented.
USE OF ESTIMATES
The Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain financial statement items from the prior years for the Company and
the Predecessor have been reclassified to conform with the current presentation.
3. ACQUISITIONS
UNITED INNS ACQUISITION
On January 27, 1995, United/Harvey Holdings L.P. ("Holdings") acquired the
common stock of United Inns for an aggregate purchase price of $67 million plus
the assumption of United Inns' liabilities. The acquisition was accounted for as
a purchase and the purchase price was allocated to the net assets acquired.
Under the acquisition agreement, Holdings, Harvey Hotel Companies, H. K. Huie,
Jr., the Harvey Management Equity Holders and the other parties thereto, the
following occurred: (1) Holdings contributed to the Company all of the
outstanding capital stock of United Inns, approximately $15.1 million in cash
and certain cash advances previously made for the benefit of Harvey Hotel
Companies in exchange for an aggregate of 68.1% of the Company's Common Stock;
(2) the Harvey Management Equity Holders collectively contributed to the Company
46.4% of the outstanding partnership interests in Harvey Hotel Companies in
exchange for an aggregate of 20.6% of the Company's Common Stock; and (3) Mr.
Huie contributed 25.3% of his 50.6% outstanding partnership interest in Harvey
Hotel Companies for 11.3% of the Company's Common Stock. In addition, Mr. Huie
and two of his daughters sold to the Company approximately 27.3% of the
outstanding partnership interests in Harvey Hotel Companies for approximately
$15.1 million in cash plus interest.
As a result of these transactions, Holdings, Mr. Huie and the Harvey
Management Equity Holders became the stockholders of the Company, the Company
became the sole stockholder of United Inns, the Company became the indirect
owner of 99% of the outstanding partnership interests in Harvey Hotel Companies,
and in connection therewith, a wholly owned subsidiary of the Company became the
managing general partner of Harvey Hotel Companies. Subsequently, one of Mr.
Huie's daughters, who did not participate in the Combination, sold her 1.0%
limited partnership interest in Harvey Hotel Companies (See Note 15).
The aggregate purchase price for Harvey Hotel Companies of $55 million in
stock and cash including the interests contributed by the Harvey Management
Equity Holders and Mr. Huie has been allocated, along with acquisition costs of
$1 million, to the net assets acquired. The net assets contributed were valued
at their estimated fair value on the basis of an independent valuation performed
by Holdings and as a result of the cash paid for the 27.3% owned by Mr. Huie and
his two daughters. The excess of the purchase price over the net assets acquired
of $71.5 million was principally allocated to land and buildings in accordance
with the purchase method of accounting.
F-12
<PAGE> 66
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated statements of income for the Company includes the results
of operations for United Inns from February 1, 1995.
The following unaudited pro forma summary presents the combined results of
Harvey Hotel Companies as if United Inns had been acquired at the beginning of
1995. The pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations that would actually
have resulted had the acquisition been in effect on the date indicated (in
thousands):
<TABLE>
<CAPTION>
MONTH ENDED
JANUARY 31,
1995
-----------
(UNAUDITED)
<S> <C>
Total revenues.............................................. $13,142
Net income after extraordinary gain and pro forma income tax
expense................................................... $ 1,111
</TABLE>
HOLIDAY INN ACQUISITION
On April 28, 1997, the Company acquired the ownership of 45 full-service
Holiday Inns and the management of an additional 15 Holiday Inn properties,
three of which were owned by joint ventures in which the Company acquired a 50%
interest (the owned hotels, management contracts and joint venture interests,
collectively referred to as the "Holiday Inn Assets"). As consideration for the
Holiday Inn Acquisition, the Company paid $398 million in cash and issued
9,381,308 shares (pre-Stock Split) of its common stock. The acquisition has been
accounted for as a purchase and the results of operations of the Holiday Inn
Assets have been included in the consolidated financial statements since April
28, 1997. The purchase price, including liabilities assumed in the acquisition
(principally deferred tax liabilities) was allocated to the assets acquired,
based upon their fair market values. The excess of the purchase price over the
estimated fair market value of the net assets acquired was recorded as goodwill
and is being amortized over 40 years.
The following unaudited pro forma summary presents the results of the
Company as if the Holiday Inn Acquisition and related refinancing pursuant to
the New Credit Facility (see Note 6) had occurred at the beginning of the period
presented. The pro forma results have been prepared for comparative purposes
only and are not indicative of the results of operations that would have
occurred had the Holiday Inn Acquisition occurred on the date indicated.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Total revenues.......................................... $626,047 $571,876
Income before extraordinary item........................ $ 41,165 $ 31,981
Net income.............................................. $ 29,762 $ 31,981
</TABLE>
In addition to the Holiday Inn Acquisition, the Company completed the
following single-asset acquisitions in 1997 and 1996:
<TABLE>
<CAPTION>
DATE NUMBER PURCHASE MORTGAGE
ACQUIRED LOCATION OF ROOMS PRICE DEBT ASSUMED
-------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C>
December 1997 Milpitas (San Jose), CA...... 305 $ 4.25 million(1) $ --
December 1997 Philadelphia, PA............. 364 $25.50 million $13.4 million
October 1997 St. Louis, MO................ 318 $18.00 million $ 8.4 million
January 1997 Chicago, IL.................. 378 $35.00 million $ --
May 1996 Plano, TX.................... 161 $ 6.30 million $ --
</TABLE>
F-13
<PAGE> 67
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(1) The Holiday Inn -- Milpitas was previously owned by a joint venture in which
the Company owned a 50% interest. The Company purchased the remaining 50%
interest in the venture for $4.25 million and, concurrently with the
acquisition, repaid all outstanding debt associated with the property of
$25.7 million.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Land........................................................ $ 169,611 $ 50,528
Buildings................................................... 1,152,383 406,682
Furniture, fixtures and equipment........................... 162,045 74,827
---------- --------
1,484,039 532,037
Less accumulated depreciation............................. (76,172) (26,091)
---------- --------
1,407,867 505,946
Assets held for sale (net of accumulated depreciation of $0
and $4,980)............................................... -- 38,279
Construction in progress.................................... 31,300 8,339
---------- --------
$1,439,167 $552,564
========== ========
</TABLE>
The Company's properties are predominantly full-service hotels that operate
in the upscale and mid-price with food and beverage segments of the lodging
industry under franchise agreements primarily with Holiday Inn. The Company
seeks to maintain a geographically diverse portfolio of hotels to offset the
effects of regional economic cycles. The Company operates properties in 22
states, the District of Columbia and Canada, including 13 hotels in California,
11 in Georgia, 27 in Texas, seven in Florida, and six in Canada.
During fiscal year 1996, the Company classified certain limited-service
hotels as assets held for sale pursuant to the provisions of SFAS 121. During
1997, the Company reclassified these assets as held and used, therefore
recording depreciation expense on these assets. The results of operations for
these limited-service properties included in the income statement for the years
ended December 31, 1997, 1996 and 1995 were (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total revenues........................................ $13,464 $16,398 $14,552
Operating income...................................... 2,186 5,580 4,020
</TABLE>
5. MARKETABLE SECURITIES
In 1995, the Company classified certain equity securities as
Available-for-Sale Securities (per Statement of Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity Securities").
Unrealized gains were reported as a separate component of stockholders' equity.
In May 1996, management resolved to sell the equity securities, and accordingly,
the securities were reclassified as Trading Securities and an unrealized gain of
approximately $450,000 was recorded in earnings in 1996. These securities were
sold in August 1996.
F-14
<PAGE> 68
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Senior Notes
11.22% due December 18, 2000 (net of discount).......... $ 29,469 $ 68,340
Mortgage loans
Fixed rate:
7.66% due October 27, 2009........................... 455,000 --
7.458% due November 11, 2007......................... 144,834 --
8% due December 31, 2002............................. 40,263 42,126
8.55% due January 11, 2016........................... 14,324 14,626
9% due October 1, 2005............................... 13,401 --
9.5% due August 1, 2005.............................. 8,366 --
Non-interest bearing due December 31, 2002........... 7,950 9,086
7.25% due September 30, 1997......................... -- 8,110
Variable rate:
7.75% Senior Term Facility due December 18, 1998..... -- 66,976
10.26% due January 31, 2000.......................... -- 9,300
10.25% due December 31, 1999......................... -- 6,899
8.5% due September 30, 1997.......................... -- 1,500
Other long-term debt...................................... 345 4,329
Capital leases............................................ 3,367 1,402
-------- --------
717,319 232,694
Less current portion.................................... (8,455) (15,769)
-------- --------
Long-term debt, excluding current portion....... $708,864 $216,925
======== ========
</TABLE>
The mortgages are amortized using varying methods as provided in the
individual debt agreements. Substantially all of the Company's properties and
equipment are pledged as collateral on mortgage obligations.
The Company obtained the financing for the Holiday Inn Acquisition under a
new senior term facility which provided for up to $560 million aggregate amount
of term loan borrowings (the "New Credit Facility"). The New Credit Facility was
utilized to repay existing debt of approximately $134 million, to fund the cash
portion of the Holiday Inn Acquisition and related closing costs. The Company
repaid $108 million of borrowings from the New Credit Facility in May 1997 with
proceeds from the Offering (as defined in Note 10). The treatment of the
extraordinary costs related to the repayment of debt is more fully described in
Note 8.
On October 28, 1997, the Company completed the refinancing of the existing
$560 million New Credit Facility. The new financing (the "Refinancing") has two
tranches: (a) $145 million at a fixed interest rate of 7.458%, a term of 10
years, and secured by 15 hotel properties; and, (b) $455 million at a fixed
interest rate of 7.66%, a term of 12 years, and secured by 62 hotel properties.
The Company prepaid $40 million of its 11.22% Senior Secured Notes (the
"Senior Notes") in December 1997. In conjunction with the prepayment, the
Company amended the Senior Note indenture to allow for a more flexible
prepayment schedule. In connection with the Refinancing, Bristol Hotel Operating
Company, a wholly owned subsidiary of the Company, became a joint and several
guarantor of the Senior Notes along with Bristol Hotel Asset Company.
F-15
<PAGE> 69
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 15, portions of the mortgage loans associated with
three of the Company's properties have been allocated to a third party.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31,
1998.................................................... $ 8,455
1999.................................................... 8,387
2000.................................................... 38,421
2001.................................................... 9,146
2002.................................................... 34,230
Thereafter.............................................. 618,680
--------
$717,319
========
</TABLE>
7. INCOME TAXES
Components of income tax expense from continuing operations for the years
ended December 31, 1997 and 1996 and the eleven months ended December 31, 1995,
consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Federal:
Current................................................ $12,683 $ 4,486 $3,245
Deferred............................................... 4,637 5,301 (579)
State:
Current................................................ 1,837 282 190
Deferred............................................... 509 332 (34)
Canada:
Current................................................ 1,618 -- --
Deferred............................................... 723 -- --
------- ------- ------
$22,007 $10,401 $2,822
======= ======= ======
</TABLE>
Components of income tax benefit from extraordinary items for the years
ended December 31, 1997 and 1996, consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Federal:
Current................................................... $7,358 $--
Deferred.................................................. -- --
State:
Current................................................... 1,098 --
Deferred.................................................. -- --
------ ---
$8,456 $--
====== ===
</TABLE>
F-16
<PAGE> 70
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company estimates that its effective tax rate for 1997 approximated
39.9%. The actual income tax expense for the year ended December 31, 1997, is
computed by applying the U. S. federal statutory income tax rate, adjusted as
follows:
<TABLE>
<S> <C>
Income tax expense at the U. S. federal statutory rate...... 35.0%
State income taxes, net of federal benefit.................. 3.6%
Permanent differences and effect of higher Canadian tax
rates..................................................... 1.3%
----
39.9%
====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Purchase accounting adjustments to land and building........ $248,866 $85,134
Other....................................................... 994 --
-------- -------
Gross deferred tax liabilities............................ 249,860 85,134
-------- -------
Tax credit and NOL carryforwards............................ 4,011 5,502
Accrued reserves............................................ 1,823 2,192
Other....................................................... 1,496 1,821
-------- -------
Gross deferred tax asset.................................... 7,330 9,515
Valuation allowance......................................... -- --
-------- -------
Deferred tax asset.......................................... 7,330 9,515
-------- -------
Net deferred tax liability........................ $242,530 $75,619
======== =======
</TABLE>
The gross deferred tax liabilities relate principally to the temporary
differences caused by the purchase accounting adjustments recorded as a result
of the Combination and the Holiday Inn Acquisition. For financial reporting
purposes, the transactions were recorded under the principles of purchase
accounting and, accordingly, the basis of the assets have been adjusted to fair
market value. For tax reporting purposes, the transactions resulted in the bases
of the assets and liabilities being carried forward at their adjusted bases with
some adjustment for certain gains recognized on the acquisition. This differing
treatment has created book bases in excess of tax bases and, accordingly, the
related deferred tax liabilities associated with these differences have been
recorded. As the Company depreciates and amortizes the bases of its assets for
book and tax purposes, it will record an expense for depreciation and
amortization in excess of that claimed for tax purposes. This reversal of the
temporary differences established through purchase accounting will result in the
Company recording a credit to deferred tax expense for the tax effect of these
differences.
The remaining deferred tax assets are expected to be realized in future
periods through use of existing tax NOL and tax credit carryforwards.
F-17
<PAGE> 71
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For federal tax reporting purposes, net operating losses of $8,988,000 and
tax credits of $657,000 generated by United Inns and Harvey Hotel Corporation in
prior years are available to be carried forward to periods expiring as follows
(in thousands):
<TABLE>
<CAPTION>
FEDERAL TAX
YEAR OF EXPIRATION NOL CREDITS
------------------ ------- -------
<S> <C> <C>
2001........................................................ $ -- $142
2002........................................................ -- 154
2003........................................................ -- 158
2004........................................................ -- 103
2005........................................................ 3,924 58
2006 to 2010................................................ 5,064 42
------ ----
$8,988 $657
====== ====
</TABLE>
The losses and credits are subject to an annual loss limitation equivalent
of approximately $4.8 million due to the changes in ownership of United Inns and
Harvey Hotel Corporation which occurred in 1995. These carryforwards are further
limited as they were incurred prior to the ownership of United Inns and Harvey
Hotel Corporation by the Company. Accordingly, these carryforwards are available
only to offset income and taxes associated with the operations of the hotels
that generated them.
8. EXTRAORDINARY ITEMS
On April 28, 1997, the Company recognized an extraordinary loss of $2.2
million ($1.3 million, net of tax) related to the early extinguishment of debt
with proceeds from the New Credit Facility. The Company incurred $479,000 of
prepayment penalties and wrote off $1.7 million in deferred financing costs.
The Company refinanced the New Credit Facility in October 1997 and
recognized an extraordinary loss of $14.0 million ($8.4 million, net of tax)
related to the early extinguishment of the New Credit Facility. The loss on
extinguishment reflects the write-off of deferred financing fees related to the
New Credit Facility.
The Company prepaid a portion of its Senior Notes on December 16, 1997. The
Company prepaid $40 million of principal, and recognized an extraordinary loss
of $5.0 million ($3.0 million, net of tax). The extraordinary loss reflects the
$2.4 million in prepayment penalties paid by the Company for the Senior Notes,
as well as the write-off of approximately $2.6 million of deferred financing
fees and discount on the Senior Notes.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accounts payable............................................ $ 2,921 $ 1,689
Accrued payroll, payroll taxes and benefits................. 15,480 5,208
Accrued interest............................................ 3,738 993
Accrued hotel operating expenses............................ 1,405 858
Accrued Holiday Inn Acquisition costs/conversion costs...... 1,104 --
Other....................................................... 2,718 1,878
------- -------
$27,366 $10,626
======= =======
</TABLE>
F-18
<PAGE> 72
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY
On April 28, 1997, the Company's shareholders voted to amend the Company's
certificate of incorporation to increase the number of authorized shares of
common stock from 75,000,000 to 150,000,000. As part of the consideration for
the Holiday Inn Acquisition, the Company issued 9,381,308 shares (pre-split) of
its common stock.
On May 16, 1997, the Company issued 2,750,000 (pre-Stock Split) shares of
its common stock at a price of $36 per share (the "Offering"). The Company
issued an additional 412,500 shares (pre-Stock Split) on May 28, 1997, pursuant
to an over-allotment agreement with the underwriters of the Offering. Proceeds
from the issuances were approximately $108 million (net of costs of $6.3
million).
NON-EMPLOYEE DIRECTOR OPTIONS
The Company instituted a Stock Option Plan for Non-Employee Directors (the
"Director Plan") in 1995. Only members of the board who are not employees of the
Company or an employee of a 10% beneficial owner or an affiliate thereof will be
eligible for option grants thereunder (an "Eligible Director"). An Eligible
Director receives an option to purchase 7,500 shares of Common Stock at an
exercise price equal to the market value on the date the individual becomes a
director, and those options shall become exercisable 34% at the first next
annual shareholders' meeting at which the individual is a director, and 33% at
each of the next two consecutive years during which the individual is a
director. In addition, the Eligible Director will receive options to purchase
7,500 shares at each annual meeting during which the individual is a director,
exercisable on the date of the next annual shareholders' meeting at which the
individual is a director. As of December 31, 1997, a total of 52,500 options had
been granted to the three Eligible Directors on the board, 25,050 of which are
currently exercisable.
EMPLOYEE OPTIONS
Under the Amended and Restated 1995 Equity Incentive Plan, the Company may
award to participating officers and employees, options to purchase the Company's
stock. Employee stock options may be granted to officers and employees with an
exercise price generally not less than the fair market value of the common stock
at the date of grant. Options expire at 10 years from date of grant. Options
issued prior to December 31, 1995, have cliff vesting from 1998 -- 2000 and
options issued on or after January 1, 1996, vest ratably over a four- or
five-year period from the date of the grant. There were 2,069,441 employee
options outstanding at December 31, 1997, of which 82,800 were exercisable.
SFAS 123 DISCLOSURE
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning after December
15, 1995. SFAS 123 encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Pronouncement Bulletin Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
market price of the Company's stock at the date of the grant over the amount the
employee must pay to acquire the stock. The Company, therefore, does not believe
that the implementation of SFAS 123 has had a material adverse impact on the
Company's financial position or results of operations.
F-19
<PAGE> 73
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
However, had compensation cost for these plans been determined consistent
with the method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts (dollars in
thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Income As Reported.................... $20,473 $17,749 $3,061
Pro Forma...................... 19,060 16,865 2,621
Basic EPS As Reported.................... 0.55 0.71 0.17
Pro Forma...................... 0.51 0.68 0.15
Diluted EPS As Reported.................... 0.53 0.70 0.17
Pro Forma 0.50 0.67 0.15
</TABLE>
A summary of the status of the Company's stock option plan at December 31,
1997, 1996 and 1995, (adjusted for Stock Split) and changes during the years
then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1...... 1,613,363 $10.57 1,190,766 $ 8.41 -- $ --
Options granted............... 520,400 25.06 435,000 16.39 1,190,766 8.41
Options exercised............. (6,929) 16.47 -- -- --
Options expired............... (4,893) 9.78 (12,403) 8.33 -- --
--------- ------ --------- ------ --------- -----
Options outstanding at
December 31................. 2,121,941 $14.10 1,613,363 $10.57 1,190,766 $8.41
========= ====== ========= ====== ========= =====
Options exercisable at
December 31................. 107,850 $16.60 5,100 $15.00 -- --
========= ====== ========= ====== ========= =====
Weighted average fair value of
options..................... $ 7.82 $ 5.76 $ 4.11
========= ========= =========
</TABLE>
The 2,121,941 options outstanding at December 31, 1997, have exercise
prices between $8.33 and $28.25 with a weighted average exercise price of $14.10
and a weighted average remaining contractual life of 8.1 years. At December 31,
1997, 107,850 of these options (with a weighted average exercise price of
$16.60) are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995; risk-free interest rates
from 5.30% to 7.04%; no expected dividend yields; expected lives of one to seven
years; expected volatility of 33.37%.
F-20
<PAGE> 74
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATING LEASES
The Company leases certain land, office space and equipment under
noncancellable operating lease commitments. Minimum rentals due under these
agreements for the next five years and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31,
1998.................................................... $ 11,933
1999.................................................... 11,976
2000.................................................... 12,046
2001.................................................... 12,029
2002.................................................... 11,887
Thereafter.............................................. 216,075
--------
$275,946
========
</TABLE>
Leases include long-term ground leases for certain hotels, generally with
renewal options. Certain leases contain provisions for the payment of contingent
rentals based on a percentage of sales.
The Company leases certain hotel space to third-party vendors. Future
minimum rentals to be received under noncancellable operating leases that have
initial or remaining lease terms in excess of one year are as follows (in
thousands):
<TABLE>
<S> <C>
Year Ended December 31,
1998..................................................... $ 3,582
1999..................................................... 3,562
2000..................................................... 3,289
2001..................................................... 3,116
2002..................................................... 2,720
Thereafter............................................... 13,868
-------
$30,137
=======
</TABLE>
12. MANAGEMENT CONTRACTS
The Company acquired the management of 15 hotels in the Holiday Inn
Acquisition, three of which were owned by joint ventures in which the Company
owned a 50% interest. The purchase price allocated to these contracts at April
28, 1997 was $4.4 million and is being amortized on a straight-line basis over
the remaining lives of the agreements, which range from one to 11 years. The
amortization of the purchase price recorded in 1997 was $878,000. Management fee
income was $4.9 million in 1997, $2.5 million in 1996, and $1.4 million in 1995.
These management contracts may contain provisions which allow the third-party
owner to terminate the contract for such reasons as sale of the property, for
cause or without cause. Therefore, the Company cannot guarantee that it will
continue to manage these properties to the contract expiration date.
The Company acquired the remaining 50% interest in one of the joint
ventures in which it was a partner in December 1997. (See Note 13.)
13. INVESTMENTS IN JOINT VENTURES
The Company acquired 50% interests in three joint ventures in the Holiday
Inn Acquisition. The purchase price allocated to these joint ventures was
approximately $12 million and is being amortized on a straight-line basis over
the estimated life of the assets acquired. Amortization expense of $308,000 was
recorded in 1997.
F-21
<PAGE> 75
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On December 11, 1997, the Company acquired the remaining 50% interest in
the Milpitas Joint Venture for $4.25 million. Concurrently with the acquisition,
the Company paid off all outstanding debt related to the property of $25.7
million. None of the original $12 million purchase price allocated to the joint
ventures in the Holiday Inn Acquisition was attributed to the Milpitas Joint
Venture.
14. BENEFITS
Health (including fully insured term life and accidental death and
dismemberment), dental and disability coverage is provided to the Company's
employees through the Welfare Benefit Trust (the "Trust"). The Company maintains
varying levels of stop-loss and umbrella insurance policies to limit the
Company's per occurrence and aggregate liability in any given year. Actual
claims and premiums on stop-loss insurance, medical and disability policies are
paid from the Trust. The Trust is funded through a combination of employer and
employee contributions. The Trust also pays work-related injury claims which are
funded by the employer for its employees in Texas. Since April 1, 1995, all
employees have been eligible for participation in the benefits provided through
the Trust. The Company provided $6.1 million and $2.9 million related to these
benefits for the years ended December 31, 1997 and 1996, respectively.
The Company offers a Profit Sharing Plan and Trust ("401(k) Plan") to
certain employees. The 401(k) Plan is designed to be a qualified trust under
Section 401(a) of the Internal Revenue Code. Under the 401(k) Plan, eligible
employees are allowed to defer up to 16% of their income on a pretax basis
through contributions to the Plan; however, only the first 6% of pretax income
is subject to matching by the Company. The Company may elect to make matching
contributions of up to 50% of the employees' matchable contributions subject to
certain performance measures of the Company. The Company provided for matching
contributions for the years ended December 31, 1997 and 1996 totaling $1.5
million and $135,000, respectively.
15. COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's hotel properties are (or will be in the
next year) operated pursuant to franchise or license agreements ("Franchise
Agreements"), primarily with Holiday Inn Franchising, Inc. or its affiliates.
The Company also operates hotels under franchise agreements with Marriott
International, Inc., Hampton Inn (a division of Promus Hotels, Inc.), Ramada
Franchise Systems, Inc. and Days Inn Inc. of America Franchising Inc. The
Franchise Agreements generally require the payment of a monthly royalty fee
based on gross room revenue and various other fees associated with certain
marketing or advertising and centralized reservation services, also generally
based on gross room revenues. The Franchise Agreements have various durations
through the year 2017, and generally may not be terminated without the payment
of substantial fees. Franchise fees of $19.5 million and $4.1 million were paid
during the years ending December 31, 1997 and 1996, respectively.
The Franchise Agreements generally contain specific standards for, and
restrictions and limitations on, the operation and maintenance of the hotels
which are established by the franchisors to maintain uniformity in the system
created by each such franchisor. Such standards generally regulate the
appearance of the hotel, quality and type of goods and services offered, signage
and protection of trademarks. Compliance with such standards may from time to
time require significant expenditures for capital improvements.
The Company is currently involved in certain guest and customer claims,
employee wage claims and other disputes arising in the ordinary course of
business. In the opinion of management, the pending litigation will not have a
materially adverse effect on the Company's financial position or results of
operations.
In connection with the administration of the Dallas County Probate Court of
the estate of the deceased wife of H.K. Huie, Jr., one of Mr. Huie's daughters
(the "Plaintiff"), alleged self dealing and breach of duty
F-22
<PAGE> 76
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and trust by Mr. Huie as executor and testamentary trustee under his wife's will
and in connection with his actions as the managing general partner of Harvey
Hotel Company and related partnerships and ventures (the "Probate Proceeding").
Several of the Company's officers and certain subsidiaries were also named
defendants in the Probate Proceeding. In November 1995, the Company and the
Plaintiff entered into a settlement agreement and release (the "Settlement
Agreement") pursuant to which Plaintiff agreed to release the Company, including
its subsidiaries, from the lawsuit. Pursuant to the Settlement Agreement, the
Company paid an aggregate of $2.4 million for the Plaintiff's 1% interest in
Harvey Hotel Company and a full release from all claims and causes of action.
However, at that time, the named officers remained defendants in the Probate
Proceeding. In the summer of 1996, during continuing mediation with the
officers, the Plaintiff threatened the Company with further action, claiming
fraud and misrepresentation in the negotiation of the November 1995 Settlement
Agreement. In August 1996, there was a final resolution of the Probate
Proceeding, a result of which the Company paid an additional $0.75 million for
the full satisfaction of all claims and causes of action which could be asserted
against the Company, its subsidiaries or its officers. The Company had reserved
$1.65 million for this litigation. As a result, the Company recognized $0.9
million ($0.6 million after tax) as other income during the third quarter of
1996.
On March 28, 1997, the Company paid approximately $663,000 to the State of
Tennessee Department of Revenue in full settlement of all claims for franchise
and excise tax related to United Inns, Inc.
All of the owned hotels of the Company have undergone Phase I environmental
assessments which generally provide a physical inspection and data base search
but not soil or groundwater analysis. In addition, most of the Company's hotels
have been inspected to determine the presence of asbestos-containing materials
("ACM's"). While ACM's are present in certain of the Company's properties,
operations and maintenance programs for maintaining such ACM's have been
implemented, or the ACM's have been scheduled to be or have been abated, at such
hotels. None of the environmental assessments conducted to date have revealed
any environmental condition that management believes would have a material
adverse effect on the Company's business, assets or results of operations, nor
is management aware of any such condition. However, it is possible that these
assessments have not revealed all potential environmental liabilities or that
there are material environmental liabilities of which management is not aware.
In September 1995, the Company disposed of certain of its non-hotel
properties to HH Land Company, L.P. ("HH Land Company"). Upon acquisition of the
non-hotel properties, HH Land Company assumed all liabilities associated with
the non-hotel properties through a formal indemnification agreement, including
environmental liabilities associated with the properties. The Company remains
contingently liable for the environmental costs associated with the properties.
At such time that the Company determines that it is not probable that HH Land
Company will fully pay the remediation costs related to the disposed properties,
the Company will recognize such liabilities.
The Company leases the land underlying several of its hotels under various
long-term leases through the year 2063. Lease payments under the agreements were
$11.0 million and $2.6 million in 1997 and 1996, respectively.
The Company and Mr. Huie, representing various land ventures, are
co-borrowers of funds secured by Harvey Hotel -- DFW Airport, Harvey
Hotel -- Dallas, Bristol Suites, and the various related land parcels. The
Company and Mr. Huie agreed to an assignment of the debt to the various
unrelated land ventures resulting in the assignment of 23.73%, 24.24% and 22.18%
of the debt associated with the borrowings for each
F-23
<PAGE> 77
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
property, respectively. The related land parcels underlying each hotel are owned
by Mr. Huie through the land ventures. The total debt and the amount allocated
to Mr. Huie are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
TOTAL ALLOCATED TOTAL ALLOCATED
DEBT TO HUIE DEBT TO HUIE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Harvey Hotel -- DFW Airport................. $24,275 $5,762 $25,581 $6,071
Harvey Hotel -- Dallas...................... 7,442 1,802 7,600 1,843
Bristol Suites.............................. 19,378 4,298 20,756 4,604
</TABLE>
The Company is jointly and severally liable in the event of nonpayment by
Mr. Huie of the debt allocated. For December 31, 1997 and 1996, the allocated
amounts have not been reflected in the consolidated financial statements of the
Company. However, the Company does not record interest expense on the allocated
debt because payments made to Mr. Huie are appropriately recorded as rental
expense under the related land leases. The land parcels at the respective hotels
are security for the additional liability.
16. RELATED PARTY TRANSACTIONS
HOTEL PROPERTIES AGREEMENT
Concurrently with the Holiday Inn Acquisition, the Company, and Holiday
Corporation and its affiliates (collectively, "HC") entered into a hotel
properties agreement (the "Hotel Properties Agreement"). Pursuant to the Hotel
Properties Agreement, the Company will offer to HC the opportunity to enter into
a standard HC franchise agreement for each hotel that Bristol acquires, manages
or develops that meets specified criteria. The Hotel Properties Agreement
requires that 85% of the rooms in the Company's owned, leased and managed hotels
be operated under a Holiday Inn brand, subject to certain limitations and
approvals. The above provisions of the Hotel Properties Agreement will expire
the earlier of (i) the date that HC terminates its obligation at any time
following 24 months after the Holiday Inn Acquisition (the "Holiday Notice") or
(ii) the date that HC no longer holds a controlling interest in the franchisor
of the Holiday Inn brands.
Additionally, the Company has a right of first refusal on any entity or
other interest meeting certain criteria that HC wishes to acquire or develop,
subject to certain limitations. HC can terminate its obligation under this
provision in accordance with the Holiday Notice.
The Company has agreed to enter into Franchise Agreements with HC pursuant
to which certain Bristol properties will be rebranded to Holiday Inn brands,
subject to normal franchising procedures. Franchise fees for these rebranded
hotels will equal 0% of room revenue for 1997, 1% in 1998, 3% in 1999 and 5% in
2000. Amounts paid to HC pursuant to Franchise Agreements and related marketing,
advertising and reservation services were $21.8 million in 1997, including $13.1
million for franchise royalty fees and $4.5 million of franchise marketing fees.
INTERIM SERVICES AGREEMENT
The Company entered into an interim services agreement (the "ISA
Agreement") with Holiday Hospitality Corporation ("HHC") for HHC to provide
certain accounting, payroll, employee benefit, training, treasury, management
information and construction and design services to Bristol for a transition
period following the Holiday Inn Acquisition. In consideration for such
services, the Company reimbursed HHC for the estimated cost incurred in
connection with providing the services, totaling $1.3 million for the year ended
December 31, 1997. The ISA Agreement expired in October 1997.
F-24
<PAGE> 78
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
17. FAIR VALUE
The Company has estimated the fair value of its financial instruments at
December 31, 1997 and 1996, as required by Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments." The
carrying values of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses are reasonable estimates of their fair values.
Marketable securities are carried at fair value, which is determined based upon
quoted market prices. The carrying values of variable and fixed rate debt are
reasonable estimates of their fair values.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited consolidated quarterly results of operations for the Company
and the unaudited combined quarterly results of operations for the Predecessor
are as follows (in thousands):
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------------
BRISTOL HOTEL COMPANY
HARVEY HOTEL -----------------------------------------------------
COMPANIES FEBRUARY TO SECOND THIRD FOURTH
JANUARY 1995 MARCH QUARTER QUARTER QUARTER
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues..................... $5,943 $ 29,910 $ 43,040 $ 46,205 $ 46,040
Operating income............. 1,932 6,221 8,016 5,484 6,874
Income (loss) before
extraordinary item......... 1,280 2,268 2,056 (290) 935
Net income (loss)............ 1,280 2,268 2,056 (290) (973)
Earnings per common share:
Income (loss) before
extraordinary item:
Basic................... -- $ 0.13 $ 0.12 $ (0.02) $ 0.05
Diluted................. -- $ 0.13 $ 0.12 $ (0.02) $ 0.05
Net income (loss):
Basic................... -- $ 0.13 $ 0.12 $ (0.02) $ (0.05)
Diluted................. -- $ 0.13 $ 0.12 $ (0.02) $ (0.05)
Weighted average number of
common and common
equivalent shares:
Basic................... -- 17,436,267 17,436,267 17,436,267 18,967,108
Diluted................. -- 17,460,202 17,479,061 17,479,953 19,050,967
</TABLE>
F-25
<PAGE> 79
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
BRISTOL HOTEL COMPANY
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $ 49,677 $ 51,237 $ 58,571 $ 52,355
Operating income...................... 10,318 11,282 16,073 9,093
Income before extraordinary item...... 3,863 4,375 6,835 2,676
Net income............................ 3,863 4,375 6,835 2,676
Earnings per common share:
Income before extraordinary item:
Basic............................ $ 0.16 $ 0.18 $ 0.28 $ 0.11
Diluted.......................... $ 0.15 $ 0.17 $ 0.27 $ 0.10
Net income:
Basic............................ $ 0.16 $ 0.18 $ 0.28 $ 0.11
Diluted.......................... $ 0.15 $ 0.17 $ 0.27 $ 0.10
Weighted average number of common and
common equivalent shares:
Basic............................... 24,848,760 24,848,760 24,848,760 24,848,760
Diluted............................. 25,511,455 25,552,515 25,530,737 25,524,361
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
BRISTOL HOTEL COMPANY
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $ 58,261 $ 131,615 $ 163,005 $ 151,637
Operating income...................... 13,301 26,909 32,252 25,434
Income before extraordinary item...... 4,410 9,622 12,066 7,116
Net income (loss)..................... 4,410 8,284 12,066 (4,287)
Earnings per common share:
Income (loss) before extraordinary
item:
Basic............................ $ 0.18 $ 0.26 $ 0.28 $ 0.16
Diluted.......................... $ 0.17 $ 0.25 $ 0.27 $ 0.16
Net income (loss):
Basic............................ $ 0.18 $ 0.22 $ 0.28 $ (0.10)
Diluted.......................... $ 0.17 $ 0.22 $ 0.27 $ (0.10)
Weighted average number of common and
common equivalent shares:
Basic............................... 24,848,760 37,041,425 43,635,401 43,636,444
Diluted............................. 25,796,808 37,997,744 44,643,133 44,629,022
</TABLE>
Earnings per common share amounts and weighted average number of common and
common equivalent shares have been retroactively adjusted to reflect the July
15, 1997 Stock Split and calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The sum of the earnings
(loss) per common share for the four quarters differs from the annual earnings
per common share due to the required method of computing the weighted average
number of shares in the respective periods.
19. SUBSEQUENT EVENT -- OMAHA ACQUISITION
On February 2, 1998, the Company announced that it had entered into a
definitive agreement to acquire 20 midwestern hotels. Under the transaction, the
Company will acquire by merger Omaha Hotel, Inc. and will
F-26
<PAGE> 80
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase an individual hotel. The total consideration for these assets is as
follows: $19.1 million in cash, $40.9 million of assumed debt and 1.43 million
shares of the Company's common stock. The portfolio consists of nine
full-service Holiday Inns, five Holiday Inns Express hotels, five Hampton Inns
and one Homewood Suites with locations in Omaha, Nebraska; Moline, Illinois;
Davenport, Iowa; central Kansas and Midland/Odessa, Texas. The acquisition is
anticipated to close in April 1998.
20. SUBSEQUENT EVENT -- PROPOSED MERGER
On March 24, 1998, the Company announced a proposed merger with FelCor
Suite Hotels, Inc.("FelCor"), subject to approval by shareholders of both
companies and final documentation. Under the terms of the proposed merger,
FelCor will acquire the real estate holdings and associated debt of the Company
in return for 31.7 million shares of newly issued FelCor stock. Prior to the
merger, the Company will spin off, as a taxable dividend, all of its non-real
estate holdings into a newly formed public company to be known as Bristol Hotels
& Resorts, Inc. ("New Bristol").
Each of the Company's outstanding common shares will be exchanged for .685
shares of FelCor common stock. In addition, Bristol shareholders will receive a
taxable distribution of one share of New Bristol common stock for each two
shares of Bristol.
The merger is expected to close by the end of July 1998.
F-27
<PAGE> 81
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
BRISTOL HOTELS & RESORTS, INC.
By: /s/ J. PETER KLINE
---------------------------
J. Peter Kline,
Chief Executive Officer
Date: May 29, 1998
<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
2.1 -- Spin-Off Agreement among the Company, Bristol and Bristol
Management Corporation
3.1 -- Certificate of Incorporation*
3.2 -- Form of Amended and Restated Certificate of Incorporation
contemplated to be filed in connection with the spin-off
3.3 -- Bylaws
3.4 -- Form of Amended and Restated Bylaws contemplated to be
filed in connection with the spin-off
3.5 -- Form of certificate for common shares*
4.1 -- Form of Registration Rights Agreement among the Company,
Bass America Inc., Holiday Corporation and United/Harvey
Holdings*
4.2 -- Form of Stockholders' Agreement among the Company,
Holiday Corporation, Bass America Inc., Bass plc and
United/Harvey Holdings*
9.1 -- Voting and Cooperation Agreement among FelCor, Bristol,
Bass America Inc., Holiday Corporation and United/Harvey
Holdings*
10.1 -- Master Hotel Agreement among the Company, FelCor and
FelCor Suites Limited Partnership
10.2 -- Form of Hotel Properties Agreement between Holiday
Hospitality and the Company*
10.3 -- Employment Agreement between the Company and J. Peter
Kline(1)*
10.4 -- Employment Agreement with John A. Beckert(2)*
10.5 -- Form of 1998 Equity Incentive Plan*
10.6 -- Form of 1998 Non-Employee Directors Stock Option Plan*
21.1 -- Subsidiaries of the Company*
99.1 -- Consent of Reginald K. Brack, Jr. to being named as a
person who is to become a director*
99.2 -- Consent of David A. Dittman to being named as a person
who is to become a director*
99.3 -- Consent of Thomas R. Oliver to being named as a person
who is to become a director*
99.4 -- Consent of James J. Pinto to being named as a person who
is to become a director*
99.5 -- Consent of Kurt C. Read to being named as a person who is
to become a director*
99.6 -- Consent of Robert A. Whitman to being named as a person
who is to become a director*
</TABLE>
- ---------------
* Previously filed.
(1) Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K
of Bristol Hotel Company filed with the SEC on March 30, 1998.
(2) Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K
of Bristol Hotel Company filed with the SEC on March 30, 1998.
<PAGE> 1
EXHIBIT 2.1
================================================================================
SPIN-OFF AGREEMENT
BY AND AMONG
BRISTOL HOTEL COMPANY
BRISTOL HOTEL MANAGEMENT CORPORATION
AND
BRISTOL HOTELS & RESORTS, INC.
DATED AS OF MARCH 23, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. DEFINITIONS ..................................................... 2
1.1. Certain Defined Terms ..................................... 2
1.2. Certain References ........................................ 9
II. THE SUBSIDIARY MERGERS, THE REORGANIZATION
AND THE CONTRIBUTION ............................................ 8
2.1. The Subsidiary Mergers .................................... 8
2.2. The Reorganization ........................................ 9
2.3. The Contribution .......................................... 9
2.4. Further Assurances; Transfer Not
Effected Prior to the Contribution Time ................... 10
2.5. No Representations or Warranties; Consents ................ 11
2.6. Post-Closing .............................................. 12
2.7. Pre-Closing Taxes and Tax Returns ......................... 13
2.8. Other Taxes and Tax Returns ............................... 14
III. SPIN-OFF AND RELATED TRANSACTIONS ............................... 15
3.1. Actions Prior to the Spin-Off ............................. 15
3.2. Consummation of Spin-Off .................................. 16
3.3. No Fractional Shares ...................................... 17
3.4. Redemption of Excess Shares ............................... 17
3.5. Unclaimed Stock ........................................... 18
IV. CERTAIN COVENANTS ............................................... 18
4.1. Access to Corporate Records and Personnel ................. 18
4.2. Confidentiality ........................................... 20
4.3. Employee Matters .......................................... 20
V. INDEMNIFICATION ................................................. 23
5.1. Indemnification by the Bristol Group ...................... 23
5.2. Indemnification by the BHR Group .......................... 23
5.3. Limitations on Indemnification Obligations ................ 23
5.4. Procedure for Indemnification ............................. 24
5.5. Survival .................................................. 25
VI. CONDITIONS PRECEDENT; CLOSINGS .................................. 26
6.1. Conditions Precedent ...................................... 26
6.2. Closings .................................................. 26
VII. MISCELLANEOUS ................................................... 30
7.1. Termination ............................................... 30
7.2. Complete Agreement; Construction .......................... 30
7.3. Survival of Agreements .................................... 30
7.4. Governing Law ............................................. 30
7.5. Notices ................................................... 30
7.6. Transaction Costs ......................................... 31
7.7. Amendments ................................................ 32
7.8. Successors and Assigns .................................... 32
7.9. No Third-Party Beneficiaries .............................. 32
7.10. Title and Headings ........................................ 32
7.11. Legal Enforceability ...................................... 32
7.12. Counterparts .............................................. 32
</TABLE>
i
<PAGE> 3
LIST OF SCHEDULES
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
Bristol Hotels ....................................................... 1.1(i)
Bristol Merger Subsidiaries .......................................... 1.1(j)
Bristol Spin Subsidiaries ............................................ 1.1(k)
Bristol Organization Structure
(Pre-Spin and Pre-Merger) ................................... 2.1(a)
Subsidiary Mergers ................................................... 2.1(b)
Reorganization Steps ................................................. 2.2
Contribution Steps ................................................... 2.3
Bristol Organization Structure
(Post-Spin and Pre-Merger) .................................. 3.2
</TABLE>
ii
<PAGE> 4
INDEX OF DEFINED TERMS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accountants .......................................................... 13
Action ............................................................... 2
Actual Net Worth ..................................................... 13
Affiliate ............................................................ 2
Agent ................................................................ 2
Agreement ............................................................ 1
Amended Bristol Option ............................................... 22
Assets ............................................................... 2
Attribution Rules .................................................... 19
BHMC ................................................................. 1
BHR .................................................................. 1
BHR Common Shares .................................................... 2
BHR Group ............................................................ 2
BHR Indemnitees ...................................................... 24
BHR Option ........................................................... 22
Bristol .............................................................. 1
Bristol Benefit Plans ................................................ 3
Bristol Board ........................................................ 1
Bristol Director Plan ................................................ 22
Bristol Group ........................................................ 3
Bristol Hotel ........................................................ 3
Bristol Incentive Plan ............................................... 22
Bristol Indemnitees .................................................. 25
Bristol Merger Subsidiary ............................................ 3
Bristol Spin Subsidiary .............................................. 3
Code ................................................................. 3
Confidential Information ............................................. 21
Contribution ......................................................... 10
Contribution Time .................................................... 10
Disclosing Party ..................................................... 22
Effective Time ....................................................... 3
Excess Personal Property ............................................. 3
Excess Shares ........................................................ 19
Excess Shares Redemption ............................................. 19
Excess Shares Redemption Amount ...................................... 19
Excess Shares Stockholders ........................................... 19
Exchange Act ......................................................... 3
FelCor ............................................................... 1
Final Post-Closing Balance Sheet ..................................... 13
Fractional Shares .................................................... 18
Front Office Equipment ............................................... 3
Holdings ............................................................. 19
Holdings Distribution ................................................ 19
Hotel Properties Agreement ........................................... 31
Indemnifying Party ................................................... 25
Indemnitee ........................................................... 25
Indemnitee Notice .................................................... 26
IRS .................................................................. 4
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Liabilities .......................................................... 4
Losses ............................................................... 4
Management Tenant Corp ............................................... 4
Merger ............................................................... 1
Merger Agreement ..................................................... 1
Merger Assets ........................................................ 4
Merger Employees ..................................................... 4
Merger Liabilities ................................................... 4
New Leases ........................................................... 5
Original Bristol Option .............................................. 22
Partnerships ......................................................... 19
Post Closing Settlement Amount ....................................... 6
Post-Closing Balance Sheet ........................................... 5
Post-Closing Settlement Date ......................................... 13
Pre-Closing Tax Return ............................................... 6
Pre-Closing Taxes .................................................... 6
Prime Rate ........................................................... 6
Property Reserves .................................................... 6
Providing Party ...................................................... 22
Registration Statement ............................................... 6
Reorganization ....................................................... 10
Representatives ...................................................... 21
SEC .................................................................. 6
Securities Act ....................................................... 7
Spin-Off ............................................................. 1
Spin-Off Assets ...................................................... 7
Spin-Off Conversion Ratio ............................................ 17
Spin-Off Date ........................................................ 7
Spin-Off Liabilities ................................................. 7
Spin-Off Names ....................................................... 23
Spin-Off Record Date ................................................. 9
Spin-Off Time ........................................................ 17
Subsidiary Mergers ................................................... 9
Surviving Corporation ................................................ 1
Third-Party Claim .................................................... 25
Transfer ............................................................. 9
Union Contracts ...................................................... 9
Valuation Ratio ...................................................... 23
</TABLE>
iv
<PAGE> 6
SPIN-OFF AGREEMENT
This SPIN-OFF AGREEMENT (this "Agreement"), dated as of March 23, 1998,
is by and among Bristol Hotel Company, a Delaware corporation (together with any
successor entity, "Bristol"), Bristol Hotel Management Corporation, a Delaware
corporation (together with any successor entity, "BHMC"), and Bristol Hotels &
Resorts, Inc., a Delaware corporation (together with any successor entity,
"BHR").
RECITALS:
A. Bristol and FelCor Suite Hotels, Inc., a Maryland corporation
(together with any successor entity, "FelCor"), have entered into an Agreement
and Plan of Merger, dated the date hereof (the "Merger Agreement"), providing
for the merger of Bristol with and into FelCor (the "Merger"), with FelCor
continuing as the surviving corporation in the Merger (the "Surviving
Corporation"), on the terms and subject to the conditions set forth in the
Merger Agreement;
B. The Board of Directors of Bristol (the "Bristol Board") has deemed
it advisable and in the best interests of Bristol to consummate the Merger;
C. FelCor has informed Bristol that, in order for FelCor to maintain
its status as a real estate investment trust following the Merger, FelCor must
not acquire in the Merger certain assets and liabilities of the hotel and
management operation business of Bristol and its Subsidiaries;
D. The parties hereto have determined that it is necessary and
desirable in order to accomplish the objectives of the Merger (i) to restructure
certain Subsidiaries of Bristol, (ii) to allocate certain assets and liabilities
of Bristol between the Bristol Group and the BHR Group, (iii) to distribute pro
rata to the holders of Bristol Common Shares as of the Spin-Off Record Date all
of the outstanding BHR Common Shares in a transaction that is expected to be
treated for federal income tax purposes as a taxable dividend (the "Spin-Off"),
(iv) to set forth the transactions required to effect the Subsidiary Mergers,
the Reorganization, the Contribution, the Holdings Distribution, the Excess
Shares Redemption, the Leasing Transactions, the Spin-Off and certain other
matters that are required to be completed prior to the Effective Time, and (v)
to set forth their agreement as to certain matters between the Bristol Group and
the BHR Group following the Spin-Off; and
E. The completion of the Subsidiary Mergers, the Reorganization, the
Contribution, the Holdings Distribution, the Excess Shares Redemption, the
Leasing Transactions and the Spin-Off
<PAGE> 7
is a condition to FelCor's obligation to consummate the Merger.
Now, therefore, in consideration of the foregoing and the mutual
covenants contained in this Agreement, the parties hereto agree as follows:
I. DEFINITIONS
1.1. Certain Defined Terms. As used in this Agreement, the following
terms have the meanings when used herein with initial capital letters.
Capitalized terms used herein and not defined herein have the meanings set forth
in the Merger Agreement.
(a) "Action" means any suit, action, inquiry, proceeding or
investigation by or before any Governmental Entity, commission or arbitration
tribunal.
(b) "Affiliate" (or words of similar import) has the same meaning as
such term is defined in Rule 405 promulgated under the Securities Act.
(c) "Agent" means the distribution agent to be appointed by Bristol to
distribute the BHR Common Shares in the Spin-Off.
(d) "Assets" means all assets, real property, personal property,
leasehold interests, insurance, computer hardware, software, supplies, parts,
inventory, contracts, agreements, instruments, licenses, franchises, Permits,
notes, bonds, mortgages, indentures, prepaid expenses, goodwill, cash, cash
equivalents, securities, causes of action, claims, lawsuits, judgments,
insurance proceeds (including proceeds of casualty insurance and business
interruption insurance), trademarks, trade names (including restaurant trade
names), corporate names, patents, copyrights and other intellectual property
rights, books, records, documents and any other properties or interests that
would be reflected as an "asset" on a balance sheet prepared in accordance with
GAAP.
(e) "BHR Common Shares" means the common stock, par value of $.01 per
share, of BHR.
(f) "BHR Group" means, collectively, BHR, BHMC and the Bristol Spin
Subsidiaries.
(g) "Bristol Benefit Plans" means the plans described in Section 3.10
of the Merger Agreement or Schedule 3.10 to the Bristol Disclosure Letter to the
Merger Agreement.
(h) "Bristol Group" means, collectively, Bristol and the
Bristol Merger Subsidiaries.
2
<PAGE> 8
(i) "Bristol Hotel" means each of the hotels listed on Schedule 1.1(i)
hereto and any other real property interest of Bristol in a hotel (other than by
virtue of the New Leases) acquired between the date hereof and the Contribution
Time that is permitted pursuant to the Merger Agreement.
(j) "Bristol Merger Subsidiary" means each of the Bristol Subsidiaries
that is listed on Schedule 1.1(j) hereto and that will own only Merger Assets
after the Reorganization, including the Non-Corporate Bristol Hotel Subsidiaries
that following the Subsidiary Mergers will be the successor entities of the
Bristol Merger Subsidiaries that on the date hereof are taxable as corporations
under the Code.
(k) "Bristol Spin Subsidiary" means each of the Bristol Subsidiaries
(including BHMC and BHR) that is listed on Schedule 1.1(k) hereto and that will
own only Spin-Off Assets after the Reorganization.
(l) "Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder, including any successor
legislation.
(m) "Effective Time" means the effective time of the Merger, which will
be the later of (i) 9:00 a.m. on the Trading Day immediately following the
Spin-Off Date and (ii) the later of the time specified in or the time the
Department accepts the Articles of Merger for recording and the Secretary of
State of Delaware accepts the Certificate of Merger for filing.
(n) "Excess Personal Property" means the items of personal property at
one or more Bristol Hotels that are subject to a particular New Lease that would
cause the adjusted tax basis of all of the personal property of such Bristol
Hotel(s) to exceed 15% of the aggregate adjusted tax basis of the real and
personal property located at such Bristol Hotel(s) on the Spin-Off Date.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, including any successor
legislation.
(p) "Front Office Equipment" means the computers, photocopier, postage
machine, facsimile machines, typewriters and other office equipment used by the
manager of a Bristol Hotel at the front desk or in the manager's offices in
connection with the management of the Bristol Hotel.
(q) "IRS" means the Internal Revenue Service or any successor entity.
(r) "Liabilities" means any and all debts, liabilities and obligations,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, including without
limitation debts, liabilities and obligations for Taxes or arising under any
Law,
3
<PAGE> 9
Action, threatened Action, order or consent decree of any Governmental Entity or
any award of any arbitration tribunal, and those arising under the Bristol
Benefit Plans, the Union Contracts or any other contract, commitment, guaranty
or undertaking and all costs, expenses and fees related thereto.
(s) "Losses" mean any and all losses, charges, Liabilities, claims,
damages, penalties, costs and expenses (including without limitation
consequential, punitive or special damages, attorney's fees and charges and any
and all other expenses incurred in investigating, preparing or defending against
any Actions or threatened Actions).
(t) "Management Tenant Corp." means, collectively, any wholly owned
subsidiary of BHR that will be a tenant under one of the New Leases.
(u) "Merger Assets" means all the Assets (including Front Office
Equipment), tangible or intangible, of Bristol and its Subsidiaries, other than
the Spin-Off Assets. The term "Merger Assets" will also include or exclude such
other Assets as the parties hereto and FelCor agree prior to the Spin-Off Date.
(v) "Merger Employees" means all employees employed by the Bristol
Group and the BHR Group at the Contribution Time, and all former employees of
the Bristol Group and the BHR Group with respect to which either the Bristol
Group or the BHR Group have Liabilities accruing or incurred at the time of or
after the Contribution Time.
(w) "Merger Liabilities" means all Liabilities (other than Spin-Off
Liabilities) of Bristol and its Subsidiaries, regardless of whether any such
Liability arises or is first asserted prior to, on or after the Contribution
Time, including without limitation:
(i) all Liabilities (other than Spin-Off Liabilities) of the
Bristol Group that accrued or were incurred prior to, on or after the
Contribution Time (including without limitation all Liabilities with
respect to the ownership of the Merger Assets and any contracts with
respect to such ownership);
(ii) all Liabilities (other than Spin-Off Liabilities) of the
BHR Group that accrued or were incurred prior to the Contribution Time;
(iii) all Liabilities (other than Spin-Off Liabilities) that
(A) result from or arise out of the vesting of the Merger Assets in the
Bristol Group or the Surviving Corporation by virtue of the Merger, the
Reorganization or the Contribution or (B) arise immediately upon and by
virtue of the effectiveness of the Reorganization, the Contribution,
the Subsidiary Mergers or the Spin-Off;
4
<PAGE> 10
(iv) all Liabilities of Bristol or any of its Subsidiaries for
the indemnification of the directors and officers of Bristol or any of
the Bristol Subsidiaries arising under the charter, bylaws or
indemnification contracts of Bristol or such Bristol Subsidiaries as a
result of their service in such capacities prior to the Effective Time;
(v) all Liabilities (other than Spin-Off Liabilities)
for Pre-Closing Taxes; and
(vi) all Liabilities of Bristol for breach of its covenants in
this Agreement.
The term "Merger Liabilities" will also include or exclude such other
Liabilities as the parties hereto and FelCor agree prior to the Effective Time.
(x) "New Leases" means the leases to be entered into between members
of the Bristol Group and Management Tenant Corp., substantially in the form
attached as Exhibit B to the Agreement Regarding Master Hotel Agreement, dated
the date hereof, among BHR, FelCor and the FelCor Operating Partnership, or as
may otherwise be agreed to among such parties. Each New Lease will cover one
Bristol Hotel, except that where desirable to minimize any adverse tax effects
to FelCor from any Excess Personal Property at a Bristol Hotel, a New Lease may
cover more than one Bristol Hotel, as may be agreed to by the parties to this
Agreement, and the New Lease Form shall be revised as necessary to cover
multiple Bristol Hotels.
(y) "Post-Closing Balance Sheet" means the estimated balance sheet
based on prior month-end balances of the BHR Group as of the Spin-Off Date,
giving effect to the Subsidiary Mergers, the Reorganization, the Contribution,
the Excess Shares Redemption and the Spin-Off, and prepared in accordance with
GAAP consistent with the accounting practices and policies of Bristol prior to
the date hereof. The Post-Closing Balance Sheet will (i) be prepared by Bristol
prior to the Spin-Off Date and be subject to the approval of FelCor, (ii)
provide an estimated net worth of the BHR Group of $30 million, (iii) contain
only Spin-Off Assets and Spin-Off Liabilities, and (iv) assign no value to any
Excess Personal Property.
(z) "Post Closing Settlement Amount" means the amount that the Bristol
Group or the BHR Group, as appropriate, will be obligated to pay the other on
the Post-Closing Settlement Date such that the BHR Group would have had,
immediately after the Spin-Off and the Excess Shares Redemption and giving
effect to such payment and assigning no value to any Excess Personal Property,
a net worth of $30 million.
(aa) "Pre-Closing Tax Return" means any and all reports and returns
required to be filed with respect to Pre-Closing Taxes, including all reports
and returns with respect to Pre-Closing Taxes and other Taxes.
(bb) "Pre-Closing Taxes" means any and all Taxes that have been or will
be imposed upon any member of the Bristol Group or the BHR Group which have
accrued or are properly attributable to
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any Taxable period (or portion of such period) ending on or before the Spin-Off
Date. For purposes of determining what portion of any Tax that is imposed with
respect to a Taxable period beginning before the Spin-Off Date but ending after
the Spin-Off Date is attributable to the portion of such period ending on the
Spin-Off Date, the total amount of the Tax will be allocated between the period
prior to and after the Spin-Off Date in accordance with the percentage of total
days in the Taxable period that end on or before or that follow the date of the
Spin-Off Date, respectively.
(cc) "Prime Rate" means a rate equal to The Chase Manhattan Bank N.A.'s
prime rate, as publicly announced and in effect from time to time during such
period, calculated on the basis of the actual number of days elapsed for the
applicable period over 360 days.
(dd) "Property Reserves" means all funded reserves and escrow deposits
for property Taxes and assessments, ground lease rents, capital expenditures,
FF&E replacements and insurance and any other reserves held by third parties
pursuant to requirements of any of the Merger Liabilities, insofar as they
relate to the Bristol Hotels.
(ee) "Registration Statement" means the registration statement on Form
10 and/or S-1 (or other applicable form) to be filed with the SEC by BHR in
connection with the Spin-Off.
(ff) "SEC" means the Securities and Exchange Commission.
(gg) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder, and any
successor legislation.
(hh) "Spin-Off Assets" means the following Assets:
(i) all trade accounts receivable;
(ii) all inventory consisting of goods that do not constitute
depreciable assets, including but not limited to goods held for resale,
consumable supplies, cleaning supplies, linens, china, glass and
silverware and "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System, and any other property of a
type described in Section 1221(i) of the Code;
(iii) all operating agreements and personal property held
under operating leases;
(iv) all third party management agreements;
(v) all franchise licenses, liquor and business licenses and
Permits related to the operation of the Bristol Hotels;
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(vi) all trademarks, trade names and intellectual property;
(vii) all Excess Personal Property;
(viii) cash and cash equivalents of up to $15 million;
(ix) all stock or other equity interests in all of the Bristol
Spin Subsidiaries (following completion of the Reorganization); and
(x) the home office lease for the premises located at 14295
Midway Road, Dallas, Texas 75244, and all personal property, inventory
and office equipment located thereon.
(ii) "Spin-Off Date" means the date on which the Spin-Off is effective,
which Bristol and FelCor presently intend will occur on the Trading Day
immediately preceding the date of the Effective Time.
(jj) "Spin-Off Liabilities" means the following Liabilities, regardless
of whether any such Liability arises or is first asserted prior to, on or after
the Contribution Time:
(i) all Liabilities of the Bristol Group and the BHR Group,
whether accrued or incurred prior to, on or after the Contribution
Time, that would be borne by the "Lessee" under the form of the New
Leases (assuming for such purpose that the member of the Bristol Group
or the BHR Group was the "Lessee" under a New Lease that was in effect
with respect to each of the Bristol Hotels at the time such Liability
accrued or was incurred);
(ii) all Liabilities (other than indemnification Liabilities
described in clause (iv) of the definition of "Merger Liabilities") to
Merger Employees accruing or incurred prior to, on or after the
Contribution Time, including without limitation Liabilities arising
under the Bristol Benefit Plans, Union Contracts and the BHR Options
and any other Liabilities to the Merger Employees for wages, salaries,
bonus, vacation, severance, employee benefits and any other employment
compensation;
(iii) all Liabilities of the BHR Group that are reflected on
the Post-Closing Balance Sheet, including all trade accounts payable;
(iv) all Liabilities of the BHR Group incurred after
the Contribution Time;
(v) all Liabilities of Bristol and its Subsidiaries arising
under contracts comprising the Spin-Off Assets, except (i) for any
Liabilities that arise from a breach of a contract that constitutes a
Spin-Off Asset by virtue of the
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occurrence of the Reorganization, the Contribution, the Subsidiary
Mergers, the Leasing Transactions or the Spin-Off and (ii) to the
extent such Liabilities would be the responsibility of the "Lessor"
under the form of New Lease;
(vi) all Liabilities to Holiday Hospitality Corporation for
which notice has been given to Bristol pursuant to Section 2.11 of the
Hotel Properties Agreement;
(vii) all Liabilities of BHR under Section 7.2(d) of the
Merger Agreement; and
(viii) all Liabilities of BHR and BHMC for any breach of their
respective covenants in this Agreement.
The term "Spin-Off Liabilities" will also include or exclude such other
Liabilities as the parties hereto and FelCor agree prior to the Spin-Off Date.
(kk) "Spin-Off Record Date" means the record date for determining the
holders of Bristol Common Shares who as of the close of business on such date
will be entitled to receive the BHR Common Shares in the Spin-Off, which Bristol
and FelCor presently intend will be the Trading Day immediately preceding the
date of the Effective Time.
(ll) "Transfer" means to assign, transfer, convey and deliver.
(mm) "Union Contracts" means, collectively, all collective bargaining
agreements relating to Merger Employees.
1.2. Certain References. References to a "Schedule" or "Exhibit" are,
unless otherwise specified, to one of the Schedules or Exhibits attached to this
Agreement and are incorporated herein by reference, and references to an
"Article" or "Section" are, unless otherwise specified, to one of the Articles
or Sections of this Agreement.
II. THE SUBSIDIARY MERGERS, THE REORGANIZATION
AND THE CONTRIBUTION
2.1. The Subsidiary Mergers. As of the date hereof, the direct and
indirect Subsidiaries of Bristol are as set forth in Schedule 2.1(a). Subject to
the terms and conditions of this Agreement, prior to the Reorganization, the
Contribution and the Spin-Off, Bristol will cause, and will cause each Bristol
Subsidiary to cause, each Bristol Merger Subsidiary that is taxable as a
corporation under the Code to merge with and into one or more Non-Corporate
Bristol Hotel Subsidiaries in accordance with the steps set forth in Schedule
2.1(b) (such
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transactions, collectively, the "Subsidiary Mergers"). The Non-Corporate Bristol
Hotel Subsidiaries will, upon formation and following the Subsidiary Mergers,
take such actions, if any, necessary to cause such entities to be disregarded as
an entity or to be treated as a partnership for federal income Tax purposes.
2.2. The Reorganization. (a) Subject to the terms and conditions of
this Agreement, prior to the Contribution and the Spin-Off but following the
Subsidiary Mergers, Bristol will cause (i) Bristol Hotel Asset Company to
Transfer to Bristol as a distribution all of the capital stock of BHMC, (ii)
each of its Subsidiaries that owns any Merger Assets or that receives from one
of its Subsidiaries any of such Merger Assets and that is not a member of the
Bristol Group to Transfer as a distribution, directly or indirectly through a
series of distributions by such Subsidiaries, such Merger Assets to a member of
the Bristol Group, and (iii) each of its Subsidiaries that owns any Spin-Off
Assets or that receives from one of its Subsidiaries any of such Spin-Off Assets
and that is not a member of the BHR Group, to Transfer as a distribution,
directly or indirectly through a series of distributions by such Subsidiaries,
such Spin-Off Assets to Bristol or a member of the BHR Group. The foregoing
transactions will be effected in accordance with the steps specified in Schedule
2.2 (such transactions, collectively, the "Reorganization").
(b) At the closing of the Reorganization, each member of the Bristol
Group and the BHR Group will execute each of the agreements, certificates,
instruments and other documents set forth in Section 6.2(a) to which it is a
party and that are required to be executed and/or delivered at the closing of
the Reorganization.
2.3. The Contribution. (a) Subject to the terms and conditions of this
Agreement, prior to the Spin-Off but following the Subsidiary Mergers and the
Reorganization (the "Contribution Time"), Bristol will, without any
representations or warranties, express or implied, (i) Transfer to BHR or BHMC
as a capital contribution all of Bristol's right, title and interest in and to
the Spin-Off Assets, (ii) make to BHR an unsecured loan payable by BHR on the
Post-Closing Settlement Date, with interest computed thereon at the Prime Rate
and on other commercially reasonable terms acceptable to FelCor, in an amount in
cash, if required, such that BHR will have, as of the Spin-Off Date and after
giving effect to the Excess Shares Redemption, cash and cash equivalents of at
least $15.0 million, and (iii) Transfer to BHR as a capital contribution all of
Bristol's right, title and interest in and to all of the outstanding capital
stock of BHMC. On the Spin-Off Date, BHR or Bristol, as the case may be, will
execute a promissory note in favor of the other party in the amount of the
estimated Post Closing Settlement Amount, payable on the Post-Closing Settlement
Date, together with interest thereon at the Prime Rate. The foregoing
transactions will be
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effected in accordance with the steps specified in Schedule 2.3 (such
transactions, collectively, the "Contribution").
(b) At the Contribution Time, each member of the Bristol Group and the
BHR Group will execute each of the agreements, certificates, instruments and
other documents set forth in Section 6.2(b) to which it is a party and that are
required to be executed and/or delivered as of the Contribution Time.
(c) Prior to the Contribution Time, Bristol will cause all intercompany
accounts receivable or payable (whether or not currently due or payable) between
any member of the Bristol Group, on the one hand, and any member of the BHR
Group, on the other hand, to be offset against each other and settled in full,
other than (i) Liabilities of the BHR Group to the Bristol Group that are Merger
Liabilities or (ii) Liabilities of the Bristol Group to the BHR Group that are
Spin-Off Liabilities.
(d) Subject to the terms and conditions of this Agreement, at the
Contribution Time (i) BHR and BHMC will assume and agree to pay, perform and
discharge when due all the Spin-Off Liabilities and (ii) Bristol will assume and
agree to pay, perform and discharge when due all the Merger Liabilities.
2.4. Further Assurances; Transfer Not Effected Prior to the
Contribution Time. (a) To the extent that any Transfer of any Spin-Off Asset or
Merger Asset pursuant to this Agreement shall not have been effectively
consummated on or prior to the Contribution Time, the parties will cooperate to
effect the Transfer as promptly following the Contribution Time as may be
practicable. The parties also agree to cooperate to restructure the transactions
contemplated by this Agreement in such a manner so as to preserve FelCor's
status as a "real estate investment trust" under the Code following consummation
of the Merger, provided that no such actions could reasonably be expected to
have a material adverse economic effect on Bristol or its stockholders if the
Merger is not consummated or the BHR Group or its stockholders following the
Spin-Off. Each of the parties hereto will use its reasonable efforts, before and
after the Contribution Time, to take or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable under
applicable laws and regulations (i) to carry out the purposes of this Agreement,
(ii) to vest in the BHR Group full title to all Spin-Off Assets as of the
Contribution Time, and (iii) to vest in the Bristol Group full title to all
Merger Assets as of the Contribution Time, including without limitation
obtaining all consents and approvals, entering into all amendatory agreements
and making all filings and applications which may be required for the
consummation of the transactions contemplated by this Agreement; provided that,
except as set forth in Section 6.1, the failure to obtain all consents and
approvals that may be required to consummate all of the transactions
contemplated by this Agreement will not excuse any
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<PAGE> 16
party hereto from its obligations under this Agreement to consummate the
transactions contemplated hereby.
(b) In the event that any Transfer of a Merger Asset has not been
properly consummated, from and after the Contribution Time the BHR Group will
hold such Merger Asset in trust for the use and benefit of the Bristol Group,
and will take such other actions as may be reasonably requested by Bristol in
order to place the Bristol Group, insofar as is reasonably possible, in the same
position as would have existed had such Merger Asset been Transferred as
contemplated by this Article II. As and when any such Merger Asset is able to be
Transferred, such Transfer will be effected forthwith. The parties agree that,
as of the Contribution Time, (i) the Bristol Group will be deemed to have
acquired complete and sole beneficial ownership over all of the Merger Assets,
together with all rights, powers and privileges incident thereto and all the
Merger Liabilities incident thereto, and (ii) the BHR Group will be deemed to
have acquired complete and sole beneficial ownership over all of the Spin-Off
Assets, together with all rights, powers and privileges incident thereto and all
the Spin-Off Liabilities.
(c) Notwithstanding anything in this Agreement to the contrary, the
Transfer of the Spin-Off Assets and the Merger Assets will be deemed effective
as of the Contribution Time for all purposes, and ownership vested in the BHR
Group and the Bristol Group, respectively, for all purposes as of the
Contribution Time, notwithstanding that certain actions may be taken or required
to be taken after the Contribution Time in connection with such Transfers.
2.5. No Representations or Warranties; Consents. Each of the parties
hereto agrees that no party hereto is in this Agreement or in any other document
delivered pursuant to this Agreement representing or warranting in any way as to
the value or freedom from Encumbrance of, the legal sufficiency to convey title
to, or any other matter concerning any Spin-Off Asset or Merger Asset. IT IS
ALSO AGREED THAT THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, AS TO THE
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY OF THE SPIN-OFF
ASSETS OR THE MERGER ASSETS, AND ALL SUCH ASSETS ARE BEING TRANSFERRED "AS IS,
WHERE IS" AND "WITH ALL FAULTS"; PROVIDED, HOWEVER, THAT THE ABSENCE OF
WARRANTIES WILL HAVE NO EFFECT UPON THE ALLOCATION OF LIABILITIES UNDER THIS
AGREEMENT OR THE MERGER AGREEMENT. Each party hereto understands and agrees that
no party hereto is in this Agreement or in any other document delivered pursuant
to this Agreement representing or warranting in any way that any consents or
approvals required to effect the transactions described herein will be obtained
or that the obtaining of any consents or approvals, the execution and delivery
of any amendatory agreements or the making of any filings or applications
contemplated by this Agreement will satisfy the provisions of any
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applicable Laws, judgments, instruments or agreements relating to the Spin-Off
Assets or the Merger Assets.
2.6. Post-Closing. (a) To the extent that the Actual Net Worth
determined as provided in this Section 2.6 is more or less than $30.0 million,
then (i) BHR will pay to Bristol the amount, if any, by which Actual Net Worth
exceeds $30.0 million or (ii) Bristol will pay to BHR the amount, if any, by
which Actual Net Worth is less than $30.0 million, as applicable, in each case,
within ten calendar days after the final determination of the Actual Net Worth
as provided in this Section 2.6 (such date, the "Post-Closing Settlement Date"),
by wire transfer of immediately available funds of the amount of such
difference, together with interest thereon from the Spin-Off Date to the date of
payment at the Prime Rate, to such account as has been designated by BHR or
Bristol, as applicable. The amount determined in the preceding sentence will
offset or be added to, as the case may be, the estimated Post Closing Settlement
Amount. For purposes of this Agreement, the "Actual Net Worth" means the actual
net worth of the BHR Group as reflected on a balance sheet for the BHR Group as
of the close of business on the Spin-Off Date prepared in accordance with this
Section 2.6 and on a basis consistent with, and using the same accounting
principles, policies, practices and procedures used in preparing, the
Post-Closing Balance Sheet and giving effect to the payment of the estimated
Post Closing Settlement Amount (the "Final Post-Closing Balance Sheet").
(b) Within 60 calendar days after the Spin-Off Date, BHR will prepare,
or cause to be prepared, and deliver to Bristol the Final Post-Closing Balance
Sheet setting forth the Actual Net Worth. BHR will provide Bristol and its
representatives reasonable access, during normal business hours, to the
facilities, personnel and accounting and other records of the BHR Group to the
extent reasonably determined by Bristol to be necessary to permit Bristol to
review the Final Post-Closing Balance Sheet; provided, however, that Bristol
will conduct any such review in a manner that does not unreasonably interfere
with the conduct of the business by the BHR Group after the Spin-Off Date.
(c) If, within 60 calendar days after the date of BHR's delivery of its
computation of the Actual Net Worth, Bristol determines in good faith that such
computation is inaccurate, Bristol will give written notice to BHR within such
60 calendar day period (i) setting forth Bristol's computation of Actual Net
Worth as of the Spin-Off Date and (ii) specifying in reasonable detail Bristol's
basis for its disagreement with BHR's computation. The failure by Bristol so to
express its disagreement or provide such specification within such 60 calendar
day period will constitute Bristol's acceptance of BHR's computation of the
Actual Net Worth. If BHR and Bristol are unable to resolve any disagreement
between them within ten calendar days after the giving of notice of such
disagreement, the items in dispute will be referred for determination to the
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office of a nationally recognized independent "Big 6" accounting firm, other
than Arthur Andersen LLP or Coopers & Lybrand L.L.P. (the "Accountants"), as
promptly as practicable. BHR and Bristol will use reasonable efforts to cause
the Accountants to render their decision as soon as practicable, including
without limitation by promptly complying with all reasonable requests by the
Accountants for information, books, records and similar items. The Accountants
will make a determination as to each of the items in dispute, which
determination will be (A) in writing, (B) furnished to each of the parties
hereto as promptly as practicable after the items in dispute have been referred
to the Accountants, (C) made in accordance with this Agreement, and (D)
conclusive and binding upon each of the parties hereto. In connection with the
Accountants' determination of the disputed items, (x) the Accountants will be
entitled, but not obligated, to rely on the workpapers, trial balances and
similar materials prepared by Arthur Andersen LLP in accordance with such firm's
examination of the financial statements of BHR and its Subsidiaries, (y) the
Accountants will not consider or make any adjustment in respect of any matter
which is not in dispute, other than an adjustment resulting from any other
adjustment in respect of a matter which is in dispute, and (z) the fees and
expenses of the Accountants will be shared equally by BHR and Bristol.
2.7. Pre-Closing Taxes and Tax Returns. (a) Payments and Returns.
Bristol will have the exclusive authority to file all Pre-Closing Tax Returns.
Bristol will timely file all Pre- Closing Tax Returns and timely pay in full all
amounts shown to be due thereon, provided, however, that the BHR Group will (i)
timely pay to Bristol all Taxes (other than Pre-Closing Taxes) required to be
included and paid on any Pre-Closing Tax Return and (ii) provide Bristol with
all information reasonably required by Bristol with respect to the income,
operations and assets of each BHR Group member, so as to permit Bristol to
prepare and file such Pre-Closing Tax Returns and to make payments of the Tax
shown to be due thereon, including estimated payments, on a timely basis.
Bristol will pay all Pre-Closing Taxes, including any estimated Taxes and any
alternative minimum Tax or similar Taxes. Nothing in this Section 2.7 will,
however, give any member of the BHR Group any right to a refund of any
Pre-Closing Taxes paid to Bristol or any other member of the Bristol Group by
any Taxing authority. Bristol will indemnify the BHR Group for any penalties or
other damages attributable to the failure by Bristol to make timely filings of
Pre-Closing Tax Returns or timely payment of all Pre-Closing Taxes.
(b) Controversies. Bristol will have exclusive authority to represent
the BHR Group before the IRS or any other Governmental Entity regarding all
Pre-Closing Tax Returns, including without limitation (i) the exclusive control
of any response to any examination by the IRS or any other Taxing authority and
(ii) the exclusive control over any contest of any issue through a final
determination including without limitation
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whether and in what forum to conduct such contest and whether and on what basis
to settle such contest.
(c) Subsequent Adjustments. Bristol (i) will pay and indemnify each
member of the BHR Group for all increases in Pre-Closing Taxes and (ii) will be
entitled to any refund or credit attributable to any and all decreases in such
Taxes, provided that such increases or decreases have been determined pursuant
to a final determination.
2.8. Other Taxes and Tax Returns.
(a) Payments. Bristol will pay all Taxes (other than Pre-Closing Taxes)
and will have exclusive authority to file all Tax Returns (other than
Pre-Closing Tax Returns) with respect to the income, operations or assets of the
members of the Bristol Group, and BHR will pay all Taxes that are not
Pre-Closing Taxes and will have exclusive authority to file all Tax Returns that
are not Pre-Closing Tax Returns with respect to the income, operations or assets
of the members of the BHR Group.
(b) Controversies. Each of Bristol and BHR, at its own expense, will
have exclusive authority to represent itself and the members of its respective
Group before the IRS or any other Taxing authority or any court regarding all
Tax matters (other than Pre-Closing Tax matters).
(c) Subsequent Adjustments. Each of Bristol and BHR will be liable, and
indemnify the other, for all increases in Taxes allocable to itself or any
member of its Group that are not Pre-Closing Taxes, and will be entitled to any
refund or credit attributable to all decreases in such Taxes, provided that such
increases or decreases have been determined pursuant to a final determination.
(d) Tax Attributes. If, on the Spin-Off Date, any Tax attribute of any
member of the BHR Group (including without limitation any Tax credit, net
operating loss or net capital loss) is available for use by any member of the
Bristol Group, Bristol will be entitled to apply such attributes to reduce the
Taxes of the Bristol Group in accordance with applicable law.
(e) Power of Attorney. In order to carry out the purposes and intent of
this Agreement, BHR hereby grants, and agrees that it will cause each BHR Group
member to grant, to Bristol and to appropriate officers of Bristol a power of
attorney to undertake in the name of the appropriate BHR Group members any
action contemplated herein, including without limitation the filing of returns
and claims for refund, making of elections, handling controversies and receipt
of refunds, provided that such power of attorney will relate only to Pre-Closing
Taxes. To the extent that such power of attorney is not recognized or respected,
BHR agrees to take, and to cause each BHR Group member to take, such further
actions, including grants to Bristol of additional powers
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of attorney or execution of returns or other documents, as may be reasonably
requested by Bristol to carry out the provisions of this Agreement.
(f) Payments. Amounts owed by either party hereto in respect of Tax
refunds or credits received by such party to which the other party is entitled
hereunder will be paid by the party receiving the refund to the other party
within five calendar days after the receipt or credit for such refund, and
amounts owed by either party hereto in respect of Tax increases will be paid by
such party to the other party within five calendar days after the final
determination with respect thereto.
(g) Return Preparation and Defense. Each party hereto agrees that it
will cooperate with the other and its representatives in a prompt and timely
manner in connection with the preparation and filing of any administrative or
judicial proceeding involving any Pre-Closing Tax Return filed or required to be
filed by Bristol or any members of the Bristol Group. Bristol will furnish to
BHR the portions of such Tax Returns reporting the operations of BHR and any BHR
Group member and the relevant portions of all reports relating to the
examination by the IRS or any other Governmental Entity of such Tax Returns.
(h) Term. Section 2.7 and Section 2.8 will apply to all Taxable years
(or portions thereof) commencing after December 31, 1997 and to all Taxable
years (or portions thereof) of any Bristol Group member or any BHR Group member
with respect to which the statutory period for assessments or refunds under
applicable law remains unexpired on the date hereof. Unless otherwise agreed in
writing by the parties, Section 2.7 and Section 2.8 will remain in force and be
binding so long as the statutory period for assessments or refunds under
applicable law remains unexpired for any Taxable period as to which either party
may have a claim against the other under this Agreement.
III. SPIN-OFF AND RELATED TRANSACTIONS
3.1. Actions Prior to the Spin-Off. (a) Prior to the Spin-Off, Bristol
will cause BHR to declare and issue a stock dividend or declare a stock split
such that Bristol will hold, after giving effect to such stock dividend or stock
split, an aggregate number of BHR Common Shares sufficient to permit Bristol to
distribute in the Spin-Off one BHR Common Share for every two outstanding
Bristol Common Shares held as of the Spin-Off Record Date (the ratio of the
total number of BHR Common Shares to Bristol Common Shares immediately after
giving effect to such stock split or stock dividend, the "Spin-Off Conversion
Ratio").
(b) The Bristol Board (or a duly authorized committee thereof) will (i)
declare a special dividend of all the BHR Common Shares held by Bristol, (ii)
authorize the delivery at the
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Spin-Off Time of all of the outstanding BHR Common Shares held by Bristol to the
Agent for distribution pro rata to the holders of all outstanding Bristol Common
Shares as of the Spin-Off Record Date, (iii) establish (A) the close of business
on the Trading Day immediately preceding the expected Effective Time as the
Spin-Off Record Date and (B) 5:00 p.m. (Dallas time) on the Spin-Off Record Date
as the "Spin-Off Time," and (iv) take any other actions necessary or appropriate
to effect the Spin-Off, but in no event may the Spin-Off occur prior to such
time as the Subsidiary Mergers, the Reorganization and the Contribution shall
have been effected and the conditions set forth in Section 6.1 of this Agreement
shall have been satisfied or waived.
(c) Prior to the Spin-Off Time, Bristol will prepare and mail to the
holders of Bristol Common Shares such information concerning the BHR Group, its
business, operations and management, the Spin-Off and such other matters as
Bristol reasonably determines are necessary or may be required to be disclosed
under the Securities Act or the Exchange Act. As soon as practicable following
the date of this Agreement, the BHR Group will prepare, and to the extent
required under applicable Law, file with the SEC, the Registration Statement and
any other documentation which is necessary to effectuate the Spin-Off in
compliance with applicable Laws. The Bristol Group and the BHR Group will use
reasonable efforts (i) to obtain as soon as practicable all required approvals
from the SEC and any other Governmental Entity in connection with the Spin-Off
and (ii) to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing.
(d) The Bristol Group and the BHR Group will take all reasonable steps
as may be necessary or appropriate under the securities or blue sky laws of any
State of the United States and of any foreign jurisdiction in which holders of
Bristol Common Shares reside in connection with the Spin-Off.
(e) The Bristol Group and the BHR Group will take all reasonable steps
necessary and appropriate to cause the conditions set forth in Section 6.1 of
this Agreement to be satisfied and to effect the Spin-Off at the Spin-Off Time.
(f) BHR will prepare and file, and will use its reasonable efforts to
have approved on or prior to the Spin-Off Time, an application for the listing
of the BHR Common Shares to be distributed in the Spin-Off on the NYSE, The
Nasdaq Stock Market or another national securities exchange or quotation system,
subject to official notice of issuance.
3.2. Consummation of Spin-Off. Subject to the conditions and rights of
termination set forth in this Agreement, on or prior to the Spin-Off Time,
Bristol will (i) irrevocably deliver to the Agent for the benefit of the Persons
entitled to receive BHR Common Shares in the Spin-Off a single stock certificate
representing all the BHR Common Shares, endorsed by Bristol in
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blank, and (ii) deliver to the Agent written instructions regarding the
distribution of such BHR Common Shares to such Persons in the Spin-Off.
Following the Spin-Off, the direct and indirect Subsidiaries of Bristol will be
as set forth on Schedule 3.2.
3.3. No Fractional Shares. (a) No certificate or scrip representing
fractional BHR Common Shares will be issued in the Spin-Off, and such fractional
share interests will not entitle the owner thereof to receive dividends, to vote
or to any other rights of a stockholder of BHR, except the right to receive the
amount of cash provided in Section 3.3(b) or Section 3.3(c).
(b) As soon as practicable after the Spin-Off Time, the Agent will
determine the aggregate number of fractional BHR Common Shares that will not be
delivered to holders of Bristol Common Shares (the "Fractional Shares"). Bristol
will instruct the Agent (i) to sell the Fractional Shares at then-prevailing
prices on the securities exchange on which the BHR Common Shares are listed and
(ii) to use reasonable efforts to complete the sale of the Fractional Shares as
promptly following the Spin-Off Time as, in the Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions, and in any event, within 90 calendar days
following the Spin-Off Time. The Agent will hold such proceeds in trust for the
holders of Bristol Common Shares who would otherwise be entitled to receive a
fraction of a BHR Common Share, and will determine the portion of the proceeds
to which each such holder is entitled, if any, by multiplying the amount of the
aggregate net proceeds of such sale by a fraction, the numerator of which is the
amount of the Fractional Shares to which such holder is entitled, and the
denominator of which is the aggregate number of Fractional Shares to which all
such holders of Bristol Common Shares are entitled. BHR will pay all
commissions, transfer taxes, Agent's fees and other out-of-pocket transaction
costs incurred in connection with the sale of such Fractional Shares.
(c) Notwithstanding the provisions of Section 3.3(b), Bristol may elect
at its option, exercised prior to the Spin-Off Time, in lieu of the issuance and
sale of Fractional Shares and the making of payments pursuant to Section 3.3(b),
to pay each holder of Bristol Common Shares who would otherwise be entitled to
receive a fraction of a Fractional Share, an amount in cash equal to the closing
trading price for a BHR Common Share on the Spin-Off Date multiplied by the
fraction of a BHR Common Share to which such holder would otherwise be entitled.
3.4. Redemption of Excess Shares. Immediately after the Spin-Off Time
and prior to the Effective Time, BHR will redeem that number of BHR Common
Shares of Bass America Inc., Holiday Corporation and their respective Affiliates
(the "Excess Shares Stockholders") equal to the excess of (i) the aggregate
number of BHR Common Shares that the Excess Shares Stockholders may be
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<PAGE> 23
deemed to own immediately following the Spin-Off by virtue of the attribution
provisions of Section 544 of the Code (as modified by Section 856(h)(i)(B) of
the Code) (assuming that BHR is a REIT for such purposes) and/or Section 318 of
the Code (as modified by Section 856(d)(5) of the Code) (together, the
"Attribution Rules") over (ii) the number of shares that represent 9.9% of the
total number of outstanding BHR Common Shares as of the Spin-Off Time, after
giving effect to the redemption herein contemplated (such shares, the "Excess
Shares"), in consideration for payment by BHR to the Excess Shares Stockholders
by wire transfer of cash in the aggregate amount of $25,814,200 (the "Excess
Shares Redemption Amount") (such transaction, the "Excess Shares Redemption").
Each of Holiday Corp. and Bass America Inc. will tender for redemption to BHR a
pro rata portion of the Excess Shares based on the number of BHR Common Shares
held by it as compared to the aggregate number of BHR Common Shares held by
them.
3.5. Unclaimed Stock. Any BHR Common Shares that remain unclaimed by
any Person 180 calendar days after the consummation of the Spin-Off will be
returned to BHR, and any such stockholder may look only to BHR for such BHR
Common Shares, subject in each case to applicable escheat or other abandoned
property Laws.
3.6. Distribution of Bristol Common Shares. Immediately after the
Spin-Off and prior to the Effective Time, United/Harvey Holdings, L.P.
("Holdings") will distribute all of the Bristol Common Shares it owns to two
limited partnerships to be organized by Holdings and its partners of which an
affiliate of Holdings will be the general partner (the "Partnerships") in such
proportion as Holdings deems appropriate and as FelCor approves, such approval
not to be unreasonably withheld or delayed (such transaction, the "Holdings
Distribution"). The distribution of Bristol Common Shares pursuant to this
Section 3.6 will be effected in such a manner such that none of Holdings, the
Partnerships or any direct or indirect partners of Holdings or the Partnerships
will be deemed to own, by virtue of the Attribution Rules, in excess of 9.9% of
the outstanding FelCor Common Shares (after giving effect to the Merger).
IV. CERTAIN COVENANTS
4.1. Access to Corporate Records and Personnel. (a) As soon as
practicable following the Spin-Off, (i) the Bristol Group will deliver to the
BHR Group all original agreements, documents, books, records and files relating
to the Spin-Off Assets, the Bristol Spin Subsidiaries or the Spin-Off
Liabilities, to the extent such items are not already
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<PAGE> 24
in the possession of the BHR Group, and (ii) the BHR Group will deliver to the
Bristol Group all original agreements, documents, books, records and files
relating to the Merger Assets, the Bristol Merger Subsidiaries or the Merger
Liabilities, to the extent such items are not already in the possession of the
Bristol Group. Notwithstanding the foregoing, Bristol may retain any Tax
returns, reports, forms or work papers relating to the Spin-Off Assets, the
Bristol Spin Subsidiaries or the Spin-Off Liabilities with respect to periods
prior to the Spin-Off Date provided that the Bristol Group provides the BHR
Group with copies of or reasonable access to such returns, reports, forms or
work papers as provided in Section 4.1(b) below.
(b) From and after the Spin-Off Date, to the extent reasonably required
in connection with any legitimate purpose specified in writing, each of the BHR
Group and the Bristol Group will (subject to applicable contractual and privacy
obligations) allow the other reasonable access to all business records and files
relating to the Spin-Off Assets, the Merger Assets, the Bristol Subsidiaries,
the Merger Liabilities or the Spin-Off Liabilities, in each case with respect to
periods prior to the Spin-Off Date, upon reasonable advance notice during normal
business hours. Each party will have the right, at its own expense, to make
copies of any such records and files. Any such access must not interfere with
the normal conduct of a party's business. Each party will preserve and maintain
and not destroy the records relating to the Spin-Off Assets, the Merger Assets,
the Bristol Subsidiaries, the Merger Liabilities and the Spin-Off Liabilities
for at least five years after the Spin-Off Date. Such retained information may
be destroyed or otherwise disposed of promptly after the business need therefor
has ended, provided that (i) the party proposing to destroy or otherwise dispose
of such information shall have provided at least 90 days prior written notice to
the other, specifying the category or type of information proposed to be
destroyed or disposed of, and (ii) if the recipient of such notice requests in
writing prior to the scheduled date for such destruction or disposal that any of
the information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of the information as is requested at the expense of
the party requesting such information.
(c) Any confidential, proprietary or trade secret information provided
under this Section 4.1 will be deemed "Confidential Information" for purposes of
Section 4.2 of this Agreement and will be held in accordance with the terms
thereof.
(d) From and after the Spin-Off Date, each of the BHR Group and the
Bristol Group will use its reasonable efforts to make available to the other,
upon written request, its officers, directors, employees and agents to the
extent that the same may reasonably be required in connection with any legal,
administrative or other proceedings in which the requesting party may from time
to time be involved. Such persons will be entitled to be reimbursed, upon the
presentation of appropriate invoices therefor, for all out-of-pocket expenses as
such persons may
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reasonably incur in satisfying their obligations under this Section 4.1(d).
4.2. Confidentiality. On and after the Spin-Off Date, each of the
Bristol Group and the BHR Group will, and will cause their respective directors,
officers, Affiliates, employees, agents, accountants, consultants and advisors
(collectively, "Representatives") to, hold in strict confidence all non-public
information relating to the other party (except information (a) in the public
domain through no fault of such party or any of its Representatives, including
without limitation information contained in the Registration Statements and
other statements and reports filed with the SEC, (b) that is or becomes
available to a party on a non-confidential basis from a source other than the
Providing Party, provided that the Disclosing Party did not know or should not
have reasonably known that the source of such information was bound by a
contractual, legal or fiduciary obligation not to disclose such information, or
(c) that is required to be disclosed pursuant to federal or state securities
laws or the requirements of any exchange on which the Bristol Common Shares or
BHR Common Shares are listed for trading, as appropriate)(collectively,
"Confidential Information"). Neither party may release or disclose, or permit
its Representatives to release or disclose, any Confidential Information to any
other Person except (i) if compelled to disclose such Confidential Information
by judicial or administrative process or, as advised by its counsel, by other
requirements of law, or (ii) to such party's auditors, attorneys, financial
advisors, prospective investors, bankers and other consultants and advisors who
need to know such information. In the event that either party or its
Representatives (a "Disclosing Party") is compelled to release or disclose, or
permit to be released or disclosed, any Confidential Information as provided in
the immediately preceding sentence, such Disclosing Party will (i) immediately
notify the other party (the "Providing Party") of the existence, terms and
circumstances surrounding such requirement, (ii) consult with the Providing
Party on the advisability of taking legally available steps to resist or narrow
such requirement, and (iii) if disclosure of such information is nevertheless
required, furnish only that portion of the Confidential Information which, in
the opinion of such Disclosing Party's counsel, such Disclosing Party is legally
compelled to disclose and cooperate with any action by the Providing Party to
obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information. The
Providing Party will reimburse the Disclosing Party for all reasonable
out-of-pocket expenses incurred by the Disclosing Party in connection with such
cooperation. Nothing herein will prohibit or restrict either party from
disclosing information with respect to its own business or operations.
4.3. Employee Matters. After the Spin-Off, each outstanding option
(each, an "Original Bristol Option") to purchase Bristol Common Shares under
Bristol's Amended and Restated 1995 Equity
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<PAGE> 26
Incentive Plan (the "Bristol Incentive Plan") or Stock Option Plan for
Non-Employee Directors (the "Bristol Director Plan"), whether or not then
exercisable or vested, all of which Original Bristol Options that are
outstanding as of the Measurement Date are listed in Section 3.3 to the Merger
Agreement or Schedule 3.3 to the Bristol Disclosure Letter to the Merger
Agreement, will continue to have, and be subject to, the same terms and
conditions as set forth in the Bristol Incentive Plan or the Bristol Director
Plan (as the case may be) and related option agreements pursuant to which the
Original Bristol Options were granted, provided that (i) each Original Bristol
Option will be redenominated into two options which will be continuations of the
Original Bristol Options, effected by action of the Compensation Committee of
Bristol so that each Original Bristol Option becomes an "Amended Bristol Option"
and a "BHR Option," each having identical terms and conditions to the Original
Bristol Options except: (i) the BHR Options will be an option to purchase that
number of BHR Common Shares equal to the product of the number of Bristol Common
Shares covered by such Original Bristol Option immediately prior to the Spin-Off
Date and the Spin-Off Conversion Ratio, rounded to the nearest whole number of
BHR Common Shares, (ii) service with either Bristol, BHR or their respective
Subsidiaries following the Effective Time will satisfy the vesting requirements
and termination terms thereof, (iii) the per share exercise price for each BHR
Option will be an amount equal to the quotient of (A) the product of (x)
0.11385, subject to adjustment if and to the extent necessary to ensure that no
additional compensation expense results as specified in accordance with Emerging
Issues Task Force 90-9 (the "Valuation Ratio") and (y) the exercise price for
the Original Bristol Options, and divided by (B) the Spin-Off Conversion Ratio,
(iv) the per share exercise price for the Amended Bristol Options will be the
product of (x) 1 minus the Valuation Ratio and (y) the exercise price for the
Original Bristol Options, and (v) all references to the Bristol Board or Bristol
will, with respect to the BHR Options, be deemed to be references to the Board
of Directors of BHR and to BHR, respectively; provided however, that all
decisions relating to the interpretation or amendment of the Bristol Incentive
Plan or the Bristol Director Plan as it relates to Amended Bristol Options will
require the concurrence of the Compensation Committee of BHR, except for
adjustments to the exercise price or the nature of security to be issued upon
the exercise of Amended Bristol Options in connection with a transaction in
which Amended Bristol Options are treated in the same manner as options of the
Bristol Group. Effective as of the Spin-Off Time, (A) BHR will assume all
obligations with respect to each BHR Option, (B) BHR will reserve for issuance
the number of BHR Common Shares that become issuable upon the exercise of such
BHR Options, and (C) Bristol will have no obligations with respect to any BHR
Options.
4.4. Names, Trademarks, Etc. After the Spin-Off, the Bristol Group may
not use the name or mark "Bristol" or "Harvey" or any derivatives or variations
thereof or any name
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substantially resembling or confusingly similar to the name "Bristol" or
"Harvey" (the "Spin-Off Names"). As promptly as practicable after the Spin-Off,
the Bristol Group will discontinue use of any of the Spin-Off Names; provided,
however, that for a period of 30 calendar days following the Spin-Off, the
Bristol Group may use stationery, business forms and other similar supplies and
property which contain any of the Spin-Off Names thereon, provided that such
items are overstamped or otherwise appropriately indicate that the Bristol Group
is no longer affiliated with the BHR Group. The Bristol Group will promptly file
with all applicable Governmental Entities all documents necessary to delete from
their corporate names, qualifications or filings any of the Spin-Off Names and
will do, or cause to be done, all other acts reasonably necessary to cause such
documents to become effective no later than 30 calendar days following the
Spin-Off.
4.5. Bonds, Letters of Credit and Guarantees. (a) Prior to the
Contribution Time, BHMC will deliver to Bristol copies of all outstanding
performance and surety bonds, letter of credit obligations and guarantees
provided by any member of the Bristol Group and relating to any of the Spin-Off
Assets or the Spin-Off Liabilities. Upon the expiration of the current term of
any such bonds, letters of credit and guarantees, BHMC will use its best efforts
to obtain and have issued replacements for each such bond, letter of credit and
guarantee which do not impose any Liability on any member of the Bristol Group.
(b) Prior to the Contribution Time, Bristol will deliver to BHMC copies
of all outstanding performance and surety bonds, letter of credit obligations
and guarantees provided by any member of the BHR Group and relating to any of
the Merger Assets or the Merger Liabilities. Upon the expiration of the current
term of any such bonds, letters of credit and guarantees, Bristol will use its
best efforts to obtain and have issued replacements for each such bond, letter
of credit and guarantee which do not impose any Liability on any member of the
BHR Group.
4.6. Ancillary Agreements. Prior to the Spin-Off, the parties hereto,
with FelCor's prior approval, may enter into additional agreements to evidence
certain of their respective rights, obligations and agreements. To the extent
that such ancillary agreements do not specifically provide otherwise, the
provisions of such ancillary agreements will be deemed to supplement the
provisions of this Agreement and this Agreement will be deemed to supplement the
provisions of such ancillary agreements.
4.7. Forwarding of Notices. The Bristol Group and the BHR Group will
use their reasonable efforts to forward promptly to the other party all notices,
claims, correspondence and other materials which are received and determined to
pertain to the other party.
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4.8. Subsidiaries. The parties hereto will cause to be performed, and
hereby guarantee the performance of, all actions, agreements and obligations set
forth herein to be performed by any Subsidiary of such party and will use all
reasonable efforts to cause to be performed all actions, agreements and
obligations set forth herein to be performed by any other Affiliate of such
party.
V. INDEMNIFICATION
5.1. Indemnification by the Bristol Group. The Bristol Group will
indemnify, defend and hold harmless the BHR Group and each of their respective
stockholders, directors, officers, employees and agents, each Affiliate of any
of the foregoing and each of the heirs, executors, successors and assigns of any
of the foregoing (collectively, the "BHR Indemnitees") from and against any and
all Losses of any of the BHR Indemnitees relating to, resulting from or arising
out of any Merger Liability; provided however, that except for Liabilities set
forth in clause (iv) of the definition of Merger Liabilities, the Bristol Group
will not be obligated to indemnify the BHR Indemnitees for Liabilities arising
out of the intentional misconduct or gross negligence of the BHR Indemnitees
unless the event giving rise to such liability has been disclosed to FelCor in
writing prior to the Spin-Off.
5.2. Indemnification by the BHR Group. The BHR Group will indemnify,
defend and hold harmless the Bristol Group and each of their respective
stockholders, directors, officers, employees and agents, each Affiliate of any
of the foregoing and each of the heirs, executors, successors and assigns of any
of the foregoing, specifically including the Surviving Corporation and each of
its Subsidiaries, stockholders, directors, officers, employees and agents, each
Affiliate of any of the foregoing and each of the heirs, executors, successors
and assigns of any of the foregoing following the Merger (collectively, the
"Bristol Indemnitees") from and against any and all Losses of any of the Bristol
Indemnitees relating to, resulting from or arising out of any Spin-Off
Liability.
5.3. Limitations on Indemnification Obligations. The amount which any
party (an "Indemnifying Party") is or may be required to pay to any other party
(an "Indemnitee") pursuant to Section 5.1 or Section 5.2 will be reduced
(retroactively or prospectively) by any insurance proceeds or other amounts
actually recovered by or on behalf of such Indemnitee, in reduction of the
related Loss, net of any costs related to the recovery of such insurance
proceeds. If an Indemnitee receives the payment required by this Agreement from
an Indemnifying Party in respect of a Loss and subsequently actually receives
insurance proceeds or other amounts in respect of such Loss, then such
Indemnitee will pay to such Indemnifying Party a sum equal to the amount of such
insurance proceeds or other amounts actually
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received, net of any costs related to the recovery of such insurance proceeds,
such net amount not to exceed the aggregate amount of any payments received from
such Indemnifying Party pursuant to this Agreement in respect of such Loss.
5.4. Procedure for Indemnification. (a) If an Indemnitee receives
notice or otherwise learns of the assertion by a Person (including without
limitation any Governmental Entity) who is not a party to this Agreement or the
Merger Agreement of any claim or of the commencement by any such Person of any
Action (a "Third-Party Claim") with respect to which an Indemnifying Party may
be obligated to provide indemnification pursuant to this Agreement, such
Indemnitee will give such Indemnifying Party written notice (the "Indemnitee
Notice") thereof promptly after becoming aware of such Third-Party Claim;
provided, however, that the failure of any Indemnitee to give notice as provided
in this Section 5.4 will not relieve the applicable Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice. Such Indemnitee Notice will
describe the Third-Party Claim in reasonable detail and will indicate the amount
(estimated if necessary) of the Loss that has been or may be sustained by such
Indemnitee.
(b) The Indemnitee will provide to the Indemnifying Party on request
all information and documentation reasonably necessary to support and verify any
Losses which the Indemnitee believes give rise to a claim for indemnification
hereunder and will give the Indemnifying Party reasonable access to all books,
records and personnel in the possession or under the control of the Indemnitee
which would have a bearing on such claim.
(c) Upon receipt of the Indemnitee Notice required by Section 5.4(a),
the Indemnifying Party will be entitled, if it so elects, to take control of the
defense and investigation with respect to such claim and to employ and engage
attorneys of its own choice to handle and defend the same, at the Indemnifying
Party's cost, risk and expense, upon written notice to the Indemnitee of such
election within 30 calendar days of receipt of the Indemnitee Notice. The
Indemnifying Party may not settle any Third-Party Claim that is the subject of
indemnification without the written consent of the Indemnitee, which consent may
not be unreasonably withheld; provided, however, that the Indemnifying Party may
settle a claim without the Indemnitee's consent if such settlement (i) includes
a complete release of the Indemnitee and (ii) does not require the Indemnitee to
make any payment or take any action or otherwise materially adversely affect the
Indemnitee. After notice from an Indemnifying Party to an Indemnitee of its
election to assume the defense of a Third-Party Claim, such Indemnifying Party
will not be liable to such Indemnitee under this Article V for any legal or
other expenses subsequently incurred by such Indemnitee in connection with the
defense thereof; provided, that, if the defendants in any such claim include
both the Indemnifying Party and one or more
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Indemnitees and the Indemnitee receives a written opinion of counsel that a
conflict of interest between such Indemnitees and such Indemnifying Party exists
in respect of such claim, such Indemnitees will have the right to employ
separate counsel to represent such Indemnitees, and in that event the reasonable
fees and expenses of such separate counsel (but not more than one separate
counsel) will be paid by such Indemnifying Party.
(d) If an Indemnifying Party elects to defend or to seek to compromise
any Third-Party Claim, the appropriate Indemnitee will (i) cooperate in all
reasonable respects with the Indemnifying Party in connection with such defense
and (ii) not admit any liability with respect to, or settle, compromise or
discharge, such Third-Party Claim without the Indemnifying Party's prior written
consent.
(e) If the Indemnifying Party declines or fails to assume the defense
of any Third-Party Claim, or fails to notify the Indemnitee that it will defend
such claim within 30 calendar days after receipt of the Indemnitee Notice, the
Indemnitee may defend against such claim (provided that the Indemnitee may not
settle such claim without the consent of the Indemnifying Party). The expenses
of all proceedings, contests or lawsuits in respect of such claims will be borne
by the Indemnifying Party, but only if the Indemnifying Party is responsible
pursuant to this Article V to indemnify the Indemnitee in respect of the
Third-Party Claim.
(f) In the event of payment by an Indemnifying Party to any Indemnitee
in connection with any Third-Party Claim, such Indemnifying Party will be
subrogated to and will stand in the place of such Indemnitee as to any events or
circumstances with respect to which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim. Such Indemnitee will cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
(g) With respect to any Third-Party Claim for which the Indemnifying
Party assumes responsibility for defense, the Indemnifying Party will inform the
Indemnitee, upon the reasonable written request of the Indemnitee, of the status
of efforts to resolve such Third-Party Claim. With respect to any Third-Party
Claim for which the Indemnifying Party does not assume such responsibility, the
Indemnitee will inform the Indemnifying Party, upon the reasonable written
request of the Indemnifying Party, of the status of efforts to resolve such
Third-Party Claim.
5.5. Survival. The obligations of each of the Bristol Group and the BHR
Group under Articles IV and V will survive the Merger and the sale or other
transfer by it of any of the Spin-Off Assets or the Merger Assets, the Spin-Off
Liabilities or the Merger Liabilities. Upon effectiveness of the Merger, the
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Surviving Corporation will be deemed to have assumed all of Bristol's
obligations and liabilities under this Agreement and to be entitled to all of
the rights and benefits of Bristol hereunder.
VI. CONDITIONS PRECEDENT; CLOSINGS
6.1. Conditions Precedent. The obligations of the parties to effect the
Subsidiary Mergers, the Reorganization, the Contribution, the Excess Shares
Redemption, the Leasing Transactions, the Holdings Distribution and the Spin-Off
are subject to the fulfillment or waiver of each of the following
conditions:
(a) The Registration Statement shall have been declared
effective by the SEC and shall not be the subject of any stop order or
proceeding by the SEC seeking a stop order;
(b) The consummation of the transactions contemplated by this
Agreement and the Merger Agreement shall not be prohibited by
applicable Law and no Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect
and which materially restricts, prevents or prohibits consummation of
the Subsidiary Mergers, the Reorganization, the Contribution, the
Leasing Transactions, the Spin-Off, the Merger or any transaction
contemplated by this Agreement or the Merger Agreement; and
(c) The conditions specified in Article VI of the Merger
Agreement (other than conditions covering the transactions required to
be accomplished under this Agreement) shall have been satisfied or
waived by all parties entitled to waive such conditions and the Merger
Agreement shall not have been terminated.
6.2. Closings. The closing of the Subsidiary Mergers, the
Reorganization, the Contribution, the Excess Shares Redemption, the Holdings
Distribution, the Leasing Transactions and the Spin-Off will take place at the
offices of Jones, Day, Reavis & Pogue, 2300 Trammell Crow Center, 2001 Ross
Avenue, Dallas, Texas at the times set forth below, at which times the
respective documents listed below will be executed and delivered by the parties
thereto.
(a) The Subsidiary Mergers Closing. The closing of the Subsidiary
Mergers will take place, and will be deemed effective for all purposes, at 9:00
a.m., Dallas time, on the Spin-Off
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Date. At such closing, the following documents will be delivered:
(1) Certified resolutions of the Boards of Directors
and stockholders (if necessary) of each of the Bristol Merger
Subsidiaries that is taxable as a corporation under the Code
authorizing the merger of each such Subsidiary with and into
the appropriate Non-Corporate Bristol Hotel Subsidiary as
contemplated by Schedule 2.1;
(2) Certified copies of the filing with the
appropriate Governmental Entity of such articles, agreements
and certificates of merger as may be required under applicable
law to effect the merger of each such Bristol Merger
Subsidiary with and into the appropriate Non-Corporate Bristol
Hotel Subsidiary as contemplated by Schedule 2.1;
(3) Certified copies of the certificate of formation
and other organizational documents of each Non-Corporate
Bristol Hotel Subsidiary; and
(4) Such other documents, instruments and
certificates that may be reasonably required to effect the
Subsidiary Mergers.
(b) The Reorganization Closing. The closing of the Reorganization will
take place, and will be deemed effective for all purposes at, 11:00 a.m., Dallas
time, on the Spin-Off Date. At such closing, the following documents will be
delivered:
(1) Certified resolutions of the Board of Directors
of Bristol Hotel Asset Company authorizing the distribution to
Bristol of all of the BHMC Common
Shares held by it;
(2) Certified resolutions of the Boards of Directors
of each Bristol Subsidiary, as appropriate, authorizing,
respectively, the distribution of all of the Merger Assets and
Spin-Off Assets held by such Subsidiary or received from
another Bristol Subsidiary as contemplated in Schedule 2.2;
and
(3) Such assignment agreements, bills of sale, stock
certificates, stock powers, stock transfer forms and other
instruments of conveyance that may be necessary to reflect the
distribution of the Spin-Off Assets and the Merger Assets as
contemplated in Schedule 2.2.
(c) The Contribution Closing. The closing of the Contribution will take
place, and will be deemed effective for
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all purposes, at 1:00 p.m., Dallas time, on the Spin-Off Date. At such closing,
the following documents will be delivered:
(1) Certified resolutions of the Board of Directors
of Bristol authorizing the contribution to the capital of BHR,
BHMC or any other member of the BHR Group of all of the
Spin-Off Assets;
(2) Certified resolutions of the Board of Directors
of Bristol authorizing the contribution to the capital of BHR
of all of the outstanding capital stock of BHMC; and
(3) Such assignment and assumption agreements, bills
of sale, stock certificates, stock powers, stock transfer
forms and other instruments of conveyance or assumption that
may be necessary to reflect the distribution, contribution
and/or assumption of the Spin-Off Assets, the Merger Assets,
the Merger Liabilities and the Spin-Off Liabilities as
contemplated in Schedule 2.3.
(d) The Spin-Off Closing. The closing of the Spin-Off, the Excess
Shares Redemption, the Holdings Distribution and the Leasing Transactions will
take place, and will be deemed effective for all purposes, at 5:00 p.m., Dallas
time, on the Spin-Off Date. At such closing, the following documents will be
delivered:
(1) Certified resolutions of the Board of Directors
of Bristol (i) with respect to the actions required by Section
3.1(b) and (ii) authorizing the taking of all other actions
necessary or appropriate to effect the Spin-Off;
(2) Resolutions of the Board of Directors and sole
stockholder of BHR and the other appropriate members of the
BHR Group electing the officers and directors of the members
of the BHR Group and authorizing (i) the amendment and
restatement of the certificate of incorporation and bylaws of
BHR, (ii) the stock dividend or stock split, (iii) the Excess
Shares Redemption, (iv) the listing application, (v) the New
Leases and the Leasing Transactions, (vi) the franchise
agreements, (vii) the assumption of the BHR Options, (viii)
the stockholders and registration rights agreements, (ix) the
Hotel Properties Agreement, and (x) the taking of all other
actions necessary or appropriate to effect the Spin-Off;
(3) Certificate of the Agent, dated the Spin-Off
Time, acknowledging receipt of the stock certificate
representing the BHR Common Shares to be distributed in the
Spin-Off, together with a letter from Bristol
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instructing the Agent as to the distribution of such Shares;
(4) Preliminary approval of the NYSE, The Nasdaq
Stock Market or any other nationally recognized securities
exchange or quotation system as to the listing of the BHR
Common Shares on such exchange or quotation system;
(5) Certificate of the Excess Shares Stockholders,
dated prior to the Effective Time, acknowledging receipt of
cash in exchange for the Excess Shares held by the Excess
Shares Stockholders and attaching a stock power irrevocably
assigning such Excess Shares to BHR and certifying as to their
beneficial ownership of Bristol and BHR;
(6) The New Leases;
(7) Agreements or notices terminating all existing
management contracts with respect to any Bristol Hotel
executed by the appropriate parties thereto;
(8) The Hotel Properties Agreement executed by
Holiday Hospitality Corp., BHR and the other parties thereto
(the "Hotel Properties Agreement");
(9) Assumption agreement executed by BHR pursuant to
which BHR expressly assumes all of Bristol's obligations under
the BHR Options as described in Section 4.3 of this Agreement;
(10) An opinion of Jones, Day, Reavis & Pogue,
counsel to Bristol, to the effect that no approval of the
holders of Bristol Common Shares is required in connection
with the consummation of the Subsidiary Mergers, the
Reorganization, the Contribution, and the Spin-Off if such
approval is not solicited by Bristol in the Proxy Statement;
(11) Such other opinions that Bristol may reasonably
determine are appropriate in light of the transactions
contemplated by this Agreement;
(12) Stock transfer forms and/or stock powers of
Holdings assigning to the Partnerships all of the Bristol
Common Shares held by Holdings immediately following the
Spin-Off Time but effective immediately before the Effective
Time and certificates from Holdings and the Partnerships as to
the beneficial ownership of Bristol and BHR by Holdings and
the Partnerships;
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<PAGE> 35
(13) Acknowledgment of FelCor that it will assume the
obligations of Bristol under this Agreement effective as of
the Effective Time; and
(14) Such other documents, instruments and
certificates that may be reasonably required to effect the
Spin-Off, the Excess Shares Redemption, the Leasing
Transactions and the Holdings Distribution.
VII. MISCELLANEOUS
7.1. Termination. Prior to the Spin-Off Date, this Agreement may be
terminated and the Reorganization, the Contribution, the Subsidiary Mergers, the
Excess Shares Redemption and the Holdings Distribution and/or the Spin-Off
abandoned for any or no reason at any time prior to the closing of such
transactions in the sole discretion of the Bristol Board, without the approval
of FelCor or the stockholders of Bristol or FelCor. In the event of such
termination, no party will have any liability of any kind to any other party.
Nothing in this Section 7.1 may be construed to limit Bristol's obligations
under Sections 1.2, 5.3 and 5.9 of the Merger Agreement or Bristol's liabilities
under the Merger Agreement in the event the transactions contemplated by this
Agreement are not consummated.
7.2. Complete Agreement; Construction. This Agreement, including the
Schedules and Exhibits hereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes all previous
negotiations, commitments and writings with respect to such subject matter.
7.3. Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement will survive the Spin-Off Date and the consummation of the
transactions contemplated hereby.
7.4. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflict of laws thereof.
7.5. Notices. All notices and other communications hereunder must be in
writing and must be delivered by hand, mailed by registered or certified mail
(return receipt requested) or sent by facsimile transmission to the parties at
the following addresses (or at such other addresses for a party as may be
specified by like notice), and will be deemed given on the date on which such
notice is received:
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<PAGE> 36
(A) To any member of the Bristol Group:
Before the Spin-Off, to:
Bristol Hotel Company
14295 Midway Road
Dallas, Texas 75244
Attention: J. Peter Kline
Attention: Joel M. Eastman
Telecopy: (972) 391-1515
After the Spin-Off, to:
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway
Suite 1300
Irving, Texas 75062
Attention: President
Attention: General Counsel
Telecopy: (972) 444-4949
(B) To any member of the BHR Group:
Before the Spin-Off, to:
Bristol Hotel Management Corporation
14295 Midway Road
Dallas, Texas 75244
Attention: J. Peter Kline
Attention: Joel M. Eastman
Telecopy: (972) 391-1515
After the Spin-Off, to:
Bristol Hotels & Resorts, Inc.
14295 Midway Road
Dallas, Texas 75244
Attention: J. Peter Kline
Attention: General Counsel
Telecopy: (972) 391-1515
7.6. Transaction Costs. Except as otherwise provided in this Agreement,
all costs and expenses of any party hereto will be paid by the party that incurs
such costs and expenses. Bristol will pay all costs and expenses relating to the
Reorganization, the Contribution, the Subsidiary Mergers and the Merger,
including without limitation all costs and expenses of (i) printing and
distributing the Proxy Statement, (ii) making any filings or obtaining any
consents in connection with the Reorganization, the Contribution, the Subsidiary
Mergers or the Merger, and (iii) any proxy or solicitation agent or similar
consultants in connection with the Bristol Stockholders Meeting. BHR will pay
all costs and expenses relating to the Spin-Off, including without limitation
all costs and expenses of (a) the
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<PAGE> 37
filing, printing and distribution of the Registration Statement, (b) the listing
of the BHR Common Shares on a securities exchange or quotation system, (c) the
Agent, (d) printing and engraving stock certificates, (e) any transfer agent
engaged by BHR and (f) making any other federal, state, local or other
regulatory filings in connection with the Spin-Off.
7.7. Amendments. This Agreement may not be modified or amended except
by an agreement in writing signed by the parties.
7.8. Successors and Assigns. This Agreement is not assignable, in whole
or in part, directly or indirectly, by either party hereto without the prior
written consent of the other and the prior written consent of FelCor, and any
attempt to assign any rights or obligations arising under this Agreement without
such consent will be void; provided, however, that (i) the rights and
obligations of the parties under this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and permitted assigns (including the Surviving Corporation by virtue of the
Merger), and (ii) the rights and obligations of Bristol under this Agreement may
be assigned in whole or in part at the Effective Time by the Surviving
Corporation to the FelCor Operating Partnership.
7.9. No Third-Party Beneficiaries. Except for the provisions of Article
V relating to Indemnitees and as otherwise expressly provided herein, the
provisions of this Agreement are solely for the benefit of the signatories
hereto (including FelCor) and their respective successors and permitted assigns
and will not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right.
7.10. Title and Headings. Titles and headings to sections, articles,
exhibits and schedules herein are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
7.11. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction will, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction will not invalidate or render unenforceable
such provision in any other jurisdiction. Without prejudice to any rights or
remedies otherwise available to any party hereto, each party hereto acknowledges
that damages would be an inadequate remedy for any breach of the provisions of
this Agreement and agrees that the obligations of the parties hereunder are
specifically enforceable.
7.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed will be deemed an original, but all of
which together will constitute one and the same instrument.
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<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
BRISTOL HOTEL COMPANY
By: /s/ J. PETER KLINE
-------------------------------------
Name: J. Peter Kline
Title: President
BRISTOL HOTEL MANAGEMENT CORPORATION
By: /s/ J. PETER KLINE
-------------------------------------
Name: J. Peter Kline
Title: President
BRISTOL HOTELS & RESORTS, INC.
By: /s/ J. PETER KLINE
-------------------------------------
Name: J. Peter Kline
Title: President
ACKNOWLEDGED AND AGREED:
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
33
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRISTOL HOTELS & RESORTS
Pursuant to the provisions of Section 245 of the Delaware General
Corporation Law (the "DGCL"), Bristol Hotels & Resorts, Inc., a Delaware
corporation (the "Company"), does hereby certify as follows:
1. The original name of the Company is Bristol Hotels & Resorts, Inc.
2. The original Certificate of Incorporation of the Company was filed
in the office of the Secretary of State of Delaware on March 20, 1998.
3. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 242 and 245 of the DGCL.
4. The text of the Certificate of Incorporation of the Company is
hereby amended and restated in its entirety to read as follows:
FIRST. The name of the corporation is Bristol Hotels & Resorts (the
"Company").
SECOND. The address of the Company's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle.
The name of its registered agent at that address is Corporation Service Company.
THIRD. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DGCL").
FOURTH. Section 1. Authorized Capital Stock. The Company is authorized
to issue two classes of capital stock, designated Common Stock and Preferred
Stock. The total number of shares of capital stock that the Company is
authorized to issue is 125,000,000 shares, consisting of 100,000,000 shares of
Common Stock, par value $0.01 per share, and 25,000,000 shares of Preferred
Stock, par value $0.01 per share.
Section 2. Preferred Stock. The Preferred Stock may be issued in one or
more series. The Board of Directors of the Company (the "Board") is hereby
authorized to authorize the issuance of shares of Preferred Stock in any series
and to fix from time to time before issuance the number of shares to be included
in any series and the designation, relative powers, preferences, and rights and
qualifications, limitations, or restrictions of all shares of any series. The
authority of the Board with respect to each series will include, without
limiting the generality or effect of the foregoing, the determination of any or
all of the following:
<PAGE> 2
(a) The number of shares of any series and the designation to
distinguish the shares of the series from the shares of all other
series;
(b) The voting powers, if any, and whether such voting powers
are full or limited in the series;
(c) The redemption provisions, if any, applicable to the
series, including the redemption price or prices to be paid;
(d) Whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of the series, and the dates and
preferences of dividends on the series;
(e) The rights of the series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Company;
(f) The provisions, if any, pursuant to which the shares of
the series are convertible into, or exchangeable for, shares of any
other class or classes or of any other series of the same or any other
class or classes of stock, or any other security, of the Company or any
other corporation or other entity, and the price or prices or the rates
of exchange applicable thereto;
(g) The right, if any, to subscribe for or to purchase any
securities of the Company or any other corporation or other entity;
(h) The provisions, if any, of a sinking fund applicable to
the series; and
(i) Any other relative, participating, optional, or other
special powers, preferences, rights, qualifications, limitations, or
restrictions of the series;
all as may be determined from time to time by the Board and stated in the
resolution or resolutions providing for the issuance of Preferred Stock
(collectively, a "Preferred Stock Designation").
Section 3. Common Stock. Except as may otherwise be provided in a
Preferred Stock Designation or as a result of Article Seventh, the holders of
Common Stock will be entitled to one vote on each matter submitted to a vote at
a meeting of stockholders for each share of Common Stock held of record by that
holder as of the record date for that meeting.
FIFTH. The Board may make, amend, and repeal the Bylaws of the Company.
Any Bylaw made by the Board under the powers conferred by this Article Fifth may
be amended or repealed by the Board (except as specified in any such Bylaw so
made or amended) or by the stockholders in the manner provided in the Bylaws of
the Company. Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, Bylaws 1, 3, 8, 10, 11, 12, 13,
34, and 40 may not be amended or repealed by the stockholders, and no provision
inconsistent therewith may be adopted by the stockholders, without the
affirmative vote of the holders of record of at least 80% of the Voting Stock,
voting together as a single class. For the purposes of this Certificate of
Incorporation, "Voting Stock" means capital stock of the Company of any class or
series entitled to vote generally in the election of Directors. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of record of at least 80% of the Voting Stock,
voting together as a single
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<PAGE> 3
class, is required to amend or repeal, or to adopt any provision inconsistent
with, this Article Fifth.
SIXTH. Subject to the rights of the holders of any series of Preferred
Stock:
(a) Any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual or
special meeting of stockholders of the Company and may not be effected
by any consent in writing of such stockholders; and
(b) Special meetings of stockholders of the Company may be
called only by (i) the Chairman of the Board (the "Chairman") or a Vice
Chairman of the Board (the "Vice Chairman"), (ii) the Secretary of the
Company (the "Secretary") within ten calendar days after receipt of the
written request of a majority of the total number of Directors then in
office (the "Whole Board"), and (iii) as provided in Bylaw 3.
At any annual meeting or special meeting of stockholders of the Company, only
such business will be conducted or considered as has been brought before such
meeting in the manner provided in the Bylaws of the Company. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of record of at least 80% of the Voting Stock,
voting together as a single class, is required to amend or repeal, or to adopt
any provision inconsistent with, this Article Sixth.
SEVENTH. Section 1. (a) Definitions. For the purpose of this Article
Seventh, the following terms have the following meanings when used herein with
initial capital letters:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with, such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
"Beneficial Ownership" has the meaning ascribed to that term under Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as such Rule is in effect on June 1, 1998. The terms
"Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" have
correlative meanings.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in New York City
are authorized or required by law, regulation, or executive order to close.
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<PAGE> 4
"Charitable Beneficiary" means one or more beneficiaries of the
Charitable Trust as designated pursuant to Section 3(f) of this Article Seventh.
"Charitable Trust" means any trust provided for in Section 3(f) of this
Article Seventh.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Excepted Holder" means a stockholder of the Company for whom an
Excepted Holder Limit is created by the Board pursuant to Section 2(f) of this
Article Seventh and any stockholder who acquires record and Beneficial Ownership
of Voting Stock as of the Initial Date in excess of the Ownership Limit so long
as such stockholder does not increase his or her percentage equity interest in
the Company.
"Excepted Holder Limit" means the percentage limitation, including the
terms and conditions thereof, established by the Board pursuant to this Article
Seventh.
"Initial Date" means the date upon which Common Stock was distributed
to holders of common stock of Bristol Hotel Company.
"Market Price" on any date means, with respect to any class or series
of outstanding Voting Stock, the Closing Price for the Voting Stock on that
date. The "Closing Price" on any date means the last sale price for the Voting
Stock, regular way, or, in case no sale takes place on that day, the average of
the closing bid and ask prices, regular way, for the Voting Stock, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Voting Stock is not listed or admitted to trading on the New
York Stock Exchange, as reported on the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Voting Stock is listed or admitted to trading
or, if the Voting Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotation
system that may then be in use or, if the Voting Stock is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Voting Stock selected by the
Board (in any such case, the "Exchange") or, if no trading price is available
for the Voting Stock, the fair market value of the Voting Stock, as determined
in good faith by the Board.
"Ownership Limit" means not more than 9.9% (by voting power or total
number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of Common Stock and 9.9% of any series or class of other
outstanding Voting Stock. The number and voting power of outstanding Voting
Stock will be determined by the Board in good faith, which determination will be
conclusive for all purposes hereof.
"Person" means an individual, corporation, partnership, limited
liability company, estate, trust, association, foundation, joint stock company,
or other entity and also includes a group as
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<PAGE> 5
that term is used in Section 13(d)(3) of the Exchange Act, and a group to which
an Excepted Holder Limit applies.
"Prohibited Owner" means, with respect to any purported Transfer, any
Person who, but for the provisions of this Article Seventh, would Beneficially
Own an amount of Voting Stock in excess of the Ownership Limit, and if
appropriate in the context, also means any Person who would have been the record
owner of Voting Stock that the Prohibited Owner would have so beneficially
owned.
"Restriction Termination Date" means December 31, 2000 or such earlier
date as may be fixed for purposes hereof by the Board.
"Transfer" means any sale, transfer, gift, assignment, devise, or other
disposition, whether or not for value and whether by contract, by operation of
law, or otherwise. The terms "Transferring" and "Transferred" have correlative
meanings.
"Trustee" means the Person appointed by the Board to serve as trustee
of the Charitable Trust.
Section 2. Ownership Limitations. During the period commencing on the
Initial Date and ending on the Restriction Termination Date:
(a) Basic Restrictions. No Person, other than an Excepted
Holder, may Beneficially Own Voting Stock in excess of the Ownership
Limit, and no Excepted Holder may Beneficially Own Voting Stock in
excess of the Excepted Holder Limit for such Excepted Holder.
(b) Transfer in Trust. If any Transfer of Voting Stock
(whether or not such Transfer is the result of a transaction entered
into through the facilities of the Exchange) occurs which, if
effective, would result in any Person Beneficially Owning Voting Stock
in violation of Section 2(a) of this Article Seventh, then:
(i) The amount of Voting Stock the Beneficial
Ownership of which otherwise would cause that Person to
violate Section 2(a) (rounded up to the nearest whole share)
will be, without further action, transferred to a Charitable
Trust for the benefit of a Charitable Beneficiary, as
described in Section 3 of this Article Seventh, effective as
of the close of business on the Business Day prior to the date
of the Transfer, and that Person will acquire no rights in the
Voting Stock; or
(ii) If the transfer to the Charitable Trust described
in clause (i) of this sentence would not be effective for any
reason to prevent the violation of Section 2(a) of this
Article Seventh, then the Transfer of Voting Stock that
otherwise would cause the Person to violate Section 2(a) will
be void ab initio, and the intended Transferee will acquire no
rights in the Voting Stock.
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<PAGE> 6
(c) Remedies for Breach. If the Board or any duly authorized
committee thereof at any time determines that a Transfer or other event
has taken place that results in a violation of Section 2(a) or that a
Person intends to acquire or has attempted to acquire Beneficial
Ownership of any Voting Stock in violation of Section 2(a) (whether or
not such violation is intended), the Board or a committee thereof may
take such action as it deems advisable to refuse to give effect to or
to prevent that Transfer or other event, including without limitation
causing the Company to redeem Voting Stock, refusing to give effect to
that Transfer on the books of the Company or instituting proceedings to
enjoin that Transfer or other event; provided, however, that any
Transfer or attempted Transfer or other event in violation of Section
2(a) will automatically result in the Transfer to the Charitable Trust
described above, and, where applicable, the Transfer (or other event)
will be void ab initio as provided above irrespective of any action (or
non-action) by the Board or a committee thereof.
(d) Notice of Restricted Transfer. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership of Voting Stock
that will or may violate Section 2(a), or any Person who would have
owned the Voting Stock that resulted in a transfer to the Charitable
Trust pursuant to the provisions of Section 2(b) of this Article
Seventh, must immediately give written notice to the Company of that
event, or in the case of a proposed or attempted transaction, give at
least ten Business Days prior written notice, and must provide to the
Company such other information as the Company may request in order to
determine the effect, if any, of that Transfer under this Article
Seventh.
(e) Ambiguity. In the case of an ambiguity in the application
of any of the provisions of this Article Seventh, the Board will have
the power conclusively to determine the application of the provisions
of this Article Seventh with respect to any situation based on the
facts then known to it. If this Article Seventh and this Certificate of
Incorporation fails to provide specific guidance with respect to any
situation, the Board will have the power to determine the action to be
taken so long as the action is not contrary to the provisions of this
Article Seventh.
(f) Exceptions. (i) The Board, in its sole discretion, may
exempt a Person from the Ownership Limit, and may establish or increase
an Excepted Holder Limit for such Person on such terms and subject to
such conditions as the Board determines in its sole discretion.
(ii) An underwriter which participates in a public
offering or a private placement of Voting Stock (or securities
convertible into or exchangeable for Voting Stock) may
Beneficially Own Voting Stock (or securities convertible into
or exchangeable for Voting Stock) in excess of the Ownership
Limit, but only to the extent necessary to facilitate such
public offering or private placement.
(iii) The Board may only reduce the Excepted Holder
Limit for an Excepted Holder (A) with the written consent of
such Excepted Holder at any time, or (B) pursuant to the terms
and conditions of the agreements and undertakings entered into
with such Excepted Holder in connection with the
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<PAGE> 7
establishment of the Excepted Holder Limit for that Excepted
Holder. No Excepted Holder Limit shall be reduced to a
percentage that is less than the Ownership Limit.
(iv) A Person shall not become a Prohibited Owner if
that Person shall become the Beneficial Owner of Voting Stock
in excess of the Ownership Limit solely as a result of a
reduction in the number of shares of Voting Stock by the
Company, unless and until such time as that Person shall
purchase or otherwise become (as a result of actions taken by
such Person or its Affiliates) the Beneficial Owner of
additional shares of Voting Stock.
(g) Legend. Through the Restriction Termination Date, each
certificate for Voting Stock will bear substantially the following
legend (as modified from time to time by action of the Board):
The shares represented by this certificate are subject to
restrictions on Beneficial Ownership and Transfer provided in
the Company's Certificate of Incorporation, as amended from
time to time, under which, subject to certain exceptions, no
Person may Beneficially Own Voting Stock in excess of 9.9% (by
voting power or number of shares) of the outstanding Voting
Stock of the Company. Any Person who Beneficially Owns or
attempts to Beneficially Own Voting Stock which causes or will
cause any Person to Beneficially Own Voting Stock in excess or
in violation of the above limitations must immediately notify
the Company. If any of the restrictions on Transfer or
Ownership are violated, the shares represented hereby will be
automatically transferred to a Trustee of a Charitable Trust
for the benefit of one or more Charitable Beneficiaries. In
addition, upon the occurrence of certain events, attempted
Transfers in violation of the restrictions described above may
be void ab initio. All capitalized terms in this legend have
the meanings defined in the Company's Certificate of
Incorporation, as the same may be amended from time to time, a
copy of which, including the restrictions on Transfer and
Ownership, will be furnished to each holder of Voting Stock of
the Company on request and without charge.
Instead of the foregoing legend, the certificate may state that the Company will
furnish a full statement about certain restrictions on transferability to a
stockholder on request and without charge.
Section 3. Transfer of Voting Stock in Trust. (a) Ownership in Trust.
Upon any purported Transfer or other event described in Section 2(a) that would
result in a Transfer of Voting Stock to a Charitable Trust, such Voting Stock
will be deemed to have been Transferred to the Trustee as trustee of a
Charitable Trust for the exclusive benefit of one or more Charitable
Beneficiaries effective as of the close of business on the Business Day prior to
the purported
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<PAGE> 8
Transfer or other event that results in the transfer to the Charitable Trust
pursuant to Section 2(a). Each Charitable Beneficiary will be designated by the
Company as provided in Section 3(f).
(b) Status of Shares Held by the Trustee. Voting Stock held by
the Trustee will be issued and outstanding Voting Stock of the Company.
The Prohibited Owner will have no rights in the Voting Stock held by
the Trustee, will not benefit economically from ownership of any Voting
Stock held in trust by the Trustee, will have no rights to dividends,
and will not possess any rights to vote or other rights attributable to
the Voting Stock held in the Charitable Trust.
(c) Dividend and Voting Rights. The Trustee will have all
voting rights and rights to dividends or other distributions with
respect to Voting Stock held in the Charitable Trust which rights will
be exercised for the exclusive benefit of the Charitable Beneficiary.
Any dividend or other distribution paid prior to the discovery by the
Company that Voting Stock has been Transferred to the Trustee will be
paid with respect to that Voting Stock to the Trustee by the Prohibited
Owner upon demand of the Trustee and any dividend or other distribution
authorized but unpaid will be paid when due to the Trustee. Any
dividends or distributions so paid over to the Trustee will be held in
trust for the Charitable Beneficiary. Effective as of the date that
Voting Stock has been Transferred to the Trustee, the Trustee will have
the authority (at the Trustee's sole discretion) to (i) rescind as void
any vote cast by a Prohibited Owner prior to the discovery by the
Company that Voting Stock has been transferred to the Trustee and (ii)
recast such vote in accordance with the desires of the Trustee acting
for the benefit of the Charitable Beneficiary. Notwithstanding the
provisions of this Article Seventh, until the Company has received
notification that Voting Stock has been transferred into a Charitable
Trust, the Company will be entitled to rely on its stock transfer and
other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.
(d) Sale of Shares by Trustee. Within 20 Business Days of
receiving notice from the Company that Voting Stock has been
Transferred to the Charitable Trust, the Trustee will sell the Voting
Stock held in the Charitable Trust to a Person, designated by the
Trustee, whose ownership of the Voting Stock will not violate the
ownership limitations set forth in Section 2(a) of this Article
Seventh. Upon such sale, the interest of the Charitable Beneficiary in
the Voting Stock sold will terminate and the Trustee will distribute
the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as provided in this Section 3(d). The Prohibited
Owner will receive the lesser of (i) the price paid by the Prohibited
Owner for the Voting Stock or, if the Prohibited Owner did not give
value for the Voting Stock in connection with the event causing the
Voting Stock to be held in the Charitable Trust (e.g., in the case of a
gift, devise or other similar transaction), the Market Price of the
Voting Stock on the day of the event causing the Voting Stock to be
held in the Charitable Trust and (ii) the price per share received by
the Trustee from the sale or other disposition of the Voting Stock held
in the Charitable Trust. Any net sales proceeds in excess of the amount
payable to the Prohibited Owner will be immediately paid to the
Charitable Beneficiary. If, prior to the discovery by the
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<PAGE> 9
Company that Voting Stock has been Transferred to the Trustee, the
Voting Stock is sold by a Prohibited Owner, then (i) the Voting Stock
will be deemed to have been sold on behalf of the Charitable Trust and
(ii) to the extent that the Prohibited Owner received an amount for
that Voting Stock that exceeds the amount that the Prohibited Owner was
entitled to receive pursuant to this Section 3(d), such excess will be
paid by the Prohibited Owner to the Trustee upon demand.
(e) Purchase Right in Shares Transferred to the Trustee.
Voting Stock Transferred to the Trustee will be deemed to have been
offered for sale to the Company, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that
resulted in the Transfer to the Charitable Trust (or, in the case of a
devise or gift, the Market Price at the time of the devise or gift) and
(ii) the Market Price on the date the Company, or its designee, accepts
the offer. The Company will have the right to accept the offer until
the Trustee has sold the Voting Stock held in the Charitable Trust
pursuant to Section 3(d) of this Articles Seventh. Upon such a sale to
the Company, the interest of the Charitable Beneficiary in the Voting
Stock sold will terminate and the Trustee will distribute the net
proceeds of the sale to the Prohibited Owner.
(f) Designation of Charitable Beneficiaries. By written notice
to the Trustee, the Company will designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the
Charitable Trust such that Voting Stock held in the Charitable Trust
would not violate the restrictions set forth in Section 2(a) in the
hands of such Charitable Beneficiary. Each organization designated
under this Section 3(f) must be described in Section 501(c)(3) of the
Code and contributions to the organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code.
Section 4. Exchange Transactions. Nothing in this Article Seventh
precludes the settlement of any transaction entered into through the facilities
of the Exchange. The fact that the settlement of any transaction is so permitted
will not, however, negate the effect of any other provision of this Article
Seventh and any Transferee in such a transaction is subject to all of the
provisions set forth in this Article Seventh.
Section 5. Enforcement. The Company is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article Seventh.
Section 6. Non-Waiver. No delay or failure on the part of the Company
or the Board in exercising any right hereunder will operate as a waiver.
EIGHTH. Section 1. Number, Election, and Terms of Directors. Subject to
the rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, the number of the Directors of the Company will not be less than
three nor more than 15 and will be fixed from time to time in the manner
described in the Bylaws of the Company. The Directors, other than those who may
be elected by the holders of any series of Preferred Stock, will be classified
with respect to the time for which they severally hold office into three
classes, as nearly equal in number as possible,
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<PAGE> 10
designated Class I, Class II, and Class III, all as determined by action of the
full Board. At any meeting of stockholders at which Directors are to be elected,
commencing with the 1999 meeting of stockholders, the number of Directors
elected may not exceed the greatest number of Directors then in office in either
class of Directors not standing for election at such meeting. The Directors
first appointed to Class I will hold office for a term expiring at the annual
meeting of stockholders to be held in 1999; the Directors first appointed to
Class II will hold office for a term expiring at the annual meeting of
stockholders to be held in 2000; and the Directors first appointed to Class III
will hold office for a term expiring at the annual meeting of stockholders to be
held in 2001, with the members of each class to hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the Company, the successors of the class of Directors whose
terms expire at that meeting will be elected by plurality vote of all votes cast
at such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Subject to the rights, if any, of the holders of any series of Preferred Stock
to elect additional Directors under circumstances specified in a Preferred Stock
Designation, Directors may be elected by the stockholders only at an annual
meeting of stockholders. Election of Directors of the Company need not be by
written ballot unless requested by the Chairman or by the holders of a majority
of the Voting Stock present in person or represented by proxy at a meeting of
the stockholders at which Directors are to be elected.
Section 2. Nomination of Director Candidates. Advance notice of
stockholder nominations for the election of Directors must be given in the
manner provided in the Bylaws of the Company.
Section 3. Newly Created Directorships and Vacancies. Subject to the
rights, if any, of (a) the holders of any series of Preferred Stock or (b) any
party to the Stockholders Agreement (the "Stockholders Agreement") among the
Corporation, Bass plc, Bass America, Inc., Holiday Corporation and United/Harvey
Holdings, L.P. to elect additional Directors, newly created directorships
resulting from any increase in the number of Directors and any vacancies on the
Board resulting from death, resignation, disqualification, removal, or other
cause will be filled solely by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the Board,
by a sole remaining Director, or, if there is no remaining Director, by the
stockholders. Any Director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor has been elected and qualified. No decrease in the number
of Directors constituting the Board may shorten the term of any incumbent
Director.
Section 4. Removal. Subject to the rights, if any, of the holders of
any series of Preferred Stock or of any party to the Stockholders Agreement to
elect additional Directors under circumstances specified in a Preferred Stock
Designation or the Stockholders Agreement, any Director may be removed from
office (a) by the Board as provided in the Bylaws and (b) by the stockholders
only for cause and only in the manner provided in this Section 4. At any annual
meeting or special meeting of the stockholders, the notice of which states that
the removal of a Director or Directors is among the purposes of the meeting, the
affirmative vote of the holders of
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at least 80% of the Voting Stock, voting together as a single class, may remove
such Director or Directors for cause.
Section 5. Amendment, Repeal, Etc. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of at
least 80% of the Voting Stock, voting together as a single class, is required to
amend or repeal, or to adopt any provision inconsistent with, this Article
Eighth.
NINTH. To the fullest extent permitted by the DGCL or any other
applicable law currently or hereafter in effect, no Director of the Company will
be personally liable to the Company or its stockholders for or with respect to
any acts or omissions in the performance of his or her duties as a Director of
the Company. Any repeal or modification of this Article Ninth will not adversely
affect any right or protection of a Director of the Company in respect of any
act or omission occurring in whole or in part prior to such repeal or
modification.
TENTH. Each Person who is or was or had agreed to become a Director or
officer of the Company, and each such Person who is or was serving or who had
agreed to serve at the request of the Board or an officer of the Company as an
employee or agent of the Company or as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other entity, whether for profit or not for profit (including
the heirs, executors, administrators, or estate of such Person), will be
indemnified by the Company to the fullest extent permitted by the DGCL or any
other applicable law as currently or hereafter in effect. The right of
indemnification provided in this Article Tenth (a) will not be exclusive of any
other rights to which any Person seeking indemnification may otherwise be
entitled, including without limitation pursuant to any contract approved by a
majority of the Whole Board (whether or not the Directors approving such
contract are or are to be parties to such contract or similar contracts) and (b)
will be applicable to matters otherwise within its scope whether or not such
matters arose or arise before or after the adoption of this Article Tenth.
Without limiting the generality or the effect of the foregoing, the Company may
adopt Bylaws, or enter into one or more agreements with any Person, which
provide for indemnification greater or otherwise different than that provided in
this Article Tenth or the DGCL, and any such agreement approved by the Whole
Board will be a valid and binding obligation of the Company regardless of
whether one or more members of the Board, or all members of the Board, are
parties thereto or to similar agreements. Notwithstanding anything to the
contrary in this Article Tenth, in the event that the Company enters into a
contract with any Person providing for indemnification of such Person, the
provisions of such contract will exclusively govern the Company's obligations in
respect of indemnification for or advancement of fees or disbursements of such
Person's counsel or any other professional engaged by such Person. Any amendment
or repeal of, or adoption of any provision inconsistent with, this Article Tenth
will not adversely affect any right or protection existing hereunder, or arising
out of events occurring or circumstances existing, in whole or in part, prior to
such amendment, repeal, or adoption and no such amendment, repeal, or adoption,
will affect the legality, validity, or enforceability of any contract entered
into or right granted prior to the effective date of such amendment, repeal, or
adoption.
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<PAGE> 12
This Amended and Restated Certificate of Incorporation shall be
effective on the date of its filing with the Secretary of State of the State of
Delaware.
EXECUTED effective as of ___________________, 1998.
BRISTOL HOTELS & RESORTS, INC.
By:
-------------------------------------
Name:
Title:
ATTEST:
- -----------------------------------
Secretary
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<PAGE> 1
Exhibit 3.3
BRISTOL HOTELS & RESORTS, INC.
BYLAWS
<PAGE> 2
Bristol Hotels & Resorts, Inc.
BYLAWS
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - MEETINGS OF STOCKHOLDERS..............................................................................1
Section 1. Time and Place of Meetings................................................................1
Section 2. Annual Meeting............................................................................1
Section 3. Special Meetings..........................................................................1
Section 4. Notice of Meetings........................................................................1
Section 5. Quorum....................................................................................1
Section 6. Voting....................................................................................2
ARTICLE II - DIRECTORS............................................................................................2
Section 1. Powers....................................................................................2
Section 2. Number and Term of Office.................................................................2
Section 3. Vacancies and New Directorships...........................................................2
Section 4. Regular Meetings..........................................................................3
Section 5. Special Meetings..........................................................................3
Section 6. Quorum....................................................................................3
Section 7. Written Action............................................................................3
Section 8. Participation in Meetings by Conference Telephone.........................................3
Section 9. Committees................................................................................3
Section 10. Compensation..............................................................................4
Section 11. Rules.....................................................................................4
ARTICLE III - NOTICES.............................................................................................4
Section 1. Generally.................................................................................4
Section 2. Waivers...................................................................................4
ARTICLE IV - OFFICERS.............................................................................................4
Section 1. Generally.................................................................................4
Section 2. Compensation..............................................................................4
Section 3. Succession................................................................................5
Section 4. Authority and Duties......................................................................5
Section 5. Execution of Documents and Action with Respect to Securities of Other
Corporations..............................................................................5
ARTICLE V - STOCK.................................................................................................5
Section 1. Certificates..............................................................................5
Section 2. Transfer..................................................................................5
Section 3. Lost, Stolen or Destroyed Certificates....................................................5
Section 4. Record Date...............................................................................6
</TABLE>
i
<PAGE> 3
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE VI - GENERAL PROVISIONS...................................................................................7
Section 1. Fiscal Year...............................................................................7
Section 2. Corporate Seal............................................................................7
Section 3. Reliance upon Books, Reports and Records..................................................7
Section 4. Time Periods..............................................................................7
Section 5. Dividends.................................................................................7
ARTICLE VII - AMENDMENTS..........................................................................................7
Section 1. Amendments................................................................................7
</TABLE>
ii
<PAGE> 4
BRISTOL HOTELS & RESORTS, INC.
BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Delaware, as may be designated by
the Board of Directors or, in the absence of a designation by the Board of
Directors, by the Chairman of the Board, the President or the Secretary, and
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders shall
be held at such date and time as shall be designated from time to time by the
Board of Directors, at which meeting the stockholders shall elect by a plurality
vote the directors to succeed those whose terms expire and shall transact such
other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law or by the
Certificate of Incorporation, may be called by the Board of Directors, the
Chairman of the Board or the President, and shall be called by the President or
the Secretary at the request in writing of stockholders owning a majority in
interest of the entire capital stock of the Corporation issued and outstanding
and entitled to vote. Such request shall be sent to the President and the
Secretary and shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Written notice of every meeting of the
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or by law. When a meeting is adjourned to another
place, date or time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
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<PAGE> 5
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
Section 6. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation
on the record date for the meeting and such votes may be cast either in person
or by written proxy. Every proxy must be duly executed and filed with the
Secretary of the Corporation. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. The vote upon any question
brought before a meeting of the stockholders may be by voice vote, unless the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at such meeting otherwise
determine. Every vote taken by written ballot shall be counted by one or more
inspectors of election appointed by the Board of Directors. When a quorum is
present at any meeting, the vote of the holders of a majority of the stock which
has voting power present in person or represented by proxy and which has
actually voted shall decide any question properly brought before such meeting,
unless the question is one upon which by express provision of law, the
Certificate of Incorporation or these bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
ARTICLE II
DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
consist of one or more members. The number of directors shall be fixed by
resolution of the Board of Directors or by the stockholders at the annual
meeting or a special meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article,
and each director elected shall hold office until his successor is elected and
qualified, except as required by law. Any decrease in the authorized number of
directors shall not be effective until the expiration of the term of the
directors then in office, unless, at the time of such decrease, there shall be
vacancies on the Board which are being eliminated by such decrease.
Section 3. Vacancies and New Directorships. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
which occur between annual meetings of the stockholders may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so elected shall hold office until
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<PAGE> 6
the next annual meeting of the stockholders and until their successors are
elected and qualified, except as required by law.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on one day's written
notice to each director by whom such notice is not waived, given either
personally or by mail or telegram.
Section 6. Quorum. At all meetings of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present at the meeting may adjourn the meeting
from time to time to another place, time or date, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 7. Written Action. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the Board or committee.
Section 8. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any such
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 9. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation and each
to have such lawfully delegable powers and duties as the Board may confer. Each
such committee shall serve at the pleasure of the Board of Directors. The Board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Except as otherwise provided by law, any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it. Any committee or committees so
designated by the Board shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Unless otherwise
prescribed by the Board of Directors, a majority of the members of the committee
shall constitute a quorum for the transaction of business, and the act of a
majority of the members present at a meeting at which there is a quorum shall be
the act of such committee. Each committee shall prescribe its own
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<PAGE> 7
rules for calling and holding meetings and its method of procedure, subject to
any rules prescribed by the Board of Directors, and shall keep a written record
of all actions taken by it.
Section 10. Compensation. The Board of Directors may establish such
compensation for, and reimbursement of the expenses of, directors for attendance
at meetings of the Board of Directors or committees, or for other services by
directors to the Corporation, as the Board of Directors may determine.
Section 11. Rules. The Board of Directors may adopt such special rules
and regulations for the conduct of their meetings and the management of the
affairs of the Corporation as they may deem proper, not inconsistent with law or
these bylaws.
ARTICLE III
NOTICES
Section 1. Generally. Whenever by law or under the provisions of the
Certificate of Incorporation or these bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram or telephone.
Section 2. Waivers. Whenever any notice is required to be given by law
or under the provisions of the Certificate of Incorporation or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
given, shall be deemed equivalent to such notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a Chairman, a President, a
Secretary and a Treasurer. The Board of Directors may also choose one or more
Vice Chairmen or Vice Presidents and such other officers as the Board may from
time to time determine. Any number of offices may be held by the same person.
Section 2. Compensation. The compensation of all officers and agents of
the Corporation who are also directors of the Corporation shall be fixed by the
Board of Directors. The Board of Directors may delegate the power to fix the
compensation of other officers and agents of the Corporation to an officer of
the Corporation.
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<PAGE> 8
Section 3. Succession. The officers of the Corporation shall hold
office until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors.
Section 4. Authority and Duties. Each of the officers of the
Corporation shall have such authority and shall perform such duties as are
customarily incident to their respective offices, or as may be specified from
time to time by the Board of Directors in a resolution which is not inconsistent
with these bylaws.
Section 5. Execution of Documents and Action with Respect to Securities
of Other Corporations. The President shall have and is hereby given, full power
and authority, except as otherwise required by law or directed by the Board of
Directors, (a) to execute, on behalf of the Corporation, all duly authorized
contracts, agreements, deeds, conveyances or other obligations of the
Corporation, applications, consents, proxies and other powers of attorney, and
other documents and instruments, and (b) to vote and otherwise act on behalf of
the Corporation, in person or by proxy, at any meeting of stockholders (or with
respect to any action of such stockholders) of any other corporation in which
the Corporation may hold securities and otherwise to exercise any and all rights
and powers which the Corporation may possess by reason of its ownership of
securities of such other corporation. In addition, the President may delegate to
other officers, employees and agents of the Corporation the power and authority
to take any action which the President is authorized to take under this Section
5, with such limitations as the President may specify; such authority so
delegated by the President shall not be re-delegated by the person to whom such
execution authority has been delegated.
ARTICLE V
STOCK
Section 1. Certificates. Certificates representing shares of stock of
the Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall be
numbered and their issuance recorded in the books of the Corporation, and each
certificate shall exhibit the holder's name and the number of shares and shall
be signed by, or in the name of the Corporation by the Chairman of the Board or
the President and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Corporation. Any or all of the signatures and the
seal of the Corporation, if any, upon such certificates may be facsimiles,
engraved or printed.
Section 2. Transfer. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. Lost, Stolen or Destroyed Certificates. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates previously issued by the Corporation alleged to have
been lost, stolen or destroyed upon the making of an affidavit of
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<PAGE> 9
that fact, satisfactory to the Secretary, by the person claiming the certificate
of stock to be lost, stolen or destroyed. As a condition precedent to the
issuance of a new certificate or certificates the Secretary may require the
owner of such lost, stolen or destroyed certificate or certificates to give the
Corporation a bond in such sum and with such surety or sureties as the Secretary
may direct as indemnity against any claims that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of the new certificate.
Section 4. Record Date. (a) In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
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ARTICLE VI
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
fixed from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may adopt a corporate
seal and use the same by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 3. Reliance upon Books, Reports and Records. Each director,
each member of a committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the records of the Corporation and
upon such information, opinions, reports or statements presented to the
Corporation by any of the Corporation's officers or employees, or committees of
the Board of Directors, or by any other person as to matters the director,
committee member or officer believes are within such other person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
Section 4. Time Periods. In applying any provision of these bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded and the day of the event shall be included.
Section 5. Dividends. The Board of Directors may from time to time
declare and the Corporation may pay dividends upon its outstanding shares of
capital stock, in the manner and upon the terms and conditions provided by law
and the Certificate of Incorporation.
ARTICLE VII
AMENDMENTS
Section 1. Amendments. These bylaws may be altered, amended or
repealed, or new bylaws may be adopted, by the stockholders or by the Board of
Directors.
7
<PAGE> 1
EXHIBIT 3.4
BRISTOL HOTELS & RESORTS, INC.
AMENDED AND RESTATED BYLAWS
AS ADOPTED AND IN EFFECT
AS OF __________, 1998
<PAGE> 2
BRISTOL HOTELS & RESORTS, INC.
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STOCKHOLDERS' MEETINGS................................................................ 1
1. Time and Place of Meetings.......................................... 1
2. Annual Meeting...................................................... 1
3. Special Meetings.................................................... 1
4. Notice of Meetings.................................................. 2
5. Inspectors.......................................................... 2
6. Quorum.............................................................. 2
7. Voting.............................................................. 2
8. Order of Business................................................... 3
DIRECTORS............................................................................. 4
9. Function............................................................ 4
10. Number and Term of Office........................................... 4
11. Vacancies and New Directorships..................................... 4
12. Removal............................................................. 5
13. Nominations of Directors; Election.................................. 5
14. Resignation......................................................... 6
15. Regular Meetings.................................................... 6
16. Special Meetings.................................................... 6
17. Quorum.............................................................. 6
18. Written Action...................................................... 6
19. Participation in Meetings by Telephone Conference................... 6
20. Committees.......................................................... 6
21. Compensation ....................................................... 8
22. Rules............................................................... 8
NOTICES............................................................................... 8
23. Generally........................................................... 8
24. Waivers............................................................. 8
OFFICERS.............................................................................. 8
25. Generally........................................................... 8
26. Compensation........................................................ 9
27. Succession.......................................................... 9
28. Authority and Duties................................................ 9
i
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
STOCK................................................................................. 9
29. Certificates........................................................ 9
30. Classes of Stock.................................................... 9
31. Transfers........................................................... 9
32. Lost, Stolen, or Destroyed Certificates............................. 10
33. Record Dates........................................................ 10
INDEMNIFICATION....................................................................... 10
34. Damages and Expenses................................................ 10
35. Insurance, Contracts, and Funding................................... 14
GENERAL............................................................................... 15
36. Fiscal Year......................................................... 15
37. Seal................................................................ 15
38. Reliance upon Books, Reports, and Records........................... 15
39. Time Periods........................................................ 15
40. Amendments.......................................................... 15
41. Certain Defined Terms............................................... 15
</TABLE>
ii
<PAGE> 4
BRISTOL HOTELS & RESORTS, INC.
BYLAWS
STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings. All meetings of the stockholders
for the election of Directors or for any other purpose will be held at such time
and place, within or without the State of Delaware, as may be designated by the
Board or, in the absence of a designation by the Board, the Chairman, the
President, or a Vice Chairman and stated in the notice of meeting. The Board,
the Chairman, or a Vice Chairman may postpone any previously scheduled annual or
special meeting of the stockholders.
2. Annual Meeting. An annual meeting of the stockholders will be
held at such date and time as may be designated from time to time by the Board,
at which meeting the stockholders will elect, by a plurality vote of the Voting
Stock of the stockholders present in person or represented by proxy, the
Directors to succeed those whose terms expire and will transact such other
business as may properly be brought before the meeting in accordance with Bylaw
8.
3. Special Meetings. (a) Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by law or by the Certificate of
Incorporation, may be called only by (i) the Chairman or a Vice Chairman, (ii)
the Secretary within 10 calendar days after receipt of the written request of a
majority of the total number of directors that the Company would have if there
were no vacancies (the "Whole Board") or (iii) as otherwise provided in a
Preferred Stock Designation. Any such request by a majority of the Whole Board
must be sent to the Chairman and the Secretary and must state the purpose or
purposes of the proposed meeting. Special meetings of holders of the outstanding
Preferred Stock, if any, may be called in the manner and for the purposes
provided in the applicable Preferred Stock Designation.
(b) Upon the receipt by the Company of a written request executed by
the holders of not less than a majority of the outstanding Voting Stock (a
"Meeting Request"), the Board will (i) call a special meeting of the
stockholders for any lawful purpose (which may not, however, include the
election of Directors) and (ii) fix a record date for the determination of
stockholders entitled to notice of and to vote at that meeting, which record
date will not be later than 60 calendar days after the date of receipt by the
Company of the Meeting Notice; provided, however, that no separate special
meeting of stockholders requested pursuant to a Meeting Request will be required
to be convened if (A) the Board calls an annual or special meeting of
stockholders to be held not later than 90 calendar days after receipt of the
Meeting Request, (B) the purposes of the annual or special meeting include
(among any other matters properly brought before the meeting) the purposes
specified in the Meeting Request, and (C) in all events, the Board may defer
taking any action referred to in this Bylaw 3(b) for up to 180 calendar days if
and to the extent that the Board determines in its sole discretion that so doing
is in the best interests of the Company. Notwithstanding any provision of the
Certificate of Incorporation or these Bylaws to the contrary, this Bylaw 3(b)
may not be amended or repealed by the Board, and no provision inconsistent with
this Bylaw 3(b) may be adopted by the Board, without the affirmative vote of the
holders of at least 80% of the Voting Stock, voting together as a class.
<PAGE> 5
4. Notice of Meetings. Written notice of every meeting of the
stockholders, stating the place, date, and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
will be given not less than 10 nor more than 60 calendar days before the date of
the meeting to each stockholder of record entitled to vote at such meeting,
except as otherwise provided in these Bylaws or by law. When a meeting is
adjourned to another place, date, or time, written notice need not be given of
the adjourned meeting if the place, date, and time thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the
adjournment is for more than 30 calendar days, or if after the adjournment a new
record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting must be given in conformity with this
Bylaw 4. At any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting.
5. Inspectors. The Board may appoint one or more inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the stockholders, or any adjournment thereof, in advance of
the meeting. The Board may designate one or more persons as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the presiding officer of the meeting may
appoint one or more substitute inspectors.
6. Quorum. Except as otherwise provided by law or in a Preferred
Stock Designation, the holders of a majority of the stock issued and outstanding
and entitled to vote at a meeting of stockholders, present in person or
represented by proxy, will constitute a quorum at all meetings of the
stockholders for the transaction of business at a meeting of the stockholders.
If, however, such quorum is not present or represented at any meeting of the
stockholders, the stockholders entitled to vote at that meeting of stockholders,
present in person or represented by proxy, will have the power to adjourn,
without notice other than announcement at the meeting, the meeting from time to
time until a quorum is present or represented.
7. Voting. Except as otherwise provided by law or in a Preferred
Stock Designation, each stockholder will be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing in
the name of that stockholder on the books of the Company on the record date for
the meeting and those votes may be cast either in person or by written proxy.
Every proxy must be duly executed and filed with the Secretary. A stockholder
may revoke any proxy that is not irrevocable by attending the meeting and voting
in person or by filing an instrument in writing revoking the proxy or another
duly executed proxy bearing a later date with the Secretary. The vote upon any
question brought before a meeting of the stockholders may be by voice vote,
unless otherwise required by these Bylaws or unless the presiding officer of the
meeting or the holders of a majority of the outstanding shares of all classes of
stock entitled to vote on that question present in person or by proxy at the
meeting otherwise determine. Every vote taken by written ballot will be counted
by the inspectors of election. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock which has voting power present in
person or represented by proxy and which has actually voted will decide any
question properly brought before such meeting, unless the question is one upon
which by express provision of law, the Certificate of Incorporation, a Preferred
Stock
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<PAGE> 6
Designation, or these Bylaws, a different vote is required, in which case
that express provision will govern and control the decision of such question.
8. Order of Business. (a) The Chairman, or such other officer of
the Company designated by a majority of the Whole Board, will call meetings of
the stockholders to order and will act as presiding officer thereof. Except as
otherwise provided by law or in a Preferred Stock Designation or unless
otherwise determined by the Board prior to the meeting, the presiding officer
of the meeting of the stockholders will also determine the order of business
and have the authority in his or her sole discretion to regulate the conduct of
the meeting, including without limitation by imposing restrictions on the
persons (other than stockholders of the Company or their duly appointed
proxies) who may attend any such stockholders' meeting, by ascertaining whether
any stockholder or the stockholder's proxy may be excluded from any meeting of
the stockholders based upon any determination by the presiding officer, in his
or her sole discretion, that any such person has unduly disrupted or is likely
to disrupt the proceedings at the meeting of the stockholders, and by
determining the circumstances in which any person may make a statement or ask
questions at any meeting of the stockholders.
(b) At an annual meeting of the stockholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Chairman or a Vice Chairman or the Board in accordance with Bylaw 4, (ii)
otherwise properly brought before the meeting by the presiding officer or by or
at the direction of a majority of the Whole Board, or (iii) otherwise properly
requested to be brought before the meeting by a stockholder of the Company in
accordance with Bylaw 8(c).
(c) For business to be properly requested by a stockholder to be
brought before an annual meeting, the stockholder must (i) be a stockholder of
the Company of record at the time of the giving of the notice for such annual
meeting provided for in these Bylaws, (ii) be entitled to vote at such meeting,
and (iii) have given timely notice thereof in writing to the Secretary. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 60 calendar days
prior to the annual meeting; provided, however, that in the event public
announcement of the date of the annual meeting is not made at least 75 calendar
days prior to the date of the annual meeting, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
calendar day following the day on which public announcement is first made of the
date of the annual meeting. A stockholder's notice to the Secretary must set
forth as to each matter the stockholder proposes to bring before the annual
meeting (A) a description in reasonable detail of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (B) the name and address, as they appear on the Company's
books, of the stockholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made, (C) the class and number of shares of
the Company that are owned beneficially and of record by the stockholder
proposing such business and by the beneficial owner, if any, on whose behalf the
proposal is made, and (D) any material interest of such stockholder proposing
such business and the beneficial owner, if any, on whose behalf the proposal is
made in such business. Notwithstanding the foregoing provisions of this Bylaw
8(c), a stockholder must also comply with all applicable requirements of the
Securities Exchange Act
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<PAGE> 7
of 1934, as amended, and the rules and regulations thereunder with respect to
the matters set forth in this Bylaw 8(c). For purposes of this Bylaw 8(c) and
Bylaw 13, "public announcement" means disclosure in a press release reported by
the Dow Jones News Service, Associated Press, or comparable national news
service or otherwise published by the Company in substantial conformity with its
ordinary practice in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the
Exchange Act, or furnished to stockholders. Nothing in this Bylaw 8(c) will be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(d) At a special meeting of stockholders, only such business may be
conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the Chairman or a Vice Chairman or a majority of the Whole Board in
accordance with Bylaw 4 or (ii) otherwise properly brought before the meeting by
the presiding officer or by or at the direction of a majority of the Whole
Board.
(e) The determination of whether any business sought to be brought
before any annual or special meeting of the stockholders is properly brought
before such meeting in accordance with this Bylaw 8 will be made by the
presiding officer of such meeting. If the presiding officer determines that any
business is not properly brought before such meeting, he or she will so declare
to the meeting and any such business will not be conducted or considered.
DIRECTORS
9. Function. The business and affairs of the Company will be managed
under the direction of the Board.
10. Number and Term of Office. Subject to the rights, if any, of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation and to the minimum and maximum number
of authorized Directors provided in the Certificate of Incorporation, the
authorized number of Directors may be determined from time to time by (i) a vote
of a majority of the Whole Board or (ii) by the affirmative vote of the holders
of at least 80% of the Voting Stock, voting together as a single class. The
Directors, other than those who may be elected by the holders of any series of
the Preferred Stock, will be classified with respect to the time for which they
severally hold office in accordance with the Certificate of Incorporation.
11. Vacancies and New Directorships. Subject to the rights, if any,
of (a) the holders of any series of Preferred Stock under a Preferred Stock
Designation or (b) any party to the Stockholders Agreement dated _________, 1998
(the "Stockholders Agreement") among the Corporation, Bass plc, Bass America,
Inc., Holiday Corporation and United/Harvey Holdings, L.P. to elect additional
Directors, and newly created directorships resulting from any increase in the
authorized number of Directors and any vacancies on the Board resulting from
death, resignation, disqualification, removal, or other cause will be filled
solely by the affirmative vote
4
<PAGE> 8
of a majority of the remaining Directors then in office, even though less than a
quorum of the Board, by a sole remaining Director, or, if there is no remaining
Director, by the stockholders. Any Director elected in accordance with the
preceding sentence will hold office for the remainder of the full term of the
class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor has been elected and qualified. No
decrease in the number of Directors constituting the Board may shorten the term
of any incumbent Director.
12. Removal. Subject to the rights, if any, of the holders of any
series of Preferred Stock or of any party to the Stockholders Agreement to elect
additional Directors under circumstances specified in a Preferred Stock
Designation or the Stockholders Agreement, any Director may be removed from
office (a) by the Board with or without cause and upon the vote of a majority of
the Whole Board and (b) by the stockholders only for cause and only in the
manner provided in the Certificate of Incorporation.
13. Nominations of Directors; Election. Subject to the rights, if
any, of the holders of any series of Preferred Stock or of any party to the
Stockholders Agreement to elect additional Directors under circumstances
specified in a Preferred Stock Designation or the Stockholders Agreement, only
persons who are nominated in accordance with the following procedures will be
eligible for election at a meeting of stockholders as Directors of the Company.
(a) Nominations of persons for election as Directors of the Company
may be made only at an annual meeting of stockholders (i) by or at the direction
of the Board or (ii) by any stockholder who is a stockholder of record at the
time of giving of notice provided for in this Bylaw 13, who is entitled to vote
for the election of Directors at such meeting, and who complies with the
procedures set forth in this Bylaw 13. All nominations by stockholders must be
made pursuant to timely notice in proper written form to the Secretary.
(b) To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company not less
than 60 calendar days prior to the annual meeting of stockholders; provided,
however, that in the event that public announcement of the date of the annual
meeting is not made by the Company by inclusion in a report filed with the
Securities and Exchange Commission or furnished to stockholders, or by mail,
press release or otherwise more than 75 calendar days prior to the date of the
annual meeting, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. To be
in proper written form, such stockholder's notice must set forth or include (i)
the name and address, as they appear on the Company's books, of the stockholder
giving the notice and of the beneficial owner, if any, on whose behalf the
nomination is made; (ii) a representation that the stockholder giving the notice
is a holder of record of stock of the Company entitled to vote at such annual
meeting and intends to appear in person or by proxy at the annual meeting to
nominate the person or persons specified in the notice; (iii) the class and
number of shares of stock of the Company owned beneficially and of record by the
stockholder giving the notice and by the beneficial owner, if any, on whose
behalf the nomination is made; (iv) a description of all arrangements or
understandings between or among any of (A) the stockholder giving the notice,
(B) the beneficial owner on whose behalf the notice is given, (C)
5
<PAGE> 9
each nominee, and (D) any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
stockholder giving the notice; (v) such other information regarding each nominee
proposed by the stockholder giving the notice as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission under the Exchange Act had the nominee been
nominated, or intended to be nominated, by the Board; and (vi) the signed
consent of each nominee to serve as a director of the Company if so elected. At
the request of the Board, any person nominated by the Board for election as a
Director must furnish to the Secretary that information required to be set forth
in a stockholder's notice of nomination which pertains to the nominee. The
presiding officer of any annual meeting will, if the facts warrant, determine
that a nomination was not made in accordance with the procedures prescribed by
this Bylaw 13, and if he or she should so determine, he or she will so declare
to the meeting and the defective nomination will be disregarded. Notwithstanding
the foregoing provisions of this Bylaw 13, a stockholder must also comply with
all applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw 13.
14. Resignation. Any Director may resign at any time by giving
written notice of his resignation to the Chairman or the Secretary. Any
resignation will be effective upon actual receipt by any such person or, if
later, as of the date and time specified in such written notice.
15. Regular Meetings. Regular meetings of the Board may be held
immediately before or after the annual meeting of the stockholders and at such
other time and place as may from time to time be determined by the Board. Prior
written notice of regular meetings of the Board must be given not less than 24
hours prior to such meeting by U.S. mail, overnight courier telegram, telex,
facsimile or similar medium.
16. Special Meetings. Special meetings of the Board may be called by
the Chairman or a Vice Chairman on one day's notice to each Director by whom
such notice is not waived, given either personally or by mail, telephone,
telegram, telex, facsimile, or similar medium of communication, and will be
called by the Chairman or the Vice Chairman in like manner and on like notice on
the written request of five or more Directors. Special meetings of the Board may
be held at such time and place either within or without the State of Delaware as
is determined by the Board or specified in the notice of any such meeting.
17. Quorum. At all meetings of the Board, a majority of the total
number of Directors then in office will constitute a quorum for the transaction
of business. Except for the designation of committees as provided in Bylaw 20
and except for actions required by these Bylaws or the Certificate of
Incorporation to be taken by a majority of the Whole Board, the act of a
majority of the Directors present at any meeting at which there is a quorum will
be the act of the Board. If a quorum is not present at any meeting of the Board,
the Directors present at the meeting may adjourn the meeting from time to time
to another place, time, or date, without notice other than announcement at the
meeting, until a quorum is present.
18. Written Action. Any action required or permitted to be taken
at any meeting of the Board or of any committee of the Board may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes or proceedings of the Board or committee.
6
<PAGE> 10
19. Participation in Meetings by Telephone Conference. Members of
the Board, or any committee designated by the Board, may participate in a
meeting of the Board, or any such committee, by means of telephone conference or
similar means by which all persons participating in the meeting can hear each
other, and such participation in a meeting will constitute presence in person at
the meeting.
20. Committees. (a) The Board, by resolution passed by a majority
of the Whole Board, may designate an executive committee (the "Executive
Committee") of not less than two and not more than four members of the Board,
one of whom will be the Chairman. In the event of the inability of the Chairman
to attend any meeting thereof, a Vice Chairman, in order of seniority if there
be more than one Vice Chairman, may take the place at such meeting of the
Chairman. The Executive Committee will have and may exercise the powers of the
Board, except the power to amend these Bylaws or the Certificate of
Incorporation (except, to the extent authorized by a resolution of the Board, to
fix the designation, preferences, and other terms of any series of Preferred
Stock), adopt an agreement of merger or consolidation other than with an entity
of which all of its equity interests are held by the Company, authorize the
issuance of stock, declare a dividend, or recommend to the stockholders the
sale, lease, or exchange of all or substantially all of the Company's property
and assets, a dissolution of the Company, or a revocation of a dissolution, and
except as otherwise provided by law. Two-thirds of the members of the Executive
Committee will constitute a quorum for the transaction of business, and the act
of two-thirds of the members of the Executive Committee (which must include the
affirmative vote of the Chairman or, in the absence of the Chairman, a Vice
Chairman) will constitute the act of such committee.
(b) The Board, by resolution passed by a majority of the Board, may
designate one or more additional committees, each such committee to consist of
one or more Directors and each to have such lawfully delegable powers and duties
as the Board may confer.
(c) The Executive Committee and each other committee of the Board
will serve at the pleasure of the Board or as may be specified in any resolution
from time to time adopted by the Board. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In lieu of such action by
the Board, in the absence or disqualification of any member of a committee of
the Board, the members thereof present at any meeting of the committee and not
disqualified from voting, whether or not they constitute a quorum, may, by
unanimous action, appoint another member of the Board to act at the meeting in
the place of any absent or disqualified member.
(d) Except as otherwise provided in these Bylaws or by law, any
committee of the Board, to the extent provided in Bylaw 20(a) or, if applicable,
in the resolution of the Board designating a committee, will have and may
exercise all the powers and authority of the Board in the direction of the
management of the business and affairs of the Company. Any committee designated
by the Board will have such name as may be determined from time to time by
resolution adopted by the Board. Except as provided in Bylaw 20(a) or as
otherwise prescribed by the Board, a majority of the members of any committee of
the Board will constitute a quorum for the transaction of business, and the act
of a majority of the members will be the act of the committee. Each committee of
the Board may prescribe its own rules for calling and holding
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<PAGE> 11
meetings and its method of procedure, subject to any rules prescribed by the
Board, and will keep a written record of all actions taken by it.
(e) A majority of the members of each of the Executive Committee and
all of the members of any committee the primary responsibilities of which
include reviewing the professional services to be provided by the Company's
independent auditors and the independence of such firm from the Company's
management, reviewing financial statements with management or independent
auditors, and/or reviewing internal accounting controls will be directors who
are not employees of the Company. Notwithstanding any provision of the
Certificate of Incorporation or these Bylaws to the contrary, this Bylaw 20(e)
may not be amended or repealed by the Board, and no provision inconsistent
therewith may be adopted by the Board, without the affirmative vote of the
holders of at least a majority of the Voting Stock present or represented by
proxy and entitled to vote at any annual or special meeting of stockholders at
which such vote is to be taken.
21. Compensation. The Board may establish such compensation for, and
reimbursement of the expenses of, Directors for membership on the Board and on
committees of the Board, attendance at meetings of the Board or committees of
the Board, or for other services by Directors to the Company or any of its
majority-owned subsidiaries, as the Board may determine.
22. Rules. The Board may adopt rules and regulations for the conduct
of its meetings and the management of the affairs of the Company.
NOTICES
23. Generally. Whenever by law or under the provisions of the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any Director or stockholder, it will not be construed to require personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder, at his, her, or its address as it appears on the
records of the Company, with postage thereon prepaid, and such notice will be
deemed to be given at the time when the same is deposited in the United States
mail. Notice to Directors may also be given by telephone, telegram, telex,
facsimile, or similar medium of communication or as may otherwise be permitted
by these Bylaws.
24. Waivers. Whenever any notice is required to be given by law or
under the provisions of the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
given, will be deemed equivalent to such notice. Attendance of a person at a
meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
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<PAGE> 12
OFFICERS
25. Generally. The officers of the Company will be elected by the
Board and will consist of a Chairman, a Chief Executive Officer, a Chief
Operating Officer, a President, a Secretary, and a Treasurer. The Board may also
choose any one or more Vice Chairmen, Vice Presidents, Assistant Vice
President's, Assistant Secretaries, Assistant Treasurers and any such other
officers as the Board may from time to time determine. Notwithstanding the
foregoing, by specific action, the Board may authorize the Chairman, President
or a Vice Chairman to appoint any person to any office other than Chairman, Vice
Chairman, Chief Executive Officer, President, Secretary, or Treasurer. Any
number of offices may be held by the same person. Any of the offices may be left
vacant from time to time as the Board may determine. In the case of the absence
or disability of any officer of the Company or for any other reason deemed
sufficient by a majority of the Board, the Board may delegate the absent or
disabled officer's powers or duties to any other officer or to any Director.
26. Compensation. The compensation of all officers and agents of the
Company who are also Directors of the Company will be fixed by the Board or by a
committee of the Board. The Board may fix, or delegate the power to fix, the
compensation of other officers and agents of the Company to an officer of the
Company.
27. Succession. The officers of the Company will hold office until
their successors are elected and qualified. Any officer may be removed at any
time (a) by the affirmative vote of a majority of the Whole Board or (b) with
respect to any officer other than the Chairman, the President, the Chief
Executive Officer or the Chief Operating Officer, by the President or the Chief
Executive Officer. Any vacancy occurring in any office of the Company may be
filled by the Board as provided in Bylaw 25.
28. Authority and Duties. Each of the officers of the Company will
have such authority and will perform such duties as are customarily incident to
their respective offices or as may be specified from time to time by the Board
or by the Chairman or any Vice Chairman as provided in these Bylaws.
STOCK
29. Certificates. Certificates representing shares of stock of the
Company will be in such form as is determined by the Board or an authorized
committee thereof, subject to applicable legal requirements. Each certificate
will be numbered and its issuance recorded in the books of the Company, and each
certificate will exhibit the holder's name and the number of shares and will be
signed by, or in the name of, the Company by the Chairman, the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and will also be signed by, or bear the facsimile
signature of, any properly designated transfer agent of the Company. Any or all
of the signatures and the seal of the Company, if any, upon the certificates may
be facsimiles, engraved, or printed. The certificates may be issued and
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delivered notwithstanding that the person whose facsimile signature appears
thereon may have ceased to be an officer at the time certificates are issued and
delivered.
30. Classes of Stock. The designations, preferences, and relative
participating, optional, or other special rights of the various classes of stock
or series thereof, and the qualifications, limitations, or restrictions thereof,
will be set forth in full or summarized on the face or back of the certificates
which the Company issues to represent its stock or, in lieu thereof, such
certificates will set forth the office of the Company from which the holders of
certificates may obtain a copy of such information.
31. Transfers. Upon surrender to the Company or the transfer agent of
the Company of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it will be the
duty of the Company to issue, or cause its transfer agent to issue, a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
32. Lost, Stolen, or Destroyed Certificates. The Secretary may direct
a new certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Company alleged to have been lost, stolen,
or destroyed upon the making of an affidavit of that fact, satisfactory to the
Secretary, by the person claiming the certificate of stock to be lost, stolen,
or destroyed. As a condition precedent to the issuance of a new certificate or
certificates, the Secretary may require the owners of such lost, stolen, or
destroyed certificate or certificates to give the Company a bond in such sum and
with such surety or sureties as the Secretary may direct as indemnity against
any claims that may be made against the Company with respect to the certificate
alleged to have been lost, stolen, or destroyed or the issuance of the new
certificate.
33. Record Dates. (a)In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board may fix a record date, which will not be more
than 60 nor less than 10 calendar days before the date of such meeting. If no
record date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders will be at the
close of business on the calendar day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the calendar day
next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of the
stockholders will apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
(b) In order that the Company may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date will not be more than
60 calendar days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose will be at the close of
business on the calendar day on which the Board adopts the resolution relating
thereto.
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(c) The Company will be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes, and
will not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Company has
notice thereof, except as expressly provided by applicable law.
INDEMNIFICATION
34. Damages and Expenses. Without limiting the generality or effect
of Article Ninth of the Certificate of Incorporation, the Company will to the
fullest extent permitted by applicable law as then in effect indemnify any
person (an "Indemnitee") who is or was involved in any manner (including without
limitation as a party or a witness) or is threatened to be made so involved in
any threatened, pending, or completed investigation, claim, action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (including
without limitation any action, suit, or proceeding by or in the right of the
Company to procure a judgment in its favor) (a "Proceeding") by reason of the
fact that such person is or was or had agreed to be a Director, officer,
employee, trustee, or agent of the Company, or is or was serving at the request
of the Board or an officer of the Company as a director, officer, employee,
trustee, or agent of another corporation, partnership, joint venture, trust,
employee benefit plan, or other entity, whether or not for profit (including the
heirs, executors, administrators, or estate of such person), or anything done or
not done by such person in any such capacity, against all expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding. Such
indemnification will be a contract right and will include the right to receive
payment in advance of any expenses incurred by an Indemnitee in connection with
such Proceeding, consistent with the provisions of applicable law as then in
effect.
(b) The right of indemnification provided in this Bylaw 34 will not
be exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to Proceedings commenced or
continuing after the adoption of this Bylaw 34, whether arising from acts or
omissions occurring before or after such adoption.
(c) In furtherance, but not in limitation of the foregoing
provisions, the following procedures, presumptions, and remedies will apply with
respect to advancement of expenses and the right to indemnification under this
Bylaw 34:
(i) All reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding will be advanced to the
Indemnitee by the Company within 30 calendar days after the receipt by
the Company of a statement or statements from the Indemnitee requesting
an advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements will
reasonably evidence the expenses incurred by the Indemnitee and, if and
to the extent required by law at the time of such advance, will include
or be accompanied by an undertaking by or on behalf of the Indemnitee
to repay such amounts advanced as to which it may ultimately be
determined that the Indemnitee is not entitled. If such an undertaking
is required by law at the time of an advance, no security will be
required for
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the undertaking and the undertaking will be accepted without reference
to the recipient's financial ability to make repayment.
(ii) To obtain indemnification under this Bylaw 34, the
Indemnitee will submit to the Secretary a written request, including
such documentation supporting the claim as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to
what extent the Indemnitee is entitled to indemnification (the
"Supporting Documentation"). The determination of the Indemnitee's
entitlement to indemnification will be made not less than 60 calendar
days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation. The
Secretary within 10 days after receipt of such a request for
indemnification advise the Board in writing that the Indemnitee has
requested indemnification. The Indemnitee's entitlement to
indemnification under this Bylaw 34 will be determined in one of the
following ways: (A) by a majority vote of the Disinterested Directors
(as hereinafter defined), if they constitute a quorum of the Board, or,
in the case of an Indemnitee that is not a present or former officer of
the Company, by any committee of the Board or committee of officers or
agents of the Company designated for such purpose by a majority of the
Board of Directors; (B) by a written opinion of Independent Counsel (as
hereinafter defined) if (1) a Change of Control (as hereinafter
defined) has occurred and the Indemnitee so requests or (2) in the case
of an Indemnitee who is a present or former officer of the Company, a
quorum of the Board consisting of Disinterested Directors is not
obtainable or, even if obtainable, a majority of such Disinterested
Directors so directs; (C) by the stockholders (but only if a majority
of the Disinterested Directors, if they constitute a quorum of the
Board, presents the issue of entitlement to indemnification to the
stockholders for their determination); or (D) as provided in
subparagraph (iii) below. If the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to clause
(B) above, a majority of the Disinterested Directors will select the
Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a
Change of Control has occurred, the Indemnitee will select such
Independent Counsel, but only an Independent Counsel to which the Board
does not reasonably object.
(iii) Except as otherwise expressly provided in this Bylaw
34, the Indemnitee will be presumed to be entitled to indemnification
under this Bylaw 34 upon submission of a request for indemnification
together with the Supporting Documentation in accordance with
subparagraph (c)(ii) above, and thereafter the Company will have the
burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under
subparagraph (c)(ii) to determine entitlement to indemnification have
not been appointed or have not made a determination within 60 calendar
days after receipt by the Company of the request therefor together with
the Supporting Documentation, the Indemnitee will be deemed to be
entitled to indemnification and the Indemnitee will be entitled to such
indemnification unless (A) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for indemnification or
in the Supporting Documentation or (B) such indemnification is
prohibited by law. The termination of any Proceeding described in Bylaw
34(a), or of any claim, issue, or matter therein, by judgment, order,
settlement, or conviction, or upon a
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plea of nolo contendere or its equivalent, will not, of itself,
adversely affect the right of the Indemnitee to indemnification or
create a presumption that the Indemnitee did not act in good faith and
in a manner which the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to
believe that his or her conduct was unlawful.
(iv) (A) In the event that a determination is made pursuant
to subparagraph (c)(ii) that the Indemnitee is not entitled to
indemnification under this Bylaw 34, (1) the Indemnitee will be
entitled to seek an adjudication of his entitlement to such
indemnification either, at the Indemnitee's sole option, in (x) an
appropriate court of the State of Delaware or any other court of
competent jurisdiction or (y) an arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration
Association, (2) any such judicial proceeding or arbitration will be de
novo and the Indemnitee will not be prejudiced by reason of such
adverse determination, and (3) in any such judicial proceeding or
arbitration the Company will have the burden of proving that the
Indemnitee is not entitled to indemnification under this Bylaw 34.
(B) If a determination is made or deemed to have been made,
pursuant to subparagraph (c)(ii) or (iii) of this Bylaw 34 that the
Indemnitee is entitled to indemnification, the Company will be
obligated to pay the amounts constituting such indemnification within
five business days after such determination has been made or deemed to
have been made and will be conclusively bound by such determination
unless (1) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the
Supporting Documentation or (2) such indemnification is prohibited by
law. In the event that advancement of expenses is not timely made
pursuant to subparagraph (c)(i) of this Bylaw 34 or payment of
indemnification is not made within five business days after a
determination of entitlement to indemnification has been made or deemed
to have been made pursuant to subparagraph (c)(ii) or (iii) of this
Bylaw 34, the Indemnitee will be entitled to seek judicial enforcement
of the Company's obligation to pay to the Indemnitee such advancement
of expenses or indemnification. Notwithstanding the foregoing, the
Company may bring an action, in an appropriate court in the State of
Delaware or any other court of competent jurisdiction, contesting the
right of the Indemnitee to receive indemnification hereunder due to the
occurrence of any event described in subclause (1) or (2) of this
clause (B) (a "Disqualifying Event"); provided, however, that in any
such action the Company will have the burden of proving the occurrence
of such Disqualifying Event.
(C) The Company will be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to the provisions
of this subparagraph (c)(iv) that the procedures and presumptions of
this Bylaw 34 are not valid, binding, and enforceable and will
stipulate in any such court or before any such arbitrator that the
Company is bound by all the provisions of this Bylaw 34.
(D) In the event that the Indemnitee, pursuant to the
provisions of this subparagraph (c)(iv), seeks a judicial adjudication
of, or an award in arbitration to, enforce his or her rights under, or
to recover damages for breach of, this Bylaw 34, the
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Indemnitee will be entitled to recover from the Company, and will be
indemnified by the Company against, any expenses actually and
reasonably incurred by the Indemnitee if the Indemnitee prevails in
such judicial adjudication or arbitration. If it is determined in such
judicial adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by the Indemnitee in connection
with such judicial adjudication or arbitration will be prorated
accordingly.
(v) For purposes of this paragraph (c):
(A) "Change in Control" means the occurrence of any of the
following events:
(1) The Company is merged, consolidated, or
reorganized into or with another corporation or other legal
entity, and as a result of such merger, consolidation, or
reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation
or entity immediately after such transaction are held in the
aggregate by the holders of the Voting Stock immediately prior
to such transaction;
(2) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or
other legal entity and, as a result of such sale or transfer,
less than a majority of the combined voting power of the
then-outstanding securities of such other corporation or
entity immediately after such sale or transfer is held in the
aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(3) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Directors cease for any reason to constitute at least a
majority thereof; provided, however, that for purposes of this
clause (3) each Director who is first elected, or first
nominated for election by the Company's stockholders by a vote
of at least two-thirds of the Directors (or a committee of the
Directors), then still in office who were Directors at the
beginning of any such period will be deemed to have been a
Director at the beginning of such period.
(B) "Disinterested Director" means a Director of the Company
who is not or was not a party to the Proceeding in respect of
which indemnification is sought by the Indemnitee.
(C) "Independent Counsel" means a law firm or a member of a
law firm that neither presently is, nor in the past five years
has been, retained to represent (1) the Company or the
Indemnitee in any matter material to either such party or (2)
any other party to the Proceeding giving rise to a claim for
indemnification under this Bylaw 34. Notwithstanding the
foregoing, the term "Independent Counsel" will not include any
person who, under the applicable standards of professional
conduct then prevailing under the law of the State of
Delaware, would be precluded from representing either the
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Company or the Indemnitee in an action to determine the Indemnitee's
rights under this Bylaw 34.
(d) If any provision or provisions of this Bylaw 34 are held to be
invalid, illegal, or unenforceable for any reason whatsoever: (i) the validity,
legality, and enforceability of the remaining provisions of this Bylaw 34
(including without limitation all portions of any paragraph of this Bylaw 34
containing any such provision held to be invalid, illegal, or unenforceable,
that are not themselves invalid, illegal, or unenforceable) will not in any way
be affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Bylaw 34 (including without limitation all portions of any
paragraph of this Bylaw 34 containing any such provision held to be invalid,
illegal, or unenforceable, that are not themselves invalid, illegal, or
unenforceable) will be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
35. Insurance, Contracts, and Funding. The Company may purchase and
maintain insurance to protect itself and any Indemnitee against any expenses,
judgments, fines, and amounts paid in settlement or incurred by any Indemnitee
in connection with any Proceeding referred to in Bylaw 34 or otherwise, to the
fullest extent permitted by applicable law as then in effect. The Company may
enter into contracts with any person entitled to indemnification under Bylaw 34
or otherwise, and may create a trust fund, grant a security interest, or use
other means (including without limitation a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in Bylaw 34. Notwithstanding anything to the contrary contained in
Bylaw 34, in the event that the Company enters into a contract with any person
providing for indemnification of such person, the provisions of such contract
will exclusively govern the Company's obligations in respect of indemnification
for or advancement of fees or disbursements of such person's counsel or any
other professional engaged by such person.
GENERAL
36. Fiscal Year. The fiscal year of the Company will be fixed from
time to time by the Board.
37. Seal. The Board may adopt a corporate seal and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
38. Reliance upon Books, Reports, and Records. Each Director, each
member of a committee designated by the Board, and each officer of the Company
will, in the performance of his or her duties, be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's officers
or employees, or committees of the Board, or by any other person or entity as to
matters the Director, committee member, or officer believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company.
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39. Time Periods. In applying any provision of these Bylaws that
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days will be used unless otherwise specified, the
day of the doing of the act will be excluded and the day of the event will be
included.
40. Amendments. Except as otherwise provided by law or by the
Certificate of Incorporation or these Bylaws, these Bylaws or any of them may be
amended in any respect or repealed at any time, either (a) at any meeting of
stockholders, provided that any amendment or supplement proposed to be acted
upon at any such meeting has been described or referred to in the notice of such
meeting, or (b) at any meeting of the Board, provided that no amendment adopted
by the Board may vary or conflict with any amendment adopted by the
stockholders.
41. Certain Defined Terms. Terms used herein with initial capital
letters that are defined in the Certificate of Incorporation are used herein as
so defined.
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EXHIBIT 99.10
MASTER HOTEL AGREEMENT
THIS MASTER HOTEL AGREEMENT ("Agreement") is made as of May 29, 1998,
among Bristol Hotels & Resorts, Inc., a Delaware corporation ("BHR"), FelCor
Suite Hotels, Inc., a Maryland corporation ("FelCor") and FelCor Suites Limited
Partnership, a Delaware limited partnership ("FSLP").
RECITALS:
A. Bristol Hotel Company, a Delaware corporation ("Bristol Hotel
Company"), and FelCor have entered into an Agreement and Plan of Merger dated
as of March 23, 1998, (the "Merger Agreement") pursuant to which, inter alia,
BHR will be spun-off to the shareholders of Bristol Hotel Company, Bristol
Hotel Company will merge with and into FelCor (the "Merger") and, as a
condition to such Merger, the Lessors (as hereinafter defined) shall have
leased such Hotels to Lessees (as hereinafter defined).
B. Bristol Hotel Company currently directly or indirectly owns in
excess of 100 hotel properties, as described or anticipated in the Merger
Agreement, and may directly or indirectly acquire additional hotels to be
covered by this Agreement prior to the Merger.
C. The parties desire to set forth the terms and conditions on
which Lessor will lease the hotels identified as Existing Hotels on Exhibit A
attached hereto or hereafter identified as Existing Hotels by FelCor and BHR
("Existing Hotels") to Lessee, and to make certain other agreements as set
forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms have the meanings set forth in this Section or in the Section
indicated. Unless the context otherwise requires, (a) references to the
singular shall include the plural and vice versa, (b) references to gender
shall include all genders, (c) references to designated "Sections" or other
subdivisions are references to the designated Sections or other subdivisions of
this Agreement, (d) all accounting terms not
<PAGE> 2
otherwise defined herein shall have the meanings assigned to them in accordance
with GAAP and, if applicable, the Uniform System (as defined in the Percentage
Leases), and (e) the words "herein," "hereof," and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision. CAPITALIZED TERMS USED AND NOT DEFINED HEREIN
SHALL HAVE THE RESPECTIVE MEANINGS, IF ANY, SET FORTH IN THE PERCENTAGE LEASES.
Affiliate--shall mean, with respect to any Person, any Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person, or any other Person that owns, beneficially, directly or
indirectly, fifty percent (50%) or more of the outstanding capital stock,
shares or equity interests of such Person. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
entity shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such entity,
through the ownership of voting securities, partnership interests or other
equity interests.
Affiliated Manager--shall mean an entity that is a manager of one of
the Hotels and an Affiliate of BHR or a Lessee.
Agreement--shall have the meaning set forth in the Preamble.
Closing Date--shall mean the effective date of the Merger.
Code--shall mean the Internal Revenue Code of 1986, as amended.
Credit Enhancement--shall mean an unconditional letter of credit in
form reasonably acceptable to FelCor, provided by Bankers Trust Company or any
other financial institution reasonably acceptable to Lessor for the benefit of
Lessor and/or FelCor, or a guaranty in the form of the Form Guaranty provided
by BHR (or, if permitted by Lessor, other Affiliates of Lessee), or other form
of credit enhancement with respect to the Percentage Leases that is reasonably
acceptable to Lessor. The form of any Credit Enhancement shall be subject to
the reasonable approval of Lessor, and any Credit Enhancement shall be subject
to the reasonable approval of FelCor's REIT tax counsel.
Credit Enhancement Amount--shall mean the aggregate amount that is
currently available, (without material restriction) under all forms of Credit
Enhancement obtained by a Lessee, to make payments due under the Percentage
Leases to which it is a party.
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Default by Lessee--shall have the meaning set forth in Section 10(a).
Form Guaranty--shall mean a Guaranty of a Percentage Lease
substantially in the form attached hereto as Exhibit C.
Form Percentage Lease--shall mean a Percentage Lease substantially in
the form attached hereto as Exhibit B.
GAAP--shall mean, as of any date of determination, accounting
principles (a) set forth as generally accepted in then currently effective
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) set forth as generally accepted in then
currently effective Statements of the Financial Accounting Standards Board or
(c) that are then approved by such other entity as may be approved by a
significant segment of the accounting profession in the United States of
America. The term "consistently applied," as used in connection therewith,
means that the accounting principles applied are consistent in all material
respects to those applied at prior dates or for prior periods.
Hostile Change of Control--shall mean, at the relevant time, (i) any
event resulting in any "person" or "group" (within the meaning of Sections
13(d) and 14(d) of the 1934 Act), other than United/Harvey Holdings, L.P. or
any Affiliate thereof, becoming the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the 1934 Act) directly or indirectly, of more than fifty
percent (50%) of the total voting power of all classes of capital stock of BHR
or, if applicable, the ultimate parent ("Parent"), at the relevant time, of BHR
or a Lessee or an Affiliated Manager then outstanding and entitled to vote
generally in elections of directors ("Voting Stock") and such beneficial
ownership was acquired within a period of two (2) years following a tender
offer by such person (or any of its Affiliates) for shares of Voting Stock of
such Parent or a solicitation of proxies with respect to Voting Stock of such
Parent by such person, if, in either case, such tender offer or solicitation of
proxies was not approved by a majority of the Board of Directors of such Parent
in office at the time such tender offer or proxy solicitation was commenced, or
(ii) a majority of the Board of Directors of the Parent, at the relevant time,
being constituted of individuals who were elected pursuant to a solicitation of
proxies with respect to Voting Stock of such Parent, if such solicitation of
proxies was not approved by a majority of the Board of Directors of such Parent
in office at the time such solicitation of proxies was commenced.
3
<PAGE> 4
Hotels--shall mean, with respect to any pertinent date, the Existing
Hotels and any New Hotels which are then currently leased by a Lessor to a
Lessee and, with respect to any pertinent period, the Existing Hotels and any
New Hotels that are leased by a Lessor to a Lessee at any time during such
period.
Lessee--shall mean each of the direct or indirect subsidiaries of BHR
that enter into the Percentage Leases on the Closing Date. The number of
initial Lessees shall be agreed to by BHR and FelCor prior to the Closing Date
based on such criteria (including, without limitation, tax, environmental,
joint venture and financing criteria) as are reasonably agreed to by the
parties.
Lessee Income Before Corporate Overhead--shall mean, for any period,
the amount (not less than zero) by which the Gross Revenues of a Hotel for such
period exceed the sum of (i) the Gross Operating Expenses for such period for
which Lessee is responsible under the Percentage Lease covering such Hotel
(other than management fees payable to any Affiliated Manager) and (ii) the
Rent payable to Lessor for such period under such Percentage Lease.
Lessor--shall mean any one of the owners of the Hotels that is an
Affiliate of FelCor from and after the Closing Date.
Liquid Assets Amount--shall mean, for any Person, the sum of (i) the
Person's and the proportionate share of its Subsidiaries' Working Capital and
(ii) the lesser of the aggregate GAAP book value and the aggregate current fair
market value of such Person's assets, and the proportionate share of its
Subsidiaries' assets, of the following types: (A) any contracts to lease or
manage hotels or other hospitality properties owned by Persons other than
Lessor, Lessee and their Affiliates, (B) any hotels, hospitality properties or
other marketable real property owned by such Person and its Subsidiaries, and
(C) to the extent reasonably acceptable to Lessor, any other income-producing
or readily marketable tangible property, equity interests, securities or other
investments owned by such Person and its Subsidiaries. In the case of assets
described in clause (ii) of the preceding sentence, both the GAAP book value
and the current market value of any such assets shall be determined net of any
indebtedness or liabilities (including such Person's liability under any Form
Guaranty) not expressly or structurally subordinated to the payment of Rent on
terms reasonably acceptable to Lessor. Any disputes regarding the fair market
value of an asset will be resolved in accordance with the appraisal procedures
set forth in Article 33 of the Percentage Leases.
4
<PAGE> 5
Liquid Net Worth--shall mean the lesser of (i) the sum of (A) the Net
Worth of a Lessee and (B) the Lessee's Credit Enhancement Amount, and (ii) the
sum of (C) the Lessee's Liquid Assets
Amount and (D) the Lessee's Credit Enhancement Amount, which is expected to be
not less than BHR's Net Worth on the Closing Date, as reasonably approved by
FelCor's REIT tax counsel.
Merger--shall have the meaning set forth in the Preamble.
Merger Agreement--shall have the meaning set forth in the Preamble.
Minimum Liquid Net Worth--shall mean, as of any pertinent date,
aggregate Liquid Net Worth for Lessees equal to fifteen percent (15%) of the
Percentage Rent budgeted to be paid by all Lessees under approved Revenue
Budgets prepared in conformity with the Percentage Leases during the then
current calendar year (annualized in the case of 1998 and pro- rated for the
final year of the Term), as adjusted from time to time as set forth below. To
the extent that Lessees lease New Hotels from Lessor, the Minimum Liquid Net
Worth requirement for the respective Lessee (for the remainder of the then
current calendar year or until another adjustment is required hereunder,
whichever first occurs) will be increased as a result of each such New Hotel by
an amount equal to fifteen percent (15%) of the Percentage Rent projected to be
paid during the first twelve (12) months of the Percentage Lease for such New
Hotel. In addition, to the extent that the Percentage Lease for any Hotel is
terminated or expires, the Minimum Liquid Net Worth requirement with respect to
the respective Lessee will be reduced (for the remainder of the then current
calendar year or until another adjustment is required hereunder, whichever
first occurs) by the amount of its Minimum Liquid Net Worth requirement
attributable to such Hotel. Each Lessee's allocable Minimum Liquid Net Worth
shall be determined as set forth in Section 5(b) below.
Net Worth--shall mean the excess of total assets over total
liabilities, total assets and total liabilities each to be determined in
accordance with GAAP, excluding, however, from the determination of total
assets: (a) unamortized goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents, patent
applications, and other similar intangibles; (b) all deferred charges that are
required to be capitalized in accordance with GAAP or unamortized debt
discounts and expense; (c) treasury stock; (d) securities which are not readily
marketable, (e) any write-up in the book value of any asset resulting from a
revaluation thereof, other than as recognized pursuant to the terms of this
Agreement; (f) the Percentage Leases;
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and (g) any items (other than assets included in Liquid Assets Amount) that are
not included in clauses (a) through (f) above that are treated as intangibles
in conformity with GAAP.
New Hotels--shall mean the hotels (if any) other than the Existing
Hotels that, as of any pertinent date, are then currently leased by a Lessor to
a Lessee and have not been excluded from treatment as a New Hotel under this
Agreement as provided in Section 4 below.
1933 Act--shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1934 Act--shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
Percentage Lease--shall mean, with respect to a Existing Hotel, a
lease in the form of the Form Percentage Lease, as entered into between Lessor
and Lessee or assumed by Lessor upon the Closing Date with respect to such
Hotel and, with respect to each New Hotel, any lease as entered into between
Lessor and Lessee pursuant to Section 4 hereof.
Percentage Rent--shall mean the rent payable under each Percentage
Lease based on a percentage of Lessee's Gross Revenues from the Hotel that is
the subject of the Percentage Lease.
Post-Default Operating Expenses--shall mean the Gross Operating
Expenses of continuing to operate a Hotel under a Percentage Lease as to which
an Event of Default has occurred and is continuing, to the extent incurred
prior to the effective date of termination of such Percentage Lease by the
Lessor, other than amounts (including management fees) payable to Affiliates of
Lessee; provided, however, that Post-Default Operating Expenses may include (i)
reasonable out- of-pocket Gross Operating Expenses reimbursable to such
Affiliate and (ii) the portion of any monthly management fee due by Lessee to
an Affiliated Manager in an amount not in excess of one and one-half percent
(1.5%) of the then current monthly amount of Gross Revenues of the Hotel.
Recognition Agreement--shall mean any agreement entered into between
FelCor and/or the Lessors, on the one hand, and any senior lender to BHR and/or
the Lessees, on the other hand, providing such senior lender with notice of and
an opportunity to cure defaults by Lessee and other commercially reasonable
provisions reasonably acceptable to FelCor designed to protect the interests of
such senior lender.
REIT Restrictions--shall have the meaning set forth in Section 8 below
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Sale Hotel(s)--Any Existing Hotel heretofore identified by BHR and
FelCor as likely to be sold within a reasonable time following closing rather
than renovated by Lessor.
SEC--shall mean the U.S. Securities and Exchange Commission.
Termination Fee--shall mean all amounts paid or credited under Section
3(d) below.
Termination Fee Base Amount--shall mean (i) an amount equal to
seventy-five percent (75%) of the Lessee Income Before Corporate Overhead for
an Existing Hotel for the twelve (12) full calendar months prior to the
effective date of the Termination Fee Payment Event with respect to such
Existing Hotel, and (ii) an amount equal to one hundred percent (100%) of the
Lessee Income Before Corporate Overhead for a New Hotel for the twelve (12)
full calendar months prior to the effective date of the Termination Fee Payment
Event with respect to such New Hotel.
Termination Fee Payment Event--shall mean a sale or other transfer by
Lessor of a Hotel as to which (i) the Percentage Lease covering such Hotel is
to be terminated by Lessor solely as a result of such sale or other transfer as
permitted by the Percentage Lease, and (ii) neither any Lessee nor any
Affiliated Manager shall continue to be the lessee or manager of such Hotel or,
with respect to the Sale Hotels, another hotel offered by FelCor in
substitution therefor and accepted by a Lessee or an Affiliated Manager in
their sole discretion pursuant to a replacement lease and/or management
agreement, in either case that, as compared to the terminated Percentage Lease,
(a) has an equal or greater term (including all renewal terms), (b) is expected
to generate equal or greater Lessee Income Before Corporate Overhead to such
Lessee or Affiliated Manager throughout such term, and (iii) is otherwise of
equal or greater value to such Lessee or Affiliated Manager.
Transfer--(i) any merger, sale of the stock of any Transferor, or
sale, transfer or conveyance of all or substantially all of the assets of any
Transferor if, as a result thereof, Transferor or any surviving entity or
purchaser of the assets of Transferor (each, the "Transferee") would cease to
be controlled by BHR or (ii) any event resulting in a "person" or "group"
(within the meaning of Sections 13(d) and 14(d) of the 1934 Act), other than
United/Harvey Holdings, L.P. or any Affiliate thereof, becoming the beneficial
owner (as defined in Rules 13d-3 and 13d- 5 under the 1934 Act) directly or
indirectly, of more than fifty percent (50%) of the Voting Stock of BHR or, if
applicable, the Parent of BHR, or a Lessee or an Affiliated Manager, or (iii)
any sale or assignment of the leasehold interest in any of the Percentage
Leases to any third party that is not an Affiliate of BHR.
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Transferor--shall mean any one or more of BHR, the Parent of BHR, a
Lessee, or an Affiliated Manager involved in a transaction that will constitute
a Transfer.
Working Capital--shall mean the excess of a Lessee's current assets
over such Lessee's current liabilities, both as determined in accordance with
GAAP.
2. Effective Date. All of the terms and conditions of this
Agreement shall become effective upon the Closing Date. The effectiveness of
this Agreement is conditioned upon (i) the occurrence of Closing under the
Merger Agreement and (ii) the execution and delivery of an amended and restated
Agreement among FSLP and each Lessor, on the one hand, and BHR and Lessee, on
the other hand, assuming the obligations of Lessors and Lessees pursuant to
this Agreement. If the conditions to the effectiveness of this Agreement
described above has not been satisfied on or before the date six (6) months
after the date of this Agreement, this Agreement shall be null and void,
subject to the rights of the parties at law or in equity if the failure of such
conditions to occur is the result of the default of any party hereto.
3. Execution of Percentage Leases; Computation of Rent;
Contemplated Renovations; SPE Financings; Termination Payments.
(a) Execution of Percentage Leases. Upon the Closing
Date, Lessors and Lessees shall execute and deliver the Percentage Leases,
pursuant to which the Existing Hotels shall be leased by a Lessor to a Lessee.
The terms of Exhibit C to the Percentage Leases shall be as set forth on
Exhibit B attached hereto or (to the extent not set forth therein) as
negotiated in good faith between FelCor and BHR prior to the Closing Date. The
terms of Exhibit D to the Percentage Leases shall be as set forth on Exhibit D
attached hereto or (to the extent not set forth therein) as negotiated in good
faith between FelCor and BHR prior to the Closing Date. Except with respect to
the Percentage Leases of the Sale Hotels, each Percentage Lease will have a
primary term of from five (5) to fifteen (15) years, with options for Lessee to
renew the term (i) for a period equal to the number of years by which fifteen
(15) exceeds the number of years in the primary term at the same Rent as in
effect during the Last Year of the primary term, and (ii) for a second 5-year
period at then current market rent for hotel REIT leases for similar
properties.
(b) Computation of Rent. The Base Rent and Percentage
Rent for each Percentage Lease of an Existing Hotel shall be reasonably agreed
to by Lessors and Lessees in good
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faith prior to the Merger and shall be calculated as percentages of various
sub-categories of Gross Revenues of such Existing Hotel, with the aggregate of
such Rent for all Existing Hotels for the years 1998, 1999 and 2000 being
approximately equal to 95% of the forecast (utilized by FelCor and Bristol
Hotel Company as the basis for negotiating the Merger) of aggregate Splitable
Income (as hereinafter defined) of Lessees from such Existing Hotels; provided,
however, that to the extent that the actual performance of the Existing Hotels
for such period(s) deviates from such forecasted Splitable Income, the terms of
the Percentage Leases as written will prevail and no adjustment will be made to
the Rent as a result of any such deviation. Although the economics of
individual Percentage Leases may vary based upon anticipated individual Hotel
performance, the economics to FelCor and BHR from the Existing Hotels, in the
aggregate, contemplate the following three-step formula: (1) hotel level
operating income, excluding management fees, depreciation and interest, plus
hotel ownership expenses such as property taxes, insurance and ground lease
expenses, equals Lessee income before percentage lease expense and Lessee
corporate overhead; (2) Lessee income before percentage lease expense and
Lessee corporate overhead, minus Lessee corporate overhead, equals Lessee
income after corporate overhead and before percentage lease expense ("Splitable
Income"); and (3) FelCor receives Rent equal to 95% of Splitable Income and BHR
retains all remaining Splitable Income.
(c) Contemplated Renovations; Land Use Flexibility. The
Percentage Leases will require Lessors to be responsible for the completion of
certain contemplated renovations to Existing Hotels as generally set forth in
the budgets on Schedule 1 hereto, with the nature and timing of such
renovations to be agreed to between the parties in good faith. The parties
agree that such budgets are preliminary only and may be reasonably adjusted
upwards or downwards following further review and analysis. In addition,
however, FelCor and BHR agree to cause Lessors and Lessees to negotiate in good
faith with respect to the exclusion (before or after the execution of the
Percentage Leases for the Existing Hotels) from the Leased Property under any
Percentage Lease of Land or Improvements not reasonably necessary for, and
directly related to, the operation of the Hotel at the time of such
determination ("Excess Realty"), which FelCor proposes to put to more
profitable use, redevelopment or disposition (such as, by example, but without
limitation, by the construction of a parking structure on Land used for surface
parking for a Hotel, in connection with which a portion
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of the Land may be sold by Lessor as no longer reasonably necessary to the
operation of the Hotel following construction of such parking structure) as
long as Lessee is reasonably compensated for any detrimental effect upon Hotel
operations or its Lessee Income Before Corporate Overhead as a result of such
use, redevelopment or disposition by Lessor, including, without limitation, by
an appropriate reduction in the Rent under such Percentage Lease and/or the
payment of a fee to Lessee.
(d) SPE Financings. If requested by FelCor or a Lessor,
BHR and each Lessee agree that it will cooperate, and will cause any New
Financing Lessees (defined below) to cooperate, in good faith to promptly form
one or more new entities which are wholly-owned by such Lessee and/or the
general partner and/or the parent of the general partnership of such Lessee
(each, a "New Financing Lessee"), to serve as the lessee for one or more Hotels
designated by FelCor, and will assign to the New Financing Lessee, and cause
the New Financing Lessee to assume, the Percentage Leases with respect to such
Hotels, except with respect to obligations accrued through the date of such
assignment assumption.
Lessee and any New Financing Lessee will (a) include in its
and/or its general partner's organizational documents, or promptly amend its
and/or its general partner's existing organizational documents to include,
provisions sufficient to qualify such entity as a single-purpose,
bankruptcy-remote entity (or a similar entity) as determined by Lessor's lender
with reference to rating agency requirements, (b) operate in accordance with
such provisions so as to qualify or continue to qualify as such a single
purpose, bankruptcy-remote entity (or a similar entity) and (c) reasonably
cooperate with FelCor and Lessor and the Lessor's lender in connection with the
foregoing, and with the Lessor's counsel, including with respect to such
counsel's legal opinion regarding the bankruptcy-remoteness and/or
non-consolidation of the Lessee or New Financing Lessee and/or its general
partner with any other persons or entities and other customary matters. Such
Lessor will pay Lessee's reasonable out-of-pocket costs incurred in connection
with this Section 3(d), including, without limitation, organizing or amending
the organizational documents of the New Financing Lessees and in obtaining such
legal opinions.
(d) Termination Fee Payments. In the event of the
occurrence of a Termination Fee Payment Event with respect to a Percentage
Lease (the "Terminated Lease"), all or any portion of the Termination Fee Base
Amount with respect to such Percentage Lease shall, at Lessor's option,
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be applied as a Termination Fee first to past due Rent under the Terminated
Lease or other Percentage Leases, without curing any Event of Default that has
occurred and is continuing thereunder, and the Monthly Termination Payment (as
defined below) then shall be applied as a Termination Fee first to Rent due or
to become due (as it becomes due) under other Percentage Leases (with such
Lessee or any other Lessee) for the number of months remaining following the
date of termination of the Terminated Lease and prior to the end of both the
Primary Term and any First Extension Term (for a total of 15 years) of such
Terminated Lease (other than for Sale Hotels), regardless of whether Lessee has
then exercised its option with respect to such First Extension Term, or prior
to the end of the Second Extension Term thereto if Lessee has properly
exercised its option with respect to such Second Extension Term prior to the
date Lessor provides notice to Lessee of an anticipated Termination Fee Payment
Event. The "Monthly Termination Payment" shall be an amount equal to
one-twelfth (1/12) of the amount of the Termination Fee Base Amount remaining
after any application of a portion thereof to past-due Rent as provided above.
Notwithstanding the foregoing, in the event of the termination
(in the same transaction or series of transactions) of a sufficient number of
Percentage Leases that the aggregate monthly amount owed to Lessee(s) for
Monthly Termination Payments is greater than the aggregate monthly amount of
Rent payable to Lessor(s) under the remaining Percentage Leases, the aggregate
amount of Monthly Termination Payments that would have been paid over the
remaining term(s) of the Terminated Leases shall be discounted to net present
value at an agreed reasonable discount rate and such amount shall be paid to
BHR or Lessee(s) in a lump sum in satisfaction of all of Lessor(s) obligations
with respect to such aggregate Termination Fees, and Lessee(s) shall continue
to pay Rent on all remaining Percentage Leases, if any, as set forth therein.
4. Future Percentage Leases. FelCor and BHR hereby agree
that, unless otherwise agreed by FelCor and BHR in their sole discretion in
connection with the acquisition of a New Hotel, the form of Percentage Lease
between Lessor and Lessee with respect to each New Hotel shall be in
substantially the form of the Form Percentage Lease; provided, however, that
all economic terms of such new Percentage Lease for a New Hotel shall be
negotiated in good faith by the parties at the time. In the event that FelCor
or an Affiliate acquires the "Bristol House" hotel in Dallas, Texas, it will
offer a Lessee the opportunity to enter into a Percentage Lease for such Hotel
upon terms
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negotiated in good faith by the parties at the time; provided, however, that
FelCor and its Affiliates shall have no obligation to offer any other hotels to
BHR or its Affiliates.
5. Minimum Liquid Net Worth Requirements; Lessee Reporting
Obligations; Limitations on Distributions.
(a) Liquid Net Worth. At all times during the Terms of
the Percentage Leases, Lessees shall maintain an aggregate Liquid Net Worth in
an amount at least equal to the Minimum Liquid Net Worth. FelCor and BHR agree
to negotiate in good faith in order to determine the portion of such Liquid Net
Worth to be allocated to each Lessee to be formed prior to the Closing Date,
which allocation shall be subject to the reasonable approval of FelCor's REIT
tax counsel.
(b) Lessee Reporting Obligations. Concurrently with (i)
the delivery of all financial statements to FelCor and Lessors pursuant to
Section 7(a)(i) hereof, and (ii) the execution of any Percentage Lease for any
New Hotel (and, at Lessee's option, in connection with the termination of any
then existing Percentage Lease), each Lessee shall certify to FelCor and its
REIT tax counsel as to the amount of its Liquid Net Worth and its
then-applicable Minimum Liquid Net Worth in a certificate signed by the chief
financial officer, chief accounting officer or treasurer of BHR and by such
Lessee (a "Compliance Certificate"). Each Lessee's Liquid Net Worth and
Minimum Liquid Net Worth shall be determined from time to time (x) from the
most recent Compliance Certificate delivered by BHR and such Lessee, or (y) in
the absence of a timely Compliance Certificate when required hereunder, as
reasonably determined (or estimated) by FelCor pending receipt of such
Compliance Certificate.
(c) Obligation of BHR to Supplement Liquid Net Worth.
If, upon any determination of Liquid Net Worth, the Liquid Net Worth of any
Lessee is less than the Minimum Liquid Net Worth, but Lessors are prohibited by
any Lessor's mortgage financing from exercising their rights under Section
10(b) to terminate all Percentage Leases, BHR shall have the obligation, to the
extent of cash, cash equivalents and other liquid assets reasonably available
to BHR (as certified in writing by BHR to FelCor), to contribute (or cause to
be contributed) to such Lessee, promptly after written notice from Lessor,
additional cash, marketable securities or other assets that qualify for the
Liquid Assets Amount with a current fair market value (as of the date of such
contribution), or to provide additional Credit Enhancement, at least equal to
such deficiency in the
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Liquid Net Worth of such Lessee. Except as expressly set forth in this Section
5(c), or in a Form Guaranty, BHR shall have no obligation to make or cause to
be made any other capital contributions to any Lessee.
(d) Limitation on Distributions. No dividends or
other distributions (other than distributions in the form of additional equity
interests in Lessee) shall, for any period, be declared, paid or set apart for
payment on any equity interest in any Lessee (the "Lessee's Capital"), and no
Lessee Capital shall be redeemed, purchased or otherwise acquired by Lessee for
any consideration (except by conversion into or exchange for other equity
interests in Lessee), unless, after giving effect to such proposed
distribution, (i) the Liquid Net Worth of each Lessee equals or exceeds the
Minimum Liquid Net Worth then applicable to such Lessee, and (ii) no uncured
monetary default of any Lessee exists under this Agreement nor any uncured
default in the payment of Rent (including, without limitation, estimated or
actual monthly payments of Percentage Rent) under any Percentage Lease (unless
such dividend or other distribution will be used to cure such default).
(e) Payments to Affiliates. Except for Post-Default
Operating Expenses and distributions to holders of equity interests permitted
under Section 5(d) above, no Lessee shall make, directly or indirectly, any
payments (for services or otherwise) to Affiliates of Lessee unless, after
giving effect to such proposed payment, (i) the Liquid Net Worth of each Lessee
shall equal or exceed the Minimum Liquid Net Worth then applicable to such
Lessee, and (ii) no uncured monetary default of any Lessee exists under this
Agreement nor any uncured default in the payment of Rent (including, without
limitation, estimated or actual monthly payments of Percentage Rent) under any
Percentage Lease.
6. Changes of Control and Activities of Lessee.
(a) Voluntary Transfers or Changes in Structure. BHR
represents that, except with respect to the Percentage Lease for, and Lessee
of, the Chateau LeMoyne Hotel (to the extent included in the Existing Hotels),
on the Closing Date, each Lessee will be a wholly-owned subsidiary of BHR and
BHR will have sole economic and voting interest in each Lessee. During the
Term of the Percentage Leases, BHR and Lessees may, but shall not be obligated
to, seek the prior written consent of FelCor (following not less than sixty
(60) days prior written notice to FelCor), which consent shall not be
unreasonably withheld, to a Transfer. If requested, FelCor shall not have the
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right to withhold its consent to any Transfer if (i) the Transferee (or its
parent) has Liquid Net Worth at least equal to that of, and otherwise is as
creditworthy as, BHR as of the end of the Fiscal Year preceding such Transfer,
and (ii) the Transferee (A) has a good reputation in the U.S. hospitality
industry and (B) either (x) has substantial expertise in the management of
hotels comparable to the Hotels or (y) will retain a substantial number of
hotel management employees, including executive management, of Transferor. In
the event of a Transfer to which FelCor does not consent, (i) the percentage
hurdle for purposes of a Revenue Performance Shortfall under the Percentage
Leases affected by such Transfer shall increase from eighty percent (80%) to
ninety percent (90%), (ii) the Overall Shortfall Cure Percentage shall be
increased from ninety percent (90%) to one hundred percent (100%), (iii) the
Revenue Performance Shortfall test period shall be reduced from three (3) years
to one (1) year, and (iv) the respective Lessee shall have no opportunity to
cure any Revenue Performance Shortfall thereafter (including but not limited to
the first full Fiscal Year following the effective date of any such Transfer).
(b) Hostile Change of Control. In the event of a
Hostile Change of Control, Lessors shall have the absolute right and option (in
its sole, unreviewable discretion) to terminate any or all of the Percentage
Leases upon not less than thirty (30) days prior written notice to the
respective Lessee, without payment of any Termination Fee.
(c) Other Business Activities. After the
occurrence and during the continuance of a Default by Lessee, without the prior
written consent of FelCor, no Lessee shall engage in or incur any expenses or
liabilities related to any business or activity in which it is not engaged at
the time of such Default.
7. Financial Statements; Indemnification; Due Diligence;
Confidentiality.
(a) Financial Disclosure.
(i) During the term of any Percentage Lease, BHR and Lessees
agree:
(A) to deliver, and otherwise make available, to
FelCor, FSLP and Lessors,
(1) not more than forty-five (45) days
following the end of each calendar quarter of each year during the
Terms of the Percentage Leases, quarterly unaudited financial
statements, including balance sheet, statement of operations,
statement of
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shareholders' equity, statement of cash flows for Lessee for the most
recently ended calendar quarter and the comparable prior year period
prepared in conformity with GAAP;
(2) not more than ninety (90) days after
the end of each calendar year during the Terms of the Percentage
Leases, (A) a hotel-by-hotel breakdown of revenue by source, occupied
and available rooms, and maintenance and repair expenses, and (B)
audited annual financial statements and schedules for the most
recently ended calendar year prepared in accordance with GAAP, audited
by a nationally recognized certified public accounting firm reasonably
acceptable to FelCor, FSLP and Lessors;
(3) any historical financial information
reasonably necessary to re-state historical financial information to
conform to the presentation of FelCor's, FSLP's or Lessor's audited
and unaudited financial statements at any future time; and
(4) on a timely basis, any other
information reasonably requested by FelCor, FSLP and Lessors to permit
FelCor, FSLP and Lessors to meet their filing and reporting
requirements under the 1934 Act and to file and have declared
effective registration statements under the 1933 Act, including
providing information necessary to complete the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" section of FelCor's 1934 Act reports and 1933 Act
registration statements as it may relate to BHR, Lessees or the
Hotels; and
(B) that BHR or Lessees shall bear the cost of
obtaining, preparing and providing all information required to be furnished to
FelCor, FSLP and Lessors under this Section 7(a)(i), including the cost and
related expenses of the annual audit of Lessees' financial statements.
(ii) During the term of any Percentage Lease, FelCor and Lessor
agree to make available to BHR and Lessees on a timely basis, any information
reasonably requested by BHR and Lessees to permit BHR to meet its filing and
reporting requirements under the 1934 Act and to file and have declared
effective registration statements under the 1933 Act, including providing
information necessary to complete the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of BHR's 1934 Act
reports and 1933 Act registration statements as it may relate to Lessors or the
Hotels.
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(b) Indemnification.
(i) FelCor, FSLP and each Lessor agree, jointly
and severally, to indemnify, defend (with counsel reasonably acceptable to BHR
and Lessees), and hold harmless BHR, each Lessee and each Affiliated Manager,
and their stockholders, partners, limited liability company members, officers,
directors and controlling persons (collectively, "Lessee Indemnified Parties")
from and against any losses, claims, damages, expenses or liabilities (or
actions in respect thereof) to which the Lessee Indemnified Parties may become
subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses,
claims, damages, expenses or liabilities or actions in respect thereof arise
out of or are based upon the 1934 Act reports or 1933 Act registration
statements of FelCor, FSLP or Lessors, except to the extent any such claims,
liabilities, losses, damages, expenses, or liabilities (or actions in respect
thereof) result from any untrue statement of a material fact or omission of any
material fact in the information provided by (or on behalf of) a Lessee
Indemnified Party to FelCor, FSLP or Lessor pursuant to Section 7(a)(i) above.
(ii) BHR and each Lessee agree, jointly and
severally, to indemnify, defend (with counsel reasonably acceptable to FelCor,
FSLP and Lessors) and hold harmless FelCor, FSLP and Lessors, and their
respective stockholders, partners, limited liability company members, officers,
directors and controlling persons (collectively, "Lessor Indemnified Parties")
from and against any losses, claims, damages, expenses or liabilities (or
actions in respect thereof) to which the Lessor Indemnified Parties may become
subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses,
claims, damages, expenses or liabilities or actions in respect thereof arise
out of or are based upon the 1934 Act reports or 1933 Act registration
statements of BHR or Lessees, except to the extent any such claims,
liabilities, losses, damages, expenses, or liabilities (or actions in respect
thereof) result from any untrue statement of a material fact or omission of any
material fact in the information provided by (or on behalf of) a Lessor
Indemnified Party to BHR or Lessees pursuant to Section 7(a)(ii) above.
(c) Due Diligence. During the term of each Percentage
Lease, BHR and Lessees agree:
(i) to permit FelCor, FSLP and Lessees, together
with their independent public accountants, counsel, financial advisors,
underwriters, underwriters' counsel, rating agencies,
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lenders and others having a legitimate interest in Lessees' or the Hotels'
financial condition and results of operations, during regular business hours,
upon reasonable notice and at the sole cost of FelCor, FSLP or Lessors
(provided there shall be no charge by Lessees or BHR to FelCor, FSLP or Lessors
for the reasonable time of Lessees' and BHR's officers or employees), to
interview officers and employees of Lessees or BHR and to have access to and
review:
(A) the general accounting records of
Lessees or any Hotel for purposes of performing an audit of FelCor,
FSLP, Lessors or any Hotel in accordance with generally accepted
auditing standards and to conduct reasonable due diligence with
respect to Lessees and their business activities and the Hotels; and
(B) Lessees' entity records, minute
books, contracts and other information, documents, agreements or items
relating to the operation of the Hotels and Lessees' financial
condition.
(ii) to cooperate promptly and fully with FelCor,
FSLP and Lessors upon request and at the cost of FelCor, FSLP or Lessors
(except with respect to the cost of obtaining, preparing and providing the
information required to be furnished to FelCor, FSLP and Lessors under Section
7(a)(i) above and any costs relating to the reasonable time of employees or
officers of Lessees or BHR), in making available such information with respect
to Lessees or the Hotels as may be then required by any regulatory agency,
including the SEC or any stock exchange on which FelCor's, FSLP's or Lessors'
securities may be registered, listed or traded.
(iii) to use their reasonable best efforts to cause
the independent public accountants preparing audits of BHR and Lessees to
provide FelCor, FSLP and Lessors, at the sole cost of FelCor, FSLP or Lessors
with all consents and comfort letters of such accountants required for FelCor's
or Lessors' filings under the 1933 Act or the 1934 Act or to have FelCor's or
Lessors' registration statements be declared effective under the 1933 Act.
During the term of each Percentage Lease, FelCor, FSLP and
Lessors agree:
(i) to permit BHR and Lessees, together with
their independent public accountants, counsel, financial advisors,
underwriters, underwriters' counsel, rating agencies, lenders and others having
a legitimate interest in Lessors' or the Hotels' financial condition and
results of operations, during regular business hours, upon reasonable notice
and at the sole cost of BHR and
17
<PAGE> 18
Lessees (provided there shall be no charge by FelCor, FSLP or Lessors to
Lessees or BHR for the reasonable time of FelCor's, FSLP's or Lessors' officers
or employees), to interview officers and employees of FelCor, FSLP and Lessors)
and to have access to and review:
(A) the general accounting records of
Lessors or any Hotel for purposes of performing an audit of BHR,
Lessees or any Hotel in accordance with generally accepted auditing
standards and to conduct reasonable due diligence with respect to
Lessors and their business activities and the Hotels; and
(B) Lessors' entity records, minute
books, contracts and other information, documents, agreements or items
relating to the operation of the Hotels and Lessors' financial
condition.
(ii) to cooperate promptly and fully with Lessees
and BHR, upon request and at the cost of Lessees, in making available such
information with respect to FelCor, FSLP or Lessors as may be then required by
any regulatory agency, including the SEC or any stock exchange on which BHR's
or Lessees' securities may be registered, listed or traded.
(iii) to use their reasonable best efforts to cause
the independent public accountants preparing audits of FelCor, FSLP or Lessors
to provide BHR and Lessees, at the sole cost of Lessees and BHR, with all
consents and comfort letters of such accountants required for BHR's or Lessees'
filings under the 1933 Act or the 1934 Act or to have BHR's or Lessees'
registration statements be declared effective under the 1933 Act.
(d) Confidentiality. To the extent Lessors or
FelCor on the one hand, or Lessees or BHR on the other, obtains information or
becomes aware of material information concerning the other that is not
disclosed in a public announcement or filing under the 1933 Act or the 1934 Act
by BHR or FelCor, each party agrees that it shall not improperly disclose or
unlawfully utilize such information or otherwise act unlawfully with respect
thereto.
8. REIT Requirements.
(a) BHR has been advised by FelCor and understands that,
in order for FelCor to qualify as a real estate investment trust under the Code
("REIT"), the following requirements (the "REIT Requirements") must be
satisfied:
18
<PAGE> 19
(i) The average of the adjusted tax bases of
Lessor's personal property that is leased to Lessee under a Percentage Lease at
the beginning and end of a calendar year cannot exceed fifteen percent (15%) of
the average of the aggregate adjusted tax bases of Lessor's real and personal
property that is leased to Lessee under such Percentage Lease at the beginning
and end of such calendar year.
(ii) Lessee cannot sublet the Hotels and related
property that is leased to it by Lessor, or enter into any similar arrangement,
on any basis such that the rental or other amounts paid by the sublessee
thereunder would be based, on whole or in part, on either (i) the net income or
profits derived by the business activities of the sublessee or (ii) any other
formula such that any portion of the Percentage Rent or other rent paid by
Lessee to Lessor would fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Code.
(iii) Lessee cannot sublease the Hotels and related
property leased to it by Lessor to, or enter into any similar arrangement with,
any person in which FelCor owns, directly or indirectly, a ten percent (10%) or
greater ownership interest, within the meaning of Section 856(d)(2)(B) of the
Code.
(iv) FelCor cannot own, directly or indirectly, a
ten percent (10%) or greater ownership interest in BHR or Lessee, within the
meaning of Section 856(d)(2)(B) of the Code.
(v) Unless specifically permitted by the Board of
Directors of FelCor, no person can own, directly or indirectly, capital stock
of FelCor that exceeds the limit set forth in FelCor's Charter.
(b) BHR and Lessees agree, and agree to use reasonable
efforts to cause their Affiliates, to use their reasonable best efforts to
permit the REIT Requirements to be satisfied. BHR and Lessees agree, and agree
to use their reasonable best efforts to cause their Affiliates, to cooperate in
good faith with FelCor, FSLP and Lessors to ensure that the REIT Requirements
are satisfied, including but not limited to, providing FelCor with information
about the ownership of BHR, Lessees, and their Affiliates to the extent that
such information is reasonably available, and complying with the related
obligations of Lessees under each Percentage Lease. BHR and Lessees agree, and
agree to use their reasonable best efforts to cause their Affiliates, upon
request by FelCor
19
<PAGE> 20
(and, where appropriate action not already required by the terms hereof or of
the Percentage Leases is required by this Section 8(b), at FelCor's expense),
to take reasonable action necessary to ensure compliance with the REIT
Requirements. Immediately after becoming aware that any REIT Requirement is
not, or will not be, satisfied, BHR or Lessees shall notify, or use reasonable
efforts to cause their Affiliates to notify, FelCor of such noncompliance.
9. Cross Default. From and after the Closing Date, a Financial
Default (as hereinafter defined) by any Lessee under the Percentage Lease with
respect to any Hotel will constitute and continue to create an Event of Default
(until cured, if curable) under the Percentage Leases with respect to all other
Hotels, except to the extent prohibited by Lessors' mortgage financing secured
by a lien upon any such other Hotel. A "Financial Default" shall mean and
refer to any Event of Default under a Percentage Lease consisting of one or
more of the following:
(i) if Lessee fails to pay Base Rent or Percentage Rent to
Lessor as and when due (following any applicable grace or cure
period);
(ii) if Lessee (A) shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state
bankruptcy law or any similar federal or state law, or shall be
adjudicated a bankrupt or shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts
generally as they become due, or if a petition or answer proposing the
adjudication of Lessee as a bankrupt or its reorganization pursuant to
any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and Lessee shall be adjudicated a
bankrupt and such adjudication shall not be vacated or set aside or
stayed within sixty (60) days after the entry of an order in respect
thereof, or if a receiver of Lessee or of the whole or substantially
all of the assets of Lessee shall be appointed in any proceeding
brought by Lessee or if any such receiver, trustee or liquidator shall
be appointed in any proceeding brought against Lessee and shall not be
vacated or set aside or stayed within sixty (60) days after such
appointment, or (B) is liquidated or dissolved, or begins proceedings
toward such liquidation or dissolution, or, in any manner, permits the
sale or divestiture of substantially all of its assets, except as
permitted hereunder; or
(iii) if a material Event of Default (including, without
limitation, any of those listed above) occurs under any Percentage
Lease at any time during any period of twelve (12) consecutive months
in which any material Events of Default have occurred under at least
four (4) other Percentage Leases.
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<PAGE> 21
10. Default by Lessee.
(a) A "Default by Lessee" shall exist under this
Agreement if any one or more of the following occur:
(i) Liquid Net Worth Covenants. During the term
of any Percentage Lease, a Lessee fails to maintain its Minimum Liquid Net
Worth as required in, or makes distributions or payments prohibited by,
Sections 5 hereof (each, a "LNW Deficiency"), and fails to cure such LNW
Deficiency within thirty (30) days following notice thereof from FelCor to BHR;
provided, however that if BHR is required to raise debt or equity capital in
order to supply cash, marketable securities or other assets that qualify for
the Liquid Assets Amount or Credit Enhancement to cure such LNW Deficiency, and
in good faith commences and continues to raise such debt or equity capital
within thirty (30) days after such determination of Liquid Net Worth, BHR shall
have a reasonable period not to exceed ninety (90) days to raise such debt or
equity capital and to cause such required cash, marketable securities or other
assets that qualify for the Liquid Assets Amount or Credit Enhancement to be
included in such Lessee's Liquid Net Worth in order to eliminate any LNW
Deficiency.
(ii) Default Under Percentage Leases. A Financial
Default occurs under any of the Percentage Leases to which such Lessee is a
party.
(iii) Other Breaches. BHR or any Lessee fails to
comply with any other provision of this Agreement for a period of thirty (30)
days after being notified by FelCor in writing of the provisions of this
Agreement with which such Lessee has failed to comply; provided that if such
default (other than if Lessee fails to pay any Base Rent or Percentage Rent
under any Percentage Lease, when due after any applicable cure period, which
failure shall be subject to the provisions set forth in the Percentage Leases,
or if Lessee fails to maintain its Minimum Liquid Net Worth as required in, or
makes distributions or payments prohibited by, Section 5 hereof) cannot with
due diligence be cured within a thirty (30) day period, such period shall be
extended for such reasonable time as BHR or such Lessee promptly and with due
diligence commences and continues the cure thereof but in no event for a period
of more than ninety (90) days following the date of notice from FelCor to BHR.
21
<PAGE> 22
(b) In the event of a Default by Lessee, and without
prejudice to the rights and remedies of any Lessor under any Percentage Lease,
Lessors may, subject to its compliance with the terms of any Recognition
Agreement and Article 21 of each Percentage Lease, elect to terminate all of
the Percentage Leases (or all of the Percentage Leases to which the Lessee in
default is a party), except to the extent expressly prohibited by mortgage
financing of Lessors that is secured by a lien upon the Hotel covered by such
Percentage Lease. In no event shall Lessors have the option to terminate less
than all Percentage Leases (or all Percentage Leases to which the Lessee in
default is a party) as to which they have both the contractual and legal right
so to terminate.
11. Recognition Agreement. FelCor and Lessor agree to negotiate
in good faith and enter into a Recognition Agreement with Bankers Trust Company
prior to the Closing Date and with any other lender to BHR and/or any Lessees
subsequent to the Closing Date.
12. Miscellaneous.
(a) Entire Agreement; Modification, Amendments and
Waivers. This Agreement, together with the Percentage Leases and instruments
and agreements referenced herein and therein, constitutes the entire agreement
among the parties hereto with respect to the subject matter of this Agreement
and supersedes that certain Agreement Regarding Master Hotel Agreement dated as
of March 23, 1998 among the parties hereto, and any prior oral agreements among
the parties hereto. No modification, amendment or waiver of any provision of
this Agreement shall be effective unless the same is in a writing signed by all
parties to this Agreement.
(b) Notices. All notices, demands, requests, consents
approvals and other communications ("Notice") hereunder shall be in writing and
personally served, mailed (by registered or certified mail, return receipt
requested and postage prepaid), sent by FedEx or other nationally recognized
overnight courier, or sent by facsimile to the parties as set forth below:
If to BHR or any Lessee:
Bristol Hotels & Resorts, Inc.
14295 Midway Road
Dallas, Texas 755244
Facsimile: 972/391-3497
Attention: President (with a copy to
Attention: General Counsel)
22
<PAGE> 23
If to FelCor, FSLP or any Lessor:
FelCor Suite Hotels, Inc.
545 E. John Carpenter Frwy, Suite 1300
Irving, Texas 75062
Facsimile: 972/444-4949
Attention: President (with a copy to
Attention: General Counsel)
or to such other address or addresses as either party may hereafter designate.
Personally delivered Notice (including any confirmed facsimile transmission or
delivery by nationally recognized overnight courier) shall be effective upon
receipt at the specified address. Notice given by mail shall be complete at
the time of deposit in the U.S. Mail system, but any prescribed period of
Notice and any right or duty to do any act or make any response within any
prescribed period or on a date certain after the service of such Notice given
by mail shall be extended five (5) days.
(c) Successors and Assigns. The provisions of this
Agreement shall be binding upon the parties hereto and all of their permitted
successors and assigns and inure to the benefit of the parties hereto and their
permitted successors and assigns.
(d) Termination. This Agreement (other than the parties'
indemnification rights and obligations hereunder) shall terminate (without
prejudice to any accrued claims hereunder) at such time as all of the
Percentage Leases have terminated.
(e) Governing Law. This Agreement shall be governed by
the laws of the State of Texas.
(f) Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be an original once all parties have
signed a counterpart hereof, with the same force and effect as if the
signatures thereto and hereto were upon the same instrument.
(g) WAIVERS. EACH PARTY WAIVES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY PROCEEDINGS BROUGHT BY
EITHER PARTY TO ENFORCE THE PROVISIONS OF THIS AGREEMENT. IN ANY SUIT OR OTHER
CLAIM BROUGHT BY EITHER PARTY SEEKING DAMAGES AGAINST THE OTHER PARTY FOR
BREACH OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE PARTY AGAINST WHOM SUCH
CLAIM IS MADE SHALL BE
23
<PAGE> 24
LIABLE TO THE OTHER PARTY ONLY FOR ACTUAL DAMAGES AND NOT FOR CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES.
(h) Time of the Essence. Time is of the essence of this
Agreement.
(i) Conflict. In the event of any actual conflict or
inconsistency between the terms of this Agreement and the terms of any
Percentage Lease, the terms of this Agreement shall take precedence.
(j) Further Assurances. From time to time, as when
requested by a party hereto, the other parties will execute and deliver, or
cause to be executed and delivered, all such other documents and instruments as
may be reasonably required to further or better evidence the agreements herein.
(k) Interpretation; Arbitration. No provision of this
Agreement will be interpreted in favor of, or against, any of the parties
hereto by reason of the extent to which any such party or its counsel
participated in the drafting hereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof. Any disputes
arising under this Agreement will be resolved in accordance with the
arbitration procedures set forth in Section 42.1 of the Percentage Leases.
(l) Future Affiliates. Any currently existing or
future Affiliate of FelCor or the Lessors that is or in the future may be a
Lessor under a Percentage Lease shall become a party to this Agreement,
entitled to the same rights, benefits and remedies to which FelCor and the
Lessors are entitled hereunder by execution of an addendum to this Agreement.
Any currently existing or future Affiliate of BHR or the Lessees that is or in
the future may be a Lessee under a Percentage Lease shall become a party to
this Agreement, entitled to the same rights, benefits and remedies to which BHR
and the other Lessees are entitled hereunder by execution of an addendum to
this Agreement. Upon the request of any party, such future Lessors and Lessees
shall execute any documents, instruments or amendments hereto reasonably
requested by a party hereto to further evidence any such Affiliate's rights,
benefits and remedies hereunder.
(m) Representatives. This Agreement provides the
Lessors certain rights, benefits and remedies. FelCor is hereby designated and
appointed the representative of the Lessors, and the Lessees and BHR shall be
permitted to rely upon any written or oral communication or
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<PAGE> 25
notification from FelCor as being from the respective Lessor. Any notice
required to be given hereunder shall be given to FelCor as representative for
any and all of the Lessors.
This Agreement provides the Lessees certain rights,
benefits and remedies. BHR is hereby designated and appointed the
representative of the Lessees, and the Lessors and FelCor shall be permitted to
rely upon any written or oral communication or notification from BHR as being
from the respective Lessee. Any notice required to be given hereunder shall be
given to BHR as representative for any or all of the Lessees.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Bristol Hotels & Resorts, Inc.
By: /s/ JOEL M. EASTMAN
----------------------------------------
Name: Joel M. Eastman
--------------------------------------
Title: Vice President
-------------------------------------
FelCor Suite Hotels, Inc.
By: /s/ LAWRENCE D. ROBINSON
----------------------------------------
Name: Lawrence D. Robinson
--------------------------------------
Title: Senior Vice President
and General Counsel
-------------------------------------
FelCor Suites Limited Partnership
By: FelCor Suite Hotels, Inc.
its general partner
By: /s/ LAWRENCE D. ROBINSON
----------------------------------------
Name: Lawrence D. Robinson
--------------------------------------
Title: Senior Vice President
and General Counsel
-------------------------------------
25
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Exhibit A - Existing Hotels
Exhibit B-1 - Form Percentage Lease
Exhibit B-2 - Capital Expenditure Policy
Exhibit C - Form of Guaranty
Exhibit D - Percentage Rent Computations
Schedule 1 - Contemplated Renovations
26
<PAGE> 27
EXHIBIT A
Existing Hotels
<PAGE> 28
EXHIBIT B-1
Form Percentage Lease
<PAGE> 29
LEASE AGREEMENT
DATED AS OF _______________, 1998
BETWEEN
[OLD BRISTOL/FELCOR AFFILIATE]
AS LESSOR
AND
[NEW BRISTOL AFFILIATE]
AS LESSEE
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Leased Property . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Second Extension of the Term . . . . . . . . . . . . . . . . . 3
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Confirmation of Percentage Rent . . . . . . . . . . . . . . . 21
3.3 Additional Charges . . . . . . . . . . . . . . . . . . . . . . 21
3.4 Net Lease Provision . . . . . . . . . . . . . . . . . . . . . 22
3.5 Material Changes in Economic Climate . . . . . . . . . . . . . 22
3.6 Performance Failure . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1 Payment of Impositions . . . . . . . . . . . . . . . . . . . . 24
4.2 Notice of Impositions . . . . . . . . . . . . . . . . . . . . 26
4.3 Adjustment of Impositions . . . . . . . . . . . . . . . . . . 26
4.4 Utility Charges . . . . . . . . . . . . . . . . . . . . . . . 26
4.5 Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . 26
4.6 Franchise Fees . . . . . . . . . . . . . . . . . . . . . . . . 27
4.7 Ground Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 No Termination, Abatement, etc. . . . . . . . . . . . . . . . 27
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Ownership of the Leased Property . . . . . . . . . . . . . . . 28
6.2 Lessee's Personal Property . . . . . . . . . . . . . . . . . . 28
6.3 Lessor's Lien . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Condition of the Leased Property . . . . . . . . . . . . . . . 29
7.2 Use of the Leased Property . . . . . . . . . . . . . . . . . . 29
7.3 Lessor to Grant Easements, etc. . . . . . . . . . . . . . . . 31
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Compliance with Legal and Insurance Requirements, etc. . . . . 31
8.2 Legal Requirement Covenants . . . . . . . . . . . . . . . . . 31
8.3 Environmental Covenants . . . . . . . . . . . . . . . . . . . 33
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . 35
9.2 Encroachments, Restrictions, Etc. . . . . . . . . . . . . . . 36
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.2 Salvage . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.3 Initial Upgrade of Improvements . . . . . . . . . . . . . . . 38
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.1 General Insurance Requirements . . . . . . . . . . . . . . . . 40
13.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . 41
13.3 Waiver of Claims and Subrogation . . . . . . . . . . . . . . . 42
13.4 Form Satisfactory, etc. . . . . . . . . . . . . . . . . . . . 42
13.5 Increase in Limits . . . . . . . . . . . . . . . . . . . . . . 42
13.6 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . 43
13.7 No Separate Insurance . . . . . . . . . . . . . . . . . . . . 43
13.8 Reports On Insurance Claims . . . . . . . . . . . . . . . . . 43
ARTICLE 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . 43
14.2 Reconstruction in the Event of Damage or Destruction Covered
by Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance . . . . . . . . . . . . . . . . . . . . . 45
14.4 Lessee's Personal Property and Business Interruption
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.5 Abatement of Rent Upon Casualty . . . . . . . . . . . . . . . 45
14.6 Damage Near End of Term . . . . . . . . . . . . . . . . . . . 45
14.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 46
15.2 Parties' Rights and Obligations . . . . . . . . . . . . . . . 46
15.3 Total Taking . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
ii
<PAGE> 32
<TABLE>
<S> <C>
15.4 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . 46
15.5 Allocation of Award . . . . . . . . . . . . . . . . . . . . . 47
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . 48
16.2 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . 50
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
16.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
16.5 Application of Funds . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Lessor's Right to Cure Lessee's Default . . . . . . . . . . . . . . . 52
ARTICLE 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
18.1 Revenue Budgets . . . . . . . . . . . . . . . . . . . . . . . 52
18.2 Operating Budgets . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Capital Budget . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Annual Budget Approval; Budget Disputes . . . . . . . . . . . 54
ARTICLE 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
19.1 REIT Requirements; Management Agreements; Affiliate Payments . 55
19.3 Management Agreement . . . . . . . . . . . . . . . . . . . . . 57
19.4 Payments to Affiliates of Lessee . . . . . . . . . . . . . . . 57
ARTICLE 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
22.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 60
22.2 Indemnification Procedure . . . . . . . . . . . . . . . . . . 61
ARTICLE 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
23.1 Subletting and Assignment . . . . . . . . . . . . . . . . . . 61
23.2 Subordination and Attornment . . . . . . . . . . . . . . . . . 62
ARTICLE 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Officer's Certificates; Estoppel Certificates; Financial and
Portfolio Information . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Lessor's Right to Inspect . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
iii
<PAGE> 33
<TABLE>
<S> <C>
ARTICLE 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Acceptance of Surrender . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Conveyance by Lessor . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Appraisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
34.1 Lessor May Grant Liens . . . . . . . . . . . . . . . . . . . . 68
34.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . . . 70
34.3 Breach by Lessor . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE 35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
35.1 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 71
35.2 Transition Procedures . . . . . . . . . . . . . . . . . . . . 71
35.3 Waiver of Presentment, etc. . . . . . . . . . . . . . . . . . 73
35.4 Standard of Discretion. . . . . . . . . . . . . . . . . . . . 73
35.5 Action for Damages. . . . . . . . . . . . . . . . . . . . . . 73
35.6 Lease Assumption in Bankruptcy Proceeding. . . . . . . . . . . 73
35.7 Intra-Family Transfers. . . . . . . . . . . . . . . . . . . . 73
ARTICLE 36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
iv
<PAGE> 34
<TABLE>
<S> <C>
Lessor's Option to Purchase Lessee's Personal Property . . . . . . . 74
ARTICLE 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Lessor's Option to Terminate Lease upon Sale . . . . . . . . . . . . 74
ARTICLE 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Compliance with Franchise Agreement by Lessee . . . . . . . . . . . . 76
ARTICLE 40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Lessor Approval of Capital Expenditures; Capital Reserve. . . . . . . 77
ARTICLE 41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
41.1 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . 78
41.2 Alternative Arbitration. . . . . . . . . . . . . . . . . . . . 78
41.3 Arbitration Procedures. . . . . . . . . . . . . . . . . . . . 78
The Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE 43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
EXHIBIT A-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
EXHIBIT A-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
EXHIBIT E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
v
<PAGE> 35
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the ____
day of _______________, 1998, by and between [Bristol subsidiary or successor
that currently owns the hotel] (hereinafter called "Lessor"), and [Bristol
Hotel Tenant Company], a Delaware corporation (hereinafter called "Lessee"),
provides as follows.
RECITALS:
A. In connection with the transactions contemplated by that certain
Agreement and Plan of Merger dated as of March 23, 1998 (the "Merger
Agreement"), Bristol Hotel Company, a Delaware corporation and the ultimate
parent of Lessor ("Bristol") is to be merged with and into FelCor. Prior to
such merger (i) Lessor and certain other direct or indirect subsidiaries of
Bristol (collectively, including Lessor, the "Existing Lessors") that own hotel
properties have agreed to lease to Lessee, and Lessee has agreed to lease from
such Existing Lessors the hotels listed on Exhibit "A-1" attached hereto
(including this Lease, the "Existing Leases"), and (ii) all of the shares of
capital stock of Bristol Hotels and Resorts, Inc. ("BHR"), the immediate parent
of Lessee, will be distributed to the shareholders of Bristol. Following the
merger, the Existing Lessors will be direct or indirect subsidiaries of FelCor.
B. Lessor and Lessee desire to provide for the general terms and
conditions upon which the Hotel covered by this Lease will be leased to and
operated by Lessee.
NOW, THEREFORE, intending to be legally bound, Lessor and Lessee agree
as follows:
Lessor, in consideration of the payment of rent by Lessee to Lessor, the
covenants and agreements to be performed by Lessee, and upon the terms and
conditions hereinafter stated, does hereby rent and lease unto Lessee, and
Lessee does hereby rent and lease from Lessor, the Leased Property.
ARTICLE 1
1.1 Leased Property. The "Leased Property" is comprised of Lessor's
interest in the following:
(a) the land or ground leasehold interest described in Exhibit
"B" attached hereto and by reference incorporated herein.
(b) all buildings, structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and offsite), parking
areas and roadways appurtenant to, and any leasehold interest of
<PAGE> 36
Lessor as a tenant in, such buildings and structures presently situated upon
the Land (collectively, the "Improvements");
(c) all easements, rights and appurtenances relating to the
Land and the Improvements;
(d) all equipment, machinery, fixtures, and other items of
property required or incidental to the use of the Improvements as a hotel,
including all components thereof, now and hereafter permanently affixed to or
incorporated into the Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, wall coverings all
of which to the greatest extent permitted by law are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto (collectively, the
"Fixtures");
(e) all equipment, machinery and other items of property
incidental to the use of the Improvements as a hotel, including all components
thereof, now or hereafter located at the Improvements or used exclusively in
connection therewith, including, without limitation, all computer and front
desk equipment, such as reservations systems, accounting systems, printers and
other office equipment, all equipment and systems required for the operation of
kitchens, bars and Restaurants, if any, and laundry and dry cleaning
facilities, dining room wagons, materials, handling equipment, cleaning and
engineering equipment, and vehicles, but excluding the Fixtures, Furniture and
Inventory (collectively, the "Equipment");
(f) all furniture and furnishings and all other items of
personal property (excluding Inventory and personal property owned by Lessee)
located on, and used in connection with, the operation of the Improvements as a
hotel, together with all replacements, modifications, alterations and additions
thereto (collectively, "Furniture); and
(g) the lessor's interest in, to and under all existing leases
of space within the Leased Property (including any security deposits or
collateral held by Lessor pursuant thereto), which interests shall be
conditionally assigned to Lessee if required by applicable law or the terms and
conditions of such leases.
EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE LEASED PROPERTY IS DEMISED IN ITS
PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY
LESSOR AND SUBJECT TO THE RIGHTS OF HOTEL GUESTS AND TENANTS IN POSSESSION, AND
TO THE EXISTING STATE OF TITLE INCLUDING ALL COVENANTS, CONDITIONS,
RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD INCLUDING ALL APPLICABLE
LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF
TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
- 2 -
<PAGE> 37
WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.
1.2 Term. The term of this Lease (the "Term") shall commence on the
Commencement Date and shall end on the Expiration Date, unless sooner
terminated in accordance with the provisions hereof.
1.3 First Extension of the Term. [ADD LESSEE'S FIRST OPTION TO
EXTEND TERM TO A TOTAL OF 15 YEARS ON SAME ECONOMIC TERMS AS IN EFFECT ON LAST
DAY OF INITIAL TERM IF INITIAL TERM IS LESS THAN 15 YEARS. RENEWAL AUTOMATIC
UNLESS LESSEE DELIVERS NOTICE OF NON-RENEWAL].
1.3 Second Extension of the Term. At least one hundred twenty (120)
days prior to the expiration of the First Extension Term, Lessor and Lessee
shall negotiate in good faith modifications to the Rent for an extension of
five (5) years (the "Second Extension") of the Term to adjust such Rent to
market rates for hotel REIT leases for similar hotel properties at that time.
In the event Lessor and Lessee are unable to agree upon Rent terms for the
Second Extension, at least ninety (90) days prior to the expiration of the
Term, the Rent terms for the Second Extension shall be determined by a panel of
three (3) persons having generally recognized expertise in evaluating hotel
REIT leases. Lessee and the Lessor each shall have the right to designate one
panel member and the two (2) panel members so designated will designate the
third panel member. Rent terms approved by at least two (2) of the three (3)
panel members will be binding on Lessee and Lessor for the Second Extension,
which shall be otherwise on the terms set forth herein. In determining the
market rates for the Second Extension, the panel members shall be instructed to
consider hotel REIT lease terms with respect to similar hotel property types.
[ADD MECHANICS OF LESSEE'S EXERCISE OF EXTENSION OPTION(S)]
ARTICLE 2
Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP, (c) all references in this Lease to designated "Articles," "Sections" and
other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease and (d) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Lease as a whole and not to any
particular Article, Section or other subdivision:
Additional Charges: As defined in Section 3.3.
Affiliate: As used in this Lease the term "Affiliate" of a Person shall
mean (1) any Person that, directly or indirectly, controls or is controlled by
or is under common control with such Person, (2) any other Person that owns,
beneficially, directly or indirectly, fifty percent (50%) or
- 3 -
<PAGE> 38
more of the outstanding capital stock, shares or equity interests of such
Person, or (3) any officer, director, employee, partner or trustee of such
Person (or any Person controlling, controlled by or under common control with
such Person), excluding trustees and Persons serving in similar capacities who
are not otherwise an Affiliate of such Person). For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
through the ownership of voting securities, partnership interests or other
equity interests.
Annual Budget: As defined in Section 18.3.
Annual Revenues Computation: As defined on Exhibit "D" attached hereto.
Average Daily Rate: Total Room Revenues divided by occupied rooms at
the Hotel.
Award: As defined in Section 15.1.
Base Rate: The rate of interest announced publicly by The Chase
Manhattan Bank in New York, New York, from time to time, as such bank's base
rate. If no such rate is announced or becomes discontinued, then such other
rate as Lessor may reasonably designate.
Base Rent: As defined in Article 3.
Beverage Sale Revenues: Shall mean Gross Revenue from (i) the sale of
wine, beer, liquor or other alcoholic beverages, whether sold in the bar or
lounge, delivered to a guest room, sold at meetings or banquets or at any other
location at the Leased Property or (ii) non-alcoholic beverages sold in the bar
or lounge. Such revenues shall not include Sublease Rent or the following:
(1) Any gratuity or service charge added to a customer's bill
or statement in lieu of a gratuity which is paid to an employee;
(2) Any revenues that are subsequently credited, rebated or
refunded in the ordinary course of business; and
(3) Sales taxes or taxes of any other kind imposed on the sale
of alcoholic or other beverages.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which national banks in the City of New York, New York, or in
the municipality wherein the Leased Property is located are closed.
Capital Budget: As defined in Section 18.3.
- 4 -
<PAGE> 39
Capital Expenditures: Amounts advanced to pay the costs of Capital
Improvements.
Capital Impositions: Taxes, assessments or similar charges imposed upon
or levied against the Leased Property for the costs of public improvements,
including, without limitation, roads, sidewalks, public lighting fixtures,
utility lines, storm sewers, drainage facilities and similar improvements.
Capital Improvements: Improvements to the Leased Property and repair
replacement or refurbishing of the Improvements, Fixtures, Equipment and
Furniture and of equipment and systems that constitute portions of the Leased
Property in connection with its Primary Intended Use, and the cost of all
approvals, licenses, permits and other authorizations necessary to complete
such improvements, replacements and refurbishing, all as, and to the extent,
(i) designated as capital improvements by and determined in accordance with
GAAP and (ii) of the types described in the capital improvements policy set
forth on Exhibit " C" attached hereto as "capital".
Capital Reserve: As defined in Section 40.1(b).
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
Claim: As defined in Section 12.1.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: The date set forth on Exhibit "D" attached hereto as
the commencement date with respect to the Hotel.
Competitive Set: As defined in the STR Reports. Lessor and Lessee
shall work in good faith to determine any additions and deletions to the
Hotel's Competitive Set, on or before November 15th of each Lease Year, with
such changes to be applicable for the following Lease Year. In the event
Lessor and Lessee cannot agree to the Hotel's Competitive Set by November 15th
of any Lease Year, such unagreed items shall be determined by Smith Travel
Research (or, if it refuses or is unable to do so, by arbitration pursuant to
Section 41.2). The costs of resetting the Hotel's Competitive Set shall be
borne equally by the parties.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any Fiscal Year or other accounting period
for Lessee and BHR's consolidated Subsidiaries, if any, that lease hotel
properties from Lessor or any of FelCors Subsidiaries, statements of
operations, retained earnings and cash flow (or, in the case of a partnership,
statements of operations, partners' capital and cash flow) for such period and
for the period from the beginning of the respective Fiscal Year to the end of
such period, and the related balance sheet as at the end of such period,
together with the notes to any such yearly
- 5 -
<PAGE> 40
statements, all in such detail as may be required by the SEC with respect to
filings made by FelCor, FSLP or Lessor, and setting forth in comparative form
the corresponding figures for the corresponding period in the preceding Fiscal
Year, and prepared in accordance with GAAP and audited annually (and quarterly
if required by the SEC) by nationally recognized independent certified public
accountants.
Construction Services Agreement: As defined in Section 10.3(c).
Consumer Price Index: Consumer Price Index, U.S. City Average, All
Items for all Urban Consumers, published by the Bureau of Labor Statistics of
the United States Department of Labor, as reported in the Wall Street Journal.
Contemplated Renovations: As defined in Section 10.3(b).
Date of Taking: As defined in Section 15.1.
Emergency Capital Expenditures: Capital Expenditures required to take
necessary or appropriate actions to respond to Emergency Situations.
Emergency Situations: Fire, flood, earthquake or any other casualty, or
any other events, circumstances or conditions, which threaten the safety or
physical well-being of the Hotel's guests or employees or which involve the
risk of material property damage or material loss to the Hotel.
Encumbrance: As defined in Article 34.
Environmental Authority: Any department, agency or other body or
component of any Government that exercises any form of jurisdiction or
authority under any Environmental Law.
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including without limitation laws and regulations relating
to emissions, discharges, Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials. Environmental Laws include but are not limited to CERCLA, FIFRA,
RCRA, SARA and TSCA.
Environmental Liabilities: Any and all obligations to pay the amount of
any judgment or settlement, the cost of complying with any settlement, judgment
or order for injunctive or other equitable relief, the cost of compliance or
corrective action in response to any notice, demand or
- 6 -
<PAGE> 41
request from an Environmental Authority, the amount of any civil penalty or
criminal fine, and any court costs and reasonable amounts for attorney's fees,
fees for witnesses and experts, and costs of investigation and preparation for
defense of any claim or any Proceeding, regardless of whether such Proceeding
is threatened, pending or completed, that may be or have been asserted against
or imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:
(1) Failure of Lessee, Lessor, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;
(2) Presence of any Hazardous Materials on, in, under, at or
in any way affecting the Leased Property;
(3) A Release at any time of any Hazardous Materials on, in,
at, under or in any way affecting the Leased Property;
(4) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any Environmental Law
similar to CERCLA;
(5) Presence at any time of any above-ground and/or
underground storage tanks, as defined in RCRA or in any applicable
Environmental Law on, in, at or under the Leased Property or any adjacent site
or facility; or
(6) Any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or located
at the Leased Property or any adjoining property, or resulting from the
operation thereof.
Equipment: As defined in Section 1.1.
Event of Default: As defined in Section 16.1.
Excluded Lease Year: As defined in Section 3.6(a).
Excess Capital Expenditures: As defined in Section 18.4.
Existing Leases: As defined in Recital A.
Existing Lessors: As defined in Recital A.
Expiration Date: The date set forth on Exhibit "D" attached hereto as
the expiration date with respect to the Hotel.
FSLP: FelCor Suites Limited Partnership, a Delaware limited
partnership, of which FelCor is the general partner.
- 7 -
<PAGE> 42
FelCor: FelCor Suite Hotels, Inc., a Maryland corporation, and its
successors and assigns.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.
Fiscal Year: The 12-month period from January 1 to December 31.
Fixtures and Equipment: As defined in Section 1.1.
Food Sale Revenues: Shall mean Gross Revenue from the sale, for on-site
consumption, of food and non-alcoholic beverages sold at the Leased Property,
including in respect to guest rooms, banquet rooms, ballrooms, meeting rooms
and other similar rooms, including the rentals with respect to banquets,
meetings and other functions held in such banquet rooms, ballrooms, meeting
rooms and other similar rooms. Such revenues shall not include Sublease Rent
or the following:
(1) Vending machine sales;
(2) Any gratuities or service charges added to a customer's
bill or statement in lieu of a gratuity which is paid to an employee;
(3) Non-alcoholic beverages sold from the bar or lounge;
(4) Sales taxes or taxes of any other kind imposed on the sale
of food or non-alcoholic beverages; and
(5) Any revenues that are subsequently credited, refunded or
rebated in the ordinary course of business.
Force Majeure: An Unavoidable Occurrence, generally affecting travel
and/or the hotel or lodging business in the market and/or submarket in which
the Hotel is located.
Franchise Agreement: Any franchise or license agreement with a
Franchisor under which the Hotel is operated as a hotel facility under a
registered service mark or other brand name or "flag" approved by Lessor (not
to be unreasonably withheld).
Franchise Event of Default: As defined in Section 16.1(g).
Franchisor: The franchisor or licensor under any Franchise Agreement.
Furniture: As defined in Section 1.1.
GAAP: GAAP shall mean, as of any date of determination, accounting
principles (a) set forth as generally accepted in then currently effective
Opinions of the Accounting Principles
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<PAGE> 43
Board of the American Institute of Certified Public Accountants, (b) set forth
as generally accepted in then currently effective Statements of the Financial
Accounting Standards Board or (c) that are then approved by such other entity
as may be approved by a significant segment of the accounting profession in the
United States of America. The term "consistently applied," as used in
connection therewith, means that the accounting principles applied are
consistent in all material respects to those applied at prior dates or for
prior periods.
Government: The United States of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any agency or political
subdivision of any of the foregoing.
Gross Operating Expenses: The term "Gross Operating Expenses" shall
include (i) all costs and expenses of operating the Hotel included within the
meaning of the term "Total Costs and Expenses" contained in the Uniform System
and, (ii) without duplication, the following: all salaries and employee
expenses and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including life,
medical and disability insurance and retirement benefits), expenditures
described in Section 9.1 (other than Capital Expenditures required to be paid
for by Lessor), operating lease payments for Office Machines acquired after the
Transition Date operational supplies, utilities, governmental fees and
assessments, common area assessments, costs of food and beverages, laundry
service expense, the cost of Inventory, license fees, advertising, marketing,
reservation systems and any and all other operating expenses as are reasonably
necessary for the proper and efficient operation of the Hotel incurred by
Lessee in accordance with the provisions hereof (excluding, however, (i)
federal, state and municipal excise, sales and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes paid over to federal, state or municipal governments, (ii) the
cost of insurance to be provided by Lessor under Section 13.1(a), (iii) Real
Estate Taxes, Capital Impositions and Personal Property Taxes, (iv) payments on
any Ground Lease, Mortgage or other Encumbrance on, the Land or Improvements
approved by Lessor, and (v) depreciation and amortization; all determined in
accordance with the Uniform System).
Gross Revenues: All revenues, receipts, and income of any kind derived
directly or indirectly by Lessee from or in connection with the Hotel
(including rentals or other payments from tenants, lessees, licensees or
concessionaires but not including their gross receipts) whether on a cash basis
or credit, paid or collected, determined in accordance with the Uniform System,
excluding, however: (i) funds furnished by Lessor, (ii) federal, state and
municipal excise, sales, and use taxes collected directly from patrons and
guests or as a part of the sales price of any goods, services or displays, such
as gross receipts, admissions, cabaret or similar or equivalent taxes and paid
over to federal, state or municipal governments, (iii) the amount of all
credits, rebates or refunds to customers, guests or patrons in the ordinary
course of business, and all service charges, finance charges, interest and
discounts attributable to charge accounts and credit cards, to the extent same
are paid to Lessee by its customers, guests or patrons, or to the extent the
same are paid for by Lessee to, or charged to Lessee by, credit card companies,
(iv) gratuities paid to employees, (v) proceeds of insurance (including
business interruption insurance payable
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<PAGE> 44
to Lessee) and condemnation, (vi) proceeds from sales other than sales in the
ordinary course of business, (vii) complimentary meals and rooms to Lessee's
and Manager's employees, and charitable, promotional and other complimentary
meals and rooms given by Lessee in the ordinary course of business and in
accordance with its normal policies for giving such meals and rooms, as is
customary for similar operations, (viii) receipts for returns to shippers,
manufacturers or suppliers, (ix) all loan proceeds from financing or
refinancing of its leasehold interest in the Hotel, or interests therein or
components thereof, including the Leased Property and Lessee's Personal
Property, (x) judgments and awards, except any portion thereof arising from
normal business operations of the Hotel, and (xi) items constituting
"allowances" under the Uniform System.
Ground Lease: As defined in Section 42.1.
Hazardous Materials: All chemicals, pollutants, contaminants, wastes
and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or in any
Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in any
Environmental Law;
(c) Toxic substances, as defined in TSCA or in any
Environmental Law;
(d) Insecticides, fungicides, or rodenticide, as defined in
FIFRA or in any Environmental Law; and
(E) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenols, asbestos, urea formaldehyde and radon gas.
Hotel: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
Hotel Market Decline: A period of six (6) consecutive calendar months
during which there is (i) a twenty percent (20%) decline in average hotel
occupancy for the Hotel from the average hotel occupancy levels for same period
during the prior calendar year and (ii) a twenty percent (20%) decline in
average hotel occupancy for the Hotel's Competitive Set from the average hotel
occupancy levels for the same period during the prior calendar year, as
published in the applicable STR Reports.
Hotel Shortfall Cure Percentage: As defined in Section 3.6(c)
Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same
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relate to or are imposed upon Lessee or its business conducted upon the Leased
Property), assessments (including, without limitation, all Capital Impositions,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), water, sewer or other utility rents and
charges, excises, tax inspection, authorization and similar fees and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property or the business conducted thereon by Lessee (including all
interest and penalties thereon caused by any failure in payment by Lessee),
which at any time prior to, during or with respect to the Term hereof may be
assessed or imposed on or with respect to or be a lien upon Lessor's interest
in the Leased Property, the Leased Property, or any part thereof or any rent
therefrom or any estate, right, title or interest therein, or any occupancy,
operation, use or possession of, or sales from, or activity conducted on or in
connection with the Leased Property, or the leasing or use of the Leased
Property or any part thereof by Lessee. Nothing contained in this definition
of Impositions shall be construed to require Lessee to pay (1) any tax based on
net income (whether denominated as a franchise or capital stock or other tax)
imposed on Lessor or any other Person, or (2) any net revenue tax of Lessor or
any other Person, or (3) any tax imposed with respect to the sale, exchange or
other disposition by Lessor of any Leased Property or the proceeds thereof, or
(4) any single business, gross receipts (other than a tax on any rent received
by Lessor from Lessee), transaction, privilege or similar taxes as the same
relate to or are imposed upon Lessor, except to the extent that any tax,
assessment, tax levy or charge that Lessee is obligated to pay pursuant to the
first sentence of this definition and that is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy
or charge set forth in clause (1) or (2) is levied, assessed or imposed
expressly in lieu thereof.
Improvements: As defined in Section 1.1.
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to Sections 8.3 or 22.1.
Insurance Requirements: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System, as same may hereafter be revised,
including without limitation linens, china, silver, glassware and other non-
depreciable personal property, and including any property of the type described
in Section 1221(1) of the Code.
Land: As defined in Section 1.1.
Lease Year: Any 12-month period from January 1 through December 31
during the Term, or any shorter period at the beginning or end of the Term.
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<PAGE> 46
Leased Property: As defined in Section 1.1.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
maintenance, construction, use or alteration thereof (whether by Lessee or
otherwise), whether now in force or hereafter enacted and in force, including
all laws, rules or regulations pertaining to the environment, occupational
health and safety and public health, safety or welfare, and any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.
Lessee: The Lessee designated on this Lease and its respective
permitted successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as
a result of a direct or indirect ownership interest (including a partner's,
limited liability company member's or stockholder's interest) in Lessee, the
officers, directors, stockholders, employees, agents and representatives of
Lessee (and any general partner of Lessee) and any stockholder, partner,
limited liability company member or manager of Lessee, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, partner, limited liability company member or manager,
employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessor: The Lessor designated on this Lease and its respective
successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other
Person against whom any claim for indemnification may be asserted hereunder as
a result of a direct or indirect ownership interest (including a partner's,
limited liability company member's or stockholder's interest) in Lessor, the
officers, directors, stockholders, employees, agents and representatives of
Lessor (and any general partner of Lessor), and any partner, limited liability
company member or manager of Lessor, and the respective heirs, personal
representatives, successors and assigns of any such officer, director, partner,
stockholder, partner, limited liability company member or manager, employee,
agent or representative.
Major Sublease. Any sublease of a portion of the Leased Property which
(i) is a Restaurant sublease or other retail sublease important to the
successful operation of the Hotel (other than leases of gift shop space or to a
service provider, such as a lease to an airline ticket agent or to an overnight
courier), (ii), individually (or in the aggregate with all other such non-
Restaurant subleases) generates two percent (2%) or more of the Gross Revenues
of the Hotel, or
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(iii) the loss of which could reasonably be expected to cause a material
adverse change in the Hotel or Lessee's business at the Hotel.
Management Agreement: As defined in Section 19.3.
Manager: The manager of the Hotel, from time to time, as permitted
under this Lease.
Master Hotel Agreement: The [Amended and Restated] Master Hotel
Agreement dated as of [__________, 1998], among Bristol, BHR, Lessor, Lessee,
FelCor and certain Affiliates of each.
Mortgage: Any deeds to secure debt, deeds of trust, mortgages, or other
interests heretofore or hereafter granted by Lessor or which otherwise encumber
or affect the Leased Property and any and all renewals, modifications,
consolidations, replacements, substitutions, and extensions thereof.
National Economic Decline: A period of six (6) consecutive calendar
months during which there occurs or continues (i) a ten percent (10%) decline
in average hotel occupancy, from average hotel occupancy levels for the same
period during the prior calendar year, for all open and operating hotels in the
United States as determined from the applicable STR Reports or, if the STR
Reports are no longer published, other national economic data regarding the
hospitality industry.
New Lease: Any Lease Agreement hereafter entered into between Lessor
(or another Subsidiary of FelCor) and Lessee (or another Subsidiary of BHR)
pursuant to, and to be governed by, the Master Hotel Agreement.
Notice: A notice given pursuant to Article 32.
Notice Period: As defined in Section 3.6(b).
Office Machines: As defined in Section 6.2.
Officer's Certificate: A certificate of Lessee, in form reasonably
acceptable to Lessor, signed by the chief financial officer, treasurer, chief
accounting officer, or another officer authorized so to sign such certificates
by the board of directors or bylaws of Lessee, or any other Person whose power
and authority to act has been authorized by delegation in writing by any such
officer.
Operating Budget: As defined in Section 18.2.
Other Hotels: The hotel properties covered by the Existing Leases (other
than this Lease) and the New Leases.
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Other Leases: The Existing Leases (other than tis Lease) and the New
Leases.
Other Leassors: The Lessors under the Other Leases.
Other Revenues. All revenues, receipts, and income of any kind derived
directly or indirectly from or in connection with the Hotel and included in
Gross Revenues (other than Room Revenues, Food Sale Revenues and Beverage Sale
Revenues), including, without limitation, all revenues, receipts and income
derived from the Hotel's and Leased Property's telephones, TV and movie rentals
check room, washroom, laundry, valet, and vending machines and all other
services not expressly specified herein as Room Revenues, Food Revenues and
Beverage Sales Revenues.
Overdue Rate: On any date, a rate equal to the Base Rate plus two
percent (2%) per annum, but in no event greater than the maximum rate then
permitted under applicable law.
Payment Date: Any due date for the payment of any installment of Base
Rent.
Percentage Rent: As defined in Section 3.1(b).
Performance Failure: A Revenue Performance Shortfall that has not been
cured in accordance with Section. 3.7 of this Lease.
Person: The term "Person" means and includes individuals, corporations,
general and limited partnerships, stock companies or associations, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts, or other entities and governments and agencies and political
subdivisions thereof.
Personal Property Taxes. All personal property taxes imposed on the
Furniture, Fixtures and Equipment and other items of personal property owned by
Lessor, located on, and used in connection with, the operation of the
Improvements as a Hotel (other than Inventory and the other Lessee's Personal
Property), together with all replacements, modifications, alterations and
additions thereto.
PIP: As defined in Section 10.3.
Primary Intended Use: As defined in Section 7.2(b).
Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
Quarterly Revenues Computation: As defined on Exhibit "D" attached
hereto.
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<PAGE> 49
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land and the Improvements.
REIT Requirements: As defined in Section 19.1.
Regional Market Decline: A period of six (6) consecutive calendar
months during which there is a twenty percent (20%) decline in average hotel
occupancy from hotel occupancy levels for the same period during the then prior
calendar year, for all open and operating hotels in the Smith Travel Research
Region in which the Hotel is located, as determined from applicable STR Reports
or, if the STR Reports are no longer published, other regional economic data
regarding the hospitality industry..
Release: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by
all applicable Environmental Authorities or is allowed by such Environmental
Law without authorizations or permits.
Rent: Collectively, the Base Rent, Percentage Rent, and Additional
Charges.
Restaurant: Any restaurant or cocktail lounge, together with a kitchen
for those facilities, which may be located in the Hotel at any time and from
time to time.
Revenue Budget: As defined in Section 18.1.
Revenue Performance Shortfall: As defined in Section 3.6(a).
RevPAR: As defined in the STR Reports.
Room Revenue Breakpoint: As defined on Exhibit "D" hereto.
Room Revenues: Shall mean Gross Revenue from the rental of guest rooms
or suites, whether to individuals, groups or transients, but excluding Beverage
Sale Revenues, Food Sale Revenues and the following:
(a) The amount of all credits, rebates or refunds to customers,
guests or patrons;
(b) All sales taxes or any other taxes imposed on the rental of such
guest rooms; and
(c) Any fees collected for amenities including, but not limited to
telephone, laundry, movies or concessions.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.
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<PAGE> 50
State: The State or Commonwealth of the United States or Province of
Canada in which the Leased Property is located.
SEC: The U.S. Securities and Exchange Commission or any successor
agency.
STR Reports: Reports compiled by Smith Travel Research which contain
historical supply and demand, occupancy, and average rate information for the
Hotel and hotels with which it competes.
Sublease Rent: The entire net amount of rentals (including base rent
and percentage rent, but not including pre-paid rent (until earned) security or
other deposits and expense pass-through amounts), if any, received by Lessee
under any sublease (or similar agreement), and with any unaffiliated third
party (i) to which the Leased Property is subject on the date of this Lease, or
(ii) of a Restaurant or other retail space in the Hotel which may be entered
into from time to time.
Subsidiaries: Persons in which another Person owns, directly or
indirectly, more than 50% of the voting stock and control, as applicable
(individually, a "Subsidiary").
Taking: A taking or voluntary conveyance during the Term hereof of all
or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any Condemnation
or other eminent domain Proceeding affecting the Leased Property whether or not
such Condemnation or other eminent domain Proceeding shall have actually been
commenced.
Term: As defined in Section 1.2.
Termination Fee: An amount with respect to the termination of this
Lease, if any, determined as set forth in the Master Hotel Agreement.
Transition Date: The effective date of this Lease.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest,
inability to procure materials, power or other utility failure, acts of God
(such as hurricanes, tornados, earthquakes, floods and mud slides) governmental
restrictions, war or other enemy action, civil commotion, fire, casualty,
condemnation or other similar causes beyond the control of the party
responsible for performing an obligation hereunder, provided that lack of funds
shall not be deemed a cause beyond the reasonable control of either party
hereto unless such lack of funds is caused by the failure of the other party
hereto to perform any obligations of such party under this Lease or any
guaranty of this Lease.
Unavoidable Occurrence: shall mean the occurrence of strikes, lockouts,
labor unrest, gasoline and other energy shortages, widespread disruption of
air, auto or other travel, inability to
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procure materials, power or other utility failure, acts of God (such as
hurricanes, tornados, earthquakes, floods and mud slides), governmental
restrictions, war or other enemy or terrorist action, civil commotion, fire,
casualty, condemnation or other similar causes beyond the reasonable control of
Lessee; provided that any such occurrence is an extraordinary, as opposed to a
routine or cyclical, material event that was not reasonably foreseeable when
the then-applicable Annual Budget was prepared.
Uneconomic for its Primary Intended Use: A state or condition of the
Hotel such that, in the good faith judgment of Lessee, reasonably exercised and
evidenced by the resolution of the board of directors or other governing body
of Lessee (or its general partner), the Hotel cannot be operated on a
commercially practicable basis for its Primary Intended Use, taking into
account, among other relevant factors, the number of usable rooms and projected
revenues, such that Lessee intends to, and shall, complete the cessation of
operations at the Hotel.
Uniform System: Shall mean the Uniform System of Accounts for Hotels
(9th Revised Edition, 1996) as published by the Hotel Association of New York
City, Inc., with such later revisions as may be agreed to by both Lessor and
Lessee.
Unsuitable for its Primary Intended Use: A state or condition of the
Hotel such that, in the good faith judgment of Lessor, reasonably exercised and
evidenced by the resolution of the board of directors or other governing body
of Lessor, due to casualty damage or loss through Condemnation, the Hotel
cannot function as an integrated hotel facility consistent with standards
applicable to a well maintained and operated hotel of the same type as the
Hotel.
ARTICLE 3
3.1 Rent. Lessee will pay to Lessor in lawful money in the State
which shall be legal tender for the payment of public and private debts, in
immediately available funds, at Lessor's address set forth in Article 32 hereof
or at such other place or to such other Person, as Lessor from time to time may
designate in a Notice, all Base Rent, Percentage Rent and Additional Charges,
during the Term, as follows:
(a) Base Rent: An annual sum in the amount set forth on
Exhibit "D" hereto as the "Base Rent" for the Leased Property, payable in
advance in equal, consecutive monthly installments, on or before the last day
of the prior calendar month for each calendar month of the Term ("Base Rent");
provided, however, that the first monthly payment of Base Rent shall be payable
on the last day of the first full calendar month following the Commencement
Date, in addition to the second monthly payment of Base Rent then due, and that
the first and last monthly payments of Base Rent shall be pro rated as to any
partial month (subject to adjustment as provided in Sections 5.2, 14.5, 15.3,
15.5, and 15.4); and
(b) Percentage Rent: For each Lease Year during the Term
commencing with the Lease Year in which the Commencement Date occurs, Lessee
shall pay percentage rent ("Percentage Rent") as follows:
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(i) monthly (on or before the last day of the month) in an amount
equal to seventy-five percent (75%) of the amount of Lessee's budgeted
Percentage Rent payable with respect to the then current month; and
(ii) to the extent not paid as estimated Percentage Rent,
quarterly in arrears, on or before the 15th day of the calendar month
following the end of each calendar quarter in each Fiscal Year, and on
or before January 15th of the next year with respect to the fourth
quarter of each Fiscal Year, in an amount calculated by the following
formula:
The amount equal to the Quarterly Revenues Computation
less
an amount equal to the Base Rent paid year to date for the
applicable Lease Year
less
an amount equal to Percentage Rent paid year to date for
the applicable Lease Year
equals
Percentage Rent for the applicable quarter.
Notwithstanding the amounts of Percentage Rent paid quarterly
pursuant to the formula set forth above, for any Lease Year during the Term
commencing with the Lease Year in which the Commencement Date occurs, the
Percentage Rent payable under this Lease shall be no less than or greater than
the amount calculated by the following formula:
The amount equal to the Annual Revenues Computation
less
an amount equal to the Base Rent paid year to date for the
applicable Lease Year
equals
Percentage Rent for the applicable Lease Year.
Set forth on Exhibit "E" attached hereto is an example of the
calculation of Percentage Rent. In no event will Percentage Rent be less than
zero, and there shall be no
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<PAGE> 53
reduction in the Base Rent regardless of the result of the Quarterly Revenues
Computation or Annual Revenues Computation.
(c) Officer's Certificates. An Officer's Certificate shall be
delivered to Lessor, together with such monthly estimated Percentage Rent
payment and quarterly Percentage Rent payment, setting forth the calculation of
such estimated or adjusted rent payment for such month or quarter.
In addition, on or before January 20th of each year, commencing with the
January 20th first following the end of the Lease Year in which the
Commencement Date occurs, Lessee shall deliver to Lessor an Officer's
Certificate setting forth the computation of the actual Percentage Rent that
accrued for the last quarter of the Lease Year that ended on the immediately
preceding December 31 and together with Lessee's payment to Lessor of
Percentage Rent, if due and payable, for the last quarter of the applicable
Lease Year. The Officer's Certificate shall also set forth the computation of
the actual and estimated Percentage Rent accrued and paid during the Lease Year
that ended on the immediately preceding December 31. If the annual Percentage
Rent due and payable for any Lease Year (as shown in the applicable Officer's
Certificate) exceeds the amount actually paid as Percentage Rent by Lessee for
such year, Lessee also shall pay such excess to Lessor at the time such
certificate is delivered. If the Percentage Rent actually due and payable for
such Lease Year is shown by such certificate to be less than the amount
actually paid as Percentage Rent for the applicable Lease Year, Lessor will
reimburse such amount to Lessee within five (5) Business Days thereafter.
Any difference between the annual Percentage Rent due and payable for
any Lease Year (as shown in the applicable Officer's Certificate or as adjusted
pursuant to Section 3.2) and the total amount of monthly and quarterly payments
for such Lease Year actually paid by Lessee as Percentage Rent, whether in
favor of Lessor or Lessee, shall bear interest at the Overdue Rate, which
interest shall accrue from the January 20 after the close of such Lease Year
until the amount of such difference shall be paid or otherwise discharged. Any
such interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.
The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term, and a final reconciliation (taking into
account, among other relevant adjustments, any adjustments which are accrued
after such expiration or termination date but which related to Percentage Rent
accrued prior to such expiration or termination date, and Lessee's good faith
best estimate of the amount of any unresolved contractual allowances) shall be
made not later than two (2) years after such expiration or termination date,
but Lessee shall advise Lessor within 60 days after such expiration or
termination date of Lessee's best estimate at that time of the approximate
amount of such adjustments, which estimate shall not be binding on Lessee or
have any legal effect whatsoever.
(d) CPI Adjustments to Rent. If Exhibit "D" hereto
designates a CPI Adjustment for the Leased Property, then, for each Lease Year
of the Term beginning on or after the CPI Adjustment Year (as defined on said
Exhibit "D"), the Base Rent then in effect, and the
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<PAGE> 54
Room Revenue Breakpoint then included in the Monthly and Annual Revenues
Computations set forth in Section 3.1(b) shall be adjusted from time to time
beginning in the CPI Adjustment Year as follows:
(1) The average Consumer Price Index for the most recently
ended Lease Year shall be divided by the average Consumer Price Index for the
immediately preceding Lease Year.
(2) The new Base Rent for the then current Lease Year shall
be the adjusted amount obtained by multiplying the Base Rent for the
immediately preceding Lease Year by the quotient obtained in subparagraph
(d)(1) above.
(3) The new Room Revenue Breakpoint in the Monthly and Annual
Revenues Computations described in Section 3.1(b) above for the then current
Lease Year shall be the product of the Room Revenue Breakpoint in effect in the
most recently ended Lease Year and the quotient obtained in subparagraph (d)(1)
above.
(4) By way of example, if the CPI Adjustment Year were 1997,
the amount of Base Rent and the Room Revenue Breakpoint amounts (and Food Sales
and Beverage Sales amounts, if applicable) for purposes of the Quarterly and
Annual Revenues Computations for the Lease Year commencing January 1, 1997
would be adjusted to reflect any change in the Average Consumer Price Index
from the Lease Year ended December 31, 1995 as compared to the Lease Year ended
December 31, 1996. Base Rent and Room Revenue Breakpoint amounts (and Food
Sales and Beverage Sales amounts, if applicable) for purposes of the Quarterly
and Annual Revenues Computations for the Lease Year commencing January 1, 1998
would be the Base Rent and Room Revenue Breakpoint amounts (and Food Sales and
Beverage Sales amounts, if applicable) applicable for the fiscal year ended
December 31, 1997 as further adjusted to reflect any change in the Consumer
Price Index from December 31, 1996 as compared to December 31, 1997.
(5) Lessor shall calculate the annual adjustments as soon as
reasonably possible after the Consumer Price Index becomes available and shall
notify Lessee in writing of the amount of the annual adjustment, together with
a copy of the computation showing the adjustment amount. Adjustments
calculated as set forth above in the Base Rent and Room Revenue Breakpoint
amounts (and Food Sales and Beverage Sales amounts, if applicable) shall be
effective on January 1 of the Lease Year to which such adjusted amounts apply.
If rent is paid in any Lease Year prior to the determination of the amount of
any adjustment to Base Rent or Room Revenue Breakpoint amounts (and Food Sales
and Beverage Sales amounts, if applicable) applicable for such Lease Year,
payment adjustments for any shortfall in or overpayment of rent paid shall be
made with the first Base Rent payment due after the amount of the adjustments
are determined.
(6) The "Average Consumer Price Index" for any period shall be
the average of the Consumer Price Index for each month during the period.
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<PAGE> 55
(7) If (i) a significant change is made in the number or
nature (or both) of items used in determining the Consumer Price Index, or (ii)
the Consumer Price Index shall be discontinued for any reason, the Bureau of
Labor Statistics shall be requested to furnish a new index comparable to the
Consumer Price Index, together with information which will make possible a
conversion to the new index in computing the adjusted Base Rent hereunder. If
for any reason the Bureau of Labor Statistics does not furnish such an index
and such information, the parties will instead mutually select, accept and use
such other index or comparable statistics on the cost of living that is
computed and published by an agency of the United States or a responsible
financial periodical of recognized authority.
3.2 Confirmation of Percentage Rent. Lessee shall utilize, or cause
to be utilized, an accounting system for the Leased Property in accordance with
its usual and customary practices, and in accordance with GAAP and the Uniform
System, that will accurately record all data necessary to compute Percentage
Rent, and Lessee shall retain, for at least four (4) years after the expiration
of each Lease Year (and in any event until the reconciliation described in
Section 3.1(c) for such Lease Year has been made), reasonably adequate records
conforming to such accounting system showing all data necessary to compute
Percentage Rent for the applicable Lease Years. Lessor, at its expense (except
as provided hereinbelow), shall have the right from time to time by its
accountants or representatives to audit the information that formed the basis
for the data set forth in any Officer's Certificate provided under Section
3.1(c) and, in connection with such audits, to examine all Lessee's records
(including supporting data, Franchisor reports and sales and excise tax
returns) reasonably required to verify Percentage Rent (and for no other
purpose), subject to any prohibitions or limitations on disclosure of any such
data under applicable law. If any such audit discloses a deficiency in the
payment of Percentage Rent, and either Lessee agrees with the result of such
audit or the matter is otherwise determined or compromised, Lessee shall
forthwith pay to Lessor the amount of the deficiency, as finally agreed or
determined, together with interest at the Overdue Rate from the date when said
payment should have been made to the date of payment thereof; provided,
however, that as to any audit that is commenced more than two (2) years after
the date Percentage Rent for any Lease Year is reported by Lessee to Lessor,
the deficiency, if any, with respect to such Percentage Rent shall bear
interest at the Overdue Rate only from the date such determination of
deficiency is made unless such deficiency is the result of gross negligence or
willful misconduct on the part of Lessee, in which case interest at the Overdue
Rate will accrue from the date such payment should have been made to the date
of payment thereof. If any such audit discloses that the Percentage Rent
actually due from Lessee for any Lease Year exceeds that reported and paid by
Lessee by more than three percent (3%), Lessee shall pay the cost of such audit
and examination. In no event shall lessor undertake an audit more than four
(4) years after the last day of the Lease Year for which such audit is
requested. Any proprietary information obtained by Lessor pursuant to the
provisions of this Section shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards, in
any litigation between the parties and except further that Lessor may disclose
such information to prospective lenders, investors, and underwriters who have a
need to know such information and to other Persons to whom disclosure is
required by applicable law if such persons are advised of and agree to maintain
the confidentiality of such information. The obligations of Lessee contained in
this Section shall
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<PAGE> 56
survive the expiration or earlier termination of this Lease. Any dispute as to
the existence or amount of any deficiency in the payment of Percentage Rent as
disclosed by such audit shall, if not otherwise settled by the parties, be
submitted to arbitration pursuant to the provisions of Section 41.2.
3.3 Additional Charges. In addition to the Base Rent and Percentage
Rent, (a) Lessee also will pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions that Lessee assumes or
agrees to pay under this Lease, and (b) in the event of any failure on the part
of Lessee to pay any of those items referred to in clause (a) of this Section
3.3, Lessee also will promptly pay and discharge every fine, penalty, interest
and cost that may be added for non-payment or late payment of such items (the
items referred to in clauses (a) and (b) of this Section 3.3 being additional
rent hereunder and being referred to herein collectively as the "Additional
Charges"), and Lessor shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Lease or by statute or otherwise in
the case of non-payment of the Additional Charges as in the case of non-payment
of the Base Rent, including, but not limited to, the right, but not the
obligation to pay such Additional Changes on behalf of Lessee and to require
reimbursement thereof by Lessee, together with interest thereon at the Overdue
Rate. If any installment of Base Rent, Percentage Rent or Additional Charges
(but only as to those Additional Charges that are payable directly to Lessor)
shall not be paid on its due date, Lessee will pay Lessor on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that Lessee pays any
Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee
shall be relieved of its obligation to pay such Additional Charges to the
entity to which they would otherwise be due and Lessor shall pay same from
monies received from Lessee.
3.4 Net Lease Provision. The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, Percentage Rent and Additional Charges throughout
the Term, all as more fully set forth in Article 5, but subject to any other
provisions of this Lease that expressly provide for adjustment or abatement of
Rent or other charges or expressly provide that certain Impositions (including
without limitation Real Estate Taxes, Capital Impositions and Personal Property
Taxes), Capital Expenditures and other expenses or maintenance shall be paid or
performed by Lessor.
3.5 Material Changes in Economic Climate.
(a) In the event of the occurrence of a Force Majeure and a
Hotel Market Decline, Lessor and Lessee shall, in good faith, negotiate
possible modifications to the Base Rent and Percentage Rent to reduce such
Base Rent and Percentage Rent to recent market rates for hotel REIT leases for
similar hotel properties in the Hotel's Competitive Set, retroactively
effective as of the first calendar month of the Term following the last day of
the six-month period during which such Hotel Market Decline has occurred with
the excess of Base Rent and Percentage Rent actually paid for such period over
the reduced Base Rent and Percentage Rent, plus interest thereon at the Base
Rate, to be credited to the next payments of Rent due and owing
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hereunder. If Lessor and Lessee are unable to agree that a Force Majeure or a
Hotel Market Decline has occurred, within thirty (30) days after the date of
written certification from Lessee to Lessor that a Force Majeure and Hotel
Market Decline has occurred (accompanied by reasonably detailed computations
and documentation to support such assertion), the matter may be submitted by
either party to arbitration under Section 41.2 hereof for resolution (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease). If, within ninety (90) days (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease) following the date of such written
certification from Lessee (or the date of a decision of an arbitrator if
required hereunder to determine that a Force Majeure and Hotel Market Decline
has occurred), Lessor and Lessee are unable to agree upon the amount of
reduction in Base Rent and Percentage Rent contemplated hereby, Lessee shall
have the option to terminate this Lease upon not less than thirty (30) days
prior written notice to Lessor.
(b) In the event of the occurrence of a National Economic
Decline and a Regional Market Decline, Lessor and Lessee shall, in good faith,
negotiate (i) possible modifications to the Base Rent and Percentage Rent to
reduce such Base Rent and Percentage Rent to recent market rates for hotel REIT
leases for similar hotel properties in the Hotel's Competitive Set, and (ii)
possible modifications to the Base and Percentage Rent payable under each of
the Other Leases for Other Hotels in the same Region (as defined in the STR
Reports) as the Hotel to reduce such Base Rent and Percentage Rent to recent
market rates for hotel REIT leases for similar hotel properties in the Hotel's
Competitive Set, in each case retroactively effective as of the first calendar
month of the Term following the last day of the six-month period during which
such Regional Market Decline has occurred with the excess of Base Rent and
Percentage Rent actually paid for such period over the reduced Base Rent and
Percentage Rent, plus interest thereon at the Base Rate, to be credited to the
next payments of Rent due and owing hereunder. If, within thirty (30) days
after the date of written certification from Lessee to Lessor that a National
Economic Decline and Regional Market Decline has occurred (accompanied by
reasonably detailed computations and documentation to support such assertion),
Lessor and Lessee are unable to agree that a National Economic Decline or
Regional Market Decline has occurred, the matter may be submitted by either
party to arbitration under Section 41.2 hereof for resolution (during which
period Lessee shall continue to pay Base Rent and Percentage Rent as required
under Section 3.1 of this Lease). If, within ninety (90) days (during which
period Lessee shall continue to pay Base Rent and Percentage Rent as required
under Section 3.1 of this Lease) following the date of such initial written
certification from Lessee (or the date of a decision of an arbitrator if
required hereunder to determine that a National Economic Decline and Regional
Market Decline has occurred), Lessor and Lessee are unable to agree upon the
amount of reduction in Base Rent and Percentage Rent contemplated hereby,
Lessee shall have the option, upon not less than sixty (60) days prior written
notice to Lessor, to terminate all (but not less than all) of the Existing
Leases of hotels in the same Region as the Hotel, including this Lease.
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3.6 Performance Failure.
(a) If, with respect to any three (3) consecutive Lease Years
during the Term commencing on or after January 1, 1998, Lessee shall fail to
realize from the operation of the Hotel an amount equal to at least eighty
percent (80%) of Room Revenues as set forth in the Revenue Budget for such
Lease Year, such failure shall constitute a "Revenue Performance Shortfall"
under this Lease, except to the extent such failure is caused by an Unavoidable
Occurrence. In determining whether Lease Years are consecutive for such
purpose, Excluded Lease Years will be ignored. The existence of a Revenue
Performance Shortfall for any Lease Year shall be determined by Lessor on the
basis of the first Officer's Certificate delivered by Lessee to Lessor in the
subsequent Lease Year pursuant to the requirements of Section 3.1(c) and shall
be subject to confirmation pursuant to Section 3.2. Notwithstanding the
foregoing, no Lease Year that would otherwise be included in the period of a
Revenue Performance Shortfall shall be so included if Lessor and the Other
Lessors receive Rent payments from Lessee and the other Lessees under this
Lease and the Other Leases which, in the aggregate, amount equal to at least
ninety percent (90%) (the "Overall Shortfall Cure Percentage") of the aggregate
Rent budgeted for such Lease Year in the Revenue Budgets for the Hotel and the
Other Hotels leased under the Other Leases (each such Lease Year, an "Excluded
Lease Year"). Lessee may rely on the foregoing for a total of three (3)
Excluded Lease Years and, thereafter, the Overall Shortfall Cure Percentage
shall increase to one hundred percent (100%).
(b) Upon the occurrence of a Revenue Performance Shortfall,
Lessor shall have the right, subject to subsection (c) of this Section 3.6, at
Lessor's option, to terminate this Lease upon thirty (30) days' notice (the
"Notice Period") to Lessee, in which event Lessee shall immediately surrender
the Leased Property to Lessor, and, if Lessee fails to so surrender, Lessor
shall have the right, without notice, to enter upon and take possession of the
Leased Property and to expel or remove Lessee and its effects without being
liable for prosecution or any claim for damages therefor; and Lessee shall, and
hereby agrees to, pay (or, as the case may be, indemnify) Lessor for the total
amount of (i) in the event that Lessee does not promptly surrender the Leased
Property, the reasonable costs of recovering the Leased Property and all other
losses, liabilities and reasonable expenses incurred by Lessor in connection
with Lessee's failure to surrender; (ii) the unpaid Rent earned as of the date
of termination (and for any period following the termination date during which
Lessee retains possession and control of the Leased Property), plus interest at
the Overdue Rate accruing after the earlier of the due date or such termination
date; and (iii) all other sums of money then owing by Lessee to Lessor. Except
as provided in the Master Hotel Agreement, termination of this Lease and
recovery of the Rent and other amounts as aforesaid shall constitute Lessor's
sole remedy for the Revenue Performance Shortfall, and Lessee shall not be
liable to Lessor for damages arising therefrom.
(c) Lessor's right to terminate this Lease pursuant to
subsection (b) above, following any Lease Year, shall be subject to Lessee's
right to cure the Revenue Performance Shortfall occurring thereunder with
respect to such Lease Year by making a cash payment to Lessor during the Notice
Period equal to the difference between the Percentage Rent actually paid for
the Lease Year and eighty percent (80%) (the "Hotel Shortfall Cure Percentage")
of the
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Percentage Rent budgeted for the Lease Year in the Revenue Budget for the Lease
Year. Any payment made by Lessee under this subsection (c) shall be deemed
Rent paid with respect to the Lease Year. Lessor shall have no obligation to
repay any amount advanced by Lessee to cure a Revenue Performance Shortfall.
Lessee may only cure two Revenue Performance Shortfalls, occurring under
subsection (a) by paying Lessor based on a eighty percent (80%) Hotel Shortfall
Cure Percentage. Thereafter, the Hotel Shortfall Cure Percentage shall be
ninety percent (90%).
ARTICLE 4
4.1 Payment of Impositions.
(a) Subject to the right of Lessor to contest same and
subsection 4.1 (f) below, Lessor shall pay all Real Estate Taxes, Personal
Property Taxes and Capital Impositions before the fine, penalty, interest or
cost may be added for non-payment, to the extent the failure to do so could
materially and adversely affect the rights of the Lessee under this Lease, such
payments to be made directly to the taxing or other authorities where feasible.
(b) Subject to Article 12 relating to permitted contests and
subsection 4.1 (f) below, Lessee will pay, or cause to be paid, all Impositions
(other than Real Estate Taxes, Personal Property Taxes and Capital Impositions,
which shall be paid by Lessor) before any fine, penalty, interest or cost may
be added for non-payment, such payments to be made directly to the taxing or
other authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments.
Lessee's obligation to pay such Impositions shall be deemed absolutely fixed
upon the date such Impositions become a lien upon the Leased Property or any
part thereof. If any such Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee may exercise the option to pay the
same (and any accrued interest on the unpaid balance of such Imposition) in
installments and in such event, shall pay such installments occurring during
the Term hereof (subject to Lessee's right of contest pursuant to the
provisions of Article 12) as the same respectively become due and before any
fine, penalty, premium, further interest or cost may be added thereto.
(c) Lessor, at its expense, shall, to the extent required or
permitted by applicable law, prepare and file all tax returns in respect of
Lessor's net income, gross receipts, sales and use, single business,
transaction privilege, rent, ad valorem, franchise taxes, Real Estate Taxes,
Personal Property Taxes, Capital Impositions and taxes on its capital stock,
and Lessee, at its expense, shall, to the extent required or permitted by
applicable laws and regulations, prepare and file all other tax returns and
reports in respect of any other, Imposition as may be required by governmental
authorities. If any refund shall be due from any taxing authority in respect
of any Imposition paid by Lessee, the same shall be paid over to or retained by
Lessee if no Event of Default shall have occurred hereunder and be continuing.
If an Event of Default shall have occurred and be continuing, any such refund
shall be paid over to or retained by Lessor. Any such funds retained by Lessor
due to an Event of Default shall be applied as provided in Article 16. Lessor
and Lessee shall, upon request of the other, provide such data as is maintained
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by the party to whom the request is made with respect to the Leased Property as
may be necessary to prepare any required returns and reports. Lessee shall
file all personal property tax returns with respect to Lessee's Personal
Property in such jurisdictions where it is legally required to so file.
Lessor, to the extent it possesses the same, and Lessee, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so
classified as personal property. Where Lessor is legally required to file
personal property tax returns, Lessor shall provide Lessee with copies of
assessment notices in sufficient time for Lessee to file a protest.
(d) Lessor may, upon notice to Lessee, at Lessor's option and
at Lessor's sole expense, protest, appeal, or institute such other proceedings
(in its or Lessee's name) as Lessor may deem appropriate to effect a reduction
of Real Estate Taxes or Personal Property Taxes or Capital Impositions to be
paid by Lessor, and Lessee (at Lessor's expense as aforesaid) shall fully
cooperate with Lessor in such protest, appeal, or other action. Lessor hereby
agrees to indemnify, defend, and hold harmless Lessee from and against any
claims, obligations, and liabilities against or incurred by Lessee in
connection with such cooperation. Lessee may, upon notice to Lessor, at
Lessee's option and at Lessee's sole expense, protest, appeal, or institute
such other proceedings (in its or Lessor's name) as Lessee may deem appropriate
to effect a reduction of those Impositions to be paid by Lessee, and Lessor (at
Lessee's expense as aforesaid) shall fully cooperate with Lessee in such
protest, appeal, or other action. Lessee hereby agrees to indemnify, defend,
and hold harmless Lessor from and against any claims, obligations, and
liabilities against or incurred by Lessor in connection with such cooperation.
(e) Billings for any reimbursement of Personal Property Taxes
by Lessee to Lessor shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which
such payments are made. Lessor, however, reserves the right to effect any such
protest, appeal or other action and, upon notice to Lessee, shall control any
such activity, which shall then go forward at Lessor's sole expense. Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such
activities.
(f) Subject to the rights of Lessor and Lessee to contest same
as provided herein, Lessee shall pay 13% and lessor shall pay 87% of any sales
or use taxes imposed by the State of Florida on any of the payments of Rent by
Lessee under this Lease. Lessee shall be solely responsible for such sales or
use taxes in any other State.
4.2 Notice of Impositions. To the extent Lessor is notified of any
Impositions, Lessor shall give prompt Notice to Lessee of such Impositions
payable by Lessee hereunder, provided that Lessor's failure to give any such
Notice shall in no way diminish Lessee's obligations hereunder to pay any such
Impositions that are Lessee's responsibility hereunder, but such failure shall
obviate any default hereunder for a reasonable time after Lessee receives
Notice of any Imposition which it is obligated to pay during the first taxing
period applicable thereto. To the extent received by it, Lessee shall give
prompt notice to Lessor and furnish Lessor with copies of all assessment
notices for Real Estate Taxes, Personal Property Taxes and Capital
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Impositions in sufficient time for Lessor to file a protest and pay such taxes
without penalty. Lessor shall furnish Lessee with evidence of payment of Real
Estate Taxes, Personal Property Taxes and Capital Impositions upon request.
4.3 Adjustment of Impositions. Impositions payable by Lessee that
are imposed in respect of the tax-fiscal period during which the Term
terminates shall be adjusted and prorated between Lessor and Lessee, whether or
not such Imposition is imposed before or after such termination, and Lessee's
obligation to pay its prorated share thereof after termination shall survive
such termination.
4.4 Utility Charges. Lessee will be solely responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause
to be paid all charges for electricity, gas, oil, water, sewer and other
utilities used in the Leased Property during the Term.
4.5 Insurance Premiums. Each of Lessor and Lessee will pay or cause
to be paid all premiums for the insurance coverages required to be maintained
by it under Article 13.
4.6 Franchise Fees. Lessee will maintain in full force and effect,
and pay or cause to be paid all fees and other charges payable pursuant to, any
Franchise Agreement with respect to the Hotel (unless same constitute Capital
Expenditures or are otherwise Lessor's responsibility hereunder).
4.7 Ground Rent. In the event that Lessor's interest in the Land is
pursuant to a Ground Lease or sublease, Lessor shall be solely responsible for
the payment of any ground rent, building rent or subrent, as the case may be,
due with respect to the Lease Property.
ARTICLE 5
5.1 No Termination, Abatement, etc. Except as otherwise specifically
provided in this Lease, and except for loss of any Franchise Agreement solely
by reason of any action or inaction by Lessor, Lessee, to the extent permitted
by law, shall remain bound by this Lease in accordance with its terms and shall
neither take any action without the written consent of Lessor to modify,
surrender or terminate the same, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of the Rent, or set off against the Rent, nor
shall the obligations of Lessee be otherwise affected by reason of (a) any
damage to, or destruction of, any Leased Property or any portion thereof from
whatever cause or any Taking of the Leased Property or any portion thereof, (b)
the lawful or unlawful prohibition of, or restriction upon, Lessee's use of the
Leased Property, or any portion thereof, or the interference with such use by
any Person or by reason of eviction other than by paramount title except as
otherwise specifically provided in this Lease and except to the extent that a
court of competent jurisdiction has issued a final, nonappealable order
determining that Lessee was constructively evicted from the Leased Property,
(c) any claim which Lessee has or might have against Lessor by reason of any
default or breach of any warranty by Lessor under this Lease or any other
agreement between Lessor and Lessee, or to which Lessor and Lessee are parties,
(d) any bankruptcy, insolvency, reorganization,
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composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e)
for any other cause whether similar or dissimilar to any of the foregoing other
than a discharge of Lessee from any such obligations as a matter of law.
Lessee hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law to (1)
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (2) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically provided in this Lease and except
to the extent that a court of competent jurisdiction has issued a final,
nonappealable order determining that Lessee was constructively evicted from the
Leased Property. The obligations of Lessee hereunder shall be separate and
independent covenants and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason
of an Event of Default.
ARTICLE 6
6.1 Ownership of the Leased Property. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the possession and use of the Leased Property upon the terms and conditions of
this Lease.
6.2 Lessee's Personal Property. Lessee will acquire and maintain
throughout the Term such Inventory and replacement photocopy, fax machines and
postage machines (collectively, "Office Machines") as is required to operate
the Leased Property in the manner contemplated by this Lease. The Inventory,
including any additions thereto and/or replacements thereof, will be supplied
by, and remain the property of, Lessee. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any
parcels of the Land or in any of the Improvements, any items of personal
property (including Inventory and Office Machines) owned by Lessee. Lessee, at
the commencement of the Term, and from time to time thereafter, shall provide
Lessor with an accurate list of all such items of Lessee's personal property
(collectively, including the Inventory and Office Machines, the "Lessee's
Personal Property"). Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal
Property at any time during the Term or upon the expiration or any prior
termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within thirty (30) days following the
expiration or earlier termination of the Term shall be considered abandoned by
Lessee and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without first giving Notice thereof to Lessee, without any payment to
Lessee and without any obligation to account therefor. Lessee will, at its
expense, repair and restore the Leased Property to the condition required by
Section 9.1(d), including repair of all damage to the Leased Property caused by
the removal of Lessee's Personal Property, whether effected by Lessee or if
permitted hereunder by Lessor. Upon the expiration or earlier termination of
the Term, Lessor, or its designee, shall have the option to purchase all
Inventory on hand at the Leased Property at the time of such expiration or
termination for a sale price equal to Lessee's actual cost of such Inventory,
as evidenced by invoices, receipts, or other
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reasonable documentation or as reasonably estimated by Lessor in the absence of
such documentation. Lessee may make such financing arrangements, title
retention agreements, leases or other agreements with respect to Lessee's
Personal Property as it sees fit provided that Lessee first advises Lessor of
any such arrangement and such arrangement expressly provides that in the event
of Lessee's default thereunder, Lessor (or its designee) may assume Lessee's
obligations and rights under such arrangement.
6.3 Lessor's Lien. To the fullest extent permitted by applicable
law, Lessor is granted a lien and security interest on all Lessee's Personal
Property now or hereinafter placed in or upon the Leased Property, and such
lien and security interest shall remain attached to such Lessee's Personal
Property until payment in full of all Rent and other amounts due to Lessor
hereunder; provided, however, Lessor's lien and security interest shall be
subordinate to that of any non-Affiliate of Lessee which finances such Lessee's
Personal Property or any non-Affiliate conditional seller of such Lessee's
Personal Property. Upon request, Lessor will execute a subordination agreement
containing terms and conditions satisfactory to Lessor in the exercise of
reasonable discretion. Lessee shall, upon the request of Lessor and to the
extent such action does not breach any of Lessee's financing, execute such
financing statements or other documents or instruments reasonably requested by
Lessor to perfect the lien and security interests herein granted.
ARTICLE 7
7.1 Condition of the Leased Property. Lessee acknowledges receipt
and delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is" in its present condition. Except as otherwise
expressly provided herein, Lessee waives any claim or action against Lessor in
respect of the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY
PART THEREOF, EITHER AS TO ITS MERCHANTABILITY OR FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT
LESSEE TAKES THE LEASED PROPERTY SUBJECT TO ALL SUCH RISKS. LESSEE
ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT. Provided, however, to the extent permitted by law, Lessor
hereby assigns to Lessee all of Lessor's rights to proceed against any
predecessor in title other than Lessee (or an Affiliate of Lessee which
conveyed the Property to, or was the predecessor-by-merger to, Lessor or an
Affiliate thereof) for breaches of warranties or representations or for latent
defects in the Leased Property. Lessor shall fully cooperate with Lessee in
the prosecution of any such claim, in Lessor's or Lessee's name, all at
Lessee's sole cost and expense. Lessee hereby agrees to indemnify, defend and
hold harmless Lessor from and against any claims, obligations and liabilities
against or incurred by Lessor in connection with such cooperation.
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7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise its reasonable best efforts to obtain and to
maintain all approvals needed to use and operate the Leased Property and the
Hotel under applicable local, state and federal law. Lessor covenants that it
will cooperate in good faith in all respects, at Lessee's expense, in
connection with Lessee's efforts to obtain and maintain such approvals.
(b) Lessee shall use or cause to be used the Leased Property
only as a hotel facility of the class and quality at least equal to that of the
Hotel as of the Transition Date, and for such other uses as may be necessary or
incidental to such hotel facility use or such other or additional use as
otherwise approved in writing by Lessor (the "Primary Intended Use"). Lessee
shall not use the Leased Property or any portion thereof for any other use
without the prior written consent of Lessor, which consent may be granted,
denied or conditioned in Lessor's sole discretion. No use shall be made or
permitted to be made of the Leased Property, other than the Primary Intended
Use, which will cause the cancellation or increase the premium of any insurance
policy covering the Leased Property or any part thereof (unless another
adequate policy satisfactory to Lessor is available and Lessee pays any premium
increase), nor shall Lessee sell or permit to be kept, used or sold in or about
the Leased Property any article which may be prohibited by Legal Requirements
or fire underwriter's regulations. Lessee shall, at its sole cost, comply with
all of the requirements pertaining to the Leased Property of any insurance
board, association, organization or company necessary for the maintenance of
insurance, as herein provided, covering the Leased Property and Lessee's
Personal Property, unless such compliance requires the performance of a Capital
Improvement or the payment of a Capital Imposition, in which case Lessor shall
pay the cost of such Capital Improvement or Capital Imposition in order for
Lessee so to comply.
(c) Subject to any provisions of this Lease to the contrary,
Lessee covenants and agrees that during the Term it will (i) continuously
operate the Leased Property for the Primary Intended Use (subject to closures
of all or part of the Hotel during Unavoidable Occurrences and by prior
agreement with Lessor during the construction of PIP improvements and
Contemplated Renovations), (ii) keep in full force and effect and comply with
all the provisions of any Franchise Agreement (other than requirements with
respect to Capital Improvements and other obligations of Lessor hereunder),
(iii) not terminate or amend any Franchise Agreement without the consent of
Lessor (which consent shall not be unreasonably withheld), (iv) maintain
appropriate certifications and licenses for such use, (v) seek to maximize the
Gross Revenues generated therefrom consistent with sound business practices and
Lessee's concurrent goal of maximizing its net operating income therefrom and
(vi) upon request, keep Lessor advised of the status of any material or
uninsured litigation affecting the Leased Property.
(d) Lessor covenants and agrees that during the Term it will
(1) not take or allow any Affiliate to take or fail to take any action that
would interfere with, restrict or prohibit Lessee's operation of the Leased
Property as the Primary Intended Use, including, without limitation, modifying,
amending or terminating any Franchise Agreement or any licenses,
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Franchises, permits, easements, leases, undertakings or agreements held by
Lessor or such Affiliate and pertaining to the Leased Property, and (2) comply
with all the provisions of any Franchise Agreement relating to Capital
Improvements, the payment of Real Estate Taxes, Personal Property Taxes,
Capital Impositions and other requirements thereof that are not the
responsibility of Lessee hereunder.
(e) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Hotel, nor shall Lessee cause or permit
any nuisance thereon. Lessee shall neither suffer nor permit the Leased
Property or any portion thereof, or Lessee's Personal Property, to be used in
such a manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as
the case may be) title thereto or to any portion thereof, or (2) may reasonably
make possible a claim or claims of adverse usage or adverse possession by the
public, as such, or of implied dedication of the Leased Property or any portion
thereof, except as necessary in the ordinary and prudent operation of the Hotel
(or other Primary Intended Use) on the Leased Property.
7.3 Lessor to Grant Easements, etc. Lessor will, from time to time,
so long as no Event of Default has occurred and is continuing, at the request
of Lessee and at Lessee's cost and expense (but subject to the approval of
Lessor, which approval shall not be unreasonably withheld), (a) grant easements
and other rights in the nature of easements with respect to the Leased Property
to third parties, (b) release existing easements or other rights in the nature
of easements which are for the benefit of the Leased Property, (c) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes, (d) execute petitions to have the Leased Property annexed to
any municipal corporation or utility district, (e) execute amendments to any
covenants and restrictions affecting the Leased Property and (f) execute and
deliver to any Person any instrument appropriate to confirm or effect such
grants, releases, dedications, transfers, petitions and amendments (to the
extent of its interests in the Leased Property), but only upon delivery to
Lessor of an Officer's Certificate stating that such grant, release,
dedication, transfer, petition or amendment is not detrimental to the proper
conduct of the business of Lessee on the Leased Property and (unless Lessor is
otherwise receiving fair value for any reduction in value of the Leased
Property) does not materially reduce the value of the Leased Property.
ARTICLE 8
8.1 Compliance with Legal and Insurance Requirements, etc. Subject
to Sections 8.2(b) and 8.3(b) below and Article 12 relating to permitted
contests, and subject further to the obligations of Lessor with respect to
Capital Improvements as set forth in Section 9.1(b), Lessee, at its expense,
will promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and, to the
extent of its obligations hereunder, restoration of the Leased Property, and
(b) procure, maintain and comply with all appropriate permits, licenses and
other authorizations required for any use of the Leased
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Property and Lessee's Personal Property then being made, and for the proper
operation, maintenance and repair of the Leased Property or any part thereof.
8.2 Legal Requirement Covenants.
(a) Subject to Section 8.3(b) below, Lessee covenants and
agrees that the Leased Property and Lessee's Personal Property shall not be
used for any unlawful purpose, and that Lessee shall not permit or suffer to
exist any unlawful use of the Leased Property by others. Lessee shall acquire
and maintain all appropriate licenses, certifications, permits and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use. Lessee further covenants and
agrees that Lessee's use of the Leased Property and maintenance, alteration,
and operation of the same, and all parts thereof, shall at all times conform to
all Legal Requirements, unless the same are finally determined by a court of
competent jurisdiction to be unlawful (and Lessee shall use its reasonable best
efforts to cause all such sub-tenants, invitees or others to so comply with all
Legal Requirements). Lessee may, however, upon prior Notice to Lessor, contest
the legality or applicability of any such Legal Requirement or any licensure or
certification decision if Lessee maintains such action in good faith, with due
diligence, without prejudice to Lessor's rights hereunder, and at Lessee's sole
expense. If by the terms of any such Legal Requirement compliance therewith
pending the prosecution of any such proceeding may legally be delayed without
the incurrence of any lien, charge or liability of any kind against the Hotel
or Lessee's leasehold interest therein and without subjecting Lessee or Lessor
to any liability, civil or criminal, for failure so to comply therewith, Lessee
may delay compliance therewith until the final determination of such
proceeding. If any lien, charge or civil or criminal liability would be
incurred by reason of any such delay, Lessee, with the prior written consent of
Lessor, which consent shall not be unreasonably withheld, may nonetheless
contest as aforesaid and delay as aforesaid provided that such delay would not
subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor
security reasonably satisfactory to Lessor against any loss or injury by reason
of such contest or delay and (b) prosecutes the contest with due diligence and
in good faith.
(b) As between Lessor and Lessee, Lessee is solely responsible
for all liabilities or obligations of any kind with respect to employees at the
Leased Property during the Term, except to the extent such compliance requires,
and Lessor fails to pay the cost of, the performance of a Capital Improvement,
or remediation or other action with respect to an Environmental Liability for
which Lessee is indemnified under Section 8.3(b) or the payment of a Capital
Imposition. Without limiting the generality of the foregoing sentence, Lessee
is solely responsible for any required compliance with the Worker Adjustment,
Retraining and Notification Act of 1988 (the "WARN Act") or any similar state
law applicable to the Leased Property; any required compliance with the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA");
and all alleged and actual obligations and claims arising from or relating to
any employment agreement, collective bargaining agreement or employee benefit
plans, any grievances, arbitrations, or unfair labor practice charges, and
relating to compliance with any applicable state or federal labor employment
law, including but not limited to all laws pertaining to discrimination,
workers' compensation, unemployment compensation, occupational
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safety and health, unfair labor practices, family and medical leave, and wages,
hours or employee benefits. Lessee agrees to indemnify and defend and hold
harmless Lessor from and against any claims relating to any of the foregoing
matters. Lessee further agrees to reimburse Lessor for any and all losses,
damages, costs, expenses, liabilities and obligations of any kind, including
without limitation reasonable attorneys' fees and other legal costs and
expenses, incurred by Lessor in connection with any of the foregoing matters.
Notwithstanding the Lessee's obligations under Section 8.1 to
obtain and maintain all permits and licenses required for the use of the Leased
Property, and without limiting any obligations of Lessee hereunder, if (i)
applicable law requires that the owner (rather than a lessee) of a hotel be the
licensee under the required liquor license for the Hotel or (ii) the former
owner of the Hotel is holding the liquor license and continuing to exercise
management and supervision of the liquor services at the Hotel pending transfer
of the license to Lessor or Lessee, the Lessee shall indemnify and hold Lessor
harmless from any liability, damages or claims (a) arising in connection with
liquor operations at the Hotel during such period of time following the
Transition Date, except to the extent caused by Lessor's gross negligence or
willful misconduct or (b) made by or through the former owner with respect to
liquor operations at the Hotel following the Transition Date.
8.3 Environmental Covenants. Lessor and Lessee (in addition to, and
not in diminution of, Lessor's and Lessee's covenants and undertakings in
Sections 8.1 and 8.2 hereof) covenant and agree as follows:
(a) At all times hereafter until such time as all liabilities,
duties or obligations of Lessee to Lessor under this Lease have been satisfied
in full, Lessee shall fully comply with all Environmental Laws applicable to
the Leased Property and the operations thereon, except to the extent that
compliance would require Lessee to incur an obligation for a Capital
Improvement or for remediation of Environmental Liabilities for which Lessee is
indemnified under this Section 8.3. Lessee agrees to give Lessor Notice of the
following, promptly after Lessee receives knowledge thereof: (1) all
Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or investigations, relating to
any Environmental Liability or relating to the issuance, revocation or change
in any Environmental Authorization required for operation of the Leased
Property; (3) all Releases at, on, in, under or in any way affecting the Leased
Property, or any Release at, on, in or under any property adjacent to the
Leased Property; and (4) all facts, events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.
(b) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities (including, without limitation, Environmental
Liabilities to the extent resulting from conditions existing at the Leased
Property at the Transition Date or from Releases or other violations of
Environmental Laws (without fault on the part of Lessee) originating on other
property but affecting the Leased Property) other than Environmental
Liabilities to the extent caused by the grossly negligent acts
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or failures to act or wilful misconduct of Lessee, Manager or subtenants of
Lessee or Manager, and their respective employees, agents or independent
contractors.
(c) Lessee hereby agrees to defend, indemnify and save harmless
any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities to the extent caused by the grossly negligent acts or
failures to act or wilful misconduct of Lessee, Manager or subtenants of Lessee
or Manager, and their respective employees, agents or independent contractors.
(d) At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability
(or in the event Lessor or its lender requires such access in connection with a
sale or financing of the Leased Property), upon reasonable prior written notice
to Lessee stating such Indemnified Party's basis for such belief, an
Indemnified Party shall be given immediate access to the Leased Property
(including, but not limited to, the right to enter upon, investigate, drill
wells, take soil borings, excavate, monitor, test, cap and use available land
for the testing of remedial technologies), Lessee's employees, and to all
relevant documents and records regarding the matter as to which a
responsibility, liability or obligation is asserted or which is the subject of
any Proceeding; provided that such access may be conditioned or restricted as
may be reasonably necessary to ensure compliance with law and the safety of
personnel and facilities or to protect confidential or privileged information.
All Indemnified Parties requesting such immediate access and cooperation shall
endeavor to coordinate such efforts to result in as minimal interruption of the
operation of the Leased Property as practicable. Lessor agrees to indemnify
and hold harmless Lessee from and against any and all liabilities, costs,
damages, charges, fees or expenses arising in connection with, and to the
extent caused by a Lessor Indemnified Party, the access to or use of the Leased
Property by a Lessor Indemnified Party pursuant to this subsection (d).
(e) The indemnification rights and obligations provided for in
this Article 8 (1) shall be in addition to any indemnification rights and
obligations provided for elsewhere in this Lease, and (2) shall survive the
termination of this Lease.
(f) For purposes of this Section 8.3, all amounts for which
any Indemnified Party seeks indemnification shall be computed net of any
actual income tax benefit resulting therefrom to such Indemnified Party, any
insurance proceeds received (net of tax effects) with respect thereto, and any
amounts recovered (net of tax effects) from any third parties based on claims
the Indemnified Party has against such third parties which reduce the damages
that would otherwise be sustained; provided, that in all cases, the timing of
the receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in determining the
amount of reduction of damages. Each Indemnified Party agrees to use its
reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may
be, any claims or rights it may have against any third party which would
materially reduce the amount of damages otherwise incurred by such Indemnified
Party.
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(g) Notwithstanding anything to the contrary contained in this
Lease, if Lessor shall become entitled to the possession of the Leased Property
by virtue of the termination of this Lease or repossession of the Leased
Property, then Lessor may assign its indemnification rights under Section 8.3
of this Lease to any Person to whom Lessor subsequently transfers the Leased
Property, subject to the following conditions and limitations, each of which
shall be deemed to be incorporated into the terms of such assignment, whether
or not specifically referred to therein:
(1) The indemnification rights referred to in this
section may be assigned only if a known Environmental Liability
then exists or if a Proceeding is then pending or, to the
knowledge of Lessee or Lessor, then threatened with respect to
the Leased Property;
(2) Such indemnification rights shall be limited to
Environmental Liabilities relating to or specifically affecting
the Leased Property; and
(3) Any assignment of such indemnification rights shall
be limited to the immediate transferee of Lessor, and shall not
extend to any such transferee's successors or assigns.
ARTICLE 9
9.1 Maintenance and Repair.
(a) Except as otherwise expressly provided in this Lease, and
except for conditions caused by Lessor's gross negligence or willful misconduct
(or that of its employees, agents or independent contractors), Lessee, at its
sole expense, will keep the Leased Property, and all private roadways,
sidewalks and curbs appurtenant thereto that are under Lessee's control,
including windows and plate glass, mechanical, electrical and plumbing systems
and equipment (including conduit and ductware), and non-load bearing interior
walls, and parking lot surfaces, in good order and repair (whether or not the
need for such repairs occurred as a result of Lessee's use, any prior use, the
elements or the age of the Leased Property, or any portion thereof), and, with
reasonable promptness, make all necessary and appropriate repairs,
replacements, and improvements thereto of every kind and nature, whether
interior or exterior, ordinary or extraordinary, foreseen or unforeseen or
arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise), or required by any governmental agency
having jurisdiction over the Leased Property. Lessee, however, shall be
permitted to prosecute claims against Lessor's predecessors in title (other
than Lessor or an Affiliate of Lessor which conveyed the Property to, or was
the predecessor-by-merger to, Lessor or an Affiliate thereof) for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to
take any action, the taking or omission of which might materially impair the
value or the usefulness of the Leased Property or any part thereof for its
Primary Intended Use.
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(b) Notwithstanding Lessee's obligations under Section 9.1(a)
above or elsewhere in this Lease, unless caused by the gross negligence or
willful misconduct of Lessee, Manager or subtenants of Lessee or Manager, and
their respective employees, agents or independent contractors, Lessee shall not
be responsible for any Capital Improvements, including (without limitation)
Capital Improvements required by the Franchisor under the Franchise Agreement.
Lessor shall be responsible for all such Capital Improvements, including,
without limitation, Capital Improvements required to comply with all Legal
Requirements (including, without limitation, all Environmental Laws, the
Americans with Disabilities Act and any state or local handicap access laws and
regulations and all zoning and land use laws and regulations) and Capital
Improvements required to comply with any Franchise Agreement; subject to
Lessor's right to approve the Capital Budget pursuant to Article 38; provided,
however, that notwithstanding the foregoing or any other obligation of Lessor
hereunder for the cost of Capital Improvements required by a Franchise
Agreement, Lessor shall have the right, its sole (unreviewable) discretion, to
refuse to make any Capital Expenditure required by any Franchisor; provided,
further, that if such refusal directly results in a default under or
termination of such Franchise Agreement, Lessor shall be responsible for all of
Lessee's damages caused thereby, termination payments payable by Lessee under
the terms of such Franchise Agreement, application fees for a new franchise
license reasonably approved by Lessor, increased royalty fees and other costs
arising out of such refusal or out of the resulting need to apply for and enter
into a substitute franchise license agreement. Except as set forth in the
preceding sentence or elsewhere in this Lease, Lessor shall not under any
circumstances be required to build or rebuild any improvement on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto, in connection with this Lease, or to maintain the Leased
Property in any way. Lessee hereby waives, to the extent permitted by law, the
right to make repairs at the expense of Lessor pursuant to any law in effect at
the time of the execution of this Lease or hereafter enacted. Lessor shall
have the right to give, record and post, as appropriate, notices of non-
responsibility under any mechanic's lien laws now or hereafter existing.
(c) If Lessor fails to make any Capital Expenditure required
to comply with Legal Requirements, after the expiration of all the applicable
notice and cure periods set forth in Section 34.3, or if Lessor fails to make
any Emergency Capital Expenditures promptly following notice from Lessee of an
Emergency Situation, or if an Emergency Capital Expenditure must be made
immediately (without allowing the time necessary to notify Lessor thereof) then
Lessee will have the right, but not the obligation, to make such Capital
Expenditures on behalf of and for the account of Lessor, whereupon Lessor shall
reimburse Lessee for the reasonable cost thereof, with interest thereon at the
Base Rate, within ten (10) days after receipt of documentation (with reasonable
detail as to the breakdown of costs incurred) evidencing such Capital
Expenditure.
(d) Nothing contained in this Lease and no action or inaction
by Lessor shall be construed as (1) constituting the request of Lessor,
expressed or implied, to any contractor, subcontractor, laborer, materialman or
vendor to or for the performance of any labor or services or the furnishing of
any materials or other property for the construction, alteration, addition,
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repair or demolition of or to the Leased Property or any part thereof, or (2)
except as otherwise expressly provided herein, giving Lessee any right, power
or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion
as would permit the making of any claim against Lessor in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Lessor in
the Leased Property, or any portion thereof.
(e) Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property to Lessor in the condition
in which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by
the provisions of this Lease and except for ordinary wear and tear (subject to
the obligation of Lessee to maintain the Leased Property in good order and
repair, as would a prudent owner, during the entire Term of the Lease, to the
extent required in Section 9.1(a)), or damage by casualty or Condemnation
(subject to any obligations of Lessee to restore or repair as set forth in this
Lease).
9.2 Encroachments, Restrictions, Etc. If any of the Improvements, at
any time, materially encroach upon any property, street or right-of-way
adjacent to the Leased Property, or violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Leased Property, or any part thereof, or impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, then promptly
upon the request of Lessor or at the behest of any Person affected by any such
encroachment, violation or impairment (in which case Lessee will immediately
notify Lessor thereof), Lessee shall, at Lessor's expense (except to the extent
that the encroachment or violation was the result of the gross negligence or
willful misconduct of Lessee, Manager or subtenants of Lessee or Manager, and
their respective employees, agents or independent contractors, in which case
Lessee shall bear such expense), subject to its right to contest the existence
of any encroachment, violation or impairment and in such case, in the event of
an adverse final determination, either (a) obtain valid and effective waivers
or settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee or (b) make such changes in the Improvements, and take such other
actions, as Lessor in the good faith exercise of its judgment deems reasonably
practicable to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Improvements,
and in any event take all such actions as may be necessary in order to be able
to continue the operation of the Improvements for the Primary Intended Use
substantially in the manner and to the extent the Improvements were operated
prior to the assertion of such violation, impairment or encroachment. Any such
alteration shall be made in conformity with the applicable requirements of
Article 10. Lessee's obligations under this Section 9.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer
under any policy of title or other insurance held by Lessor or Lessee.
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ARTICLE 10
10.1 Alterations. Without Lessor's prior written consent, which
consent shall not be unreasonably withheld, Lessee shall not have the right to
make any additions, modifications or improvements to the Leased Property;
provided, however, that Lessor may withheld its consent unless such additions,
modifications or improvements will not significantly alter the character or
purposes or detract from the value or operating efficiency of, and will not
impair the revenue-producing capability of, the Hotel and the Leased Property,
or adversely affect the ability of Lessee to comply with the provisions of this
Lease. The cost of any such permitted additions, modifications or improvements
to the Leased Property shall be paid by Lessee unless otherwise provided herein
or agreed by Lessor in writing, and all such additions, modifications and
improvements shall, without payment by Lessor at any time, be included under
the terms of this Lease and upon expiration or earlier termination of this
Lease shall pass to and become the property of Lessor.
10.2 Salvage. All materials which are scrapped or removed in
connection with the making of repairs required by Articles 9 or 10 shall be or
become the property of Lessor or Lessee depending on which party is paying for
or providing the financing for such work.
10.3 Initial Upgrades.
(a) Upgrades Required by Franchisor. Lessor agrees to pay the
cost to install, construct and complete the improvements, alterations, upgrades
and refurbishments in and to the Improvements and acquisitions of Furniture,
Fixtures and Equipment required under any product improvement plan or other
upgrade program or requirement (collectively, a "PIP") necessary to qualify the
Hotel to initially operate or continue to operate under any Franchise
Agreement, but only to the extent so agreed under the Master Hotel Agreement or
hereafter approved by Lessor.
(b) Contemplated Renovations. Schedule 1 to the Master Hotel
Agreement sets forth a preliminary budget for certain improvements,
alterations, upgrades and/or refurbishments of and to various hotels (including
acquisitions of Furniture, Fixtures and Equipment) that are contemplated by BHR
and FelCor (the "Contemplated Renovations"). In the event any Contemplated
Renovations apply to the Hotel, Lessor and Lessee agree to work diligently and
in good faith to refine and finalize the plans and specifications, budgets and
time schedules for the Contemplated Renovations and Lessor agrees to pay the
budgeted cost of the Contemplated Renovations or such higher amount as may be
approved by Lessor, such approval not to be unreasonably withheld. The
Contemplated Renovations may include some or all of the items required by the
PIP.
(c) Construction Services Agreement. In the event of a PIP, a
Contemplated Renovation or other previously unbudgeted Capital Improvement
(including a reconstruction of the Improvements following a casualty or
Condemnation), Lessor and Lessee may, in their sole discretion, enter into an
agreement (a "Construction Services Agreement") whereby Lessee,
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Manager or another Subidiary of BHR will perform construction advisory and
supervisory services described therein for the fees and other compensation
described therein. Lessee has no obligation to provide such services under
this Lease other than pursuant to a Construction Services Agreement.
ARTICLE 11
11.1 Liens. Subject to the provision of Article 12 relating to
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the Rent first arising or
accrued from and after the Transition date, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are either created or incurred by lessor or its
employees, agents or independent contractors or consented to in writing by
Lessor or any easements granted pursuant to the provisions of Section 7.3 of
this Lease, (d) liens for those taxes upon Lessor which Lessee is not required
to pay hereunder, (e) subleases permitted by Article 23 hereof, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2) such liens are in the process of being contested as
permitted by Article 12; or (3) the same are Lessor's responsibility hereunder,
(g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums
either disputed or not yet due provided that (1) the payment of such sums shall
not be postponed under any related contract for more than sixty (60) days after
the completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or GAAP shall have been made
therefor or (2) any such liens are in the process of being contested as
permitted by Article 12 hereof, and (h) any liens which are the responsibility
of Lessor pursuant to the provisions of Article 34 of this Lease.
ARTICLE 12
12.1 Permitted Contests. Lessee shall have the right to contest the
amount or validity of any Imposition to be paid by Lessee or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy,
encumbrance, charge or claim ("Claims") not otherwise permitted by Article 11,
by appropriate legal proceedings in good faith and with due diligence (but this
shall not be deemed or construed in any way to relieve, modify or extend
Lessee's covenants to pay or its covenants to cause to be paid any such charges
at the time and in the manner as in this Article provided), on condition,
however, that such legal proceedings shall not operate to relieve Lessee from
its obligations hereunder and shall not cause the sale or risk the imminent
loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to
be in default under any mortgage, deed of trust, security deed or other
agreement encumbering the Leased Property or any interest therein. Upon the
request of Lessor, Lessee shall either (a) provide a bond or other assurance
reasonably satisfactory to Lessor that all Claims which may be assessed against
the Leased
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Property together with interest and penalties, if any, thereon will be paid, or
(b) deposit within the time otherwise required for payment with a bank or trust
company as trustee upon terms reasonably satisfactory to Lessor, as security
for the payment of such Claims, money in an amount sufficient to pay the same,
together with interest and penalties in connection therewith, as to all Claims
which may be assessed against or become a Claim on the Leased Property, or any
part thereof, in said legal proceedings. Lessee shall furnish Lessor and any
lender of Lessor with reasonable evidence of such deposit within five (5) days
of the same. Lessor agrees to join in any such proceedings if the same be
required legally to prosecute such contest of the validity of such Claims;
provided, however, that Lessor shall not thereby be subjected to any liability
for the payment of any costs or expenses in connection with any proceedings
brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor
from any such costs or expenses. Lessee shall be entitled to any refund of any
Claims and such charges and penalties or interest thereon which have been paid
by Lessee or paid by Lessor and for which Lessor has been fully reimbursed. In
the event that Lessee fails to pay any Claims when due or to provide the
security therefor as provided in this Article and to diligently prosecute any
contest of the same, Lessor may, upon ten (10) days advance Notice to Lessee,
and Lessee's failure to correct the same within such 10-day period, pay such
charges together with any interest and penalties and the same shall be
repayable by Lessee to Lessor as Additional Charges at the next Rent payment
date provided for in this Lease. Provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property or cause damage to Lessor, then Lessor shall give such Notice
as is practical under the circumstances. Lessor reserves the right to contest
any of the Claims at its expense not pursued by Lessee. Lessor and Lessee
agree to cooperate in coordinating the contest of any Claims.
ARTICLE 13
13.1 General Insurance Requirements. During the Term of this Lease,
the Leased Property shall at all times be insured with the kinds and amounts of
insurance described below. This insurance shall be written by companies
authorized to issue insurance in the State. The policies (except crime, workers
compensation, and safe deposit box legal liability) must name Lessor as an
additional insured, and the Manager, if any, shall also be named as an
additional insured, under the coverages described in Sections 13.1(b). Losses
shall be payable to Lessor or Lessee as provided in this Lease. Any loss
adjustment for coverages insuring both parties shall require the written
consent of Lessor and Lessee, each acting reasonably and in good faith.
Evidence of insurance shall be deposited with Lessor. The policies on the
Leased Property, including the Improvements, Furniture, Fixtures and Equipment
and Lessee's Personal Property, shall satisfy the requirements of the Franchise
Agreement and of any ground lease, mortgage, security agreement or other
financing lien affecting the Leased Property and at a minimum shall include the
following:
(a) Lessor shall obtain and maintain, at its own expense:
(i) Building insurance on the "Special Form" (formerly
"All Risk" form) (including earthquake and flood in reasonable amounts (not to
exceed $100,000,000 per
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occurrence and in the aggregate for the Existing Hotels) if and as determined
by Lessor, in the exercise of its reasonable discretion, or Lessor's
underwriters or lenders) in an amount not less than 100% of the then full
replacement cost thereof (as defined in Section 13.2) or such other amount
which is acceptable to Lessor, and personal property insurance on the "Special
Form" in the full amount of the replacement cost thereof;
(ii) Insurance for loss or damage (direct and indirect)
from steam boilers, pressure vessels or similar apparatus, air conditioning
systems, piping and machinery, and sprinklers, if any, now or hereafter
installed in the Hotel, in the minimum amount of $5,000,000 or in such greater
amounts as are then customary or as may be reasonably requested by Lessor from
time to time; and
(iii) Loss of income insurance on the "Special Form", in
the amount of twelve (12) months of the sum of Base Rent plus Percentage Rent
(based on the last Lease Year of operation or, to the extent the Leased
Property has not been operated for an entire 12-month Lease Year, based on
prorated Percentage Rent) for the benefit of Lessor.
(b) Lessee shall obtain and maintain, at its own expense:
(i) Commercial general liability insurance, with
amounts not less than $10,000,000 combined single limit for each occurrence and
in the aggregate, as well as excess liability (umbrella) insurance with limits
of at least $50,000,000 per occurrence and in the aggregate, covering each of
the following: bodily injury, death, or property damage liability per
occurrence, personal and advertising injury, general aggregate, products and
completed operations, with respect to Lessor, and "all risk legal liability"
(including liquor law or "dram shop" liability, if liquor or alcoholic
beverages are served on the Leased Property) with respect to Lessee;
(ii) Fidelity bonds or blanket crime policies with
limits and deductibles as may be reasonably determined by Lessor, covering
Lessee's and/or Manager's employees in job classifications normally bonded
under prudent hotel management practices in the United States or otherwise
required by law;
(iii) Workers' compensation insurance (or its substantial
equivalent as a non-subscribing employer in the State of Texas) to the extent
necessary to protect Lessee against Lessee's and/or Manager's workers'
compensation claims to the extent required by applicable state laws;
(iv) Comprehensive form vehicle liability insurance for
owned, non-owned, and hired vehicles, in the amount of $5,000,000;
(v) Garage keeper's legal liability insurance covering
both comprehensive and collision-type losses with a limit of liability of
$1,000,000 for any one occurrence;
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(vi) Innkeeper's legal liability insurance covering
property of guests while on the Leased Property for which Lessor is legally
responsible with a limit of not less than $2,000 per guest and $50,000 in any
one occurrence or $100,000 annual aggregate;
(vii) Safe deposit box legal liability insurance covering
property of guests while in a safe deposit box on the Leased Property for which
Lessor is legally responsible with a limit of not less than $5,000 in any one
occurrence;
(viii) Insurance covering such other hazards (such as
plate glass or other common risks) and in such amounts as may be customary for
comparable properties in the area of the Leased Property and is available from
insurance companies, insurance pools or other appropriate companies authorized
to do business in the State at rates which are economically practicable in
relation to the risks covered as may be reasonably determined by Lessor; and
(ix) Business interruption insurance on the "Special
Form" in the amount of twelve (12) months of gross profit, for the benefit of
Lessee.
13.2 Replacement Cost. The term "full replacement cost" as used
herein shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost (the then-replacement cost less such
exclusions) has increased or decreased at any time during the Term, it shall
have the right to have such full replacement cost re-determined.
13.3 Waiver of Claims and Subrogation. Each of Lessor and Lessee do
hereby remise, release and discharge the other party and any officer, agent,
employee, representative or contractor of such party, of and from any liability
whatsoever hereafter arising from loss, damage or injury caused by fire or
other casualty for which insurance (permitting waiver of liability and
containing a waiver of subrogation) shall be carried as required by this Lease
by the injured party at the time of such loss, damage or injury to the extent
of any recovery by the injured party under such insurance. All insurance
policies carried by Lessor or Lessee (except fidelity bonds, blanket crime
insurance or workers compensation where contrary to public policy or law),
shall expressly waive any right of subrogation on the part of the insurer
against the other party. The parties hereto agree that their policies will
include such waiver clause or endorsement so long as the same are obtainable
without extra cost, and in the event of such an extra charge the other party,
at its election, may pay the same, but shall not be obligated to do so.
13.4 Form Satisfactory, etc. All of the policies of insurance
referred to in this Article 13 shall be written in a form, with deductibles and
exclusions from coverage and by insurance companies reasonably satisfactory to
Lessor. Subject to the right to reimbursement or credit for coverages
specified in Section 13.1(a) and any other "casualty coverages" required by
Lessor, Lessee shall pay all of the premiums therefor, and deliver such
policies or certificates thereof to Lessor prior to their effective date (and,
with respect to any renewal policy, thirty (30) days prior to the expiration of
the existing policy), and in the event of the failure of Lessee either
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to effect such insurance as herein called for or to pay the premiums therefor,
or to deliver such policies or certificates thereof to Lessor at the times
required, Lessor shall be entitled, but shall have no obligation, to effect
such insurance and pay the premiums therefor, and Lessee shall reimburse Lessor
for any premium or premiums paid by Lessor for the coverages required under
Section 13.1(b) upon written demand therefor, and Lessee's failure to repay the
same within thirty (30) days after Notice of such failure from Lessor shall
constitute an Event of Default within the meaning of Section 16.1(c). Each
insurer mentioned in this Article 13 shall agree, by endorsement to the policy
or policies issued by it, or by independent instrument furnished to Lessor,
that it will give to Lessor thirty (30) days' written notice before the policy
or policies in question shall be materially altered, allowed to expire or
canceled.
13.5 Increase in Limits. If either Lessor or Lessee at any time deems
the limits of the personal injury or property damage under the comprehensive
public liability insurance then carried to be either excessive or insufficient,
Lessor or Lessee shall endeavor in good faith to agree on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section.
13.6 Blanket Policy. Notwithstanding anything to the contrary
contained in this Article 13, Lessor (or Lessee at Lessor's request) may bring
the insurance provided for herein within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessor or Lessee, as
the case may be; provided, however, that the coverage afforded to Lessor and
Lessee will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all other requirements of
this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article 13 are otherwise
satisfied.
13.7 No Separate Insurance. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished, or increase the amount of
any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor, are included therein as
additional insured, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of any such separate insurance that Lessee has
obtained or of the increase of any of the amounts of the then existing
insurance.
13.8 Reports On Insurance Claims. Lessee shall promptly investigate
and make a complete and timely written report to the appropriate insurance
company as to all accidents, claims for damage relating to the ownership,
operation, and maintenance of the Hotel, any damage or destruction to the Hotel
and the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. All such reports
shall be timely filed with the insurance company as required under the terms of
the insurance policy involved, and a final copy of such report shall be
furnished to Lessor. Lessee shall be
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authorized to adjust, settle, or compromise any insurance loss, or to execute
proofs of such loss, in the aggregate amount of $25,000 or less, with respect
to any single casualty or other event.
ARTICLE 14
14.1 Insurance Proceeds. Subject to the provisions of Section 14.6
and the terms of any Mortgage or Ground Lease, all proceeds payable by reason
of any loss or damage to the Leased Property, or any portion thereof, and
insured under any policy of insurance required by Article 13 of this Lease
shall be paid to Lessor and held by Lessor in an interest-bearing account,
shall be made available, if applicable, for reconstruction or repair, as the
case may be, of any damage to or destruction of the Leased Property, or any
portion thereof, and, if applicable, shall be paid out by Lessor from time to
time for the reasonable costs of such reconstruction or repair upon
satisfaction of reasonable terms and conditions specified by Lessor. Any
excess proceeds of insurance remaining after the completion of the restoration
or reconstruction of the Leased Property shall be paid to Lessor. If neither
Lessor nor Lessee is required or elects to repair and restore as set forth
herein, all insurance proceeds shall be retained by Lessor. All salvage of any
Leased Property resulting from any risk covered by insurance shall belong to
Lessor and all salvage of any of Lessee's Personal Property resulting from any
risk covered by insurance shall belong to Lessee.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Except as provided in Section 14.6, if during the Term the
Leased Property is totally or partially destroyed by a risk covered by the
insurance described in Article 13, whether or not such damage or destruction
renders the Hotel Unsuitable for its Primary Intended Use, Lessee shall be
obligated, but only to the extent of any insurance proceeds made available to
Lessee and any other sums advanced by Lessor pursuant to the next sentence, to
restore the Hotel to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the terms of
the Lease and a Construction Services Agreement to be entered into in
connection herewith. If the insurance proceeds are not adequate to restore the
Hotel to that condition, each of Lessor (if Lessor has fulfilled its
obligations under Section 13.1(a)) and Lessee shall have the right to terminate
this Lease, without in any way affecting any of the Other Leases in effect, by
giving Notice to the other and all insurance proceeds shall be retained by
Lessor; provided, however that, if such termination is by Lessee, Lessor shall
have the right, in its sole discretion, to nullify the termination and keep
this Lease in full force by providing, within thirty (30) days after Lessee's
Notice of termination, a Notice to Lessee of Lessor's unconditional, legally
binding obligation to be responsible for all restoration costs in excess of the
insurance proceeds.
If this Lease is terminated by either party as aforesaid (and such
termination is not nullified by Lessor) and if the inadequacy of insurance
proceeds was the result of Lessor's failure to maintain the proper insurance
coverages as required pursuant to Article 13, Lessor shall, at its option,
within one hundred eighty (180) days after such termination, either (i) commit
in writing to pay (and thereafter pay) to Lessee the Termination Fee in
accordance with the terms of the
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Master Hotel Agreement or (ii) offer to lease to Lessee one or more hotel
facilities reasonably acceptable to Lessee pursuant to one or more Other Leases
that would create for Lessee leasehold estates having an aggregate fair market
value no less than the fair market value of the leasehold estate hereunder, as
of the date of termination. If this Lease is not terminated and Lessee
restores the Hotel, the insurance proceeds, and any other sums made available
by Lessor as aforesaid, shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of reasonable terms and
conditions, and any excess proceeds remaining after such restoration shall be
retained by Lessor.
(b) Notwithstanding the provisions of Section 14.2(a) above,
if Lessee reasonably estimates that it cannot within a reasonable time obtain
all necessary government approvals, including building permits, licenses and
conditional use permits, after diligent efforts to do so, to perform all
required repair and restoration work (and complete such work not later than the
earlier of (i) two years prior to the end of the final extension Term or of the
initial Term, if there are no extension Terms, and (ii) one year after the
casualty) and to operate the Hotel for its Primary Intended Use in
substantially the same manner as that existing immediately prior to such damage
or destruction and otherwise in accordance with the terms of the Lease, either
Lessor or Lessee may terminate this Lease by providing Notice to the other
party, without in any way affecting any of the Other Leases then in effect
between Lessor and Lessee.
14.3 Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance. Except as provided in Section 14.6, if during the Term the Hotel
is totally or materially destroyed by a risk not covered by the insurance
described in Article 13, whether or not such damage or destruction renders the
Hotel Unsuitable for its Primary Intended Use, the provisions of Section 14.2
applicable to casualties for which insurance proceeds are inadequate shall
govern.
14.4 Lessee's Personal Property and Business Interruption Insurance.
All insurance proceeds payable by reason of any loss of or damage to any of
Lessee's Personal Property and the business interruption insurance maintained
for the benefit of Lessee shall be paid to Lessee; provided, however, no such
payments shall diminish or reduce the insurance payments otherwise payable to
or for the benefit of Lessor hereunder.
14.5 Abatement of Rent Upon Casualty. Any damage or destruction due
to casualty notwithstanding, this Lease shall remain in full force and effect,
but Lessee's obligation to make rental payments and to pay all other charges
required by this Lease shall be equitably abated during any period required for
the applicable repair and restoration to the extent the Hotel or any part
thereof is Unsuitable for its Primary Intended Use. If Lessor and Lessee are
unable to agree upon the amount of such abatement within thirty (30) days after
such damage or destruction, the matter may be submitted by either party to
arbitration under Section 41.2 hereof for resolution.
14.6 Damage Near End of Term. Notwithstanding any provisions of
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Hotel rendering it Unsuitable for its Primary Intended Use occurs (i)
during the last twenty-four (24) months of the initial Term or any extension
Term, then Lessee shall have the right to terminate this Lease by giving Notice
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to Lessor, within thirty (30) days after the date of damage or destruction,
and (ii) during the last twenty-four (24) months of the final extension Term
(or of the initial Term, if there are no extension Terms), then Lessor shall
have the right to terminate this Lease by giving Notice to Lessee, within
thirty (30) days after the date of damage or destruction. In the event of a
termination under this Section 14.6, all accrued unabated Rent shall be paid
immediately, and this Lease shall automatically terminate five (5) days after
the date of such Notice.
14.7 Waiver. Unless Lessor is in material default hereunder, Lessee
hereby waives any statutory rights of termination that may arise by reason of
any damage or destruction of the Hotel that Lessor is obligated to restore or
may restore under any of the provisions of this Lease.
ARTICLE 15
15.1 Definitions.
(a) "Award(s)" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.
(b) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
(c) "Condemnation" means a Taking resulting from (1) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any
Condemnor, either under threat of condemnation or while legal proceedings for
condemnation are pending.
(d) "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.
15.2 Parties' Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article 15 subject to the terms of any Mortgage or Ground Lease.
15.3 Total Taking. If title to the fee (or leasehold under a Ground
Lease) of the whole of the Leased Property is condemned by any Condemnor, this
Lease shall cease and terminate as of the Date of Taking by the Condemnor,
without in any way affecting any of the Other Leases then in effect between
Lessor and Lessee. If title to the fee (or leasehold under a Ground Lease) of
less than the whole of the Leased Property is so taken or condemned, which
nevertheless renders the Leased Property Unsuitable or Uneconomic for its
Primary Intended Use, Lessee and Lessor shall each have the option, by notice
to the other, at any time prior to the Date of Taking, to terminate this Lease
as of the Date of Taking. Upon such date, if such Notice has been given, this
Lease shall thereupon cease and terminate. All Base Rent, Percentage Rent and
Additional
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Charges paid or payable by Lessee hereunder shall be apportioned as of the Date
of Taking, and Lessee shall promptly pay Lessor such amounts.
15.4 Partial Taking. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is not Unsuitable for its
Primary Intended Use, and not Uneconomic for its Primary Intended Use, or if
Lessee or Lessor is entitled but neither elects to terminate this Lease as
provided in Section 15.3, Lessee at its cost and in accordance with the terms
of this Lease and any Construction Services Agreement entered into in
connection herewith, shall with all reasonable dispatch, but only to the extent
of any Award funds made available to Lessee and any other sums advanced by
Lessor pursuant to this Section, restore the untaken portion of any
Improvements so that such Improvements constitute a complete architectural unit
of the same general character and condition (as nearly as may be possible under
the circumstances) as the Improvements existing immediately prior to the
Condemnation. Lessor shall in good faith seek a fair and equitable allocation
of any Award among restoration, taken Improvements and other elements. Lessor
will contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, together with severance and other damages
awarded for the Improvements; provided, however, the amount of such
contribution will not exceed such cost. If the Awards are not adequate to
restore the Hotel to that condition, each of Lessor and Lessee shall have the
right to terminate this Lease, without in any way affecting any of the Other
Leases in effect, by giving Notice to the other; provided, however that, if
such termination is by Lessee, Lessor shall have the right, in its sole
discretion, to nullify the termination and keep this Lease in full force by
providing, within thirty (30) days after Lessee's Notice of termination, a
Notice to Lessee of Lessor's unconditional, legally binding obligation to be
responsible for all restoration costs in excess of the Awards. If this Lease
is not terminated and Lessee restores the Hotel, the Award funds, and any other
sums made available by Lessor as aforesaid, shall (subject to the requirements
of any ground or building lease or Mortgage) be held by Lessor and paid out by
Lessor from time to time for the reasonable costs of such restoration upon
satisfaction of reasonable terms and conditions, and any excess Award funds
remaining after such restoration, and reimbursement of Lessor for any sums
advanced by Lessor hereunder, shall be retained by Lessor. In the event of a
partial Taking that does not result in a termination of this Lease, the Base
Rent shall be abated in the manner and to the extent that is fair, just and
equitable to both Lessee and Lessor, taking into consideration, among other
relevant factors, the number of usable rooms, the amount of square footage, the
revenues affected by such partial Taking and changes in the Hotel's projected
net operating income following such partial Taking. If Lessor and Lessee are
unable to agree upon the amount of such abatement within thirty (30) days after
such partial Taking, the matter may be submitted by either party to arbitration
under Section 41.2 hereof for resolution.
15.5 Allocation of Award. The total Award made in connection with a
Total Taking, or a partial Taking that results in a termination of this Lease
with respect to the Leased Property, or for loss of Rent, or for Lessor's loss
of business beyond the Term, shall be solely the property of and payable to
Lessor. Any Award made for loss of Lessee's business during the remaining
Term, if any, or for the taking of Lessee's Personal Property or for removal
and relocation expenses of Lessee in any such proceedings shall be the sole
property of and payable to Lessee.
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Any other Award not separately allocated to Lessor or Lessee shall be equitably
apportioned between Lessor and Lessee in proportion to the then fair market
value of the leasehold estate of Lessee hereunder and the then fair market
value of the Leased Property.
15.6 Temporary Taking. If the whole or any part of the Leased
Property (other than the fee or leasehold under a Ground Lease) or of Lessee's
interest under this Lease is condemned by any Condemnor for its temporary use
or occupancy (which shall mean a period not to exceed the lesser of twelve (12)
months or the remainder of the Term), this Lease shall not terminate by reason
thereof, and Lessee shall continue to pay, in the manner and at the terms
herein specified, the full amounts of Base Rent and Additional Charges. In
addition, the entire amount of any Award made for such Condemnation allocable
to the Term of this Lease, whether paid by way of damages, rent or otherwise,
shall be paid to Lessee and, except for any portion thereof utilized for
restoration, shall be deemed to be Room Revenues for the purpose of calculating
the Percentage Rent payable hereunder during such temporary taking. Except
only to the extent that Lessee may be prevented from so doing pursuant to the
terms of the order of the Condemnor, Lessee shall continue to perform and
observe all of the other terms, covenants, conditions and obligations hereof on
the part of Lessee to be performed and observed, as though such Condemnation
had not occurred. Lessee covenants that upon the termination of any such
period of temporary use or occupancy it will, at its sole cost and expense
(subject to Lessor's contribution as set forth below), restore the Leased
Property as nearly as may be reasonably possible to the condition in which the
same was immediately prior to such Condemnation, unless (a) such period of
temporary use or occupancy extends beyond the expiration of the Term, in which
case Lessee shall not be required to make such restoration, or (b) the
condemnation award is inadequate to cover the costs of such restoration, in
which case the provisions of Section 15.4 applicable to inadequate awards shall
govern. If restoration is required in connection with such temporary taking
and the condemnation award (together with any other sums Lessor elects, in its
sole discretion, to advance) is adequate to pay the costs thereof, the
provisions of Section 15.4 shall govern the disbursement of the awards (and
other sums, if applicable) and the disposition of any awards in excess of
restoration costs. If restoration is required hereunder, Lessor shall
contribute to the cost of such restoration that portion of its entire Award
that is specifically allocated to such restoration in the judgment or order of
the court, if any, and Lessee shall fund the balance of such costs in advance
of restoration in a manner reasonably satisfactory to Lessor.
ARTICLE 16
16.1 Events of Default. If any one or more of the following events
(individually, an "Event of Default") occurs:
(a) if Lessee fails to make payment of Base Rent, estimated
monthly Percentage Rent or quarterly Percentage Rent, or any Additional
Charges, when the same becomes due and payable and, if not more than two
failures to make such payment have occurred under all the Percentage Leases
within the prior twelve (12) month period, such condition
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continues for a period of two (2) Business Days after receipt by Lessee of
Notice from Lessor thereof; or
(b) if Lessee fails to observe or perform any term, covenant
or condition of this Lease, other than the payment of Rent, and such failure is
not cured by Lessee within a period of 30 days after receipt by Lessee of
Notice thereof from Lessor, unless such failure cannot with due diligence be
cured within a period of thirty (30) days, in which case it shall not be deemed
an Event of Default if Lessee proceeds promptly and with due diligence to cure
the failure and diligently completes the curing thereof provided, however, in
no event shall such cure period extend beyond one hundred fifty (150) days
after such Notice; or
(c) if Lessee shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state bankruptcy
law or any similar federal or state law, or shall be adjudicated a bankrupt or
shall make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition
or answer proposing the adjudication of Lessee as a bankrupt or its
reorganization pursuant to any federal or state bankruptcy law or any similar
federal or state law shall be filed in any court and Lessee shall be
adjudicated a bankrupt and such adjudication shall not be vacated or set aside
or stayed within sixty (60) days after the entry of an order in respect
thereof, or if a receiver of Lessee or of the whole or substantially all of the
assets of Lessee shall be appointed in any proceeding brought by Lessee or if
any such receiver, trustee or liquidator shall be appointed in any proceeding
brought against Lessee and shall not be vacated or set aside or stayed within
sixty (60) days after such appointment; or
(d) if Lessee is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner, permits
the sale or divestiture of substantially all of its assets, except as permitted
under the Master Hotel Agreement; or
(e) except as permitted under the Master Hotel Agreement, if
the estate or interest of Lessee in the Leased Property or any part thereof is
(contrary to the terms of this Lease) voluntarily or involuntarily transferred,
assigned, conveyed, levied upon or attached in any proceeding (unless Lessee is
contesting such lien or attachment in good faith in accordance with Article 12
hereof); or
(f) if, except (A) as a result of Unavoidable Occurrence,
damage, destruction or a partial or complete Condemnation or otherwise as
contemplated by this Lease, or (B) as authorized by Lessor in connection with a
PIP or Contemplated Renovation, Lessee voluntarily ceases operations on the
Leased Property for a period in excess of thirty (30) days; or
(g) the Hotel is operated under a Franchise Agreement and if:
(A) an event of default has been declared by the Franchisor under the Franchise
Agreement with respect to the Hotel on the Leased Premises as a result of any
action or failure to act by Lessee or any Person with whom Lessee contracts for
management services at the Hotel, other than as a result of Lessor's default
hereunder or hereunder (including, without limitation, a failure to complete a
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Capital Improvement required by the Franchisor resulting from Lessor's failure
to fund the Capital Expenditure therefor pursuant to Section 9.1(b), or a
failure to pay Real Estate Taxes, Personal Property Taxes or Capital
Impositions) or Lessor's gross negligence or wilful misconduct, and (B) Lessee
has failed, within thirty (30) days thereafter (or any earlier deadline for
termination set forth in the Franchise Agreement), to cure such default by
either (1) curing the underlying default under the Franchise Agreement and
paying all costs and expenses associated therewith, or (2) obtaining at
Lessee's sole cost and expense a substitute franchise or license agreement
reasonably acceptable to Lessor with a substitute Franchisor reasonably
acceptable to Lessor, on terms and conditions reasonably acceptable to Lessor;
provided, however, that if Lessee is in good faith disputing an assertion of
default by the Franchisor or is proceeding diligently to cure such default, the
30-day period shall be extended for such period of time as Lessee continues to
dispute such default in good faith or diligently proceeds to cure such default,
so long as there is no period during which the Hotel is not operated pursuant
to a Franchise Agreement approved by Lessor (a Franchise Event of Default");
or
(h) if there occurs a Default by Lessee, as that term is
defined in the Master Agreement;
then, and in any such event, Lessor may exercise one or more
remedies available to it herein or at law or in equity, including but not
limited to its right to terminate this Lease by giving Lessee not less than ten
(10) days' Notice of such termination.
If a Proceeding is commenced with respect to any alleged default
under this Lease, the prevailing party in such Proceeding shall receive, in
addition to its damages incurred, such sum as the court or arbitrator shall
determine as its reasonable attorneys' fees, and all costs and expenses
incurred in connection therewith.
No Event of Default (other than a failure to make a payment of
Rent) shall be deemed to exist under clause (d) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee remedies such default or Event of Default
without further delay.
16.2 Surrender. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or
not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by self-help repossession, summary
proceedings, ejectment or otherwise, and may remove Lessee and all other
persons and any and all personal property from the Leased Property, subject to
rights of any hotel guests and to any requirement of law. Lessee hereby waives
any and all requirements of applicable laws for service of notice to re-enter
the Leased Property. Except as otherwise required by applicable law, Lessor
shall be under no obligation to, but may if it so chooses, relet the Leased
Property or otherwise mitigate Lessor's damages.
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16.3 Damages. Except as otherwise required by applicable law, neither
(a) the termination of this Lease, (b) the repossession of the Leased Property,
(c) the failure of Lessor to relet the Leased Property, nor (d) the reletting
of all or any portion thereof, shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting. In the event of any such termination, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination. In addition, upon the
occurrence of an Event of Default, Lessee shall forthwith pay to Lessor, at
Lessor's option, as and for agreed current damages for Lessee's default,
either:
(1) Without termination of Lessee's right to possession of the
Leased Property, each installment of Rent and other sums payable by Lessee to
Lessor under this Lease as the same becomes due and payable, which Rent and
other sums shall bear interest at the Overdue Rate, and Lessor may enforce, by
action or otherwise, any other term or covenant of this Lease; or
(2) the sum of:
(A) the unpaid Rent which had been earned at the
time of termination, repossession or reletting, and
(B) the worth at the time of termination,
repossession or reletting of the amount by which the
unpaid Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount
of rentals that Lessee proves Lessor reasonably can be
expected to receive after the time of termination,
repossession and reletting, and
(C) any other amount necessary to compensate
Lessor for all the detriment proximately caused by
Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things, would be
likely to result therefrom, including without limitation,
if such termination results in a default under or
termination of the Franchise Agreement, Lessee shall be
solely responsible for all damages and termination
payments under the terms of the Franchise Agreement,
application fees for a new franchise license, increased
royalty fees and other costs arising out of such
termination or out of the resulting need to apply for and
enter into a substitute franchise license agreement for
the Leased Property.
The worth at the time of termination, repossession or reletting of the amount
referred to in subparagraph (B) is computed by discounting such amount to then
present value at a rate equal to the Base Rate. Rent for the purposes of this
Section 16.3 shall be a sum equal to (i) the average of the annual amounts of
the Percentage Rent for the three (3) Fiscal Years immediately preceding the
Fiscal Year in which the termination, re-entry or repossession takes place, or
(ii) if three (3) Fiscal Years shall not have elapsed, the average of the
Percentage Rent during the
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preceding Fiscal Year(s) during which this Lease was in effect, or (iii) if one
Fiscal Year has not elapsed, the amount derived by annualizing the Percentage
Rent from the Transition Date.
16.4 Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article 16, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" of Lessee or otherwise bring any claim
against any Affiliate of Lessee not obligated hereunder or on a guaranty
hereof, other than to the extent funds shall have been inappropriately paid to
any Affiliate of Lessee following a default resulting in an Event of Default.
16.5 Application of Funds. Any payments received by Lessor under any
of the provisions of this Lease during the existence or continuance of any
Event of Default shall be applied to Lessee's obligations in the order that
Lessor may determine or as may be prescribed by the laws of the State.
ARTICLE 17
Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time
periods provided in Section 16.1, Lessor, without waiving or releasing any
obligation of Lessee, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for
such purpose and, subject to Section 16.4, take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of Lessee. All sums so paid by Lessor and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses, in each case to the extent permitted by law) so incurred,
together with a late charge thereon (to the extent permitted by law) at the
Overdue Rate from the date on which such sums or expenses are paid or incurred
by Lessor, shall be paid by Lessee to Lessor on demand. The obligations of
Lessee and rights of Lessor contained in this Article shall survive the
expiration or earlier termination of this Lease.
ARTICLE 18
18.1 Revenue Budgets. Not later than ninety (90) days prior to the
commencement of each Lease Year, Lessee shall prepare and submit to Lessor a
proposed Gross Revenue target for the following Lease Year. Not later than
sixty (60) days prior to the commencement of each Lease Year, Lessee shall
prepare and submit to Lessor for its review a proposed Gross Revenue budget for
the following Lease Year (the "Revenue Budget"), prepared in accordance with
the requirements of this Section 18.1. The Revenue Budget shall be prepared in
accordance with the
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Uniform System to the extent applicable and show by month and quarter and for
the Lease Year to date the degree of detail specified by the Uniform System for
monthly statements, and in accordance with the detail level of monthly
financial statements, the following:
(a) Lessee's good faith reasonable estimate of Gross Revenues,
Room Revenues (including room rates), Food Sales Revenues, Beverage Sales
Revenues and Other Revenues for the Hotel for the forthcoming Lease Year
itemized on schedules on a monthly and quarterly basis, as approved by Lessor
and Lessee, together with the assumptions, in narrative form, forming the basis
of such schedules and a cash flow projection;
(b) A narrative description of the program for advertising and
marketing the Hotel for the forthcoming Lease Year, including a narrative
description of the program for marketing and managing the Hotel for the
forthcoming Lease Year, including, among other things, details as to
significant accounts and customers, competitor performance (to the extent
available), existing, new and projected supply analysis, demand analysis,
estimated market penetration by market segment (to the extent available),
target accounts, marketing and advertising budgets, changes in personnel
policies, staffing levels, major events plans, franchise issues and other
matters affecting the performance and operation of the Hotel and containing a
detailed budget itemization of proposed expenditures by category and the
assumptions, in narrative form, forming the basis of such budget itemization;
and
(c) Lessee's good faith reasonable estimate of Percentage Rent
for each month of the Lease Year.
18.2 Operating Budgets. Not later than the commencement of each Lease
Year, Lessee shall have prepared and submitted to Lessor the operating budget
in substantially the form attached hereto as Exhibit "F" (the "Operating
Budget") for that Lease Year prepared in accordance with the Uniform System to
the extent applicable and that includes, without limitation, an amount equal to
not less than four and one-half percent (4.5%) of estimated Gross Revenues
allocated for estimated cost ("M&R Expense") of maintenance and repairs (other
than Capital Improvements) to the Hotel during such Lease Year. Unless
required by the terms of any Franchise Agreement, Lessee shall not make any
changes to the current methods or categories by which Gross Revenues are
budgeted or accounted for by Lessee or its Manager in its Revenue Budget for
calendar year 1998 without the prior written consent of Lessor, which consent
shall not be unreasonably withheld. In the event that the amount actually
incurred by Lessee for M&R Expense for the Hotel for any Lease Year (the "M&R
Shortfall Year") is less than four and one-half percent (4.5%) of Gross
Revenues for such Lease Year ("Minimum M&R"), notwithstanding the foregoing
provisions of this Section 18.2, Lessee shall be obligated (i) to prepare and
submit to Lessor for its approval the Operating Budget for the Lease Year
following the Shortfall Year (the "M&R Cure Year"), at the same time as, and
according to the procedure herein provided for, review and approval of the
Annual Budget for such subsequent Lease Year, and (ii) without limiting the
generality of the foregoing, to include in such Operating Budget Lessee's good
faith reasonable estimate of Gross Operating Expenses for the Hotel for such
M&R Cure Year, itemized on schedules on a monthly and quarterly basis, in
accordance with the
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Uniform System and as approved by Lessor and Lessee, including without
limitation an amount, allocated for M&R Expense equal to not less than the sum
of (A) four and one-half percent (4.5%) of estimated Gross Revenues, plus (B)
the amount by which Lessee failed to incur Hotel M&R Expense at least equal to
the Minimum M&R for the M&R Shortfall Year, together with the assumptions, in
narrative form, forming the basis of such schedules (unless Lessor agrees to a
lesser amount in the exercise of its reasonable discretion).
18.3 Capital Budget. Not later than sixty (60) days prior to the
commencement of each Lease Year, Lessee shall prepare and submit to Lessor a
capital budget (the "Capital Budget") prepared in accordance with this Section
18.3. The Capital Budget shall be prepared in accordance with the Uniform
System to the extent applicable and shall set forth proposed Capital
Expenditures for the ensuing Lease Year, including without limitation an
emergency fund in the amount of approximately fifteen percent (15%) of the
Capital Reserve for such Lease Year, together with an estimate of the amounts
to be spent for the repair, replacement, or refurbishment of Furniture,
Fixtures and Equipment and an estimate of the amounts to be spent on Capital
Improvements during the current and the next three (3) Lease Years, including a
project-by-project schedule of estimated start and completion dates. The
Capital Budget will include, without limitation, all Capital Expenditures that
Lessor is required to make hereunder, including expenditures for compliance
with any PIP or Contemplated Renovations.
18.4 Annual Budget Approval; Budget Disputes.
(a) Lessor shall have thirty (30) days after the date on which
it receives the Revenue Budget and the Capital Budget (collectively, the
"Annual Budget") to review, approve, disapprove or change the entries and
information appearing in the Annual Budget. If the parties are not able to
reach agreement on the Annual Budget for any Lease Year during Lessor's thirty
(30) day review period, the parties shall attempt during the subsequent fifteen
(15) day period to resolve any disputes, which attempt shall include, if
requested by either party, at least one (1) meeting of executive-level officers
of Lessor and Lessee. Lessor and Lessee shall act promptly, reasonably and in
good faith in seeking to resolve such disputes and in arriving at a mutually
acceptable Annual Budget on or before December 15th prior to the respective
Lease Year. In the event the parties are still not able to reach agreement on
the Annual Budget for any particular Lease Year after complying with the
foregoing requirements of this Section 18.4, the parties shall adopt such
portions of the Revenue Budget and the Capital Budget as they may have agreed
upon, and any matters not agreed upon shall be referred to arbitration as
provided for in Section 41.2 hereof. Pending the results of such arbitration
or the earlier agreement of the parties, (i) if the Revenue Budget has not been
agreed upon, for the first ninety (90) days of the new Lease Year the Leased
Property will be operated in a manner reflecting the prior Fiscal Year's actual
Gross Revenues, and thereafter the Leased Property will be operated for the
full Lease Year (including the first 90 days thereof) in a manner consistent
with the prior Lease Year's Operating Budget, in each case adjusted pursuant to
Section 3.1(d) hereof until a new Revenue Budget is adopted, and (ii) if the
Capital Budget has not been agreed upon, no Capital Expenditures shall be made
unless the same are set forth in a previously approved Capital Budget or are
specifically
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required by Lessor or are otherwise required to comply with this Lease, ground
or building leases, Mortgages or Legal Requirements or are Emergency Capital
Expenditures.
(b) The Capital Budget, once approved and as approved, shall
form the basis on which Capital Expenditures for the Leased Property shall be
made. Unless such Capital Expenditures are otherwise permitted in writing by
Lessor or are otherwise required to comply with Legal Requirements or are
Emergency Capital Expenditures, Lessee agrees to use reasonable best efforts
not to cause or permit any Capital Expenditures for a Lease Year in excess of
those set forth in the Capital Budget ("Excess Capital Expenditures"). If,
notwithstanding Lessee's reasonable best efforts, Excess Capital Expenditures
are contemplated, Lessee shall provide Lessor a written explanation of such
expenditures, which shall include (a) estimates of the Excess Capital
Expenditures, (b) the basis upon which such estimates were made, (c) the
reasons for such variances from the budgeted Capital Expenditures for such
items and (d) the Lessee's plan, if any, to reduce such Capital Expenditures in
the future or avoid Capital Expenditures on such items which are in excess of
the amounts budgeted for such items in the future. Lessee shall provide Lessor
any additional information regarding Excess Capital Expenditures, and from
time to time provide Lessor with status reports on the Excess Capital
Expenditures and the implementation of any plan to reduce or avoid such Excess
Capital Expenditures, each as reasonably requested by Lessor or its
representatives. Notwithstanding the foregoing, expenditures in excess of 105%
of the amount budgeted for an item in a Capital Budget may be made by Lessee
(i) for Real Estate Taxes, Personal Property Taxes, Capital Impositions and
insurance and utility expenses resulting from unanticipated rate changes, and
(ii) if such expenditures are Emergency Capital Expenditures. Lessee shall
promptly report to Lessor in writing any actual or anticipated deviation from
the Capital Budget resulting from the application of the preceding sentence.
In the event that Lessee fails to provide the Notices, information or reports
required under this Section 18.4, then Lessor, in addition to its other rights
and remedies under this Lease and under applicable law, shall have the right to
submit the matter to arbitration under Section 41.2 hereof.
(c) Lessee will, upon request from time to time, provide information
regarding the Hotel's status with respect to the Operating Budget, the Revenue
Budget and the Capital Budget and will make available its financial officers
for personal or telephone meetings to discuss such matters.
ARTICLE 19
19.1 REIT Requirements; Management Agreements; Affiliate Payments.
(a) Lessor has informed Lessee, and Lessee understands, that,
in order for FelCor to qualify as a REIT, the following requirements (the "REIT
Requirements") must be satisfied:
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(i) The average of the adjusted tax bases of Lessor's
personal property that is leased to Lessee under this Lease at the beginning
and end of a calendar year cannot exceed fifteen percent (15%) of the average
of the aggregate adjusted tax bases of all of Lessor's property that is leased
to Lessee under this Lease at the beginning and end of such calendar year (the
"Personal Property Limitation").
(ii) Lessee cannot sublet the property that is leased to
it by Lessor, or enter into any similar arrangement, on any basis such that the
rental or other amounts paid by the sublessee thereunder would be based, in
whole or in part, on either (i) the net income or profits derived by the
business activities of the sublessee or (ii) any other formula such that any
portion of the rent paid by Lessee to Lessor would fail to qualify as "rents
from real property" within the meaning of Section 856(d) of the Code.
(iii) Lessee cannot sublease the property leased to it by
Lessor to, or enter into any similar arrangement with, any Person in which
FelCor owns, directly or indirectly, a ten percent (10%) or greater interest,
within the meaning of Section 856(d)(2)(B) of the Code.
(iv) FelCor (or any Person that owns a ten percent (10%)
or greater interest in FelCor) cannot own, directly or indirectly, a ten
percent (10%) or greater interest in Lessee, within the meaning of Section
856(d)(2)(B) of the Code.
(v) No Person can own, directly or directly, capital
stock of FelCor that exceeds the limitations set forth in FelCor's Charter, as
amended and restated.
(b) Lessee agrees, and agrees to use reasonable efforts to
cause its Affiliates, to use their reasonable best efforts to permit the REIT
Requirements to be satisfied. Lessee agrees, and agrees to use reasonable
efforts to cause its Affiliates, to cooperate in good faith with FelCor and
Lessor to ensure that the REIT Requirements are satisfied, including but not
limited to, providing FelCor with information about the ownership of Lessee,
and its Affiliates to the extent that such information is reasonably available.
Lessee agrees, and agrees to use reasonable efforts to cause its Affiliates,
upon request by FelCor and, where appropriate, at FelCor's expense, to take
reasonable action necessary to ensure compliance with the REIT Requirements.
Immediately after becoming aware that the REIT Requirements are not, or will
not be, satisfied, Lessee shall notify, or use reasonable efforts to cause its
Affiliates to notify, FelCor of such noncompliance.
(c) If Lessor reasonably anticipates that the Personal
Property Limitation will be exceeded with respect to the Leased Property for
any Lease Year, Lessor shall notify Lessee, and Lessee shall purchase, either
from Lessor or a third party, items of personal property anticipated by
Lessor to be in excess of the Personal Property Limitation ("Excess Personal
Property Items") on such terms as may be negotiated in good faith between
Lessor and Lessee. If the Excess Personal Property Items are purchased from
Lessor, the purchase prices of such Excess Personal Property Items shall be
equal to the adjusted tax bases of such Excess Personal Property Items in the
hands of Lessor as of the closing of the purchase.
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19.2 Lessee Officer and Employee Limitation. Anything contained in
this Lease to the contrary notwithstanding, none of the officers or employees
of Lessee (or any Person who furnishes or renders services to the tenants of
the Leased Property, or manages or operates the Leased Property) shall be
officers or employees of FelCor or Lessor (or any Person who serves as an
advisor of FelCor). In addition, if a Person serves as both (a) a director of
Lessee (or any Person who furnishes or renders services to the tenants of the
Leased Property, or manages or operates the Leased Property) and (b) a director
and officer (or employee) of FelCor (or any Person who serves as an advisor of
FelCor) that Person shall not receive any compensation for serving as a
director of Lessee (or any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Leased Property).
Finally, if a Person serves as both (a) a director and officer of Lessee (or
any Person who furnishes or renders services to the tenants of the Leased
Property, or manages or operates the Leased Property), and (b) a director of
FelCor (or any Person who serves as an advisor to FelCor), that Person shall
not receive any compensation for serving as a director of FelCor (or any Person
who serves as an advisor to FelCor).
19.3 Management Agreement.
(a) Lessee agrees to obtain Lessor's prior consent (which
shall not be unreasonably withheld) to the terms of any management or agency
agreement relating to the management or operation of the Hotel (a "Management
Agreement"), or any material amendment or modification thereto, under which the
payment of management fees is not expressly subordinate to the payment of Rent
hereunder on terms reasonably acceptable to Lessor (provided, however,
management fees and other amounts may be paid to the Manager so long as no
Event of Default has occurred hereunder). Lessee shall, upon request, provide
Lessor with a copy of any proposed Management Agreement. Lessee also shall
provide Lessor with copies of any and all amendments or modifications of a
Management Agreement which are entered into from time to time. Without
limiting the generality of the foregoing, any Management Agreement shall
provide that (i) upon termination of this Lease or termination of Lessee's
right to possession of the Leased Property for any reason other than a
termination by Lessor pursuant to Article 38, the Management Agreement may be
terminated by Lessor without liability for any payment due or to become due to
the Hotel Manager, and (ii) except as provided in the Master Hotel Agreement,
any management fees payable to any Affiliate of Lessee shall be expressly
subordinated to the payments of Rent to Lessor hereunder (provided, however,
management fees and other amounts may be paid to the Manager so long as no
Event of Default has occured hereunder), and no fees or other amounts payable
by Lessee to the Manager shall excuse Lessee from its obligations to pay Rent
and other amounts payable by Lessee to Lessor hereunder. Lessor shall have the
right to approve in advance any Manager who is not an Affiliate of Lessee.
(b) In the event that Lessor in good faith has concerns
regarding the character, conduct or performance of the General Manager of the
Hotel, Lessee and Manager will consult with Lessor to discuss Lessor's concerns
and attempt to address any deficiencies in character, conduct or performance.
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19.4 Payments to Affiliates of Lessee. Notwithstanding anything to
the contrary contained in this Lease, Lessee shall make no payments to
Affiliates as Gross Operating Expenses unless expressly set forth in the
Operating Budget or an approved Capital Budget, allowed by the Master Hotel
Agreement or otherwise expressly agreed to in writing by Lessor, in either
case, after full written disclosure (including information regarding
competitive pricing) by Lessee to Lessor of the affiliation and any other
related information reasonably requested by Lessor.
ARTICLE 20
20.1 Holding Over. If Lessee for any reason remains in possession of
the Leased Property after the expiration or earlier termination of the Term,
such possession shall be as a tenant at sufferance during which time Lessee
shall pay as rental each month one hundred fifty percent of the aggregate of
(a) one-twelfth (1/12) of the aggregate Base Rent and Percentage Rent payable
with respect to the last full Fiscal Year of the Term, (b) all Additional
Charges accruing during the applicable month and (c) all other sums, if any,
payable by Lessee under this Lease with respect to the Leased Property. During
such period, Lessee shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder
other than the right, to the extent given by law to tenancies at sufferance, to
continue its occupancy and use of the Leased Property. Nothing contained
herein shall constitute the consent, express or implied, of Lessor to the
holding over of Lessee after the expiration or earlier termination of this
Lease.
ARTICLE 21
21.1 Lessee May Grant Leasehold Mortgages. [THIS SECTION IS SUBJECT
TO FURTHER DISCUSSION AND REVISION]. Following written Notice to Lessor but
without the consent of Lessor, Lessee may, subject to the terms and conditions
set forth herein, from time to time, directly or indirectly, create or
otherwise cause to exist any mortgage or any lien, encumbrance or title
retention agreement upon Lessee's leasehold interest in this Lease, or any
portion thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing.
Lessor shall deliver to any lender who gives Lessor written notice of
its status as a lender to Lessee ("Lessee's Lender"), at such Lessee's Lender's
address stated in such Lessee's lender's written notice or at such other
address as such Lessee's lender may designate by later written notice to
Lessor, a duplicate copy of any and all Notices regarding any default which
Lessor may from time to time give or serve upon Lessee pursuant to the
provisions of this Lease. Copies of such Notices given by Lessor to Lessee
shall be delivered to Lessee's Lender simultaneously with delivery to Lessee;
provided, however, that, notwithstanding the foregoing, Lessor's failure to
provide copies of such Notices to Lessee's Lender shall not invalidate
otherwise sufficient Notices to Lessee sent hereunder. [No such Notice by
Lessor to Lessee hereunder shall be
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deemed to have been given unless and until a copy thereof also has been sent to
Lessee's Lender.]
Lessor shall, upon the request of Lessee or Lessee's Lender, (i) provide
Lessee's Lender with copies of all ground leases, Mortgages and similar
agreements to which Lessor is a party reasonably requested in connection with
any existing or proposed financing of Lessee's leasehold interest, and (ii)
execute such estoppel agreements and confirmations as such Lessee's Lender may
reasonably request in connection with any such financing, provided that no such
estoppel agreement or collateral assignment shall in any way affect the Term or
affect adversely in any respect any rights of Lessor under this Lease. No act
or failure to act on the part of Lessee which would entitle Lessor under the
terms of this Lease, or by law, to terminate this Lease or be relieved of any
of Lessor's obligations hereunder shall result in a release or termination of
such obligations of Lessor or a termination of this Lease unless: (i) Lessor
shall have first given written notice of Lessee's act or failure to act to
Lessee's Lender specifying the act or failure to act on the part of Lessee
which would give basis to Lessor's rights; and (ii) Lessee's Lender shall have
failed or refused to correct or cure the condition complained of within a
reasonable time thereafter, in no event more than thirty (30) days, or such
longer period of time as is provided to Lessee under this Lease.
[If Lessee's Lender is prohibited by any process or injunction issued by
any court or by reason of any action by any court having jurisdiction or any
bankruptcy, debtor rehabilitation or insolvency proceedings involving Lessee
from commencing or prosecuting foreclosure or other appropriate proceedings in
the nature thereof, the times for commencing or prosecuting such foreclosure or
other proceedings shall be extended for the period of such prohibition, [but in
no event shall such cure period be extended for longer than a total one hundred
eighty (180) days,] and the Lease shall continue to be in full force and effect
if Lessor is continuing to receive all Rent payable hereunder (despite such
prohibition) and Lessee is not otherwise in default of its material obligations
hereunder. In the event of a foreclosure or deed in lieu of foreclosure of the
leasehold interest of Lessee hereunder, Lessor will (i) negotiate in good faith
with the purchaser at such sale ("Purchaser") with respect to Purchaser
becoming the Lessee hereunder and (ii) in the event that Lessor grants its
consent to such transfer, cooperate in all reasonable respects with any
transfer of the leasehold interest to a Purchaser that succeeds to the interest
of Lessee in the leasehold interest (including, without limitation, in
connection with the transfer of any franchise, license, lease, permit,
contract, agreement, or similar item to such lender or such lender's designee
necessary or appropriate to operate the Leased Property). Lessor shall not
unreasonably withhold, delay or condition its consent to a transfer of this
Lease to a Purchaser, but Lessor may (without limiting the generality of the
foregoing) reasonably withhold its consent in the event that (i) Franchisor
refuses to acknowledge Purchaser as the permitted transferee of the Franchise
Agreement and refuses to enter into a new Franchise Agreement with Purchaser,
or (ii) Purchaser fails to satisfy the REIT Requirements to the reasonable
satisfaction of FelCor's REIT tax counsel, or (iii) Purchaser does not have, or
is not affiliated with an Affiliate that has, a good reputation and significant
experience in the hospitality industry in the United States, or (iv) Purchaser
is otherwise unacceptable to FelCor, as evidenced by resolution of the
Executive
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Committee or Investment Committee of its Board of Directors, [AND/OR OTHER
LIMITATIONS ON PERMITTED FORECLOSURE PURCHASERS?].]
Lessor and Lessee shall cooperate in (i) including in this Lease by
suitable amendment from time to time any provision which may be reasonably
requested by any proposed Lessee's Lender, or that may otherwise be reasonably
necessary, to implement the provisions of this Section and (ii) entering into
any further agreement with or at the request of Lessee's Lender which may be
reasonably requested or required by Lessee's Lender in furtherance or
confirmation of the provisions of this Section; provided, however, that any
such amendment or agreement shall not in any way affect the Term nor affect
adversely in any respect any rights of Lessor or Lessee under this Lease.
ARTICLE 22
22.1 Indemnification.
(a) Notwithstanding the existence of any insurance, and
without regard to the policy limits of any such insurance or self-insurance,
but subject to Section 16.4 and Article 8, Lessee will protect, indemnify, hold
harmless and defend Lessor Indemnified Parties from and against all
liabilities, losses, obligations, claims, damages, penalties, causes of action,
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses), to the extent (but excluding those for which Lessor agrees to
indemnify Lessee under Section 22.1(b) below) resulting from, imposed upon or
incurred by or asserted against Lessor Indemnified Parties by reason of: (a)
any accident, injury to or death of persons or loss of or damage to property
occurring on or about the Hotel, the Leased Property or adjoining roadways,
curbs or sidewalks during the Term, including without limitation any claims
under liquor liability, "dram shop" or similar laws, (b) any use, misuse,
non-use, condition, management, maintenance or repair during the Term by Lessee
or any of its agents, employees or invitees of the Hotel, the Leased Property
or Lessee's Personal Property or any Proceeding or claim by governmental
entities or other third parties to which a Lessor Indemnified Party is made a
party or participant related to such use, misuse, non-use, condition,
management, maintenance, or repair thereof by Lessee or any of its agents,
employees, independent contractors or invitees (including without limitation
matters arising out of any negligent acts or failures to act or wilful
misconduct of Lessee, Manager or subtenants of Lessee or Manager, and their
respective employees, agents or independent contractors), including any failure
of Lessee or any of its agents, employees, independent contractors or invitees
to perform any obligations under this Lease or imposed by applicable law (other
than requirements with respect to Capital Improvements for which Lessor is
responsible under this Lease and other obligations of Lessor hereunder), (c)
any Impositions that are the obligations of Lessee pursuant to the applicable
provisions of this Lease, (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, and (e) the non-performance during
the Term of any of the terms and provisions of any and all existing and future
subleases of the Leased Property to be performed by the landlord thereunder.
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(b) Lessor shall indemnify, save harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), to the extent (but
excluding those for which Lessee agrees to indemnify Lessor under Section
22.1(a) above) resulting from, imposed upon or incurred by or asserted against
Lessee Indemnified Parties as a result of (a) the gross negligence or willful
misconduct of Lessor arising in connection with this Lease, (b) any failure on
the part of Lessor to perform or comply with any of the terms of this Lease,
(c) any condition existing at the Leased Property on the Transition Date
(unless such condition was not remedied or was aggravated by the gross
negligence or wilful misconduct of Lessee, Manager or subtenants of Lessee or
Manager, and their respective employees, agents or independent contractors, or
(d) the operation of the Hotel (other than by Lessee or its Manager) subsequent
to the expiration or earlier termination of this Lease (unless otherwise
provided in Article 16).
(c) Any amounts that become payable by an Indemnifying Party
under this Section shall be paid within ten (10) days after liability therefor
on the part of the Indemnifying Party is determined by litigation or otherwise,
and if not timely paid, shall bear a late charge (to the extent permitted by
law) at the Overdue Rate from the date of such determination to the date of
payment. Nothing herein shall be construed as indemnifying a Lessor
Indemnified Party or Lessee Indemnified Party against its own grossly negligent
acts or omissions or willful misconduct.
Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.
22.2 Indemnification Procedure. If any Proceeding is brought against
any Indemnified Party in respect of any claim or liability with respect to
which such Indemnified Party may claim indemnification under this Lease, the
Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnified Party and approved by the Indemnifying Party,
which approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable
policy of insurance. Each Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel will be at the sole expense
of such Indemnified Party unless such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding made without its consent, which shall not be unreasonably withheld,
but if settled with the consent of the Indemnifying Party, or if settled
without its consent (if its consent shall be unreasonably withheld), or if
there be a final, nonappealable judgment for an adversary party in any such
Proceeding, the Indemnifying Party shall indemnify and hold harmless the
Indemnified Parties from and against any liabilities incurred by such
Indemnified Parties by reason of such settlement or judgement.
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ARTICLE 23
23.1 Subletting and Assignment. Except as otherwise expressly
provided herein, or in the Master Hotel Agreement Lessee shall not sell,
assign, sublet, transfer, convey or hypothecate, whether by operation of law or
otherwise, its leasehold interest in the Leased Property, or any interest
therein, to any other Person without the prior written consent of Lessor not to
be unreasonably withheld. Subject to the provisions of Article 19 and Section
23.2 and any other express conditions or limitations set forth herein, Lessee
may (a) on the terms and conditions set forth below, assign this Lease or
sublet all or any part of the Leased Property to a Subsidiary of BHR, or (b)
unless a Major Sublease is involved, sublet any retail or Restaurant portion of
the Improvements in the normal course of the Primary Intended Use; provided
that any subletting shall not individually as to any one such subletting, or in
the aggregate be executed by Lessee for the sole or primary purpose of
diminishing in any material respect the actual or potential Percentage Rent
payable under this Lease. Lessor shall have the right to approve in advance
any Major Sublease. In the case of a subletting, the sublessee shall comply
with the provisions of Section 23.2, and in the case of an assignment, the
assignee shall assume in writing and agree to keep and perform all of the terms
of this Lease on the part of Lessee to be kept and performed and shall be, and
become, jointly and severally liable with Lessee for the performance thereof.
Notwithstanding the above, Lessee may assign this Lease to an Affiliate
without the consent of Lessor; provided that any such assignee assumes in
writing and agrees to keep and perform all of the terms of this Lease on the
part of Lessee to be kept and performed and shall be and become jointly and
severally liable with Lessee for the performance thereof. In case of either an
assignment or subletting made during the Term, Lessee shall remain primarily
liable, as principal rather than as surety, for the prompt payment of the Rent
and for the performance and observance of all of the covenants and conditions
to be performed by Lessee hereunder unless Lessor otherwise consents in writing
(which consent will not be unreasonably withheld but may be conditioned upon
the assignee's or transferee's satisfaction of criteria similar to those
described in Section 21.1 hereof. An original counterpart of each such
sublease or assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory
to Lessor, shall be delivered promptly to Lessor.
23.2 Subordination and Attornment. Lessee shall insert in each
sublease executed during the Term that is permitted under Section 23.1
provisions to the effect that (a) such sublease is subject and subordinate to
all of the terms and provisions of this Lease and to the rights of Lessor
hereunder if Lessor executes a non-disturbance agreement with respect to such
sublease (otherwise, Lessee only need use reasonable efforts to obtain such
subordination agreement), (b) if this Lease terminates before the expiration of
such sublease, the sublessee thereunder will, at Lessor's option, attorn to
Lessor and waive any right the sublessee may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this
Lease, and (c) if the sublessee receives a Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
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assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
ARTICLE 24
24.1 Officer's Certificates; Estoppel Certificates; Financial and
Portfolio Information.
(a) At any time and from time to time upon not less than ten
(10) days Notice by Lessor, Lessee will furnish to Lessor or any Person
designated by Lessor an Officer's Certificate certifying that this Lease is
unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and setting forth the modifications), the date to which
the Rent has been paid, whether to the knowledge of Lessee there is any
existing default or Event of Default hereunder by Lessor or Lessee, and such
other information as may be reasonably requested by Lessor. Any such
certificate furnished pursuant to this Section may be relied upon by Lessor,
any underwriter, lender, investor and prospective purchaser of the Leased
Property.
(b) At any time and from time to time upon not less than ten
(10) days notice by Lessee, Lessor will furnish to Lessee or to any Person
designated by Lessee an estoppel certificate certifying that this Lease is
unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and setting forth the modifications), the date to which
Rent has been paid, whether to the knowledge of Lessor there is any existing
default or Event of Default on Lessee's part hereunder, and such other
information as may be reasonably requested by Lessee. Any such certificate
furnished pursuant to this Section may be relied upon by Lessee, any
underwriter, lender, investor and prospective purchaser of the assets of
Lessee.
(c) Throughout the Term, Lessee will furnish to Lessor all
financial statements and financial information, and access to Lessee's books
and records as, when and to the extent required pursuant to Section 7 of the
Master Agreement. Lessee agrees to notify Lessor, from time to time at the
request of Lessor, of the location of any hotel or motel property Lessee or any
Subsidiary thereof owns, leases, operates, manages or has an interest in.
(d) Lessee will furnish, at Lessee's cost and expense, the
following statements and operating information to Lessor, each in a form
reasonably satisfactory to Lessor:
(i) to the extent available electronically to Lessee,
each Monday, a statement showing Gross Revenues by category, occupancy and
revenue per available room for (a) the Hotel and (b) the Hotel and any Other
Hotels, for both (i) each day in the seven (7) day period ended the immediately
preceding Friday, (ii) such seven (7) day period in the aggregate, and (iii)
Lease Year to date;
(ii) on or before the 30th day of each calendar month,
average daily rate, occupancy and RevPAR for the Hotel for such preceding month
(including a comparison to the Operating Budget);
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(iii) on or before the 30th day of each calendar quarter,
detailed profit and loss and cash flow statements showing the results of
operation of the Hotel for such preceding quarter and the Lease Year to date
(including a comparison to the Operating Budget);
(iv) upon reasonably request, a written critique by the
general manager of the Hotel's revenue performance by category, setting forth
in narrative form any variations during the prededing month from the current
Annual Budget amount for such month (and the prior year's Annual Budget amount
for the same month) and including a preview of the Hotel's financial operations
during the current month;
(v) on or before the 15th day of each April, July and
October during the Term, an updated estimate for each calendar quarter
remaining in the Lease Year of the information required by Sections 18.1(a) and
18.3 hereof;
(vi) monthly STR Reports within five (5) days of
Lessee's receipt thereof;
(vii) within fifteen (15) days of Lessee's receipt
thereof, any inspection reports received from the Franchisor under any
Franchise Agreement;
(viii) with reasonable promptness, such financial and
other information (subject to a confidentiality agreement if required because
of the confidential or proprietary nature of the information) respecting the
financial condition and affairs of BHR and Lessee (A) as Lessor, FelCor or
FSLP may reasonably require or deem desirable in its discretion to file with or
provide to the SEC or any other governmental agency or any other Person, all in
the form, and either audited or unaudited, as Lessor may request in Lessor's
reasonable discretion, and (B) as may be reasonably necessary to confirm
compliance by Lessee and its Affiliates with the requirements of this Lease;
and
(ix) such other information related to this Lease or the
Hotel as Lessor may reasonably request and that Lessee can provide without
unreasonable expense.
(e) If FelCor, FSLP or Lessor proposes to include in any
submission or filing with its lender, stock exchange or the SEC, Consolidated
Financials of Lessee delivered or required to be delivered hereunder and the
consent of Lessee's auditor is required for such inclusion, Lessee shall use
commercially reasonable efforts to cause its auditor to deliver promptly to
Lessor the auditor's consent, in the form required, to the inclusion in the
submission or filing of the Consolidated Financials (including the report of
the auditor, if the Consolidated Financials to be included are audited).
Lessee shall reasonably cooperate with Lessor regarding Lessee's auditor's
compliance with such requests with the purpose of minimizing costs and delays.
Lessee shall reasonably cooperate with all requests made by its auditor,
Lessor, FelCor, FSLP or the SEC to promptly provide to the auditor, Lessor,
FelCor, FSLP or the SEC such information or documents, including consents and
representation letters, as may be reasonably necessary or desirable in
connection with the preparation, delivery, audit or inclusion in SEC
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filings, submissions or other public documents, of information, including
financial information, related to the Leased Property, the operation and
financial results of the Leased Property, and the financial results and
condition of the Lessee. Without limiting the foregoing, the information shall
be sufficient to permit the preparation of a Management's Discussion and
Analysis of Results of Operations and Financial Condition with respect to the
Lessee as may be required to be included in reports and documents filed by
FelCor or FSLP with the SEC. Lessee shall not be obligated to incur material,
additional, unreimbursed expense to prepare any reports or information not
specifically provided for herein that Lessor, FelCor or FSLP may be required or
elect to file with the SEC, and such material additional third-party costs
shall be paid or reimbursed by Lessor.
(f) If BHR or Lessee proposes to include in any submission or
filing with its lender, stock exchange or the SEC, Consolidated Financials of
Lessor delivered or required to be delivered hereunder and the consent of
Lessor's auditor is required for such inclusion, Lessor shall use commercially
reasonable efforts to cause its auditor to deliver promptly to Lessee the
auditor's consent, in the form required, to the inclusion in the submission or
filing of the Consolidated Financials (including the report of the auditor, if
the Consolidated Financials to be included are audited). Lessor shall
reasonably cooperate with Lessee regarding Lessor's auditor's compliance with
such requests with the purpose of minimizing costs and delays. Lessor shall
reasonably cooperate with all requests made by its auditor, Lessee, BHR or the
SEC to promptly provide to the auditor, BHR or the SEC such information or
documents, including consents and representation letters, as may be reasonably
necessary or desirable in connection with the preparation, delivery, audit or
inclusion in SEC filings, submissions or other public documents, of
information, including financial information, related to the Leased Property,
the operation and financial results of the Leased Property, and the financial
results and condition of the Lessor. Without limiting the foregoing, the
information shall be sufficient to permit the preparation of a Management's
Discussion and Analysis of Results of Operations and Financial Condition with
respect to the Lessor as may be required to be included in reports and
documents filed by BHR with the SEC. Lessor shall not be obligated to incur
material, additional, unreimbursed expense to prepare any reports or
information not specifically provided for herein that Lessee or BHR may be
required or elect to file with the SEC, and such material additional
third-party costs shall be paid or reimbursed by Lessee.
(g) Confidentiality. Lessor and Lessee agree to, and agrees
to use reasonable efforts to cause their Affiliates to, keep any non-public or
proprietary information delivered or made available to any other party or their
Affiliates pursuant to this Article 24 or otherwise in connection with the
Lease or the Hotel confidential from any Person other than (1) Persons employed
by or retained by Lessor, Lessee or their Affiliates, (2) , subject to an
appropriate confidentiality agreement, current or prospective underwriters,
lenders, investors and, prospective investors or purchasers of the Hotel
(provided, however, that any such non-public or proprietary information
delivered or made available to any such prospective investor or purchaser of
the Hotel may only consist of operational and performance information about the
Hotel and the Lease unless BHR and Lessee otherwise consent, not to be
unreasonably withheld) and (3) other Persons who are expressly authorized in
this Lease to receive such information (in each
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case, each of whom shall be advised of, and shall agree to maintain, the
confidentiality of such information); provided, however, nothing herein shall
prevent any such Person from disclosing such information after prior notice to
Lessee or Lessor, as the case may be, as and to the extent required or
requested by applicable law, any Government or pursuant to legal process or in
connection with the exercise of any remedy under this Lease.
ARTICLE 25
25.1 Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized agents and representatives as frequently as reasonably requested by
Lessor to inspect the Leased Property and Lessee's accounts and records
pertaining thereto and make copies thereof, during usual business hours upon
reasonable advance notice, subject only to the terms of this Agreement.
ARTICLE 26
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE 27
27.1 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
ARTICLE 28
28.1 Acceptance of Surrender. No surrender to Lessor of this Lease or
of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Lessor and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
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ARTICLE 29
29.1 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE 30
30.1 Conveyance by Lessor. If Lessor or any successor owner of the
Leased Property conveys the Leased Property to a Person other than an Affiliate
of Lessor in accordance with the terms hereof other than as security for a
debt, and the grantee or transferee of the Leased Property expressly assumes
all obligations of Lessor hereunder arising or accruing from and after the date
of such conveyance or transfer, Lessor or such successor owner, as the case may
be, shall thereupon be released from all future liabilities and obligations of
Lessor under this Lease arising or accruing from and after the date of such
conveyance or other transfer as to the Leased Property and all such future
liabilities and obligations shall thereupon be binding upon the new owner.
ARTICLE 31
31.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same
becomes due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if
any, Lessee shall peaceably and quietly have, hold and enjoy the Leased
Property for the Term hereof, free of any claim or other action by Lessor or
anyone claiming by, through or under Lessor, but subject to all liens and
encumbrances subject to which the Leased Property was conveyed to Lessor or
hereafter consented to by Lessee or provided for herein prior to the
foreclosure thereof. Notwithstanding the foregoing, Lessee shall have the
right by separate and independent action to pursue any claim it may have
against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Article.
ARTICLE 32
32.1 Notices. All notices, demands, requests, consents approvals and
other communications ("Notice" or "Notices") hereunder shall be in writing and
personally served, mailed (by registered or certified mail, return receipt
requested and postage prepaid), sent by FedEx or other nationally recognized
overnight courier, or sent by facsimile, addressed to Lessor at 545 E. John
Carpenter Frwy, Suite 1300, Irving, Texas, Facsimile No. (972) 444-4949,
Attention: President (with a copy to Attention: General Counsel), and
addressed to Lessee at 14295 Midway Road, Dallas, Texas 75244, Attention:
President (with a copy to Attention: General Counsel), Facsimile No. (972) 391-
3497, or to such other address or addresses as either party may hereafter
designate. Personally delivered Notice (including any confirmed facsimile
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transmission or delivery by nationally recognized overnight courier) shall be
effective upon receipt at the specified address. Notice given by mail shall be
complete at the time of deposit in the U.S. Mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response
within any prescribed period or on a date certain after the service of such
Notice given by mail shall be extended five (5) days.
ARTICLE 33
33.1 Appraisers. If it becomes necessary to determine the fair market
value of the leasehold estate hereunder (or the fair market value of any other
property) for any purpose of this Lease, the party required or permitted to
give Notice of such required determination shall include in the Notice the name
of a person selected to act as appraiser on its behalf. Within ten (10) days
after Notice, Lessor (or Lessee, as the case may be) shall by Notice to Lessee
(or Lessor, as the case may be) appoint a second person as appraiser on its
behalf. The appraisers thus appointed, each of whom must be a member of the
American Institute of Real Estate Appraisers (or any successor organization
thereto) with at least five (5) years experience in the State appraising
property similar to the Leased Property, shall, within forty-five (45) days
after the date of the Notice appointing the first appraiser, proceed to
determine the fair market value of the leasehold estate hereunder (or the fair
market value of any other property, as the case may be) as of the relevant date
(giving effect to the impact, if any, of inflation from the date of their
decision to the relevant date); provided, however, that if only one appraiser
shall have been so appointed, then the determination of such appraiser shall be
final and binding upon the parties. If two (2) appraisers are appointed and if
the difference between the amounts so determined does not exceed five percent
(5%) of the lesser of such amounts, then the fair market value of the leasehold
estate hereunder (or fair market value of any other property, as the case may
be) shall be an amount equal to fifty percent (50%) of the sum of the amounts
so determined. If the difference between the amounts so determined exceeds
five percent (5%) of the lesser of such amounts, then such two (2) appraisers
shall have twenty (20) days to appoint a third appraiser. If no such third
appraiser shall have been appointed within such twenty (20) days or within
ninety (90) days of the original request for a determination of fair market
value, whichever is earlier, either Lessor or Lessee may apply to any court
having jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the fair market value of the leasehold estate hereunder (or the fair
market value of any other property) within forty-five (45) days after
appointment of such appraiser. The determination of the appraiser which
differs most in the terms of dollar amount from the determinations of the other
two (2) appraisers shall be excluded, and fifty percent (50%) of the sum of the
remaining two (2) determinations shall be final and binding upon Lessor and
Lessee as the fair market value of the leasehold estate hereunder (or fair
market value of any other property, as the case may be). This provision for
determining by appraisal shall be specifically enforceable to the extent such
remedy is available under applicable law, and any determination hereunder shall
be final and binding upon the parties except as otherwise provided by
applicable law. Lessor and Lessee shall each pay the fees and expenses of the
appraiser appointed by it and
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each shall pay one-half ( 1/2) of the fees and expenses of the third appraiser
and one-half ( 1/2) of all other costs and expenses incurred in connection with
each appraisal.
ARTICLE 34
34.1 Lessor May Grant Liens.
(a) Without the consent of Lessee, Lessor may, subject to the
terms and conditions set forth below in this Section 34.1, from time to time,
directly or indirectly, create or otherwise cause to exist any Mortgage or any
lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Upon the request of
Lessor or the holder of the Encumbrance (the "Holder") , Lessee shall
subordinate this Lease to the lien of a new Mortgage on the Leased Property, on
the condition that Lessor has obtained from the proposed mortgagee a in form
and substance reasonably satisfactory to Lessee and Holder (provided, however,
if the loan to value ratio of the fairly allocated indebtedness secured by the
Mortgage is 60% or less, then Lessor need only use reasonable good faith
efforts to obtain such agreement). Any such subordination, non-disturbance and
attornment agreement shall provide, among other things, that, provided no
default has occurred and is then continuing under this Lease, Lessee (i) shall
be entitled to receive all the Gross Revenues of the Hotel subject to the terms
of this Lease, and (ii) shall not be disturbed in its possession of the Leased
Property following a transfer by foreclosure or deed in lieu of foreclosure
under such Mortgage if Lessee attorns to the transferee by foreclosure or deed
in lieu of foreclosure.
(b) Lessee shall, upon the request of Lessor or any existing
or future Holder, (i) provide Holder with copies of all licenses, permits,
occupancy agreements, operating agreements, leases, contracts and similar
agreements reasonably requested in connection with any existing or proposed
financing of the Leased Property, and (ii) execute, or cause the Manager or any
relevant Affiliate to execute, such estoppel agreements with respect to the
Hotel's liquor license and any of the other aforementioned agreements as Holder
may reasonably request in connection with any such financing, provided that no
such estoppel agreement shall in any way affect the Term or affect adversely in
any material respect any rights of Lessee under this Lease.
(c) No act or failure to act on the part of Lessor which would
entitle Lessee under the terms of this Lease, or by law, to be relieved of any
of Lessee's obligations hereunder (including, without limitation, its
obligation to pay Rent) or to terminate this Lease, shall result in a release
or termination of such obligations of Lessee or a termination of this Lease
unless: (i) Lessee shall have first given written notice of Lessor's act or
failure to act to the Holder, specifying the act or failure to act on the part
of Lessor which would give basis to Lessee's rights; and (ii) the Holder, after
receipt of such notice, shall have failed or refused to correct or cure the
condition complained of within a reasonable time thereafter (in no event less
than thirty (30) days nor more than sixty (60) days), which shall include a
reasonable time for such Holder to obtain possession of the Leased Property, if
possession is reasonably necessary for the Holder to correct
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or cure the condition, or to foreclose such Mortgage, and if the Holder
notifies the Lessee of its intention to take possession of the Leased Property
or to foreclose such Mortgage, commences foreclosure actions within said sixty
(60) days, unconditionally commits to correct or cure such condition and
diligently pursues such cure to completion. If such Holder is prohibited by
any process or injunction issued by any court or by reason of any action by any
court having jurisdiction or any bankruptcy, debtor rehabilitation or
insolvency proceedings involving Lessor from commencing or prosecuting
foreclosure or other appropriate proceedings in the nature thereof, the times
for commencing or prosecuting such foreclosure or other proceedings shall be
extended for the period of such prohibition, provided, however, that the Lease
shall continue to be in full force and effect if Lessee is not constructively
evicted from the Leased Property and is not otherwise prevented from operating
the Hotel as a result thereof.
(d) Lessee shall deliver to any Holder who gives Lessee
written notice of its status as a Holder, at such Holder's address stated in
the Holder's written notice or at such other address as the Holder may
designate by later written notice to Lessee, a duplicate copy of any and all
Notices regarding any default which Lessee may from time to time give or serve
upon Lessor pursuant to the provisions of this Lease. Copies of such Notices
given by Lessee to Lessor shall be delivered to such Holder simultaneously with
delivery to Lessor. No such Notice by Lessee to Lessor hereunder shall be
deemed to have been given unless and until a copy thereof has been mailed to
such Holder.
(e) Lessee shall cooperate in all reasonable respects, and as
generally described in Section 35.2 of this Lease, with any transfer of the
Leased Property to a Holder that succeeds to the interest of Lessor in the
Leased Property (including, without limitation, in connection with the transfer
of any franchise, license, lease, permit, contract, agreement, or similar item
to such Holder or such Holder's designee necessary or appropriate to operate
the Leased Property). Lessor and Lessee shall cooperate in (i) including in
this Lease by suitable amendment from time to time any provision which may be
requested by any proposed Holder, or may otherwise be reasonably necessary, to
implement the provisions of this Article and (ii) entering into any further
agreement with or at the request of any Holder which may be reasonably
requested or required by such Holder in furtherance or confirmation of the
provisions of this Article; provided, however, that any such amendment or
agreement shall not in any way affect the Term nor affect adversely in any
material respect any rights of Lessor or Lessee under this Lease.
34.2 Lessee's Right to Cure. Subject to the provisions of Section
34.3, if Lessor breaches any covenant to be performed by it under this Lease or
any Mortgage, Lessee, after Notice to and demand upon Lessor, without waiving
or releasing any obligation hereunder, and in addition to all other remedies
available to Lessee, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at the
expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to
Lessee on demand or, following entry of a final, nonappealable judgment against
Lessor for
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such sums, may be offset by Lessee against the Base Rent payments next accruing
or coming due. The rights of Lessee hereunder to cure and to secure payment
from Lessor in accordance with this Section 34.2 shall survive the termination
of this Lease with respect to the Leased Property.
34.3 Breach by Lessor.
(a) It shall be a breach of this Lease if Lessor fails to
observe or perform any term, covenant or condition of this Lease on its part to
be performed and such failure continues for a period of thirty (30) days after
Notice thereof from Lessee, unless such failure cannot with due diligence be
cured within a period of thirty (30) days, in which case such failure shall not
be deemed a breach if Lessor proceeds within such 30-day period, with due
diligence, to cure the failure and thereafter diligently completes the curing
thereof within one hundred eighty (180) days after such Notice, or such longer
period as is required to complete any Capital Improvements necessary to effect
such cure. The time within which Lessor shall be obligated to cure any such
failure also shall be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Lessor does not cure any such failure within the
applicable time period as aforesaid, Lessee may declare the existence of a
"Lessor Default" by a second Notice to Lessor. Thereafter, Lessee may
forthwith cure the same in accordance with the provisions of Section 34.2,
subject to the provisions of the following paragraph and exercise any other
rights and remedies that Lessee may have as a result of such breach; provided,
however, Lessee shall have no right to terminate this Lease for any Lessor
Default and no right, for any such Lessor Default, to offset or counterclaim
against any Rent or other charges due hereunder except as expressly provided
herein.
(b) If Lessor shall in good faith dispute the occurrence of
any Lessor Default and Lessor, before the expiration of the applicable cure
period, shall give Notice thereof to Lessee, setting forth, in reasonable
detail, the basis therefor, no Lessor Default shall be deemed to have occurred
and Lessor shall have no obligation with respect thereto until final adverse
determination thereof, whether through arbitration or otherwise; provided,
however, that in the event of any such adverse determination, Lessor shall pay
to Lessee interest on any disputed funds at the Base Rate, from the date demand
for such funds was made by Lessee until the date of final adverse determination
and, thereafter, at the Overdue Rate until paid. If Lessee and Lessor shall
fail, in good faith, to resolve any such dispute within ten (10) days after
Lessor's Notice of dispute, either may submit the matter for determination by
arbitration, but only if such matter is required to be submitted to arbitration
pursuant to Article 41, or otherwise by a court of competent jurisdiction.
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ARTICLE 35
35.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable
law, the parties agree that such charges shall be fixed at the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in accordance
with the laws of the State, but not including its conflicts of laws rules.
LESSOR AND LESSEE EACH WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF A PROCEEDING WITH RESPECT TO
THIS LEASE, INCLUDING, WITHOUT LIMITATION, SUMMARY PROCEEDINGS TO ENFORCE THE
REMEDIES SET FORTH IN ARTICLE 16.
35.2 Transition Procedures. Upon any expiration or termination of the
Term, Lessor and Lessee shall do the following and, in general, shall cooperate
in good faith to effect an orderly transition of the management or lease of the
Hotel:
(a) Transfer of Licenses. Upon the expiration or earlier
termination of the Term, Lessee shall use its reasonable best efforts (i) to
transfer to Lessor or Lessor's designee any Franchise Agreement, all licenses,
operating permits and other governmental authorizations and all contracts,
including contracts with governmental or quasi-governmental entities, that may
be necessary for the operation of the Hotel (collectively, "Licenses"), or (ii)
if such transfer is prohibited by law or Lessor otherwise elects, to cooperate
with Lessor or Lessor's designee in connection with the processing by Lessor or
Lessor's designee of any applications for all Licenses, including Lessee (or
its Affiliate) continuing to operate the liquor operations under its licenses
with Lessor agreeing to indemnify and hold Lessee (or its Affiliate) harmless
as a result thereof (except for the gross negligence or willful misconduct of
Lessee); provided, in either case, that the costs and expenses of any such
transfer or the processing of any such application shall be paid by Lessor or
Lessor's designee.
(c) Leases and Concessions. Lessee shall assign to Lessor or
Lessor's designee simultaneously with the termination of this Agreement, and
the assignee shall assume, all leases, contracts, concession agreements and
agreements in effect with respect to the Hotel then in Lessee's name which are
designated by Lessor.
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<PAGE> 107
(d) Books and Records. To the extent that Lessor has not
already received copies thereof, all books and records (including computer and
computer-generated records) for the Hotel kept by Lessee pursuant to Article 24
hereof or Section 7 of the Master Hotel Agreement (or copies thereof) shall be
delivered to Lessor or Lessor's designee simultaneously with the termination of
this Lease, but such books and records shall thereafter be available at all
reasonable times for inspection, audit, examination and transcription for a
period of one (1) year and Lessee may retain (on a confidential basis) copies
of computer records thereof.
(e) Receivables and Payables, etc. Lessee shall be entitled
to retain all cash, bank accounts and house banks, and to collect all Gross
Revenues and accounts receivable accrued through the termination date. Lessee
shall be responsible for the payment of Rent, all Gross Operating Expenses and
all other obligations of Lessee accrued under this Lease as of the termination
date, and Lessor shall be responsible for all Gross Operating Expenses of the
Hotel accruing after the termination date.
(f) Final Accounting. Lessee shall, within forty five (45)
days after the expiration or termination of the Term, prepare and deliver to
Lessor a final accounting statement, dated as of the date of the expiration or
termination, as more particularly described in Article 24, along with a
statement of any sums due from Lessee to Lessor pursuant hereto and payment of
such funds.
(g) Inventory. Lessee shall insure that the Leased Property,
at the date of such termination or expiration, has Inventory of a substantially
equivalent nature and amount as exists at the Leased Property on the
Commencement Date, and Lessor shall acquire such Inventory from Lessee at
Lessee's cost.
(h) Surrender. Lessee shall peacefully and immediately vacate
and surrender the Leased Property to Lessor or Lessor's designee, shall turn
over all keys to Lessor and Lessor's designee and shall not interfere with
Lessor or any new Lessee or Manager.
The provisions of this Section 35.2 shall survive the expiration or
termination of this Lease until they have been fully performed. Nothing
contained herein shall limit Lessor's rights and remedies under this Lease if
such termination occurs as the result of an Event of Default.
35.3 Waiver of Presentment, etc. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein.
35.4 Standard of Discretion.
In any provision of this Lease requiring or permitting the
exercise by Lessor or Lessee of such party's approval, election, decision,
consent, judgment, determination or words of similar import (collectively, an
"Approval"), such Approval may, unless otherwise expressly
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specified in such provision, be given or withheld in such party's sole,
absolute and unreviewable discretion. Any Approval which by the terms of this
Lease may not be unreasonably withheld shall also not be unreasonably
conditioned or delayed.
35.5 Action for Damages.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, IN ANY SUIT OR
OTHER CLAIM BROUGHT BY EITHER PARTY SEEKING DAMAGES AGAINST THE OTHER PARTY FOR
BREACH OF ITS OBLIGATIONS UNDER THIS LEASE, THE PARTY AGAINST WHOM SUCH CLAIM
IS MADE SHALL BE LIABLE TO THE OTHER PARTY ONLY FOR ACTUAL DAMAGES AND NOT FOR
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES.
35.6 Lease Assumption in Bankruptcy Proceeding.
If an Event of Default occurs and Lessee has filed or has had
filed against it a petition in bankruptcy or for reorganization or other relief
pursuant to the federal bankruptcy code, Lessee shall promptly move the court
presiding over the proceeding to assume this Lease pursuant to 11 U.S.C.
Section .365, without seeking an extension of the time to file said motion.
35.7 Intra-Family Transfers.
Lessee acknowledges that Lessor may transfer legal title to the
Leased Property one or more times to Subsidiaries of FelCor (each, an
"Affiliated Lessor"). Lessee hereby consents to such transfers provided that,
in each case, this Lease is assumed by the Affiliated Lessor in its entirety
and without modification, except to the extent that Lessor, or the Affiliated
Lessor that then owns the Leased Property, specifically retains any obligations
accrued through the date of transfer hereunder. Lessee covenants that in
connection with such transfers, Lessee will execute and deliver to Lessor, the
Affiliated Lessor and/or their representatives appropriate estoppels and other
documentation reasonably requested by them, including an amendment to this
Lease, for the purposes of reflecting and acknowledging the Affiliated Lessor's
interests as lessor hereunder.
ARTICLE 36
36.1 Memorandum of Lease. Lessor and Lessee shall promptly upon the
request of either enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State in which reference to this
Lease, and all options contained herein, shall be made. Lessee shall pay all
costs and expenses of recording such memorandum of this Lease.
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ARTICLE 37
37.1 Lessor's Option to Purchase Lessee's Personal Property.
Effective on not less than thirty (30) days prior Notice given at any time
within ninety (90) days before the scheduled expiration of the Term, or upon at
least ten (10) days Notice if this Lease is terminated prior to the expiration
date of the final extension Term (or of the initial Term, if there are no
extension Terms), Lessor or its designee shall have the option to purchase all
(but not less than all) of Lessee's Personal Property relating to the Leased
Property (other than its interest under this Lease), at the expiration or
termination of this Lease for an amount (payable in cash on the expiration date
of this Lease) equal to (i) the Lessee's cost of the Inventory and (ii) the
lesser of Lessee's cost, or the fair market value, of all other of Lessee's
Personal Property. Notwithstanding any such purchase, Lessor shall obtain no
rights to any service mark, trade name, logo or other intellectual property
used in connection with the operation of the Hotel or the franchise system
under the Franchise Agreement unless separate agreement as to such use is
reached with the Lessee and/or applicable Franchisor or other owner of such
franchise system as applicable.
ARTICLE 38
38.1 Lessor's Option to Terminate Lease upon Sale.
(a) In the event Lessor enters into a bona fide contract to
sell all or substantially all of the Leased Property to a non-Affiliate or
Lessor or Lessee, then Lessor may terminate this Lease by giving not less than
thirty (30) days prior Notice to Lessee of Lessor's election to terminate this
Lease upon the closing under such sale contract (the "Termination Date");
provided, however, for purposes of this Section 38.1 only, the percentage in
the definition of "Affiliate" herein shall be deemed to be 10% rather than 50%.
Effective upon the Termination Date, this Lease shall terminate and be of no
further force and effect except as to any obligations of the parties existing
as of such date that survive termination of this Lease, and all Rent including
Percentage Rent and Additional Charges shall be adjusted as of the Termination
Date. For purposes of this Article, Lessor will be deemed to have "sold" the
Leased Property if it (i) sells, or transfers by long-term ground lease, the
Leased Property for cash, a promissory note or other consideration, (ii)
contributes the Leased Property to a Person in exchange for stock, partnership
interests, membership interests or other equity interests, provided that after
such transaction the Person who will own the Leased Property is not and will
not thereby become an Affiliate of FelCor, FSLP, Lessor or any of their
Subsidiaries, or (iii) merges (except a merger involving FelCor or FSLP) or
combines with any Person, provided that after such transaction the Person who
will own the Leased Property is not and will not thereby become an Affiliate of
FelCor, FSLP, Lessor or any of their Subsidiaries.
(b) As compensation for the early termination of its leasehold
estate under this Article 38 because of a sale of the Leased Property, Lessor
shall pay to Lessee the Termination
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Fee, as and when provided in the Master Hotel Agreement, unless the Lessee
accepts a New Lease or a substitute for this Lease as provided in the Master
Hotel Agreement.
(c) In the event that Lessor terminates this Lease upon less
than sixty (60) days written notice pursuant to the provisions of this Article
38 or pursuant to any other provisions of this Lease except for the provisions
allowing Lessor to terminate this Lease under Article 14 or Article 15 or upon
the occurrence of an Event of Default, the parties agree that on and after the
effective date of such termination, Hotel personnel employed by Lessee
immediately prior to the effective date of termination will either be employed
by Lessor's Manager or designee, or Lessor or its designee will take such other
action with respect to their employment, which may include notification of the
prospective termination of their employment, so as, in any case, to attempt to
prevent any liability pursuant to the WARN Act. In that event, Lessor hereby
agrees to defend, indemnify and hold harmless Lessee from and against any and
all manner of claims, actions, liabilities, costs and expenses (including,
without limitation, reasonable attorneys' fees and disbursements) relating to
or arising from Lessor's breach of this covenant, including, without
limitation, any liability, costs and expenses arising out of asserted or actual
violation of the requirements of the WARN Act. Further, Lessor's Manager or
designee shall assume all COBRA liabilities and COBRA obligations to the
Hotel's personnel, which Lessee shall or may incur in connection with such
termination of this Lease, and Lessor hereby agrees to defend, indemnify and
hold harmless Lessee from and against any and all manner of claims, actions,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) relating to or resulting from Lessor's
breach of the foregoing covenant with respect to COBRA matters, including,
without limitation, any liability, costs and expenses arising out of any
asserted or actual violation of the requirements of the COBRA any legislation.
Upon Lessor's written request to Lessee, Lessee shall take all action that is
reasonable to notify, advise and cooperate with Lessor in order to assist
Lessor in complying with the WARN Act or COBRA legislation and to mitigate
Lessor's expense or liability with respect to the WARN Act and COBRA
legislation.
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<PAGE> 111
ARTICLE 39
39.1 Assignment or Execution of Franchise Agreement or Guaranty of
Franchise Agreement by Lessor. At Lessor's sole expense (limited, in the case
of all Holiday Inn Franchising, Inc. licenses, to the administrative cost of
processing such franchise assignments or agreements), on or about the
Transition Date the Franchise Agreement will be assigned to Lessee or, if
required by the Franchisor, Lessee will execute a new Franchise Agreement for
the Hotel. If the Franchisor requires as a condition to granting or allowing
the transfer, assignment or renewal of any Franchise Agreement approved by
Lessor that Lessor, as the owner of the Leased Property, become contingently
liable (as guarantor or indemnitor) with respect to the Franchise Agreement,
Lessor will take such actions and execute such documents as Lessee shall
reasonably request in order to become such a guarantor or indemnitor in order
to secure such transfer, assignment or renewal.
39.2 Compliance with Franchise Agreement by Lessee. To the extent any
of the provisions of the Franchise Agreement impose a greater obligation on
Lessee than the corresponding provisions of this Lease, then Lessee shall be
obligated to comply with the provisions of the Franchise Agreement (other than
requirements with respect to Capital Improvements for which Lessor is
responsible under this Lease and other obligations of Lessor hereunder). It is
the intent of the parties hereto that Lessee shall comply in every respect with
such provisions of the Franchise Agreement so as to avoid any default
thereunder during the term of this Lease. Lessee shall not terminate, extend
or enter into any material modification of the Franchise Agreement without in
each instance first obtaining Lessor's prior written consent, which shall not
be unreasonably withheld. Lessor and Lessee agree to cooperate with each other
in the event it becomes necessary to obtain a franchise extension or
modification or a new franchise for the Leased Property, and in any transfer of
the Franchise Agreement to Lessor or, any designee of Lessor or any successor
to Lessee upon the termination of this Lease. In the event of expiration or
termination of a Franchise Agreement, for whatever reason, Lessor will have the
right, in the exercise of its reasonable discretion, to approve any new
Franchise Agreement for the Hotel. If, upon any expiration or earlier
termination of this Lease (other than upon an Event of Default by Lessee), a
Franchise Agreement remains in effect, or would but for such expiration or
termination remain in effect, Lessor shall indemnify, defend and hold Lessee
and its Affiliates harmless with respect to the obligations and liabilities
arising thereunder after the date of expiration or termination of this Lease.
39.3 Compliance with Franchise Agreement by Lessor. To the extent any
of the provisions of the Franchise Agreement impose a greater obligation on
Lessor than the corresponding provisions of this Lease, then Lessor shall be
obligated to comply with the provisions of the Franchise Agreement (other than
requirements with respect to operational matters and other obligations of the
Lessee hereunder). It is the intent of the parties hereto that lessor shall
comply in every respect with the provisions of the Franchise Agreement so as to
avoid any default thereunder during the term of this Lease. To the extent
Lessor is a party thereto, Lessor shall not terminate, extend or enter into any
material modification of the
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<PAGE> 112
Franchise Agreement without in each instance first obtaining Lessee's prior
written consent, not to be unreasonably withheld.
39.4 Changes in Franchise. Lessor and Lessee agree to cooperate with
each other in the event it becomes necessary to obtain a franchise extension or
modification or a new franchise for the Leased Property, and in any transfer of
any Franchise Agreement to any designee of Lessor or, with Lessor's prior
written consent, any successor to Lessee upon the termination of this Lease.
In the event of expiration or termination of a Franchise Agreement, for
whatever reason, Lessor will have the right, in its reasonable discretion, to
approve any new Franchise Agreement for the Hotel. If, upon any expiration or
earlier termination of this Lease (other than upon an Event of Default by
Lessee), a Franchise Agreement remains in effect in favor of Lessor's designee
or Affiliate, Lessor shall indemnify, defend and hold Lessee harmless with
respect to the obligations and liabilities arising thereunder after the date of
expiration or termination of this Lease.
ARTICLE 40
40.1 Lessor Approval of Capital Expenditures; Capital Reserve.
(a) All Capital Expenditures individually or in the aggregate
whether pursuant to the Capital Budget or otherwise, shall be subject to the
approval of Lessor. Such approval may be conditional upon review and approval
by Lessor of the plans and specifications (including matters of design and
decor) and the contracting and purchasing of all labor, services and materials.
Lessor shall have the right to require competitive bidding of contracts for
Capital Improvements, review all bids and monitor costs, time, quality and
performance. The foregoing restrictions shall not apply to Emergency Capital
Expenditures made by Lessee in amounts not to exceed $25,000 and with prior
notice to Lessor (if possible under the circumstances).
(b) Lessor shall be obligated to make available to Lessee an
amount equal to three percent (3%) of Gross Revenues from the Hotel during each
Lease Year ("Capital Reserve") for Capital Improvements, the allocation for
expenditure of which shall be governed by the Capital Budget for such Lease
Year. Upon written request by Lessee to Lessor (stating the specific use to be
made and subject to the approval thereof by Lessor, which approval shall not be
unreasonably withheld and my be evidenced by Lessor's approval of the Capital
Budget (if such Capital Budget specifically describes such Capital
Improvement), such funds shall be made available by Lessor for Capital
Expenditures set forth in the Capital Budget; provided, however, that no
Capital Expenditures shall be made to purchase property (other than "real
property" within the meaning of Treasury Regulations Section 1.856-3(d)), to
the extent that doing so would cause Lessor to recognize income other than
"rents from real property" as defined in Section 856(d) of the Code. Lessor's
obligation shall be cumulative, but not compounded, and any amounts that have
accrued hereunder shall be payable in future periods for such uses and in
accordance with the procedure set forth herein. Lessee shall have no interest
in any accrued obligation of Lessor hereunder after the termination of this
Lease. All Capital Improvements shall be owned by Lessor subject to the
provisions of this Lease.
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<PAGE> 113
(c) Lessor's obligation with respect to Capital Expenditures
shall not be limited to amounts from time to time available in the Capital
Reserve, but Lessor may require that such Capital Reserve amounts be expended
prior to Lessor incurring any obligation to pay for Capital Improvements with
other funds.
ARTICLE 41
41.1 Arbitration.
Except as set forth in Section 41.2, in each case specified in
this Lease in which it shall become necessary to resort to arbitration, such
arbitration shall be determined as provided in this Section 41.1. The party
desiring such arbitration shall give Notice to that effect to the other party,
and an arbitrator shall be selected by mutual agreement of the parties, or if
they cannot agree within thirty (30) days of such notice, by appointment made
by the American Arbitration Association ("AAA") from among the members of its
panels who are qualified and who have experience in resolving matters of a
nature similar to the matter to be resolved by arbitration.
41.2 Alternative Arbitration.
In each case specified in this Lease for a matter to be submitted
to arbitration pursuant to the provisions of this Section 41.2, Lessor and
Lessee will agree upon nationally recognized accounting firm with a hospitality
division of which neither party nor their Affiliates of Lessor is a
significant client to serve as arbitrator of such dispute within fifteen (15)
days after written demand for arbitration is received or sent by either party.
In the event the parties fail to make such designation within such fifteen
(15) day period, Lessor shall be entitled to designate any nationally
recognized accounting firm with a hospitality division of which Lessor or an
Affiliate of Lessor is not a significant client to serve as arbitrator of such
dispute within fifteen (15) days after the parties fail to timely make such
designation. In the event Lessor fails to make such designation within such
fifteen (15) day period, Lessee shall be entitled to designate any nationally
recognized accounting firm with a hospitality division of which Lessee or an
Affiliate of Lessee is not a significant client to serve as arbitrator of such
dispute within fifteen (15) days after the parties fail to timely make such
designation. In the event no nationally recognized accounting firm satisfying
such qualifications is available and willing to serve as arbitrator, the
arbitration shall instead be administered as set forth in Section 41.1.
41.3 Arbitration Procedures.
In any arbitration commenced pursuant to Sections 41.1 or 41.2, a
single arbitrator shall be designated and shall resolve the dispute. The
arbitrator's decision shall be binding on all parties, shall not be subject to
further review or appeal except as otherwise allowed by applicable law and may
be filed in and enforced by a court of competent jurisdiction.. Upon the
failure of either party (the "non-complying party") to comply with his
decision, the arbitrator shall be empowered, at the request of the other party,
to order such compliance by the non-complying
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<PAGE> 114
party and to supervise or arrange for the supervision of the non-complying
party's obligation to comply with the arbitrator's decision, all at the expense
of the non-complying party. To the maximum extent practicable, the arbitrator
and the parties, and the AAA if applicable, shall take any action necessary to
insure that the arbitration shall be concluded within ninety (90) days of the
filing of such dispute. The fees and expenses of the arbitrator shall be
shared equally by Lessor and Lessee except as otherwise specified above in this
Section 41.3. Unless otherwise agreed in writing by the parties or required by
the arbitrator or AAA, if applicable, arbitration proceedings hereunder shall
be conducted in the State. Notwithstanding formal rules of evidence, each
party may submit such evidence as each party deems appropriate to support its
position and the arbitrator shall have access to and right to examine all books
and records of Lessee and Lessor regarding the Hotel during the arbitration.
ARTICLE 42
42.1 The Ground Lease. The provisions of this Article 42 shall apply
and be controlling notwithstanding anything to the contrary contained herein if
Lessor owns its interest in the Land or Improvements through a ground or
building lease. All of the terms of the lease or leases described in Exhibit
"B" attached hereto (collectively referred to herein as the "Ground Lease") are
hereby incorporated into and made a part of this Lease as if stated at length
herein. The parties hereto agree that wherever the words "Land" appear in this
Lease, the same shall be deemed to mean the premises demised by the Ground
Lease.
Lessee shall have the benefit of each and every covenant and agreement
made by the lessor under the Ground Lease ("Ground Lessor"), to Lessor under
the Ground Lease and Lessee accepts this Lease subject to, all of the terms,
covenants, conditions and agreements contained in the Ground Lease.
Lessor shall pay directly to Ground Lessor all rent due from Lessor to
Ground Lessor under the terms of the Ground Lease when due.
Lessee and Lessor covenant and agree with each other that neither shall
do anything which shall have the effect of creating a breach on the part of
Lessor, its successors and assigns, of any of the terms, covenants and
conditions of the Ground Lease. Notwithstanding the foregoing, in the event
that Ground Lessor shall fail or refuse to comply with any of the respective
provisions of the Ground Lease despite Lessor's good faith reasonable efforts
to obtain such compliance and Lessor is not in default under the Ground Lease,
Lessor shall have no liability on account of any such failure or refusal,
provided that Lessee shall have the option to request that Lessor assign to
Lessee, and Lessee shall have, the right to exercise in its own name (and not
that of Lessor) all of the rights to enforce compliance on the part of Ground
Lessor as are available to Lessor. Lessor hereby agrees to cooperate with and
execute and deliver, all at Lessee's expense, all instruments and information
required by Lessee in order to enforce such compliance.
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ARTICLE 43
43.1 Notification Regarding Asbestos. LESSEE ACKNOWLEDGES THAT LESSOR
HAS ADVISED LESSEE OF THE LIKELIHOOD OF THE EXISTENCE OF ASBESTOS CONTAINING
MATERIALS USED DURING THE INITIAL CONSTRUCTION OF THE HOTEL AND OTHER LEASED
PROPERTY. IF AND TO THE EXTENT REQUIRED BY LAW, AN OPERATION AND MAINTENANCE
PLAN HAS BEEN ESTABLISHED TO MONITOR SUCH MATERIALS AND HAS BEEN MADE AVAILABLE
TO LESSEE.
43.2 Notification Regarding Radon Gas. Radon is a naturally occurring
radioactive gas that, when it has accumulated in a building in sufficient
quantities, may present a health risk to persons who are exposed to it over
time. Levels of radon that exceed Federal and State guidelines have been found
in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from the appropriate county public health unit.
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
"LESSOR"
-----------------------------------
By:
--------------------------------
Title:
-----------------------------
"LESSEE"
-----------------------------------
By:
--------------------------------
Title:
-----------------------------
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<PAGE> 116
EXHIBIT A
LIST OF EXISTING HOTELS
<PAGE> 117
EXHIBIT B
PROPERTY DESCRIPTION
<PAGE> 118
EXHIBIT C
CAPITAL EXPENDITURES POLICY
<PAGE> 119
EXHIBIT D
SCHEDULE OF LEASE TERMS
Commencement Date: _______________, 1998
Expiration Date: _______________ [5-15 years, with one renewal
option on the terms in effect
on the last day of the initial
Term to a total of 15 years
and a second 5-year renewal
option, at fair market rental,
for an aggregate possible Term
of no more than 20 years]
<TABLE>
<CAPTION>
Lease Year: 1998 1999 2000
<S> <C> <C> <C>
Base Rent: $__________ $__________ $__________
Room Revenue Breakpoint: $__________ $__________ $__________
</TABLE>
Percentage Rent:
The "Quarterly Revenues Computation" is equal to the amount obtained by
adding, for the applicable Lease Year, an amount equal to the sum of (i)
___________ percent (___.0%) of year to date Room Revenues up to an
amount (the "Room Revenue Breakpoint Interim Amount") equal to the
product of (A) the first $____________.00 (prorated for Lease Year
______) in year to date Room Revenues ("Room Revenue Breakpoint") and
(B) a fraction, the numerator of which is equal to the number of days in
the applicable Lease Year through the last day of the quarter for which
the Quarterly Revenues Computation is made and the denominator of which
is equal to the actual number of calendar days in such Lease Year , plus
(ii) ____________ percent (___.0%) of all year to date Room Revenues in
excess of the then Room Revenue Breakpoint Interim Amount, plus (iii)
_______ percent (___.0%) of year to date Food Sales and Beverage Sales
plus (iv) __________ percent (___.0%) of any Sublease Rent received by
Lessee year to date.
The "Annual Revenues Computation" is equal to the amount obtained by
adding, for the applicable Lease Year, an amount equal to the sum of (i)
___________ percent (___.0%) of the first $____________.00 (prorated for
Lease Year _______) in year to date Room Revenues ("Room Revenue
Breakpoint") and ____________ percent (___.0%) of all year to date Room
Revenues in excess of the Room Revenue Breakpoint, plus (ii) _____
percent (___.0%) of year to date Food Sales and Beverage Sales plus
(iii) __________ percent (___.0%) of any Sublease Rent received by
Lessee year to date; each year the Room Revenue Breakpoint shall be
adjusted by the same percentage that the Base Rent is adjusted pursuant
to Section 3.1(d) of the Master Lease Terms.
CPI Adjustment Year: ________
<PAGE> 120
EXHIBIT E
EXAMPLE OF CALCULATION OF PERCENTAGE RENT
[TO FOLLOW]
[NEED TO DISCUSS: hotels budgeted (scheduled) to be closed for renovations:
Rent shall be reduced to $0 as long as the hotel is budgeted (scheduled) to be
closed, meaning 80% or more rooms out of service; Rent shall be prorated if the
hotel is open but less than 80% of rooms are budgeted (scheduled) to be out of
service. If less than 80% of rooms are out of service, Rent shall be reduced
by the percentage of rooms out of service.]
<PAGE> 121
EXHIBIT B-2
Capital Expenditures Policy
[To be agreed upon by FelCor and BHR prior to the Closing Date]
<PAGE> 122
EXHIBIT C
Form Guaranty
GUARANTY
In order to induce Lessors to lease the Leased Property covered by the
Percentage Leases to Lessees, the undersigned ("Guarantor") hereby guarantees
to Lessor, and Lessor's successors and assigns, the full and timely payment of
Rent payable under the Percentage Leases; provided, however, that Guarantor's
liability hereunder shall be limited to any deficiency amount by which Lessee
fails to satisfy the Minimum Liquid Net Worth requirements under Section 5 of
that certain Master Hotel Agreement dated as of May 29, 1998, between
affiliates of Lessors and Lessees ("Master Hotel Agreement"). This Guaranty
is a primary obligation of Guarantor, joint and several with that of Lessee,
and Guarantor acknowledges that this Guaranty and its obligations under this
Guaranty are and shall at all times be absolute and unconditional in all
respects, and is and shall at all times be valid and enforceable, irrespective
of any other agreements or circumstances of any nature whatsoever which might
otherwise constitute a defense to this Guaranty and the obligations of the
undersigned under this Guaranty or the obligations of Lessee relating to this
Guaranty or otherwise with respect to the Lessee's Obligations. Guarantor
agrees that, with or without notice or demand; provided that if and to the
extent any such notice is required under the applicable provision of the Lease
Lessor agrees to provide the same, Guarantor will promptly reimburse Lessor for
all costs and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred by Lessor in connection with any action or
proceeding brought by Lessor to enforce the obligations of the undersigned
under this Guaranty. The undersigned hereby irrevocably and unconditionally
waives any and all right to trial by jury in any action, suit or counterclaim
arising in connection with, out of or otherwise relating to this Guaranty.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Master Hotel Agreement.
In Witness Whereof, this Guaranty has been duly executed as of this
____ day of __________, 1998.
Bristol Hotels & Resorts, Inc.
By:
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Name:
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Title:
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<PAGE> 123
Schedule 1
Contemplated Renovations
