<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. _________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
FELCOR SUITES LIMITED PARTNERSHIP
FELCOR SUITE HOTELS, INC.
FELCOR/CSS HOTELS, L.L.C.
FELCOR/LAX HOTELS, L.L.C.
FELCOR EIGHT HOTELS, L.L.C.
FELCOR/CSS HOLDINGS, L.P.
FELCOR/ST. PAUL HOLDINGS, L.P.
FELCOR/LAX HOLDINGS, L.P.
(Exact name of co-registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7011 75-2564994
MARYLAND (Primary Standard 72-2541756
DELAWARE Industrial 75-2624290
DELAWARE Classification Code 75-2647535
DELAWARE Number) 75-2582006
DELAWARE 75-2620463
DELAWARE 75-2624292
DELAWARE 75-2624293
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
545 E. JOHN CARPENTER FRWY. LAWRENCE D. ROBINSON
SUITE 1300 SENIOR VICE PRESIDENT
IRVING, TEXAS 75062 AND GENERAL COUNSEL
(972) 444-4900 545 E. JOHN CARPENTER FRWY.,
SUITE 1300
IRVING, TEXAS 75062
(Address, including zip code (972) 444-4900
and telephone number, including (Name, address, including zip
area code, of registrant's code, and telephone number,
principal executive offices) including area code, of agent
for service)
</TABLE>
-------------------------
Copies to:
ROBERT W. DOCKERY
JENKENS & GILCHRIST,
A PROFESSIONAL CORPORATION
1445 ROSS AVENUE, SUITE 3200
DALLAS, TEXAS 75202
(214) 855-4500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
-------------------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED PER UNIT PRICE (1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7 3/8% Senior Notes Due 2004 $175,000,000 100% $175,000,000 $53,030.30
7 5/8% Senior Notes Due 2007 $125,000,000 100% $125,000,000 $37,878.79
Guarantees of Senior Notes (2) $300,000,000 100% $300,000,000 (3)
============================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) FelCor Suite Hotels, Inc. and the following wholly-owned subsidiaries of
the Registrant: FelCor/CSS Hotels, L.L.C., FelCor/LAX Hotels, L.L.C.,
FelCor Eight Hotels, L.L.C., FelCor/CSS Holdings, L.P., FelCor/St. Paul
Holdings, L.P. and FelCor/LAX Holdings, L.P., have each guaranteed the
notes being registered pursuant hereto.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guarantees of the Notes being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1997
FELCOR SUITES LIMITED PARTNERSHIP
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
7 3/8% SENIOR NOTES DUE 2004 AND
7 5/8% SENIOR NOTES DUE 2007
FOR 7 3/8% SENIOR NOTES DUE 2004 AND
7 5/8% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON _________ ___, 1997 (AS SUCH DATE MAY BE EXTENDED, BUT SHALL
NOT BE LATER THAN _________ __, 1997, THE "EXPIRATION DATE").
FelCor Suites Limited Partnership, a Delaware limited partnership
("FelCor LP"), hereby offers (the "Exchange Offer"), upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange (i) $1,000 in principal
amount of its 7 3/8% Senior Notes due 2004 (the "New 7 3/8% Notes") for each
$1,000 in principal amount of its outstanding 7 3/8% Senior Notes due 2004 (the
"Old 7 3/8% Notes") and (ii) $1,000 in principal amount of its 7 5/8% Senior
Notes due 2007 (the "New 7 5/8% Notes") for each $1,000 in principal amount of
its outstanding 7 5/8% Senior Notes due 2007 (the "Old 7 5/8% Notes") (the Old
7 3/8% Notes and Old 7 5/8% Notes are collectively referred to herein as the
"Old Notes"; the New 7 3/8% Notes and the New 7 5/8% Notes are collectively
referred to herein as the "New Notes"; the Old Notes and the New Notes are
collectively referred to herein as the "Notes"). Aggregate principal amounts
of $175,000,000 of Old 7 3/8% Notes and $125,000,000 of Old 7 5/8% Notes are
outstanding. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. FelCor LP has
agreed that, starting on the Expiration Date and ending on the close of
business one year after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
FelCor LP will accept for exchange any and all Old Notes that are
validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of the Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the terms and
provisions of the Registration Rights Agreement, dated as of September 26, 1997
(the "Registration Rights Agreement"), among the FelCor LP, FelCor Suite
Hotels, Inc., a Maryland corporation ("FelCor"), and Morgan Stanley & Co.
Incorporated, NationsBank Capital Markets, Inc. and Salomon Brothers Inc (the
"Initial Purchasers"). Each series of the Old Notes may be tendered only in
multiples of $1,000. See "The Exchange Offer."
(continued on next page)
--------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------------
The date of this Prospectus is November __, 1997
<PAGE> 4
The Old Notes were issued in a transaction (the "Private Placement")
pursuant to which FelCor LP issued an aggregate of $175,000,000 principal
amount of Old 7 3/8% Notes and an aggregate of $125,000,000 principal amount of
Old 7 5/8% Notes to the Initial Purchasers on October 1, 1997 pursuant to a
Placement Agreement, dated September 26, 1997 (the "Placement Agreement"),
among FelCor LP, FelCor and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. FelCor LP, FelCor and the Initial Purchasers also entered into the
Registration Rights Agreement, pursuant to which FelCor LP granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer is intended to satisfy certain of FelCor LP's obligations under
the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer--Purpose and Effect."
The Old Notes were, and the New Notes will be, issued under the
Indenture, dated as of October 1, 1997 (the "Indenture"), among FelCor LP,
FelCor, the Subsidiary Guarantors (as defined in the Indenture) and SunTrust
Bank, Atlanta, as trustee (in such capacity, the "Trustee"). The form and
terms of each series of the New Notes will be identical in all material
respects to the form and terms of the corresponding series of the Old Notes,
except that (i) the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof, and
(ii) holders of New Notes will not be, and upon the consummation of the
Exchange Offer, holders of Old Notes will no longer be, entitled to any rights
under the Registration Rights Agreement intended for the holders of
unregistered securities. The Exchange Offer shall be deemed consummated upon
the occurrence of the delivery by FelCor LP to SunTrust Bank, Atlanta, as
registrar of the Old Notes (in such capacity, the "Registrar") under the
Indenture, of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes in each series that are validly tendered by
holders thereof pursuant to the Exchange Offer. See "The Exchange
Offer--Termination of Certain Rights," "--Procedures for Tendering Old Notes"
and "Description of the Notes and Guarantees."
The New 7 3/8% Notes will bear interest at a rate equal to 7 3/8% per
annum and the New 7 5/8% Notes will bear interest at a rate equal to 7 5/8% per
annum. Interest on the New Notes is payable semiannually, on October 1 and
April 1 of each year, commencing on April 1, 1998 (each, an "Interest Payment
Date") and shall accrue from October 1, 1997 or from the most recent Interest
Payment Date with respect to the Old Notes to which interest has been paid or
duly provided for. The New 7 3/8% Notes will mature on October 1, 2004 and the
New 7 5/8 Notes will mature on October 1, 2007. See "Description of the Notes
and Guarantees."
Each series of New Notes will be redeemable in whole or in part at the
option of FelCor LP at any time, at a redemption price equal to the greater of
(i) 100% of the principal amount of such New Notes and (ii) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate (as
defined herein) plus 25 basis points, plus, in each case, accrued interest
thereon to the date of redemption. See "Description of the Notes and Guarantees
- -- Optional Redemption."
In the event of a Change of Control (as defined herein), holders of
the New Notes will have the right to require FelCor LP to purchase their New
Notes, in whole or in part, at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
The New Notes will be unsecured Senior Indebtedness (as defined
herein) of FelCor LP, will rank pari passu in right of payment to existing and
future unsecured Senior Indebtedness of FelCor LP and will rank senior in right
of payment to future subordinated Indebtedness of FelCor LP. The New Notes
will be guaranteed on a senior unsecured basis by FelCor and each of its
subsidiaries so long as they are obligors on other Indebtedness (as defined
herein) of FelCor or FelCor LP which is pari passu with or subordinated to the
Notes (the "Guarantors"). At September 30, 1997, after giving effect to the
Private Placement and the application of the net proceeds therefrom, the total
Indebtedness of FelCor LP would have been approximately $428 million, including
$12 in secured Indebtedness.
Based on existing interpretations of the Securities Act by the Staff
of the Securities and Exchange Commission (the "Commission") set forth in
"no-action" letters issued to third parties, FelCor LP believes that New Notes
issued pursuant to the Exchange Offer to any holder of Old Notes in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
such holder (other than a broker-dealer who purchased Old Notes directly from
FelCor LP for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such holder is not an affiliate of FelCor LP, is acquiring the New Notes
in the ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of the New Notes. Holders wishing to accept the Exchange Offer
must represent to FelCor LP, as required by the Registration Rights Agreement,
that such conditions have been met. In addition, if such holder is not a
broker-dealer, it must represent that it is not engaged in, and does not intend
to engage in, a distribution of the New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "The Exchange Offer--Resales of the New Notes." This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market- making or other trading activities.
(ii)
<PAGE> 5
As of October 28, 1997, Cede & Co. ("Cede"), as nominee for The
Depository Trust Company, New York, New York ("DTC"), was (i) the sole
registered holder of the Old 7 3/8% Notes and held the Old 7 3/8% Notes for 28
of its participants and (ii) the holder of an aggregate of $122 million in
principal amount of the Old 7 5/8% Notes for 27 of its participants. At
October 28, 1997, an aggregate of $3 million in principal amount of the Old 7
5/8% Notes were held by five other holders, each of which has represented
itself to be (A) a "Qualified Institutional Buyer" (as defined in Rule 144A
("Rule 144A") under the Securities Act) or (B) an institutional "Accredited
Investor" (as defined in Rule 501(a)(1),(2),(3) or (7) of Regulation D under
the Securities Act). FelCor LP believes that no such participant or other
holder of the Old Notes is an affiliate (as such term is defined in Rule 405
under the Securities Act) of FelCor LP. There has previously been only a
limited secondary market, and no public market, for the Old Notes. The Old
Notes are eligible for trading in the Private Offering, Resales and Trading
through Automatic Linkages ("PORTAL") market. In addition, the Initial
Purchasers have advised the Company that they currently intend to make a market
in the New Notes; however, the Initial Purchasers are not obligated to do so
and any market making activities may be discontinued by the Initial Purchasers
at any time. Prior top the Exchange Offer, there has been no public trading
market for the New Notes. Therefore, there can be no assurance that an active
trading market for any of the Notes will develop. If such a trading market
develops for any of the Notes, future trading prices will depend on many
factors, including, among other things, prevailing interest rates, FelCor LP's
results of operations and the market for similar securities. Depending on such
factors, the Notes may trade at a discount from their face value. See "Risk
Factors--Absence of Public Market."
FelCor LP will not receive any proceeds from this Exchange Offer.
Pursuant to the Registration Rights Agreement, FelCor LP will bear certain
registration expenses.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL FELCOR LP ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
Old Notes sold in reliance upon Rule 144A are represented by one or
more global notes (the "Global Old Notes") in definitive, fully registered
form, deposited with, or on behalf of, DTC, as the initial depository with
respect to the Global Old Notes (in such capacity, the "Depository"). The
Global Old Notes are registered in the name of Cede & Co., as nominee of DTC,
and beneficial interests in the Global Old Notes are shown on and transfers
thereof may be effected through records maintained by the Depository and its
participants. Participants in the Depository may transfer their interests in
the Global Old Notes electronically in accordance with the Depository's
established procedures without the need to transfer a physical certificate.
Old Notes sold to Institutional Accredited Investors that are not Qualified
Institutional Buyers are represented by one or more physical note certificates
(the "Certificated Old Notes") in definitive, fully registered form. New Notes
in the form of one or more global notes (the "Global New Notes") will be
exchanged for Global Old Notes and New Notes in the form of physical note
certificates (the "Certificated New Notes") will be exchanged for Certificated
Old Notes.
(iii)
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . (v)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . (v)
NOTE REGARDING FORWARD-LOOKING INFORMATION . . . . . . . . . . . . . . . . (vi)
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 31
BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 42
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . 62
DESCRIPTION OF CERTAIN INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . 64
DESCRIPTION OF THE NOTES AND GUARANTEES . . . . . . . . . . . . . . . . . . 67
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . 90
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-1
</TABLE>
(iv)
<PAGE> 7
AVAILABLE INFORMATION
FelCor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621 and 75 Park Place, 14th Floor, New York, New York
10007. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site that
contains registration statements, reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
In addition, FelCor's Common Stock and Series A Preferred Stock are
listed on the New York Stock Exchange. FelCor's reports, proxy statements and
other information filed under the Exchange Act may also be inspected and copied
at the offices of the New York Stock Exchange, 120 Broad Street, New York, New
York 10005.
FelCor LP has agreed that, whether or not it is required to do so by
the rules and regulations of the Commission, for so long as any of the Notes
remain outstanding, it will furnish to the holders of Notes and submit to the
Commission (unless the Commission will not accept such materials) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if FelCor LP
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by FelCor's independent
accountants, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, FelCor LP has
agreed to make available to any prospective purchaser of Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER
THAN EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL
REQUEST TO FELCOR SUITES LIMITED PARTNERSHIP, 545 E. JOHN CARPENTER FRWY.,
SUITE 1300, IRVING, TEXAS 75062, ATTENTION: GENERAL COUNSEL, (972) 444-4900.
The following documents, which have been previously filed by FelCor
with the Commission under the Exchange Act (File No. 024250), are incorporated
herein by reference:
(i) Annual Report on Form 10-K for the year ended December 31,
1996;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997:
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30,
1997;
(iv) Current Report on Form 8-K dated June 4, 1997;
(v) Current Report on Form 8-K dated July 11, 1997, as amended by
Current Report on Form 8-K/A dated August 13, 1997;
(vi) Current Report on Form 8-K dated September 19, 1997; and
(vii) Current Report on Form 8-K dated October 1, 1997.
All documents filed by FelCor pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
(v)
<PAGE> 8
Any statement contained herein, or in any document incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
FelCor will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written request of any such person, a copy
of any or all of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
the Company at 545 E. John Carpenter Frwy., Suite 1300, Irving, Texas 75062,
Attention: Lawrence D. Robinson, Senior Vice President, General Counsel and
Secretary.
NOTE REGARDING FORWARD-LOOKING INFORMATION
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS
AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-
LOOKING STATEMENTS.
(vi)
<PAGE> 9
SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and the
consolidated financial statements of FelCor LP and FelCor, including the notes
thereto, contained elsewhere in this Prospectus, as well as the information
appearing in the documents incorporated by reference herein. Unless otherwise
indicated or unless the context otherwise requires, all references to the
"Company" are to FelCor, FelCor LP and their respective subsidiaries, on a
consolidated basis.
Market data and certain other industry data and forecasts used
throughout this Prospectus were obtained from internal surveys, market
research, publicly available information and industry publications. Industry
publications generally state that the information contained therein has been
obtained from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. Similarly, internal
surveys, industry data and forecasts and market research, while believed to be
reliable, have not been independently verified, and none of FelCor LP, or the
Guarantors makes any representation as to the accuracy of such information.
THE COMPANY
FelCor is a self-administered equity real estate investment trust
("REIT") that, at September 30, 1997, owned an approximate 92.6% general
partner interest in FelCor LP, which holds the Company's interest in 71
full-service, upscale hotels ("Current Hotels"). The Current Hotels consist of
51 Embassy Suites(R) hotels, one hotel in Myrtle Beach, South Carolina, that is
in the process of conversion to an Embassy Suites hotel, 12 Doubletree Guest
Suites(R) hotels, six Sheraton(R) hotels, and one Hilton Suites(R) hotel. The
Current Hotels contain an aggregate of 17,486 suites/rooms, and are located in
26 states. Fifty of the Current Hotels are managed by a subsidiary of Promus
Hotel Corporation ("Promus"), which is the largest operator of full-service,
all-suite hotels in the United States.
Since its formation, through a merger with entities organized in 1991,
and initial public offering ("IPO") in July 1994, the Company has acquired 65
full-service, upscale hotels containing an aggregate of 16,007 suites/rooms.
Since the IPO, the Company has completed five public offerings of its capital
stock, raising gross proceeds of more than $1 billion, including one public
offering of convertible preferred stock that raised $151.3 million in gross
proceeds. The Company seeks to increase operating cash flow and enhance its
value through both internal growth and acquisitions, while maintaining a
conservative capital structure. At September 30, 1997, the Company had a total
market capitalization in excess of $2 billion and a debt to total market
capitalization ratio of 19%. Additionally, after giving effect to the Private
Placement and application of the proceeds therefrom, the Company would have had
total unencumbered assets of $1.6 billion and total Indebtedness of $428
million (of which only $12 million would have been secured Indebtedness),
representing approximately 26% of its Adjusted Total Assets (as defined herein)
at such date.
The Company's senior management includes co-founders Hervey A.
Feldman, Chairman of the Board, and Thomas J. Corcoran, Jr., President and
Chief Executive Officer. Mr. Feldman has been engaged in the hotel business for
approximately 30 years, including serving as the founding President and Chief
Executive Officer of Embassy Suites (the predecessor of Promus) from January
1983 to May 1990 and as its Chairman of the Board from June 1990 until January
1992. Mr. Corcoran has been engaged in the hotel and restaurant business since
1979, with experience in the development, financing and acquisition of hotel
and restaurant properties. Based on the closing price of the common stock of
FelCor ("Common Stock") on the New York Stock Exchange ("NYSE") on September
30, 1997, Messrs. Feldman and Corcoran, together with other executive officers
and directors of the Company, owned collectively more than $40 million of the
aggregate outstanding Common Stock and units of limited partner interest in
FelCor LP ("Units"). See "Management -- Security Ownership of Management."
To enable the Company to satisfy certain requirements for
qualification as a REIT, neither FelCor nor FelCor LP can operate the hotels in
which they invest. Accordingly, FelCor LP leases the Current Hotels (and
expects to lease any additional hotels) to DJONT Operations, L.L.C., or a
subsidiary thereof ("Lessee"), pursuant to leases providing for the payment of
rent based primarily upon the suite revenues of such hotels ("Percentage
Leases"). The Lessee pays rent to FelCor LP under the Percentage Leases and, in
addition, enters into franchise agreements (where applicable) and engages
independent third party professional managers to operate the hotels. Under the
Percentage Leases, the Lessee is required to pay all franchise fees, management
fees and other operating expenses of the hotels leased by it. All of the voting
interests in the Lessee (constituting a 50% equity interest) are beneficially
owned by Messrs. Feldman and Corcoran, and the non-voting interests
(constituting the remaining 50% equity interest) are owned beneficially by the
children of Charles N. Mathewson, a major initial investor in and a director of
the Company. The following diagram illustrates the general relationships among
FelCor, FelCor LP, the Lessee, the franchisors and the managers:
-1-
<PAGE> 10
[GRAPH]
The Company's executive offices are located at 545 E. John Carpenter Frwy.,
Suite 1300, Irving, Texas 75062. The Company may also be reached by telephone
at (972) 444-4900, by facsimile transmission at (972) 444-4949, or by e-mail
addressed to [email protected]. Additional information regarding the
Company may be obtained from its Internet web site at http://www.felcor.com.
-2-
<PAGE> 11
THE INDUSTRY
The United States hotel industry has experienced significant improvement
in the past five years. According to Coopers & Lybrand L.L.P. Hospitality
Directions, after a period of extended unprofitability in the late 1980's and
early 1990's, lodging industry profit has increased every year from 1992
through 1996. The industry downturn in the late 1980's resulted primarily from
an increase in the supply of new hotel rooms that significantly outpaced growth
in room demand. The percentage growth in room demand exceeded percentage growth
in new room supply from 1992 through 1996. As a result, according to Smith
Travel Research, for All Upscale U.S. Hotels (including both Upscale and Upper
Upscale Hotels), occupancy increased from 61.7% in 1991 to 68.4% in 1996, and
ADR increased from $65.89 in 1991 to $85.54 in 1996.
Smith Travel Research classifies the hotel industry into six distinct
categories: Budget, Economy, Midscale, Midscale with Food & Beverage, Upscale
and Upper Upscale. All of the Company's properties are operated under brands
that are included in the Upper Upscale category. This category has experienced
relatively low levels of new construction.
BUSINESS STRATEGY
Overview
The Company's primary business objectives are to (i) focus on selection
of sound hotel investments, (ii) add value to its hotels through active asset
management and the strategic investment of capital, and (iii) build solid
working relationships with, and be the "owner-of-choice" for, selected premium,
full-service hotel brand owners/managers who are willing to commit to the on-
going success of the hotels they license/manage for the Company. The Company
seeks to increase operating cash flow and enhance its value through both
internal growth and acquisitions. The Company's internal growth strategy is to
utilize its asset management expertise to improve the quality of its hotels by
renovating, upgrading and repositioning, thereby improving the revenue
performance of the hotels, and to participate, through the Percentage Leases,
in any growth in revenues at its hotels. The Company's acquisition growth
strategy remains focused primarily upon the purchase of additional existing and
a limited number of newly developed hotels that meet the Company's investment
criteria.
Strategic Relationships
The Company currently maintains strategic brand owner/manager
relationships with Promus, Doubletree Hotels Corporation ("Doubletree") and ITT
Sheraton Corporation ("Sheraton"). Promus and Doubletree have entered into a
definitive agreement to merge their companies. The combined company will
constitute the lodging industry's third largest entity based on annual revenue.
The Company believes that this merger will increase the Company's flexibility
in branding its all-suite hotels to capitalize on local market conditions and
brand representation. ITT Corporation, the parent of ITT Sheraton Corporation,
is currently the subject of a hostile tender offer by Hilton Hotel Corporation
and has also announced that it has entered into a definitive agreement to merge
with Starwood Lodging. The Company cannot now predict what the ultimate
outcome of these competing proposals will be.
o Promus Hotel Corporation is the largest operator of full-service,
all-suite hotels in the United States. Promus is also the owner
of the Embassy Suites brand and the manager of 50 of the
Company's Current Hotels. In addition, based on the closing price
of the Common Stock on the NYSE on September 30, 1997, Promus
owned more than $55 million of the aggregate Common Stock of
FelCor and Units of FelCor LP. The relationship with Promus has
provided the foundation for the Company's historical growth.
o Doubletree Hotels Corporation is the owner of the nation's second
largest full-service, all-suite hotel brand, Doubletree Guest
Suites. Doubletree provides hotel owners with management and
franchise services under its Doubletree Hotels(R), Doubletree
Guest Suites, Club Hotels by Doubletree(R), Red Lion Hotels(R)
and other brands, as well as management services for other non-
Doubletree brand hotels. Doubletree is the manager of all of the
12 Current Hotels operated under the Doubletree Guest Suites
brand.
o ITT Sheraton Corporation is the owner of the Sheraton brand and
one of the world's largest hotel companies, with more than 430
hotels in over 60 countries. This newest strategic alliance,
coupled with the purchase of six Sheraton hotels this year
(including a total of four non-suite hotels), provided the
Company with its initial entry into the upscale, full-service,
non-suite hotel market and should provide the Company with
opportunities for future growth.
-3-
<PAGE> 12
The strength of the Company's strategic relationships with the foregoing
brand owners/managers are evidenced by their (i) significant equity investments
in 15 of the Company's hotels, (ii) agreements to make subordinated loans to
the Lessee (in support of the Lessee's obligations under certain Percentage
Leases with respect to certain hotels), (iii) subordination of certain
customary fees to the Lessee's obligations under applicable Percentage Leases,
(iv) grants of certain performance-based termination rights by the managers to
the Lessees, and (v) in one case, guarantee of a $25 million loan to the
Company.
Growth Strategy
Beginning with the acquisition of the 18 Crown Sterling Suites(R) hotels
("CSS Hotels"), from the fourth quarter of 1995 through September 30, 1997, the
Company has acquired 58 hotels containing an aggregate of 14,587 suites/rooms
for approximately $1.4 billion, resulting in an increase in its portfolio of
suites/rooms by more than 500%. The Company converted the 18 CSS Hotels to
Embassy Suites hotels (16 hotels) and Doubletree Guest Suites hotels (two
hotels), investing over $50 million in the complete renovation and upgrade of
such hotels. As a consequence, revenue per available room/suite ("RevPAR") of
the CSS Hotels for the nine months ended September 30, 1997 increased
approximately 22.0% over the nine months ended September 30, 1996.
Additionally, for the 13 original hotels acquired by the Company prior to the
acquisition of the CSS Hotels, the Company achieved a 6.6% increase in RevPAR
for the nine months ended September 30, 1997 over the comparable period in
1996, from $79.39 to $84.61.
The Company intends to continue to focus its acquisition strategy with
respect to individual hotels primarily upon the purchase of full-service,
upscale hotels (both all-suite and non-suite) that will fit within one of the
Company's premium brand owner/manager alliances with Promus, Doubletree and
Sheraton. The Company believes that it has benefitted, and will continue to
benefit, from its strong relationships with its brand owner/managers. The
Company also may construct additional suites/rooms and meeting space at certain
of its hotels if market and other conditions warrant.
Capital Strategy
The Company intends to maintain a conservative capital structure that
enhances its access to the capital markets on favorable terms and promotes
future earnings growth. Since the IPO, the Company has completed five public
offerings of its capital stock, raising gross proceeds of more than $1 billion,
including one public offering of convertible preferred stock that raised $151.3
million in gross proceeds. In addition, the Company has reduced its payout
ratio (distributions as a percentage of Funds From Operations) from 80% for the
year ended December 31, 1995 to 68% for the twelve month period ended September
30, 1997.
The Board of Directors of the Company has adopted a policy which limits
the Company's indebtedness to not more than 40% of its investment in hotel
assets, at cost. At September 30, 1997, the Company had a $550 million
unsecured revolving line of credit ("Line of Credit"), under which it had
borrowed $296 million, an unsecured term loan of $25 million (guaranteed by
Promus) ("Renovation Loan"), the proceeds of which were used to finance the
cost of renovations to the CSS Hotels, and approximately $1 million of other
unsecured indebtedness. The Company also had, at September 30, 1997, an $85
million secured term loan ("Term Loan") that has been repaid from the proceeds
of the Private Placement, and an additional $12 million in secured debt. At
September 30, 1997, after giving effect to the Private Placement and the
application of the proceeds therefrom, the total Indebtedness of the Company
would have been 26% of Adjusted Total Assets and its ratio of EBITDA to
interest paid for the 12 months ended September 30, 1997 would have been 4.8 to
1. The Company believes that its debt limitation policy, its preference for
unsecured debt and its success in raising equity capital for expansion,
demonstrate the Company's commitment to the maintenance of a conservative but
flexible capital structure.
-4-
<PAGE> 13
HOTEL PORTFOLIO
Current Hotels
The Company was organized as a REIT in July 1994. At such time, the
Company acquired six Embassy Suites hotels (the "Initial Hotels") through a
merger with entities organized in 1991. Subsequent to its formation, the
Company has completed the acquisition of interests in 65 additional hotels
through September 30, 1997. Of the Current Hotels, the Company owns 100% equity
interests in 53 hotels, a 97% interest in a partnership that owns one hotel, a
90% interest in partnerships that own three hotels and a 50% interest in
separate partnerships that own 14 hotels. The following table provides certain
information regarding the Current Hotels:
<TABLE>
<CAPTION>
NUMBER OF HOTELS NUMBER OF AGGREGATE
ACQUIRED SUITES/ROOM ACQUISITION PRICE(1)
---------------- ----------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Inception (July 28, 1994) through
December 31, 1994 . . . . . . . . . . . . 7 1,730 $ 107.3
Year Ended December 31, 1995 . . . . . . . 13 2,649 237.1
Year Ended December 31, 1996 . . . . . . . 23 5,769 560.5
Nine Months Ended September 30, 1997 . . . 28 7,161 596.9
-- ------- ---------
Subtotals . . . . . . . . . . . . 71 17,309 1,501.8
Additional suites constructed by the
Company at its hotels . . . . . . . . . . -- 177 21.2
------- ---------
Totals . . . . . . . . . . . . . 71 17,486 $ 1,523.0
== ======= =========
</TABLE>
- -----------
(1) With respect to the hotels in which the Company owns less than a
100% interest, includes the Company's purchase price for the interest
acquired by the Company.
The Current Hotels represent the following brands:
<TABLE>
<CAPTION>
NUMBER OF
BRAND NUMBER OF HOTELS SUITES/ROOMS
----- ---------------- ------------
<S> <C> <C>
Embassy Suites . . . . . . . . . . . . . . . 52 12,709
Doubletree Guest Suites . . . . . . . . . . . 12 2,381
Sheraton . . . . . . . . . . . . . . . . . . 6 2,222
Hilton Suites . . . . . . . . . . . . . . . . 1 174
-- -------
Totals . . . . . . . . . . . . . . 71 17,486
== =======
</TABLE>
Other Potential Hotel Transactions
The Company is in various stages of evaluation and negotiation with
respect to a number of other available hotel transactions which, if the Company
were to elect to pursue all of such transactions, could require an additional
investment by the Company of more than $300 million. Due to the preliminary
status of such negotiations and evaluations, no assurance can be given that the
Company will elect to pursue, or succeed in the completion of, any of such
transactions.
RECENT DEVELOPMENTS
Since June 30, 1997 the Company has:
o issued, on July 15, 1997, an additional 1,000,000 shares of its Common
Stock, pursuant to the exercise of an over-allotment option granted to
the underwriters in connection with the Company's offering of 10.2
million shares of Common Stock consummated on June 30, 1997 (resulting
in aggregate gross proceeds to the Company of approximately $410.2
million);
o completed, on July 28, 1997, the acquisition of three Doubletree Guest
Suites hotels, with an aggregate of 635 suites, for a total purchase
price of approximately $71.6 million;
o increased its Line of Credit, on August 14, 1997, from $400 million to
$550 million, extended the maturity of the facility to September 30,
2000 and reduced the effective pricing with respect to borrowings
thereunder;
o acquired, on September 11, 1997, the land (which previously had been
held by the Company under a long-term ground lease) upon which the
Company's Phoenix (Camelback), Arizona, Embassy Suites hotel is located
at a cost of approximately $4.6 million; and
o acquired, on September 30, 1997, the partnership that owns the 365-room
Sheraton Society Hill hotel in Philadelphia, Pennsylvania for a purchase
price of approximately $51 million.
-5-
<PAGE> 14
THE PRIVATE PLACEMENT
The outstanding $175 million in principal amount of Old 7 3/8% Notes and
$125 million in principal amount of Old 7 5/8% Notes, were sold by FelCor LP to
the Initial Purchasers on October 1, 1997, pursuant to the Placement Agreement.
The Initial Purchasers subsequently resold the Old Notes to Qualified
Institutional Buyers in compliance with Rule 144A and to a limited number of
institutional Accredited Investors that, prior to their purchase of Old Notes,
delivered to the Initial Purchasers a letter containing certain representations
and agreements. FelCor LP and the Initial Purchasers also entered into the
Registration Rights Agreement pursuant to which FelCor LP granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer made hereby is intended to satisfy certain of FelCor LP's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See"The Exchange Offer--Purpose and Effect."
THE EXCHANGE OFFER
The Exchange Offer . . . . FelCor LP is offering, upon the terms and subject
to the conditions set forth herein and in the
Letter of Transmittal, to exchange $1,000 in
principal amount of New Notes for each $1,000 in
principal amount of outstanding Old Notes of the
corresponding maturity, with Global New Notes being
exchanged for Global Old Notes and Certificated New
Notes being exchanged for Certificated Old Notes.
As of the date of this Prospectus, $175 million in
aggregate principal amount of the Old 7 3/8% Notes
and $125 million in aggregate principal amount of
Old 7 5/8% Notes, is outstanding. As of October
28, 1997, (i) there was one registered holder of
the Old 7 3/8% Notes, Cede & Co., which held the
Old 7 3/8% Notes for 28 of its participants and
(ii) there were six registered holders of the Old 7
5/8% Notes, Cede & Co., which held $122 million in
principal amount of the Old 7 5/8% Notes for 27
of its participants, and five institutional
Accredited Investors holding an aggregate of $3
million in principal amount of the Old 7 5/8%
Notes. See "The Exchange Offer--Terms of the
Exchange Offer."
Expiration Date. . . . . . 5:00 p.m., New York City time, on __________ __,
1997 as the same may be extended at the discretion
of FelCor LP, but shall not be later than ________
__, 1997. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Conditions of the
Exchange Offer . . . . . The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. The only condition to the
Exchange Offer is the declaration by the Commission
of the effectiveness of the Registration Statement
of which this Prospectus constitutes a part (the
"Exchange Offer Registration Statement"). See "The
Exchange Offer--Conditions of the Exchange Offer."
Accrued Interest . . . . . The New 7 3/8% Notes will bear interest at a rate
equal to 7 3/8% annum and the New 7 5/8% Notes will
bear interest at a rate equal to 7 5/8% per annum.
Interest shall accrue from October 1, 1997 or from
the most recent Interest Payment Date with respect
to the Old Notes to which interest was paid or duly
provided for. See "Description of the Notes and
Guarantees--General."
Procedures for Tendering
Old Notes. . . . . . . . Each holder desiring to accept the Exchange Offer
must complete and sign the Letter of Transmittal,
have the signature thereon guaranteed if required
by the Letter of Transmittal, and deliver the
Letter of Transmittal, together with the Old Notes
or a Notice of Guaranteed Delivery (as defined in
the Letter of Transmittal) and any other required
documents (such as evidence of authority to act, if
the Letter of Transmittal is signed by someone
acting in a fiduciary or representative capacity),
to the Exchange Agent (as defined under "The
Exchange Offer--The Exchange Agent; Assistance") at
the address set forth herein and on the back cover
page of this Prospectus prior to 5:00 p.m., New
York City time, on the Expiration Date. Any
Beneficial Owner (as defined under "The Exchange
Offer--Procedures for Tendering Old Notes") of the
Old Notes whose Old Notes are registered in the
name of a nominee, such as a broker, dealer,
commercial bank or trust company and who wishes to
tender Old Notes in the Exchange Offer, should
instruct such entity or person to promptly tender
on such Beneficial Owner's behalf. See "The
Exchange Offer--Procedures for Tendering Old
Notes."
-6-
<PAGE> 15
Guaranteed Delivery
Procedures . . . . . . . Holders of Old Notes who wish to tender their Old
Notes and (i) whose Old Notes are not immediately
available or (ii) who cannot deliver their Old
Notes or any other documents required by the Letter
of Transmittal to the Exchange Agent prior to the
Expiration Date, may tender their Old Notes
according to the guaranteed delivery procedures set
forth in the Letter of Transmittal. See "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes. . Upon effectiveness of the Exchange Offer
Registration Statement of which this Prospectus
constitutes a part and consummation of the Exchange
Offer, the Company will accept any and all Old
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The New Notes issued pursuant
to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. See "The
Exchange Offer--Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Withdrawal Rights. . . . . Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer
--Withdrawal Rights."
Certain Federal Income
Tax Considerations . . . There will not be any U.S. Federal income tax
consequences to holders exchanging Old Notes for
New Notes pursuant to the Exchange Offer. See
"Certain Federal Income Tax Consequences."
The Exchange Agent . . . . SunTrust Bank, Atlanta is the exchange agent (in
such capacity, the "Exchange Agent"). The address
and telephone number of the Exchange Agent are set
forth in "The Exchange Offer--The Exchange Agent;
Assistance" and on the back cover page of this
Prospectus.
Fees and Expenses . . . . All expenses incident to the Company's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by the
Company. The Company will also pay certain
transfer taxes applicable to the Exchange Offer.
See "The Exchange Offer--Fees and Expenses."
Resales of the New
Notes . . . . . . . . . Based on existing interpretations by the Staff of
the Commission set forth in "no-action" letters
issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer to
a holder in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a
holder (other than (i) a broker-dealer who
purchased the Old Notes directly from the Company
for resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) a person that is
an affiliate of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such holder is acquiring the New Notes in the
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in a
distribution of the New Notes. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker as a result of market-
making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"The Exchange Offer--Resales of the New Notes" and
"Plan of Distribution."
Effect of Not
Tendering Old Notes
for Exchange . . . . . . Old Notes that are not tendered or that are not
properly tendered will, following the expiration of
the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. The
Company will have no further obligations to provide
for the registration under the Securities Act of
such Old Notes and such Old Notes will, following
the expiration of the Exchange Offer, bear interest
at the same rate as the New Notes.
-7-
<PAGE> 16
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (ii) holders of the New Notes
will not be, and upon consummation of the Exchange Offer, holders of the Old
Notes will no longer be, entitled to any rights under the Registration Rights
Agreement intended for the holders of unregistered securities, except in
limited circumstances. See "The Exchange Offer--Termination of Certain
Rights." The Exchange Offer shall be deemed consummated upon the occurrence of
the delivery by the Company to the Registrar under the Indenture of the New
Notes in the same aggregate principal amount and maturities as the aggregate
principal amount and maturities of Old Notes that are duly tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer--Termination
of Certain Rights," "-- Procedures for Tendering Old Notes" and "Description of
the Notes and Guarantees."
Issuer . . . . . . . . . . . FelCor Suites Limited Partnership.
Securities Offered . . . . . $175,000,000 aggregate principal amount of
7 3/8% Senior Notes Due 2004 and $125,000,000
aggregate principal amount of 7 5/8% Senior Notes
Due 2007 which have been registered under the
Securities Act.
Maturity Dates . . . . . . . The New 7 3/8% Notes will mature on October 1,
2004 and the New 7 5/8% Notes will mature on
October 1, 2007.
Interest . . . . . . . . . . Interest on the New Notes is payable
semiannually in cash on October 1 and April 1
of each year, commencing April 1, 1998.
Optional Redemption . . . . . Each series of New Notes will be redeemable in
whole or in part at the option of FelCor LP at
any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of
such Notes and (ii) the sum of the present values
of the remaining scheduled payments of principal
and interest thereon discounted to the date of
redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day
months) at the Treasury Rate (as defined
herein) plus 25 basis points, plus, in each case,
accrued interest thereon to the date of
redemption. See "Description of the Notes and
Guarantees -- Optional Redemption."
Change of Control . . . . . . Upon a Change of Control (as defined herein),
each holder of the New Notes will have the right
to require FelCor LP to purchase such holder's
New Notes at a price equal to 101% of the
principal amount thereof plus accrued interest,
if any, to the date of purchase. There can be
no assurance that FelCor LP will have the
financial resources necessary to purchase the
New Notes upon a Change of Control. See
"Description of the Notes and Guarantees --
Repurchase of Notes upon a Change of Control."
Ranking . . . . . . . . . . . The Indebtedness evidenced by the New Notes
will be unsecured, senior obligations of FelCor
LP, and will rank pari passu in right of
payment with all other unsecured Senior
Indebtedness thereof, including, without
limitation, the obligations of FelCor LP under
the Line of Credit. As unsecured Senior
Indebtedness of FelCor LP and the Guarantors,
the New Notes will be effectively subordinated
to all secured Indebtedness thereof and to
the Indebtedness of the non-guarantor
Subsidiaries. As of September 30, 1997, after
giving effect to the Private Placement and the
application of the proceeds therefrom, the total
Indebtedness of FelCor LP and the Guarantors
would have been approximately $428 million,
including $12 million of secured Indebtedness.
The non-guarantor Subsidiaries had no
Indebtedness. There is currently no outstanding
indebtedness of FelCor LP or the Guarantors that
is subordinated in right of payment to the
New Notes. See "Capitalization" and
"Description of Certain Indebtedness."
-8-
<PAGE> 17
Guarantees . . . . . . . . . All payments with respect to the New Notes will
be unconditionally and irrevocably guaranteed by
FelCor and certain wholly owned Subsidiaries of
FelCor LP so long as they are obligors on other
Indebtedness of FelCor or FelCor LP which
is pari passu with or subordinated to the New
Notes. See "Description of the Notes and
Guarantees -- Guarantees."
Limitations on
Incurrence of
Indebtedness . . . . . . . . The Indenture contains certain covenants
limiting the incurrence of Indebtedness:
(1) FelCor LP, FelCor and the Restricted
Subsidiaries (as defined herein) will
not incur any Indebtedness if, after
giving effect thereto, the aggregate
principal amount of their outstanding
Indebtedness is greater than 60% of
Adjusted Total Assets (as defined
herein). After giving effect to the
application of the proceeds of the
Private Placement, Indebtedness of FelCor
LP, FelCor and the Restricted
Subsidiaries would have been
approximately 26% of Adjusted Total
Assets as of September 30, 1997.
(2) FelCor LP, FelCor and the Restricted
Subsidiaries will not incur any Secured
Debt or Subsidiary Debt (each as
defined herein) if, after giving
effect thereto, the aggregate principal
amount of their outstanding Secured Debt
and Subsidiary Debt is greater than
40% of their Adjusted Total Assets.
After giving effect to the application
of the proceeds of the Private
Placement, the Secured Debt and
Subsidiary Debt of FelCor LP, FelCor and
the Restricted Subsidiaries would have
been less than 1% of the Adjusted Total
Assets as of September 30, 1997.
(3) FelCor LP, FelCor and the Restricted
Subsidiaries will not incur any
Indebtedness if, after giving effect to
the incurrence of such Indebtedness,
their Interest Coverage Ratio (as
defined herein) would be less than 2.0 to
1. After giving effect to the application
of the proceeds of the Private Placement,
their Interest Coverage Ratio would have
been 4.8 to 1 for the 12 months ended
September 30, 1997.
(4) FelCor LP, FelCor and the Restricted
Subsidiaries will maintain Total
Unencumbered Assets (as defined herein)
of not less than 150% of the
aggregate outstanding principal amount
of their Unsecured Indebtedness (as
defined herein) on a consolidated
basis. After giving effect to the
application of the proceeds of the
Private Placement, Total Unencumbered
Assets would have been 398% of such
Unsecured Indebtedness as of September
30, 1997.
Certain Other
Covenants . . . . . . . . . . The Indenture contains certain other covenants
for the benefit of the holders of the Notes
which, among other things, restrict the ability
of FelCor LP, FelCor and the Restricted
Subsidiaries to: make certain distributions,
investments and other restricted payments; create
restrictions on the ability of Restricted
Subsidiaries to make certain payments; issue or
sell stock of Restricted Subsidiaries; enter into
transactions with affiliates; create liens; sell
assets; enter into certain sale-leaseback
transactions; and, with respect to FelCor LP and
FelCor, consolidate, merge or sell all or
substantially all of their assets. See
"Description of the Notes and Guarantees --
Covenants." However, in the event, and only for
so long as, the Notes are rated Investment Grade
(as defined herein) the covenants described under
"Description of the Notes and Guarantees --
Covenants -- Limitation on Liens," "-- Limitation
on Sale-Leaseback Transactions," "-- Limitation
on Restricted Payments," "-- Limitation on
Dividend and other Payment Restrictions Affecting
Restricted Subsidiaries," "-- Limitation on the
Issuance and Sale of Capital Stock of Restricted
Subsidiaries," "-- Limitation on Issuances of
Guarantees by Restricted Subsidiaries," and "--
Limitation on Transactions with Affiliates" will
be inapplicable.
-9-
<PAGE> 18
Absence of a Public Market
for the New Notes . . . . The New Notes are a new issue of securities
with no established trading market. Accordingly,
there can be no assurance as to the development
or liquidity of any market for the New Notes.
The Initial Purchasers have advised FelCor LP
that they currently intend to make a market in
the New Notes. However, the Initial Purchasers
are not obligated to do so, and any market
making with respect to the New Notes may be
discontinued at any time without notice.
FelCor LP does not intend to apply for listing
of the New Notes on any securities exchange.
RISK FACTORS
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE EXCHANGE OFFER.
-10-
<PAGE> 19
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables set forth summary historical and pro forma
consolidated financial information for FelCor LP and FelCor. The following
information should be read in conjunction with the historical financial
statements and notes thereto for FelCor LP and FelCor and Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are included herein. In the opinion of management, the financial data as of June
30, 1996 and 1997 and for the six months ended June 30, 1996 and 1997 include
all adjustments necessary to present fairly the information set forth therein.
The pro forma operations and other data for the year ended December 31,
1996 and for the six months ended June 30, 1997 have been prepared as if the
purchase of each of the hotels acquired prior to June 30, 1997, the hotels
acquired through September 30, 1997, the Series A Preferred Stock offering in
the second quarter of 1996, the Common Stock offerings in the first and second
quarters of 1997, and the Private Placement had been consummated on January 1,
1996. The pro forma balance sheet data has been prepared as if the purchase of
the hotels acquired through September 30, 1997, and the Private Placement had
been consummated on June 30, 1997. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of FelCor LP or FelCor would have been as of and for the periods
indicated, nor does it purport to represent the future financial position and
results of operations of FelCor LP or FelCor.
FELCOR SUITES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF
OPERATIONS) YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
THROUGH ------------------------------ ------------------------------
DECEMBER 31, HISTORICAL PRO FORMA HISTORICAL PRO FORMA
1994 ------------------ --------- ------------------- ---------
---- 1995 1996 1996(1) 1996 1997 1997(1)
------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Percentage lease revenue .............$ 6,043 $23,787 $ 97,950 $173,147(2) $ 47,385 $ 74,048 $101,175(2)
Net income applicable to unitholders . 3,418 15,322 38,793 57,202 24,544 24,358 34,827
OTHER DATA:
Lessee suite revenue .................$16,094 $65,649 $234,451 $481,471 $105,557 $202,085 $267,036
Funds From Operations assuming
conversion of preferred units(3) ... 4,905 20,707 77,141 125,466 37,002 56,335 73,734
EBITDA(4) ............................ 5,014 22,203 85,764 158,659 40,926 63,433 93,671
Ratio of EBITDA to interest paid ..... -- 15.1x 9.4x 4.9x 10.3x 6.5x 5.1x
Ratio of earnings to fixed
charges(5) ......................... 32.4x 8.6x 5.1x 3.0x 6.5x 3.2x 3.1x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- ---------------------------------
HISTORICAL HISTORICAL PRO FORMA
-------------------------------- ------------------- ---------
1994 1995 1996 1996 1997 1997(1)
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments ............. $ 1,118 $166,821 $ 7,793 $ 5,052 $ 13,394 $ 13,394
Investment in hotel properties, net ......... 104,800 325,155 899,691 798,116 1,320,982 1,443,604
Investment in unconsolidated partnerships ... -- 13,819 59,867 12,984 126,714 126,714
Total assets ................................ 108,305 548,359 978,788 825,679 1,479,574 1,611,057
Long-term debt and capital lease obligations:
7 3/8% Senior Notes Due 2004 .............. -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007 .............. -- -- -- -- -- 125,000
Unsecured Line of Credit .................. -- -- 115,000 -- 192,000 73,728
Term Loan ................................. 8,750 -- 85,000 65,000 85,000 --
Capitalized leases ........................ -- 11,256 12,875 13,771 12,048 12,048
Other unsecured debt ...................... -- 8,410 26,550 8,350 25,650 25,650
Redeemable units, at redemption value ....... 33,055 74,790 98,542 84,973 108,192 108,192
Partners' capital ........................... 61,885 445,433 468,247 486,558 887,942 922,697
</TABLE>
-11-
<PAGE> 20
FELCOR SUITE HOTELS, INC.
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF
OPERATIONS) YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
THROUGH ---------------------------- ---------------------------------
DECEMBER 31, HISTORICAL PRO FORMA HISTORICAL PRO FORMA
1994 ---------------- --------- ---------------- ----------
----------- 1995 1996 1996(1) 1996 1997 1997(1)
----- ------ --------- ----- ---- ----------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Percentage lease revenue.......... $ 6,043 $ 23,787 $ 97,950 $173,147(2) $ 47,385 $ 74,048 $101,175(2)
Net income applicable to common
shareholders ................... 2,511 12,191 33,203 52,082 21,402 21,416 31,821
OTHER DATA:
Lessee suite revenue ............. $16,094 $ 65,649 $234,451 $481,471 $105,557 $202,085 $267,036
Funds From Operations assuming
conversion of preferred stock(3) 4,905 20,707 77,141 125,466 37,002 56,335 73,734
EBITDA(4) ........................ 5,014 22,203 85,764 158,659 40,926 63,433 93,671
Ratio of EBITDA to interest paid . -- 15.1x 9.4x 4.9x 10.3x 6.5x 5.1x
Ratio of earnings to fixed
charges(5) ..................... 32.4x 8.6x 5.1x 3.0x 6.5x 3.2x 3.1x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- ---------------------------------
HISTORICAL HISTORICAL PRO FORMA
-------------------------------- --------------------- ----------
1994 1995 1996 1996 1997 1997(1)
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments........... $ 1,118 $ 166,821 $ 7,793 $ 13,394 $ 13,394 $ 5,052
Investment in hotel properties, net....... 104,800 325,155 899,691 798,116 1,320,982 1,443,604
Investment in unconsolidated partnerships -- 13,819 59,867 12,984 126,714 126,714
Total assets.............................. 108,305 548,359 978,788 825,679 1,479,574 1,611,057
Debt and capital lease obligations:
7 3/8% Senior Notes Due 2004............ -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007............ -- -- -- -- 125,000
Unsecured Line of Credit................ -- -- 115,000 -- 192,000 73,728
Term Loan............................... 8,750 -- 85,000 65,000 85,000 --
Capitalized leases...................... -- 11,256 12,875 13,771 12,048 12,048
Other unsecured debt.................... -- 8,410 26,550 8,350 25,650 25,650
Minority interest in FelCor LP............ 25,685 58,837 76,112 86,229 75,109 75,724
Shareholders' equity...................... 69,255 461,386 641,926 636,552 1,072,275 1,106,415
</TABLE>
- ----------
(1) The pro forma financial information does not purport to represent what the
financial position or results of operations of FelCor LP or FelCor
actually would have been if the purchases of each of the hotels acquired
in 1996 and 1997 (through September 30, 1997), the Series A Preferred
Stock offering, the Common Stock offerings in the first and second
quarters of 1997, and the Private Placement had, in fact, occurred on such
dates, or to project their financial position or results of operations at
any future date or for any future period.
(2) Represents lease payments from the Lessee to FelCor LP calculated on a pro
forma basis by applying the contractual or anticipated rent provisions of
the Percentage Leases to the historical suite and food and beverage
revenues of the Current Hotels.
(3) The following table computes Funds From Operations under the National
Association of Real Estate Investment Trusts ("NAREIT") definition. Funds
From Operations under the NAREIT definition consists of net income,
computed in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructurings and sales of property,
plus depreciation of real property (including furniture and equipment)
plus, in the case of FelCor, the minority interest in FelCor LP and after
adjustments for unconsolidated partnerships and joint ventures. The
computation of Funds From Operations for FelCor LP and FelCor yields the
same result.
-12-
<PAGE> 21
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF
OPERATIONS) YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
THROUGH ---------------------------- ----------------------------
DECEMBER 31, HISTORICAL PRO FORMA HISTORICAL PRO FORMA
1994 ---------------- --------- -------------- ---------
----------- 1995 1996 1996(1) 1996 1997 1997(1)
----- ------ --------- ----- ---- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income........................... $ 2,511 $ 12,191 $ 40,937 $ 63,880 $ 23,237 $ 27,315 $ 37,720
Add:
Minority interest in
FelCor LP......................... 907 3,131 5,590 5,120 3,142 2,942 3,006
Depreciation......................... 1,487 5,232 26,544 46,113 10,304 21,730 27,831
Depreciation for unconsoli-
dated subsidiaries................. -- 153 1,716 10,353 319 4,348 5,177
Extraordinary charge from writeoff
of deferred financing fees......... -- -- 2,354 -- -- -- --
-------- -------- -------- -------- -------- --------- --------
Funds From Operations
assuming conversion of
preferred stock..................... $ 4,905 $ 20,707 $ 77,141 $125,466 $ 37,002 $ 56,335 $ 73,734
======== ======== ======== ======== ======== ========= ========
</TABLE>
Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indication of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds From
Operations does not reflect cash expenditures for capital improvements or
principal repayment of debt.
(4) EBITDA is computed by adding net income, minority interest in FelCor LP,
interest expense, income taxes, depreciation expense, amortization expense,
extraordinary expenses and cash distributions paid by unconsolidated
partnerships and deducting extraordinary income and income from
unconsolidated partnerships. The computation of EBITDA for FelCor LP and
FelCor yields the same result. The differences between Funds From
Operations and EBITDA are scheduled in the following table.
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
OPERATIONS) ----------------------------------- -----------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31,---------------------- --------- ---------------------- ---------
1994 1995 1996 1996(1) 1996 1997 1997(1)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations assuming
conversion of preferred stock .... $ 4,905 $ 20,707 $ 77,141 $ 125,466 $ 37,002 $ 56,335 $ 73,734
Add:
Interest expense ................. 109 2,004 9,803 32,829 4,513 12,914 18,889
Amortization expense ............. -- 158 592 592 215 557 557
Cash distributions from
unconsolidated partnerships .... -- -- 1,954 13,248 -- 1,402 9,000
Deduct:
Income from unconsolidated
partnerships ................... -- (513) (2,010) (3,123) (485) (3,427) 3,332)
Depreciation from unconsolidated
partnerships ................... -- (153) (1,716) (10,353) (319) (4,348) (5,177)
--------- --------- --------- --------- --------- --------- ---------
EBITDA ............................. $ 5,014 $ 22,203 $ 85,764 $ 158,659 $ 40,926 $ 63,433 $ 93,671
========= ========= ========= ========= ========= ========= =========
</TABLE>
(5) For purposes of computing ratio of earnings to fixed charges, earnings
consist of net income plus fixed charges and minority interest expense in
FelCor LP (with respect to FelCor), excluding capitalized interest, and
fixed charges consist of interest, whether expensed or capitalized,
and amortization of loan costs.
-13-
<PAGE> 22
RISK FACTORS
An investment in the Notes involves a significant degree of risk. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following factors in evaluating the
Exchange Offer.
RISKS OF LEVERAGE; FLOATING RATE DEBT; INABILITY TO RETAIN EARNINGS
At September 30, 1997, after giving effect to the Private Placement and
the application of the proceeds therefrom, the Company's outstanding
Indebtedness would have been approximately $428 million, including approximately
$91 million under the Line of Credit which bears interest at floating rates.
Since the Company intends to continue to acquire additional hotels, and must
distribute annually at least 95% of its taxable net income to maintain its REIT
status, it may borrow additional funds to make investments or distributions. The
Board of Directors has the discretion to permit the Company to incur debt,
subject to the current policy of the Board of Directors limiting indebtedness to
not more than 40% of the Company's investment in hotel properties, at cost, on a
consolidated basis, after giving effect to the Company's use of proceeds from
any indebtedness. The Company has obtained the Line of Credit to provide, as
necessary, funds for investments in additional hotel properties, working capital
and cash to make distributions. The Company's use of the Line of Credit for
working capital, distributions and general corporate purposes is limited to 10%
of the amount available thereunder. The majority of the Company's floating rate
debt bears interest at LIBOR (5.656% at September 30, 1997) plus an amount
between 0.45% and 1.5%.
There can be no assurance that the Company will be able to meet its
present or future debt service obligations and, to the extent that it cannot, it
risks the loss of certain of its assets to foreclosure. Changes in economic
conditions could result in higher interest rates which could increase debt
service requirements on the Company's floating rate debt. Adverse economic
conditions could cause the terms on which borrowings become available to be
unfavorable. In such circumstances, if the Company is in need of capital to
repay indebtedness in accordance with its terms or otherwise, it could be
required to liquidate one or more investments in hotel properties at times which
may not permit realization of the maximum return on such investments.
In order to qualify as a REIT, the Company generally is required each
year to distribute to its shareholders at least 95% of its net taxable income
(excluding any net capital gain). In addition, the Company is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income, (ii) 95% of its capital gain net income for that year, and
(iii) any undistributed taxable income from prior periods. The Company intends
to continue to make distributions to its shareholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise tax. FelCor's
income consists primarily of its share of the income of FelCor LP, and FelCor's
cash available for distribution consists primarily of its share of cash
distributions from FelCor LP. Differences in timing between taxable income and
cash available for distribution due to the seasonality of the hospitality
industry could require the Company to borrow funds on a short-term basis to meet
the 95% distribution requirement and to avoid the nondeductible excise tax. In
such a case, the Company also would be required to borrow funds to make payments
of principal and interest on Indebtedness.
HOTEL INDUSTRY RISKS
Operating Risks
The Company's hotels are subject to all operating risks common to the
hotel industry. These risks include, among other things, intense competition
from other hotels; over-building in the hotel industry which has adversely
affected occupancy, ADR and RevPAR in the past; increases in operating costs due
to inflation and other factors, which increases have not always been, and may
not necessarily in the future be, offset by increased suite/room rates;
dependence on business and commercial travelers and tourism; increases in energy
costs and other expenses of travel; and adverse effects of general and local
economic conditions. Such factors could adversely affect the Lessee's ability to
make lease payments and, consequently, the Company's ability to make any
required payments of principal and interest on indebtedness. Further, annual
adjustments to the base rent and the thresholds for computation of percentage
rent, based upon a formula taking into account changes in the U.S. Consumer
Price Index ("CPI"), would (in the absence of offsetting increases in suite
revenue and in the event of any decrease in suite revenues) result in decreased
revenues to the Company under the Percentage Leases and decreased amounts
available for required payments of principal and interest on indebtedness.
-14-
<PAGE> 23
Competition
Competition for Guests; Operations. The hotel industry is highly
competitive. Each of the Company's hotels experiences competition primarily from
other upscale hotels in its immediate vicinity, but also competes with other
hotel properties in its geographic market. Some of the competitors of the
Company's hotels have substantially greater marketing and financial resources
than the Company and the Lessee. A number of additional hotel rooms are in
development, have been announced or have recently been completed in a number of
the Company's markets, and additional hotel rooms may be developed in the
future. Such additional hotel rooms could have an adverse effect on the revenues
of the Company's hotels in such markets.
Competition for Acquisitions. The Company may be competing for
investment opportunities with entities which have substantially greater
financial resources than the Company. These entities may generally be able to
accept more risk than the Company prudently can manage. Competition may
generally reduce the number of suitable investment opportunities offered to the
Company and increase the bargaining power of property owners seeking to sell.
Seasonality of Hotel Business
The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
Through diversity in the geographic location and in the primary customer base of
the Company's hotels, the Company may be able to lessen, but not eliminate, the
effects of seasonality. Accordingly, seasonality can be expected to cause
quarterly fluctuations in the Company's lease revenue, to the extent it receives
percentage rent.
Investment Concentration in Single Industry
The Company's current strategy is to acquire interests exclusively in
hotel properties. The Company will not seek to invest in assets selected to
reduce the risks associated with investments in the hotel industry, and will be
subject to risks inherent in concentrating investments in a single industry.
Therefore, the adverse effect on the Company's lease revenue and amounts
available for required payments of principal and interest on indebtedness and to
make distribution to shareholders resulting from a downturn in the hotel
industry will be more pronounced than if the Company had diversified its
investments outside of the hotel industry. In addition, the Company's hotels are
concentrated in the Upper Upscale category of the hotel industry, particularly
the all-suite segments therein.
Emphasis on Embassy Suites Hotels; Market Concentration
Fifty-one of the Company's 71 Current Hotels are operated under, and
one is in the process of being converted to, the Embassy Suites brand.
Accordingly, the Company is subject to risks inherent in concentrating the
Company's investments in the Embassy Suites brand, such as a reduction in
business following adverse publicity related to the brand, which could have an
adverse effect on the Company's lease revenues and amounts available for
required payments of principal and interest on indebtedness and to make
distributions to shareholders.
The Current Hotels are located in 26 states; however, almost one-half
of such hotels are located in three states, with 11 hotels located in each of
Florida and California and nine hotels located in Texas. Therefore, adverse
events or conditions which affect those areas particularly (such as natural
disasters or adverse changes in local economic conditions) could have a more
pronounced negative impact on the operations of the Company and amounts
available for required payments of principal and interest on indebtedness than
events affecting other areas.
OPERATIONAL RISKS OF RAPID GROWTH
The Company's acquisition of interests in 58 hotels between late 1995
and September 30, 1997, has resulted in a substantial increase in the number and
geographic dispersion of the hotels owned by the Company and leased to the
Lessee. As a result, the Company has added five senior management personnel as
well as additional accounting and administrative personnel between mid-1995 and
September 30, 1997. To the extent the Company is unable to retain or hire
experienced personnel to manage its business and assets, its operations could be
adversely affected. Continued growth may result in increased demands upon, or
additions to, the Company's staff. The increased demand upon the time of such
employees, particularly if additional qualified staff cannot be obtained, could
adversely affect the operations and revenues of the Company.
-15-
<PAGE> 24
RISK OF FRAUDULENT TRANSFER LIABILITY
The management of FelCor believes that the indebtedness represented by
the Notes and the Subsidiary Guarantees was incurred for proper purposes and in
good faith, and that, based on present forecasts, asset valuations and other
financial information, the Company is solvent, has sufficient capital for
carrying on its businesses and is able to pay its debts as they mature.
Notwithstanding management's belief, if a court of competent jurisdiction in a
suit by an unpaid creditor or a representative of creditors (such as a trustee
in bankruptcy or a debtor-in-possession) were to find that either FelCor, FelCor
LP or the Subsidiary Guarantors did not receive fair consideration or reasonably
equivalent value for issuing the Notes or the Subsidiary Guarantees and, at the
time of the incurrence of indebtedness represented by the Notes or the
Subsidiary Guarantees, such entity was insolvent, was rendered insolvent by
reason of such incurrence, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, intended to hinder,
delay or defraud its creditors, such court could avoid such indebtedness or
subordinate such indebtedness to other existing and future indebtedness of such
entity. The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the relevant jurisdiction. Generally, however, an
entity would be considered insolvent for purposes of the foregoing if the sum of
an entity's debts is greater than all of its property at a fair valuation, or if
the present fair saleable value of the entity's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and matured.
RESTRICTIVE DEBT COVENANTS
The terms of the Line of Credit and Indenture contain certain
restrictive covenants, including, among others, covenants which may prohibit or
significantly restrict the ability of FelCor, FelCor LP and certain of their
subsidiaries to incur indebtedness, make investments, engage in transactions
with shareholders and affiliates, incur liens, create restrictions on the
ability of certain subsidiaries to pay dividends or make certain payments to the
Company, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
such entities. In addition, the Company is required under the Line of Credit to
maintain certain specified financial ratios. There can be no assurance that the
Company will be able to maintain such ratios or that such covenants will not
adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of the Company. The breach of any of these covenants or the inability
of the Company to comply with the required financial ratios could result in a
default under the Line of Credit or the Indenture. In the event of any such
default, all amounts borrowed under the Line of Credit or the Indenture,
together with accrued interest, could be declared to be due and payable. If the
Indebtedness under the Line of Credit or the Indenture were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay such Indebtedness in full. See "Description of Certain Indebtedness" and
"Description of the Notes and Guarantees."
DEPENDENCE ON LESSEE'S HOTEL OPERATIONS
The Company's revenues consist primarily of lease revenue under the
Percentage Leases. The obligations of the Lessee under the Percentage Leases are
unsecured. The Lessee's only assets are cash, receivables, inventory, supplies
and prepaid expenses needed in the operation of the Current Hotels, the
franchise licenses for the Current Hotels, its rights and benefits under the
Percentage Leases and the management contracts relating to such hotels and,
subject to certain limitations, its right to borrow on a subordinated basis up
to approximately $9 million from its equity owners. At June 30, 1997, the Lessee
had a deficit in total shareholders' equity of approximately $5.4 million.
Consequently, both the Company and the Lessee are substantially dependent upon
the operations of the Current Hotels.
RISKS OF OPERATING HOTELS UNDER FRANCHISE AGREEMENTS
Fifty-one of the Current Hotels are being operated under, and one is in
the process of being converted to, the Embassy Suites brand. Of the 19 remaining
Current Hotels, 12 are operated as Doubletree Guest Suites hotels, under
management contracts with Doubletree, six are operated as Sheraton hotels, under
management contracts with Sheraton, and one is, and may continue to be, operated
under a franchise license as a Hilton Suites hotel. No assurance can be provided
that the Company will not be required to make and fund significant additional
improvements to the Current Hotels in the future to obtain or maintain its
franchise licenses. Failure to complete improvements, when required, in a manner
satisfactory to the franchisor could result in the failure to issue, or the
cancellation, of one or more franchise licenses. In addition, the Company may
desire to operate additional hotels acquired by it under franchise licenses from
Promus or another franchisor, and such franchisors may require that significant
capital expenditures be made to such additional hotels as a condition of
granting such franchise licenses.
-16-
<PAGE> 25
The continuation of franchise licenses for the Current Hotels is
subject to the maintenance of specified operating standards and other terms and
conditions. Promus periodically inspects its licensed properties to confirm
adherence to its maintenance and operating standards. Under each Percentage
Lease, the Company is obligated, among other things, to pay the costs of
maintaining the structural elements of each hotel and to set aside as a reserve
4% of hotel suite revenues per month, on a cumulative basis, and to fund from
the reserve or from other sources capital expenditures (subject to approval by
the Company's Board of Directors) for the periodic replacement or refurbishment
of furniture, fixtures and equipment required for the retention of such
franchise licenses. During the period from the closing of the Company's initial
public offering to December 31, 1996, the Company made, and in the future may be
obligated or deem it advisable to make, capital investments in the Current
Hotels in excess of 4% of the suite revenues thereof. Should the Company be
required or elect to do so in the future, such investments may necessitate the
use of borrowed funds or the reduction of distributions. The Lessee is
responsible for routine maintenance and repair expenditures with respect to the
Current Hotels. The failure to maintain the standards or adhere to the other
terms and conditions of the Embassy Suites or other franchise licenses could
result in the loss or cancellation of such franchise licenses. It is possible
that a franchisor could condition the continuation of a franchise license upon
the completion of substantial capital improvements, which the Board of Directors
may determine to be too expensive or otherwise unwarranted in light of general
economic conditions or the operating results or prospects of the affected hotel.
In that event, the Board of Directors may elect to allow the franchise license
to lapse, in which event the Company will be obligated to indemnify the Lessee
against any loss or liability incurred by it as a consequence of such decision.
In any case, if a franchise is terminated, the Company and the Lessee may seek
to obtain a suitable replacement franchise, or to operate the affected hotel
independent of a franchise license. The loss of any franchise license could have
a material adverse effect upon the operations or the underlying value of the
hotel covered by such license because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchisor. The loss of a number of the franchise licenses for the Current
Hotels could have a material adverse effect on the Company's revenues under the
Percentage Leases and the Company's cash available to make required payments of
principal and interest on indebtedness and to make distributions to its
shareholders.
CONFLICTS OF INTEREST
General
Because of the direct and indirect ownership interests of Messrs.
Feldman, Corcoran and Mathewson in, and their positions with, the Company and
the Lessee, there are inherent conflicts of interest in connection with the
Company's purchase of the Initial Hotels, in which such persons held an
interest, and in the ongoing lease and operation of the Company's hotels.
Accordingly, the interests of the Company's shareholders may not have been, and
in the future may not be, solely reflected in all decisions made or actions
taken by such officers and directors of the Company. In an effort to address one
of the primary continuing conflicts, Messrs. Feldman and Corcoran have entered
into an agreement with the Company to utilize any amounts distributed to them
from the Lessee, in excess of their tax liability for the earnings of the
Lessee, to purchase from the Company additional shares of Common Stock (or
Units) at the then current market price.
No Arms-Length Bargaining on Percentage Leases
The terms of the Percentage Leases were not negotiated on an
arms-length basis and, accordingly, may not reflect fair market values or terms.
Management of the Company believes, however, that the terms of such agreements
are fair to the Company. The lease payments under the Percentage Leases have
been, and will be, calculated with reference to historical financial data and
the projected operating and financial performance of the hotels. The terms of
the Percentage Leases are believed by management of the Company to be typical of
provisions found in other leases entered into in similar transactions. The
Percentage Leases are approved by the Company's "Independent Directors," being
those directors who are not officers or employees of the Company or affiliates
of any subsidiary or lessee thereof. The Company does not own any interest in
the Lessee. All of the voting Class A membership interest in the Lessee
(representing a 50% equity interest) is owned beneficially by Messrs. Feldman
and Corcoran and all of the non-voting Class B membership interest in the Lessee
(representing the remaining 50% equity interest) is held by RGC Leasing, Inc., a
Nevada corporation owned by the children of Mr. Mathewson, a director of the
Company. As a result, such persons may have a conflict of interest with the
Company in the performance of their management services to the Company in
connection with the Percentage Leases.
Adverse Tax Consequences to Certain Affiliates on a Sale of Initial Hotels
Certain affiliates of the Company may have unrealized gain in their
investments in the six Initial Hotels acquired by the Company at its inception
on July 28, 1994. A subsequent sale of such hotels by the Company, although not
restricted by agreement, may cause adverse tax consequences to such persons.
Therefore, the interests of the Company and certain of its affiliates, including
Messrs. Feldman, Corcoran and Mathewson, could be different in connection with
the disposition of any of such hotels. However, decisions with respect to the
disposition of all hotel properties in which the Company invests will be made by
a majority of the Board of Directors, which majority must include a majority of
the Independent Directors when the disposition involves any of the Initial
Hotels.
-17-
<PAGE> 26
RELIANCE ON KEY PERSONNEL
The Company's future success, including particularly the implementation
of the Company's acquisition growth strategy, is substantially dependent on the
active participation of Messrs. Feldman and Corcoran. The loss of the services
of either of these individuals could have a material adverse effect on the
Company.
REAL ESTATE INVESTMENT RISKS
The Company's investments are subject to varying degrees of risk
generally incident to the ownership of real property, including, in addition to
the risks discussed below, adverse changes in general or local economic
conditions, zoning laws, traffic patterns and neighborhood characteristics, tax
rates, governmental rules and fiscal policies, and by civil unrest, acts of war,
and other adverse factors which are beyond the control of the Company.
Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions will be limited. Also, no assurances can be given that the market
value of any of the Current Hotels will not decrease in the future. There can be
no assurance that the Company will be able to dispose of an investment when it
finds disposition advantageous or necessary or that the sale price realized in
any disposition will recoup or exceed the amount of the Company's investment
therein.
Uninsured and Underinsured Losses
Each of the Current Hotels is covered by comprehensive policies of
insurance, including liability, fire and extended coverage. Management believes
such specified coverage is of the type and amount customarily obtained by owners
of real property assets. However, there are certain types of losses, generally
of a catastrophic nature, such as earthquakes, hurricanes and floods, that may
be uninsurable or not economically insurable. Eleven of the Current Hotels are
located in California, which is subject to relatively higher seismic risks.
Although each of such hotels was constructed under the more recent and stringent
post-1984 building codes that were intended to reduce the likelihood or extent
of damage from seismic activity, no assurance can be given that an earthquake
would not cause substantial damage and losses. Additionally, 16 of the Current
Hotels are located in the coastal areas of Florida, Georgia, Louisiana, South
Carolina or Texas and may, therefore, be particularly susceptible to potential
damage from hurricanes or high-wind activity. The Company presently maintains
and intends to continue to maintain earthquake insurance on each of the Current
Hotels located in California and wind damage insurance on its hotels located in
Florida, Georgia, Louisiana, South Carolina and Texas, to the extent
practicable. The Company's Board of Directors may exercise discretion in
determining amounts, coverage limits and the deductibility provisions of
insurance, with a view to maintaining appropriate insurance coverage on the
Company's investments at a reasonable cost and on suitable terms. This may
result in insurance coverage that, in the event of a substantial loss, would not
be sufficient to pay the full current market value or current replacement cost
of the Company's lost investment. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
impractical to use insurance proceeds to replace the property after such
property has been damaged or destroyed. Under such circumstances, the insurance
proceeds received by the Company might not be adequate to restore its economic
position with respect to such property.
Environmental Matters
Under various federal, state, and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Liability also may extend to persons holding a
security interest in the property, under certain limited circumstances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to properly remediate such contaminated property, may adversely
affect the owner's ability to dispose of such property, to fully utilize such
property without restriction or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for release of hazardous
or toxic substances, including the release of asbestos-containing materials
("ACMs") into the air, and third parties may seek recovery from owners or
operators of real properties for personal injury or property damage associated
with such releases, including exposure to released ACMs. Environmental laws also
may impose restrictions on the manner in which property may be used or
businesses may be operated, and these restrictions may require expenditures.
Environmental laws provide for sanctions in the event of noncompliance and may
be enforced by governmental agencies or, in certain circumstances, by private
parties. In connection with the ownership of the Current Hotels and any
subsequently acquired hotels, the Company may be potentially liable for such
costs. The cost of defending against claims of
-18-
<PAGE> 27
liability, of compliance with environmental regulatory requirements or of
remediating a contaminated property could materially adversely affect the
business, assets or results of operations of the Company and, consequently,
amounts available for required payments of principal and interest on
indebtedness and to make distributions to the Company's shareholders.
Phase I environmental audits from independent environmental engineers
were obtained with respect to substantially all of the Current Hotels prior to
the acquisition thereof by the Company. The principal purpose of Phase I audits
is to identify indications of potential environmental contamination for which
the Current Hotels may be responsible and, secondarily, to assess, to a limited
extent, the potential for environmental regulatory compliance liabilities. The
Phase I audits of the Current Hotels were designed to meet the requirements of
the then current industry standards governing Phase I audits, and consistent
with those requirements, none of the audits involved testing of groundwater,
soil or air. Accordingly, they do not represent evaluations of conditions at the
studied sites that would be revealed only through such testing. In addition,
their assessment of environmental regulatory compliance issues was general in
scope and was not a detailed determination of the Current Hotels' complete
compliance status. Similarly, the audits did not involve comprehensive analysis
of potential off-site liability. The Phase I audit reports have not revealed any
environmental liability that management believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is the
Company aware of any such liability. Nevertheless, it is possible that these
reports do not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware.
Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While management of the Company believes
that, based upon an examination thereof and consultation with professionals, the
Current Hotels are substantially in compliance with these requirements, a
determination that the Company is not in compliance with the ADA could result in
the imposition of fines or an award of damages to private litigants. If the
Company were required to make substantial modifications at the Current Hotels to
comply with the ADA, the Company's ability to make required payments of
principal and interest on indebtedness and to make distributions to its
shareholders could be adversely affected.
Increases in Property Taxes
Each Current Hotel is subject to real and personal property taxes. The
real and personal property taxes on hotel properties in which the Company
invests may increase as property tax rates change and as the properties are
assessed or reassessed by taxing authorities. If property taxes increase, the
Company's ability to make required payments of principal and interest on
indebtedness and to make distributions to its shareholders could be adversely
affected.
ABSENCE OF PUBLIC MARKET
The New Notes are new issues of securities, have no established trading
market and may not be widely distributed. The Company does not intend to list
the New Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. The Company has been advised by the Initial Purchasers that
they presently intend to make a market in the New Notes. However, the Initial
Purchasers are not obligated to do so and any market making activities with
respect to the New Notes may be discontinued at any time without notice. In
addition, such market making activity will be subject to the limitations imposed
by the Exchange Act and may be limited during the Exchange Offer and at certain
other times. No assurance can be given that an active public or other trading
market will develop for the New Notes or as to the liquidity of any trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market for the New Notes
develops, any such market may be discontinued at any time. If a public trading
market develops for the New Notes, future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other facts, including the financial condition of the Company,
the New Notes may trade at a discount from their principal amount.
-19-
<PAGE> 28
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by FelCor LP to the Initial Purchasers on
October 1, 1997, pursuant to the Placement Agreement. The Initial Purchasers
subsequently resold the Old Notes to Qualified Institutional Buyers in
compliance with Rule 144A and to a limited number of institutional Accredited
Investors that, prior to their purchase of Old Notes, delivered to the Initial
Purchasers a letter containing certain representations and agreements. FelCor
LP, FelCor and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which FelCor LP agreed, with respect to the Old Notes
and subject to the Company's determination that the Exchange Offer is permitted
under applicable law, to cause to be filed a registration statement with the
Commission under the Securities Act concerning the Exchange Offer, to use its
best efforts to cause such registration statement to be declared effective by
the Commission, and to cause the Exchange Offer to be consummated on or prior
to April 1, 1998. The Company will keep the Exchange Offer open for a period of
not less than 20 business days and not more than 30 business days. This
Exchange Offer is intended to satisfy the Company's exchange offer obligations
under the Registration Rights Agreement.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Following the expiration of the Exchange Offer, holders of Old Notes
not tendered, or not properly tendered, will not have any further registration
rights and such Old Notes will continue to be subject to the existing
restrictions on transfer thereof. Accordingly, the liquidity of the market for a
holder's Old Notes could be adversely affected upon expiration of the Exchange
Offer if such holder elects not to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
FelCor LP hereby offers, upon the terms and subject to the conditions
set forth herein and in the accompanying Letter of Transmittal, to exchange (i)
$1,000 in principal amount of the New 7 3/8% Notes for each $1,000 in principal
amount of the outstanding Old 7 3/8% Notes and (ii) $1,000 in principal amount
of the New 7 5/8% Notes for each $1,000 in principal amount of the outstanding
Old 7 5/8% Notes. Global New Notes will be exchanged for Global Old Notes and
Certificated New Notes will be exchanged for Certificated Old Notes. FelCor LP
will accept for exchange any and all Old Notes that are validly tendered on or
prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to the terms and provisions of the Registration
Rights Agreement. See "--Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Old Notes.
As of the date of this Prospectus, $175 million in aggregate principal
amount of the Old 7 3/8% Notes and $125 million in aggregate principal amount
of Old 7 5/8% Notes, is outstanding. As of October 28, 1997, (i) there was one
registered holder of the Old 7 3/8% Notes, Cede & Co., which held the Old 7
3/8% Notes for 28 of its participants and (ii) there were six registered
holders of the Old 7 5/8% Notes, Cede & Co., which held $122 million in
principal amount of the Old 7 5/8% Notes for 27 of its participants, and five
institutional Accredited Investors holding an aggregate of $3 million in
principal amount of the Old 7 5/8% Notes. Solely for reasons of administration,
FelCor LP has fixed the close of business on November __, 1997, as the record
date (the "Record Date") for purposes of determining the persons to whom this
Prospectus and the Letter of Transmittal initially will be mailed. Only a
holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may participate in the Exchange Offer. There will be no fixed
record date for determining holders of the Old Notes entitled to participate in
the Exchange Offer. FelCor LP believes that, as of the date of this Prospectus,
no such holder is an affiliate (as defined in Rule 405 under the Securities
Act) of FelCor LP.
FelCor LP shall be deemed to have accepted validly tendered Old Notes
when, as and if FelCor LP has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purposes of receiving the New Notes from FelCor LP.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
-20-
<PAGE> 29
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be __________ ___, 1997, at 5:00 p.m., New
York City time, unless FelCor LP, in its sole discretion, extends the Exchange
Offer, in which case the Expiration Date shall be the latest date and time to
which the Exchange Offer is extended, but shall not be later than __________
___, 1997.
In order to extend the Exchange Offer, FelCor LP will notify the
Exchange Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "--Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by FelCor LP to constitute a material change,
FelCor LP will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
Modification of the Exchange Offer, including, but not limited to, (i) extension
of the period during which the Exchange Offer is open and (ii) satisfaction of
the conditions set forth below under "--Conditions of the Exchange Offer" may
require that at least five (5) business days remain in the Exchange Offer.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount
of the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Exchange Offer Registration Statement of which this Prospectus constitutes a
part.
ACCRUED INTEREST
The New 7 3/8% Notes will bear interest at a rate equal to 7 3/8% per
annum and the New 7 5/8% Notes will bear interest at a rate equal to 7 5/8% per
annum, which interest shall accrue from October 1, 1997 or from the most recent
Interest Payment Date with respect to the Old Notes to which interest was paid
or duly provided for. See "Description of the Notes and Guarantees--General."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the
acceptance thereof by FelCor LP will constitute a binding agreement between the
tendering holder and the Company upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must deliver such Old Notes, together with a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at the
address set forth under "-- The Exchange Agent; Assistance" and on the back
cover page of this Prospectus prior to 5:00 p.m., New York City time, on the
Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant hereto are tendered (i) by a registered holder of the Old
Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" in the Letter
of Transmittal, or (ii) by an Eligible Institution (as defined under "The
Exchange Offer--Procedures for Tendering Old Notes"). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such guarantee must be by a firm which is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution, or (ii) be
accompanied by a bond power, in satisfactory form as determined by FelCor LP in
its sole discretion, duly executed by the registered holder, with the signature
thereon guaranteed by an Eligible Institution. The term "registered holder" as
used herein with respect to the Old Notes means any person in whose name the Old
Notes are registered on the books of the Registrar.
-21-
<PAGE> 30
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by FelCor LP in its sole discretion, which determination shall be
final and binding. FelCor LP reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes FelCor LP's
acceptance of which might, in the judgment of FelCor LP or its counsel, be
unlawful. FelCor LP also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by FelCor LP
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as FelCor LP shall determine. FelCor LP will
use reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of
attorney or any other document required by the Letter of Transmittal is signed
by a trustee, executor, corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and,
unless waived by FelCor LP, proper evidence satisfactory to FelCor LP, in its
sole discretion, of such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to FelCor LP that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course of
business of the holder and each Beneficial Owner, (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the Staff of the Commission set forth in "no-action"
letters that are discussed herein under "--Resales of the New Notes," (iv) that
if the holder is a broker-dealer that acquired Old Notes as a result of market
making or other trading activities, it will deliver a prospectus in connection
with any resale of New Notes acquired in the Exchange Offer, (v) the holder and
each Beneficial Owner understand that a secondary resale transaction described
in clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Securities Act, and (vi) neither the holder nor any
Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities
Act, of FelCor LP except as otherwise disclosed to FelCor LP in writing.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes or any
other documents required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Letter of Transmittal. Pursuant
to such procedures: (i) such tender must be made by or through an Eligible
Institution and a Notice of Guaranteed Delivery (as defined in the Letter of
Transmittal) must be signed by such holder, (ii) on or prior to the Expiration
Date, the Exchange Agent must have received from the holder and the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number or numbers of the tendered Old
Notes, and the principal amount of tendered Old Notes, stating that the tender
is being made thereby and guaranteeing that, within five (5) business days after
the date of delivery of the Notice of Guaranteed Delivery, the tendered Old
Notes, a duly executed Letter of Transmittal and any other required documents
will be deposited by the Eligible Institution with the Exchange Agent, and (iii)
such properly completed and executed documents required by the Letter of
Transmittal and the tendered Old Notes in proper form for transfer must be
received by the Exchange Agent within five (5) business days after the
Expiration Date. Any Holder who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery and Letter of Transmittal
relating to such Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
-22-
<PAGE> 31
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, FelCor LP will accept any and all Old Notes that are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. For purposes of the Exchange Offer,
FelCor LP shall be deemed to have accepted validly tendered Old Notes, when, as,
and if FelCor LP has given oral or written notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents; provided,
however, that FelCor LP reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason, such unaccepted Old Notes
will be returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written
notice to the Exchange Agent, at its address set forth on the back cover page of
this Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depository"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depository,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by FelCor LP, in its sole discretion. The Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered for exchange but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "The Exchange
Offer--Procedures for Tendering Old Notes" at any time on or prior to the
Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
SunTrust Bank, Atlanta is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and requests for assistance and requests for
additional copies of this Prospectus, the Letter of Transmittal and other
related documents should be addressed to the Exchange Agent as follows:
BY REGISTERED OR CERTIFIED MAIL, HAND DELIVERY OR OVERNIGHT COURIER:
SunTrust Bank, Atlanta SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex c/o First Chicago Trust Company
Atlanta, Georgia 30302 or 14 Wall Street, 8th Floor
Attention: David M. Kaye New York, New York 10005
BY FACSIMILE:
(404) 332-3966 (GA)
or
(212) 240-8938 (NY)
-23-
<PAGE> 32
FEES AND EXPENSES
All expenses incident to FelCor LP's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by FelCor
LP, including, without limitation: (i) all registration and filing fees
(including fees and expenses of compliance with state securities or Blue Sky
laws), (ii) printing expenses (including expenses of printing certificates for
the New Notes in a form eligible for deposit with DTC and of printing
prospectuses), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for FelCor LP, (v) fees and disbursements of
independent certified public accountants, (vi) rating agency fees, and (vii)
internal expenses of FelCor LP (including all salaries and expenses of officers
and employees of FelCor LP performing legal or accounting duties).
FelCor LP has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others for
soliciting acceptance of the Exchange Offer. FelCor LP, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
FelCor LP will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, as reflected in FelCor LP's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by FelCor LP for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the New Notes.
RESALES OF THE NEW NOTES
Based on an interpretation by the Staff of the Commission set forth in
"no-action" letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer to a holder in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such holder
(other than (i) a broker-dealer who purchased Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such holder is acquiring the
New Notes in the ordinary course of business and is not participating, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes. The Company has not requested or obtained an
interpretive letter from the Staff of the Commission with respect to this
Exchange Offer, and the Company and the holders are not entitled to rely on
interpretive advice provided by the Staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any holder acquires New
Notes in the Exchange Offer for the purpose of distributing or participating in
a distribution of the New Notes, such holder cannot rely on the position of the
Staff of the Commission enunciated in Morgan Stanley & Co., Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available April
13, 1989), or interpreted in the Commission's letter to Shearman & Sterling
(available July 2, 1993), or similar "no-action" or interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Company within the meaning of the Securities
Act will be subject to certain limitations on resale under Rule 144 of the
Securities Act. Such persons will only be entitled to sell New Notes in
compliance with the volume limitations set forth in Rule 144, and sales of New
Notes by affiliates will be subject to certain Rule 144 requirements as to the
manner of sale, notice and the availability of current public information
regarding the Company. The foregoing is a summary only of Rule 144 as it may
apply to affiliates of the Company. Any such persons must consult their own
legal counsel for advice as to any restrictions that might apply to the resale
of their Notes.
-24-
<PAGE> 33
CAPITALIZATION
The following table sets forth the capitalization of FelCor LP at June
30, 1997 and as adjusted to reflect (i) hotel purchases through September 30,
1997, (ii) cash contributed from the issuance of additional Units associated
with the exercise of the underwriters' overallotment option to purchase Common
Stock from the June 30, 1997 Common Stock offering by FelCor, and (iii) the sale
of the Old Notes in the Private Placement and the application of the net
proceeds therefrom to reduce indebtedness.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of Term Loan ............................................ $ 2,399 $ --
Current portion of capitalized leases ................................... 2,278 2,278
---------- ----------
Total short-term debt ........................................... $ 4,677 $ 2,278
========== ==========
Long-term debt:
7 3/8% Senior Notes Due 2004 ............................................ -- $ 175,000
7 5/8% Senior Notes Due 2007 ............................................ -- 125,000
Line of Credit .......................................................... $ 192,000 73,728
Term Loan ............................................................... 82,601 --
Capitalized leases ...................................................... 9,770 9,770
Other unsecured debt .................................................... 25,650 25,650
---------- ----------
Total long-term debt ............................................ 310,021 409,148
---------- ----------
Redeemable units, at redemption value ..................................... 108,192 108,192
Preferred units ........................................................... 151,250 151,250
Partners' capital(1) ...................................................... 887,942 922,697
---------- ----------
Total capitalization ............................................ $1,457,405 $1,591,287
========== ==========
</TABLE>
- ------------------
(1) Includes an aggregate of 162,500 Units issued to reflect shares awarded
under FelCor's Restricted Stock and Stock Option Plans, of which 75,900
shares are fully vested and 86,600 shares vest ratably over five years
(unvested shares being subject to forfeiture under certain conditions).
Excludes (a) 4,689,960 Units issuable to reflect shares of Common Stock
issuable upon conversion of FelCor's outstanding Series A Preferred
Stock and (b) 1,449,500 Units issuable to reflect shares of Common
Stock issuable upon the exercise of outstanding stock options granted
to employees of FelCor.
-25-
<PAGE> 34
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables set forth selected historical and pro forma
financial information for FelCor LP and FelCor.
With respect to each of FelCor LP and FelCor, the following tables set
forth (i) selected historical operating and other financial information for the
period from July 28, 1994 (inception of operations) to December 31, 1994 and the
years December 31, 1995 and 1996 and the six months ended June 30, 1996 and
1997, (ii) selected historical balance sheet data as of December 31, 1994, 1995
and 1996, and June 30, 1996 and 1997, (iii) selected pro forma operating and
other financial information for the year ended December 31, 1996 and the six
months ended June 30, 1997 and (iv) selected pro forma balance sheet data as of
June 30, 1997.
The selected historical financial information for each of FelCor LP and
FelCor as of and for the period from July 28, 1994 (inception of operations) to
December 31, 1994 and the years ended December 31, 1995 and 1996 has been
derived from the historical financial statements of FelCor LP or FelCor audited
by Coopers & Lybrand L.L.P., independent accountants, whose reports with respect
thereto are set forth elsewhere herein. The selected historical financial data
as of and for the six months ended June 30, 1996 and 1997 have been derived from
the unaudited financial statements of FelCor LP and FelCor, which have been
prepared by management on the same basis as the audited financial statements,
and, in the opinion of management, include all adjustments consisting of normal
recurring accruals that are considered necessary for a fair presentation of the
results for such periods. Such results of operations for the six months ended
June 30, 1996 and 1997 are not necessarily indicative of results to be
anticipated for the entire year.
The pro forma operating and other information is presented as if the
purchase of each of the hotels acquired in 1996 and 1997 (through September 30,
1997), the Series A Preferred Stock offering in the second quarter of 1996, the
Common Stock offerings in the first and second quarters of 1997, and the Private
Placement had been consummated on January 1, 1996 and, therefore, incorporates
certain assumptions that are included in the notes to the pro forma financial
statements that are included in the Company's Consolidated Financial Statements
herein. The pro forma balance sheet data is presented as if the purchase of the
hotels acquired through September 30, 1997, and the Private Placement had been
consummated on June 30, 1997. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of FelCor LP or FelCor would have been as of and for the periods
indicated, nor does it purport to represent the future financial position and
results of operations of FelCor LP or FelCor.
-26-
<PAGE> 35
FELCOR SUITES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994
(INCEPTION OF YEAR ENDED DECEMBER 31,
OPERATIONS) -----------------------------------
THROUGH HISTORICAL PRO FORMA
DECEMBER 31, ---------------------- ---------
1994 1995 1996 1996(1)
------------ --------- --------- ---------
(IN THOUSANDS, EXCEPT PER UNIT AND RATIO DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue ...................... $ 6,043 $ 23,787 $ 97,950 $ 173,147(2)
Income from unconsolidated partnerships ....... -- 513 2,010 3,123
Interest income ............................... 207 1,691 984 --
--------- --------- --------- ---------
TOTAL REVENUE ................................... 6,250 25,991 100,944 176,270
--------- --------- --------- ---------
EXPENSES
General and administrative .................... 355 870 1,819 3,303(3)
Depreciation .................................. 1,487 5,232 26,544 46,113
Taxes, insurance and other .................... 881 2,563 13,897 24,789
Interest expense .............................. 109 2,004 9,803 32,829
Minority interest in other partnerships ....... -- -- -- 236
--------- --------- --------- ---------
TOTAL EXPENSES .................................. 2,832 10,669 52,063 107,270
--------- --------- --------- ---------
Income before extraordinary charge ............ 3,418 15,322 48,881 69,000
Extraordinary charge .......................... -- -- 2,354 --
--------- --------- --------- ---------
Net income (loss) ............................. 3,418 15,322 46,527 69,000
Preferred distributions(4) .................... -- -- 7,734 11,798
--------- --------- --------- ---------
Net income applicable to unitholders .......... $ 3,418 $ 15,322 $ 38,793 $ 57,202
========= ========= ========= =========
Net income per unit(5) ........................ $ 0.54 $ 1.70 $ 1.49 $ 1.45
========= ========= ========= =========
Weighted ave. no. of units outstanding ........ 6,385 8,956 26,037 39,407
========= ========= ========= =========
OTHER DATA:
Lessee suite revenue .......................... $ 16,094 $ 65,649 $ 234,451 $ 481,471
Funds From Operations assuming
conversion of preferred units(6) ............. 4,905 20,707 77,141 125,446
EBITDA(7) ..................................... 5,014 22,203 85,764 158,659
Ratio of EBITDA to interest paid .............. -- 15.1x 9.4x 4.9x
Ratio of earnings to fixed charges(8).......... 32.4x 8.6x 5.1x 3.0x
Cash provided from operating activities ....... 3,959 18,075 73,932 --
Cash provided from financing activities ....... 97,952 406,825 247,422 --
Cash used in investing activities activities .. (100,793) (259,197) (480,382) --
Cash available for distributions(9) ........... 4,370 18,081 60,888 95,001
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
HISTORICAL PRO FORMA
---------------------- ---------
1996 1997 1997(1)
--------- --------- ---------
<S> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue ...................... $ 47,385 $ 74,048 $ 101,175(2)
Income from unconsolidated partnerships ....... 485 3,427 3,332
Interest income ............................... 774 170 --
--------- --------- ---------
TOTAL REVENUE ................................... 48,644 77,645 104,507
--------- --------- ---------
EXPENSES
General and administrative .................... 848 1,846 2,046(3)
Depreciation .................................. 10,304 21,730 27,831
Taxes, insurance and other .................... 6,600 10,756 14,785
Interest expense .............................. 4,513 12,914 18,889
Minority interest in other partnerships ....... -- 142 230
--------- --------- ---------
TOTAL EXPENSES .................................. 22,265 47,388 63,781
--------- --------- ---------
Income before extraordinary charge ............ 26,379 30,257 40,726
Extraordinary charge .......................... -- -- --
--------- --------- ---------
Net income (loss) ............................. 26,379 30,257 40,726
Preferred distributions(4) .................... 1,835 5,899 5,899
--------- --------- ---------
Net income applicable to unitholders .......... $ 24,544 $ 24,358 $ 34,827
========= ========= =========
Net income per unit(5) ........................ $ 0.95 $ 0.84 $ 0.88
========= ========= =========
Weighted ave. no. of units outstanding ........ 25,843 28,886 39,472
========= ========= =========
OTHER DATA:
Lessee suite revenue .......................... $ 105,557 $ 202,085 $ 267,036
Funds From Operations assuming
conversion of preferred units(6) ............. 37,002 56,335 73,734
EBITDA(7) ..................................... 40,926 63,433 93,671
Ratio of EBITDA to interest paid .............. 10.3x 6.5x 5.1x
Ratio of earnings to fixed charges(8).......... 6.5x 3.2x 3.1x
Cash provided from operating activities ....... 32,684 43,696 --
Cash provided from financing activities ....... 124,206 456,437 --
Cash used in investing activities activities .. (318,659) (494,532) --
Cash available for distributions(9) ........... 30,944 42,910 57,710
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------- -----------------------------------
HISTORICAL HISTORICAL PRO FORMA
----------------------------------- ----------------------- ----------
1994 1995 1996 1996 1997 1997(1)
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments ..... $ 1,118 $ 166,821 $ 7,793 $ 5,052 $ 13,394 $ 13,394
Investment in hotel properties, net.. 104,800 325,155 899,691 798,116 1,320,982 1,443,604
Investment in unconsolidated
partnerships....................... -- 13,819 59,867 12,984 126,714 126,714
Total assets......................... 108,305 548,359 978,788 825,679 1,479,574 1,611,057
Debt and capital lease obligations...
7 3/8% Senior Notes Due 2004 ...... -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007 ...... -- -- -- -- -- 125,000
Unsecured Line of Credit .......... -- -- 115,000 -- 192,000 73,728
Term Loan ......................... 8,750 -- 85,000 65,000 85,000 --
Capitalized leases ................ -- 11,256 12,875 13,771 12,048 12,048
Other unsecured debt .............. -- 8,410 26,550 8,350 25,650 25,650
Redeemable units, at redemption
value ............................. 33,055 74,790 98,542 84,973 108,192 108,192
Partners' capital ................... 61,885 445,433 468,247 486,558 887,942 922,697
</TABLE>
-27-
<PAGE> 36
FELCOR SUITE HOTELS, INC.
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
OPERATIONS) ------------------------------------ ------------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ---------------------- --------- ------------------------ ---------
1994 1995 1996 1996(1) 1996 1997 1997(1)
--------- --------- --------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER UNIT AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue ......... $ 6,043 $ 23,787 $ 97,950 $173,147(2) $ 47,385 $ 74,048 $101,175(2)
Income from unconsolidated
partnerships .................... -- 513 2,010 3,123 485 3,427 3,332
Interest income .................. 207 1,691 984 -- 774 170 --
--------- --------- --------- -------- --------- --------- --------
Total revenue ...................... 6,250 25,991 100,944 176,270 48,644 77,645 104,507
--------- --------- --------- -------- --------- --------- --------
Expenses
General and administrative ....... 355 870 1,819 3,303(3) 848 1,846 2,046(3)
Depreciation ..................... 1,487 5,232 26,544 46,113 10,304 21,730 27,831
Taxes, insurance and other ....... 881 2,563 13,897 24,789 6,600 10,756 14,785
Interest expense ................. 109 2,004 9,803 32,829 4,513 12,914 18,889
Minority interest in other
partnerships ................... -- -- -- 236 -- 142 230
Minority interest in FelCor LP(10) 907 3,131 5,590 5,120 3,142 2,942 3,006
--------- --------- --------- -------- --------- --------- --------
Total expenses ..................... 3,739 13,800 57,653 112,390 25,407 50,330 66,787
--------- --------- --------- -------- --------- --------- --------
Income before extraordinary
charge ......................... 2,511 12,191 43,291 63,880 23,237 27,315 37,720
Extraordinary charge ............. -- -- 2,354 -- -- -- --
--------- --------- --------- -------- --------- --------- --------
Net income (loss) ................ 2,511 12,191 40,937 63,880 23,237 27,315 37,720
Preferred dividends(4) ........... -- -- 7,734 11,798 1,835 5,899 5,899
--------- --------- --------- -------- --------- --------- --------
Net income applicable to common
shareholders ................... $ 2,511 $ 12,191 $ 33,203 $ 52,082 $ 21,402 $ 21,416 $ 31,821
========= ========= ========= ======== ========= ========= ========
Net income per common share(5) ... $ 0.54 $ 1.70 $ 1.44 $ 1.44 $ 0.94 $ 0.82 $ 0.87
========= ========= ========= ======== ========= ========= ========
Weighted average number of common
shares outstanding ............. 4,690 7,165 23,076 36,237 22,760 26,078 36,558
========= ========= ========= ======== ========= ========= ========
Other Data:
Lessee suite revenue ............. $ 16,094 $ 65,649 $ 234,451 $481,471 $ 105,557 $ 202,085 $267,036
Cash dividends per common share .. $ 0.66 $ 1.84 $ 1.92 $ 1.92 $ 0.92 $ 1.00 $ 1.00
Funds From Operations assuming
conversion
of preferred stock(6)......... 4,905 20,707 77,141 125,466 37,002 56,335 73,734
EBITDA(7) ........................ 5,014 22,203 85,764 158,659 40,926 63,433 93,671
Ratio of EBITDA to interest paid . -- 15.1x 9.4x 4.9x 10.3x 6.5x 5.1x
Ratio of earnings to fixed
charges(8) ...................... 32.4x 8.6x 5.1x 3.0x 6.5x 3.2x 3.1x
Cash provided from operating
activities ..................... 3,959 18075 73,932 -- 32,684 43,696 --
Cash provided from financing
activities ..................... 97,952 406,825 247,422 -- 124,206 456,437 --
Cash used in investing activities (100,793) (259,197) (480,382) -- (318,659) (494,532) --
Cash available for
distributions(11) .................. 4,370 18,081 60,888 95,001 30,944 42,910 57,710
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ -----------------------------------
HISTORICAL HISTORICAL PRO FORMA
------------------------------ -----------------------------------
1994 1995 1996 1996 1997 1997(1)
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term
investments ................. $ 1,118 $166,821 $ 7,793 $ 5,052 $ 13,394 $ 13,394
Investment in hotel
properties, net ............. 104,800 325,155 899,691 798,116 1,320,982 1,443,604
Investment in unconsolidated
partnerships ................ -- 13,819 59,867 12,984 126,714 126,714
Total assets .................. 108,305 548,359 978,788 825,679 1,479,574 1,611,057
Debt and capital lease
obligations
7 3/8% Senior Notes Due 2004 -- -- -- -- -- 175,000
7 5/8% Senior Notes Due 2007 -- -- -- -- -- 125,000
Unsecured Line of Credit .... -- -- 115,000 -- 192,000 73,728
Term Loan ................... 8,750 -- 85,000 65,000 85,000 --
Capitalized leases .......... -- 11,256 12,875 13,771 12,048 12,048
Other unsecured debt ........ -- 8,410 26,550 8,350 25,650 25,650
Minority interest in FelCor
LP......................... 25,685 58,837 76,112 86,229 75,109 75,724
Shareholders' equity .......... 69,255 461,386 641,926 636,552 1,072,275 1,106,415
</TABLE>
- ----------
-28-
<PAGE> 37
(1) The pro forma financial information does not purport to represent what the
financial position or results of operations of FelCor LP or FelCor actually
would have been if the purchases of each of the hotels acquired in 1996 and
1997 (through September 30, 1997), the Series A Preferred Stock offering,
the Common Stock offerings in the first and second quarters of 1997, and
the Private Placement had, in fact, occurred on such dates, or to project
their financial position or results of operations at any future date or for
any future period.
(2) With respect to the pro forma financial information, represents lease
payments from the Lessee to FelCor LP calculated on a pro forma basis by
applying the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite and food and beverage revenues of the
Current Hotels.
(3) Pro forma general and administrative expenses represent executive and other
compensation, legal, audit, and other expenses. These amounts are based on
historical general and administrative expenses as well as probable 1997
expenses.
(4) Represents annual dividends on the Series A Preferred Stock of $1.95 per
share multiplied by 6,050,000 outstanding shares of Series A Preferred
Stock.
(5) Net income per common share is computed by dividing net income applicable
to common shareholders by the weighted average number of common shares and
equivalents outstanding. Net income per unit is computed by dividing net
income applicable to unitholders by the weighted average number of
partnership units outstanding. Common share and unit equivalents that have
a dilutive effect represent restricted shares issued to certain officers
and directors. For the periods presented, the common share and unit
equivalents had an immaterial dilutive effect.
(6) The following table computes Funds From Operations under the NAREIT
definition. Funds From Operations under the NAREIT definition consists of
net income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructurings and sales of
property, plus depreciation of real property (including furniture and
equipment) plus, in the case of FelCor, the minority interest in FelCor LP
and after adjustments for unconsolidated partnerships and joint ventures.
The computation of Funds From Operations for FelCor LP and FelCor yields
the same result.
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
OPERATIONS) ------------------------------ ------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ------------------- --------- ------------------- --------
1994 1995 1996 1996(1) 1996 1997 1997(1)
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income .......................... $ 2,511 $ 12,191 $ 40,937 $ 63,880 $ 23,237 $ 27,315 $ 37,720
Add:
Minority interest in FelCor LP .. 907 3,131 5,590 5,120 3,142 2,942 3,006
Depreciation ...................... 1,487 5,232 26,544 46,113 10,304 21,730 27,831
Depreciation for unconsolidated
subsidiaries .................... -- 153 1,716 10,353 319 4,348 5,177
Extraordinary charge from
writeoff of deferred
financing fees .................. -- -- 2,354 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Funds From Operations assuming
conversion of preferred stock ..... $ 4,905 $ 20,707 $ 77,141 $125,466 $ 37,002 $ 56,335 $ 73,734
======== ======== ======== ======== ======== ======== ========
</TABLE>
Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From Operations
should not be considered as an alternative to net income or other measures under
generally accepted accounting principles as an indicator of operating
performance or to cash flow from operating, investing or financing activities as
a measure of liquidity. Funds From Operations does not reflect cash expenditures
for capital improvements or principal repayment of debt.
(7) EBITDA is computed by adding net income, minority interest in FelCor LP,
interest expense, income taxes, depreciation expense, amortization expense,
extraordinary expenses and cash distributions paid by unconsolidated
partnerships and deducting extraordinary income and income from
unconsolidated partnerships. The computation of EBITDA for FelCor LP and
FelCor yields the same result. The differences between Funds From
Operations and EBITDA are scheduled in the following table.
-29-
<PAGE> 38
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28,
1994
(INCEPTION
OF
OPERATIONS) TWELVE MONTHS ENDED SIX MONTHS ENDED JUNE 30
THROUGH ---------------------- ----------------------------
DECEMBER 31, HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations assuming
conversion of preferred stock .... $ 4,905 $ 20,707 $ 77,141 $ 125,466 $ 37,002 $ 56,335 $ 73,734
Add:
Interest expense ................. 109 2,004 9,803 32,829 4,513 12,914 18,889
Amortization expense ............. -- 158 592 592 215 557 557
Cash distributions from
unconsolidated partnerships .... -- -- 1,954 13,248 -- 1,402 9,000
Deduct:
Income from unconsolidated
partnerships ................... -- (513) (2,010) (3,123) (485) (3,427) (3,332)
Depreciation from
unconsolidated partnerships .... -- (153) (1,716) (10,353) (319) (4,348) (5,177)
--------- --------- --------- --------- --------- --------- ---------
EBITDA ..................... $ 5,014 $ 22,203 $ 85,764 $ 158,659 $ 40,926 $ 63,433 $ 93,671
========= ========= ========= ========= ========= ========= =========
</TABLE>
(8) For purpose of computing the ratio of earnings to fixed charges, earnings
consist of net income plus fixed charges and minority interest in FelCor
LP (with respect to FelCor), excluding capitalized interest, and fixed
charges consist of interest, whether expensed or capitalized, and
amortization of loan costs.
(9) Represents net income applicable to unitholders plus depreciation and
amortization, depreciation from unconsolidated subsidiaries, amortization
of unearned officers' and directors' compensation, amortization of loan
costs, and the non-cash portion of general and administrative expenses,
less scheduled repayments of borrowings and an amount equal to 4% of hotel
suite revenues, which is required to be set aside by the Company for
refurbishment and replacement of furniture and equipment, capital
expenditures and other nonroutine items as required by the Percentage
Leases.
(10) Calculated for FelCor as 7.4% of income before minority interest on a pro
forma basis.
(11) Represents net income applicable to common shareholders plus minority
interest, depreciation and amortization, depreciation from unconsolidated
subsidiaries, amortization of unearned officers' and directors'
compensation, amortization of loan costs, and the non-cash portion of
general and administrative expenses, less scheduled repayments of
borrowings and an amount equal to 4% of hotel suite revenues, which is
required to be set aside by the Company for refurbishment and replacement
of furniture and equipment, capital expenditures and other nonroutine
items as required by the Percentage Leases.
-30-
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FelCor is a self-administered REIT that at September 30, 1997, owned an
approximate 92.6% general partner interest in FelCor LP. At June 30, 1997, the
Company owned interests in 67 hotels with an aggregate of 16,357 suites
("Hotels") and, through September 30, 1997, has since acquired four additional
hotels with an aggregate of 1,000 suites and opened 129 new suites at one of its
hotels. For additional background relating to the Company and the definitions of
certain capitalized terms used herein, reference is made to Note 1 of Notes to
Consolidated Financial Statements of FelCor appearing elsewhere herein.
The principal factors affecting the Company's results of operations are:
continued growth in the number of hotels through acquisitions; improvements in
the suite revenues measured by RevPAR and the status of renovations to hotels
acquired. Improvements in suite revenue significantly impact the Company because
the Company's principal source of revenues is lease payments by the Lessee under
the Percentage Leases. The Percentage Leases are computed as a percentage of
suite revenues, food and beverage revenues and food and beverage rents of the
Current Hotels. For the six months ended June 30, 1997 and the years ended
December 31, 1996 and 1995, the portion of the Percentage Lease revenue derived
from suite revenues was 97.4%, 97.2% and 97.6%, respectively.
At June 30, 1997, the Company owned interests in 67 hotels, an increase
of 24 hotels over year end 1996 and an increase of 47 hotels over year end 1995.
During 1996 and 1997, the Company substantially completed major
renovations on the 18 CSS Hotels acquired in late 1995 and early 1996. While the
renovations adversely impacted the suite revenue for these hotels in 1996,
RevPAR for those hotels during the first six months of 1997 improved 22.0% over
the same period last year.
Actual historical results of operations, for the six months ended June 30,
1997 and 1996, for the years ended December 31, 1996 and 1995 and the period
from July 28, 1994 (inception of operations) through December 31, 1994 for the
Company are summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
TWELVE MONTHS (INCEPTION OF
SIX MONTHS ENDED OPERATIONS)
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------- ------------------- DECEMBER 31,
1997 1996 1996 1995 1994
----------------- ------------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues ............................ $ 77.6 $ 48.6 $ 100.9 $ 26.0 $ 6.3
Income before extraordinary charge .. 27.3 23.2 43.3 12.2 2.5
Net income available to common
shareholders ...................... 21.4 21.4 33.2 12.2 2.5
Funds From Operations (FFO)(a) ...... 56.3 37.0 77.1 20.7 4.9
Weighted average shares and units
outstanding(a) .................... 33.6 27.4 29.2 9.0 6.4
</TABLE>
- ----------
(a) Conversion of preferred stock to common stock is assumed for
purposes of computing FFO and weighted average shares and units outstanding.
-31-
<PAGE> 40
RESULTS OF OPERATIONS
THE COMPANY -- ACTUAL
Comparison of the Six Months Ended June 30, 1997 and 1996
Revenues. For the six months ended June 30, 1997 and 1996, the Company
had revenues of $77.6 million and $48.6 million, respectively, consisting of
Percentage Lease revenues of $74.0 million and $47.4 million, income in
unconsolidated partnerships of $3.4 million and $485,000 and other revenue
(consisting primarily of interest income) of $170,000 and $744,000,
respectively. Percentage Lease revenue is computed as a percentage of suite
revenue, food and beverage revenues and food and beverage rents of the Hotels.
For the six months ended June 30, 1997, 97.4% of Percentage Lease revenue was
derived from suite revenue. A more detailed discussion of hotel suite revenue
begins at "The Hotels -- Actual" section of this Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The increase in Percentage Lease revenue is attributed primarily to the
increased number of hotels owned at June 30, 1997 compared to the same period in
1996 and increased suite revenue at the comparable hotels (those hotels owned
for the entire six months in both 1996 and 1997). The increase in the number of
hotels accounted for approximately $21.8 million of the increase while
Percentage Lease revenue for the twenty comparable hotels increased by $4.9
million or 19%.
Suite revenue for the Original Hotels and the CSS Hotels increased 8.6%
and 21.0%, respectively, for this six month period.
The increase in income from unconsolidated partnerships is primarily
attributed to the increase in unconsolidated partnership hotels from one hotel
at June 30, 1996 to 14 at June 30, 1997.
Expenses. Total expenses increased $24.9 million in the six months
ended June 30, 1997 from $25.4 million to $50.3 million over the same period in
1996. The primary components of the dollar increase are: depreciation; taxes,
insurance and other; and interest expense. The primary reason for this increase
is related to the increased number of hotels owned by the Company. Those
expenses that made up the majority of the increase, as a percentage of total
revenue, were depreciation (28.0% of total revenue for the six months ended June
30, 1997 compared to 21.2% in the same period 1996), interest expense (16.6% of
total revenue in 1997 compared to 9.3% in 1996) and minority interest in FelCor
LP (3.8% of total revenue in 1997 compared to 6.5% in 1996).
Depreciation, as a percentage of total revenue, increased primarily as
a result of the major renovation projects which were placed in service and
started depreciating in late 1996 or early 1997.
The increased interest expense, as a percentage of total revenue, is
reflective of the additional borrowings during the 1996 and first six months of
1997 to finance hotel acquisitions and the renovation program.
Minority interest in FelCor LP decreased as a percentage of total
revenue because of the additional 13.2 million shares of common stock issued
during 1997, which decreases the Unitholders' interest in the operations of
FelCor LP.
Preferred dividends increased from $1.8 million for the six months in
1996 to $5.9 million for the same period in 1997. This increased because the
preferred stock, which was issued in May 1996, accrued a full six months of
dividends in 1997 compared to only a partial second period dividend in 1996.
Net income applicable to common shareholders for the six months ended
June 30, 1997 and 1996 was $21.4 million in both periods.
Comparison of the Years Ended December 31, 1996 and 1995
Revenues. For the years ended December 31, 1996 and 1995, the Company
had revenues of $100.9 million and 26.0 million, respectively, consisting
primarily of Percentage Lease revenues of $98.0 million and $23.8 million.
-32-
<PAGE> 41
The 288% increase in total revenue is primarily attributable to the
Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of
36 hotels acquired during 1995 and 1996. There were seven hotels which were
owned for all of 1996 and 1995. Percentage Lease revenues for these hotels
increased 13.9% for the year ended December 31, 1996 over the same period in
1995 (an increase of $2.7 million). All of these hotels experienced increases in
RevPAR, ranging from 2.3% to 12.1% over the prior year.
Management believes that the hotels it acquires will generally
experience increases in suite revenue (and accordingly, provide the Company with
increases in Percentage Lease revenues) after the completion of the renovation
and upgrade programs; however, as individual hotels undergo such renovations,
their performance has been, and may continue to be, adversely affected by such
temporary factors as suites out of service and disruptions of hotel operations.
See "-- The Hotels -- Actual."
Expenses. Total expenses increased by $43.9 million for the year ended
December 31, 1996 from $13.8 million in 1995 to $57.7 million in 1996. The
primary components of this increase were: depreciation; taxes, insurance and
other; and interest. The primary reason for the increases are attributed to the
additional hotels acquired in 1996 and 1995.
Depreciation increased as a percentage of total revenue from 20% in
1995 to 26% in 1996. The relative increase in depreciation is primarily a result
of capital expenditures during 1995 and 1996 and the resultant depreciation as
well as a decrease in long lived fixed assets relative to total fixed assets
(long lived fixed assets at December 31, 1996 made up 81.7% of total fixed
assets and at December 31, 1995 84.7% of total fixed assets).
Taxes, insurance and other increased as a percentage of total revenue
from 10% in 1995 to 14% in 1996. The largest single component in this category
is real and personal property taxes. In many instances upon purchase of a hotel,
the hotel is reassessed for tax purposes resulting in increased property tax
expenses.
Interest expense increased as a percentage of total revenue from 8% in
1995 to 10% in 1996. This relative increase is attributed to the increased use
of debt to finance acquisitions, the extensive renovations in 1996 and the
assumption of capital leases, for hotels purchased in late 1995 and during 1996.
In the third quarter of 1996, the Company recorded an extraordinary
charge for the write off of deferred financing fees of $2.4 million. This
extraordinary write off resulted from the early retirement of debt.
Comparison of the Year Ended December 31, 1995 and the Period from July 28, 1994
(Inception of Operations) through December 31, 1994
Percentage Lease revenue increased from $6.0 million in 1994 to $23.8
million in 1995, primarily because of the partial year of operations in 1994 and
the increase in the number of hotels in which the Company owned an interest
(from seven to 20). Income before minority interest as a percent of total
revenues increased from 54.7% in 1994 to 59.0% in 1995, primarily as a result of
the decline in depreciation, as a percentage of total revenues, from 23.8% in
1994 to 20.1% in 1995. The decrease in depreciation, as a percentage of total
revenues, resulted primarily from the relative increase in Percentage Lease
revenue to depreciation with respect to the seven hotels acquired in 1994 and a
decrease in the percentage of long lived fixed assets relative to total fixed
assets.
Funds From Operations
The Company considers funds from operations to be a key measure of a
REIT's performance and should be considered along with, but not as an
alternative to, net income and cash flow as a measure of the Company's operating
performance and liquidity.
The following table computes Funds From Operations under the NAREIT
definition. Funds From Operations under the NAREIT definition consists of net
income, computed in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructuring and sales of property, plus
depreciation of real property plus, in the case of FelCor, the minority interest
in FelCor LP (including furniture and equipment) and after adjustments for
unconsolidated partnerships and joint ventures.
-33-
<PAGE> 42
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1994
(INCEPTION OF
SIX MONTHS ENDED YEAR ENDED OPERATIONS)
JUNE 30, DECEMBER 31, THROUGH
------------------- ------------------- DECEMBER 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Funds From Operations (FFO):
Net income .............................. $27,315 $23,237 $40,937 $12,191 $ 2,511
Less preferred dividends ................ 5,899 1,835 7,734 -- --
------- ------- ------- ------- -------
Net income available for common shares .. 21,416 21,402 33,203 12,191 2,511
Add back:
Extraordinary charge from write off
of deferred financing fees ......... -- -- 2,354 -- --
Minority interest ..................... 2,942 3,142 5,590 3,131 907
Depreciation .......................... 21,730 10,304 26,544 5,232 1,487
Depreciation for unconsolidated
partnerships ....................... 4,348 319 1,716 153 --
------- ------- ------- ------- -------
FFO available to common shares and
units .............................. 50,436 35,167 69,407 20,707 4,905
Add preferred dividends ................. 5,899 1,835 7,734 -- --
------- ------- ------- ------- -------
FFO assuming conversion of preferred
stock .............................. $56,335 $37,002 $77,141 $20,707 $ 4,905
======= ======= ======= ======= =======
Weighted average common shares
outstanding ........................ 26,078 22,760 23,076 7,165 4,690
Weighted average units outstanding ...... 2,808 3,083 2,961 1,791 1,695
------- ------- ------- ------- -------
Weighted average common shares and
units outstanding .................. 28,886 25,843 26,037 8,956 6,385
======= ======= ======= ======= =======
Weighted average common shares and
units outstanding, assuming
conversion of preferred stock ...... 33,576 27,389 29,164 8,956 6,385
======= ======= ======= ======= =======
</TABLE>
Included in the Funds From Operations described above is the Company's
share of FFO from its interest in 14 unconsolidated partnerships. The FFO
contribution from these unconsolidated partnerships was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
1997 1996 1996 1995
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Percentage Lease revenue ........................ $ 23,729 $ 1,771 $ 9,974 $ 1,420
Depreciation .................................... 7,214 600 3,086 282
Taxes, insurance and other ...................... 3,178 163 915 229
Interest expense ................................ 5,001 -- 1,638 --
Net income ...................................... 8,336 1,008 4,366 1,050
50% of net income attributable to the Company ... 4,168 504 2,183 525
Amortization of cost in excess of book value .... (741) (19) (173) (12)
-------- -------- -------- --------
Income from unconsolidated partnerships ......... 3,427 485 2,010 513
Add back: Depreciation .......................... 3,607 300 1,543 141
Amortization of excess cost .... 741 19 173 12
-------- -------- -------- --------
FFO contribution of unconsolidated partnerships.. $ 7,775 $ 3,726 $ 3,726 $ 666
======== ======== ======== ========
</TABLE>
-34-
<PAGE> 43
The Hotels -- Actual
Comparison of Hotels' Suite Revenue for the Six Months Ended June 30,
1997 and 1996
The following table sets forth historical suite revenue and percentage
changes therein between the periods presented for the 60 hotels which the
Lessee operated at June 30, 1997. The following table also presents comparative
information with respect to occupancy, ADR and RevPAR for the 13 Original
Hotels, the 18 CSS Hotels, the 12 1996 Acquisitions and the 17 1997
Acquisitions, regardless of ownership, through June 30, 1997. This table
excludes the seven hotels acquired by the Company on June 30, 1997, and the
four hotels subsequently acquired.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1997 1996 VARIANCE
--------- --------- ---------------
<S> <C> <C> <C>
SUITE REVENUE (IN THOUSANDS):
Original Hotels(13) . . . . . . . . . . . . . . . . . . . . . $ 42,918 $ 39,525 8.6%
CSS Hotels(18) . . . . . . . . . . . . . . . . . . . . . . . 72,563 59,970 21.0
1996 Acquisitions(12) . . . . . . . . . . . . . . . . . . . . 45,486 42,033 8.2
1997 Acquisitions(17) . . . . . . . . . . . . . . . . . . . . 55,641 52,286 6.4
-------- --------
Totals(60) . . . . . . . . . . . . . . . . . . . . . $216,608 $193,814 11.8%
OCCUPANCY:
Original Hotels . . . . . . . . . . . . . . . . . . . . . . . 77.7% 77.7% 0.0pts.
CCS Hotels . . . . . . . . . . . . . . . . . . . . . . . . . 74.5 68.5 6.0
1996 Acquisitions . . . . . . . . . . . . . . . . . . . . . . 75.8 73.5 2.3
1997 Acquisitions . . . . . . . . . . . . . . . . . . . . . . 75.2 74.4 0.8
Totals . . . . . . . . . . . . . . . . . . . . . . . 75.6% 72.9% 2.7pts.
ADR:
Original Hotels . . . . . . . . . . . . . . . . . . . . . . . $ 110.22 $ 102.61 7.4%
CSS Hotels . . . . . . . . . . . . . . . . . . . . . . . . . 116.80 104.16 12.1
1996 Acquisitions . . . . . . . . . . . . . . . . . . . . . . 117.83 111.22 5.9
1997 Acquisitions . . . . . . . . . . . . . . . . . . . . . . 106.45 100.56 5.9
Totals . . . . . . . . . . . . . . . . . . . . . . . $ 112.85 $ 104.27 8.2%
REVPAR:
Original Hotels . . . . . . . . . . . . . . . . . . . . . . . $ 85.62 $ 79.75 7.4%
CSS Hotels . . . . . . . . . . . . . . . . . . . . . . . . . 86.99 71.33 22.0
1996 Acquisitions . . . . . . . . . . . . . . . . . . . . . . 89.29 81.79 9.2
1997 Acquisitions . . . . . . . . . . . . . . . . . . . . . . 80.04 74.82 7.0
Totals . . . . . . . . . . . . . . . . . . . . . . . $ 85.28 $ 76.03 12.2%
</TABLE>
ORIGINAL HOTELS: Boston -- Marlborough, MA; Brunswick, GA; Chicago
-- Lombard, IL; Corpus Christi, TX; Dallas (Love
Field), TX; Dallas (Park Central), TX;
Flagstaff, AZ; Jacksonville, FL; Nashville, TN;
New Orleans, LA; Orlando (North), FL; Orlando
(South), FL; Tulsa, OK.
CSS HOTELS: Anaheim, CA; Baton Rouge, LA; Birmingham, AL; Boca
Raton (Doubletree), FL; Deerfield Beach, FL; Ft.
Lauderdale, FL; El Segundo (LAX (Airport) South),
CA; Miami (Airport), FL; Milpitas, CA; Minneapolis
(Airport), MN; Minneapolis (Downtown), MN; Napa,
CA; Oxnard (Mandalay Beach), CA; Phoenix
(Camelback), AZ; South San Francisco (Airport
North), CA; Burlingame (S.F. Airport So.), CA; St.
Paul, MN; Tampa (Busch Gardens), FL(1).
1996 ACQUISITIONS: Atlanta (Buckhead), GA; Avon (Beaver Creek Resort),
CO; Boca Raton (Embassy), FL; Charlotte, NC;
Cleveland, OH; Deerfield, IL; Indianapolis (North),
IN; Myrtle Beach (Kingston Plantation), SC(3);
Lexington, KY(2); Parsippany, NJ; Piscataway, NJ;
San Rafael (Marin Co.), CA.
1997 ACQUISITIONS(4): Atlanta (Airport), GA; Austin (Airport North), TX;
Austin (Downtown), TX(1); Bloomington, MN(1);
Baltimore, MD(1); Covina, CA; Dana Point, CA(1);
Kansas City, MO; LAX North, CA; Nashville
(Airport), TN; Omaha, NE(1); Overland Park, KS;
Raleigh, NC; San Antonio (NW), TX; San Antonio
(Airport), TX; Secaucus, NJ; Troy, MI(1).
- --------------------
-35-
<PAGE> 44
(1) Operating as a Doubletree Guest Suites hotel.
(2) Operating as a Hilton Suites hotel.
(3) In the process of conversion to Embassy Suites hotels.
(4) Excludes five Sheraton hotels and two Embassy Suites hotels acquired
on June 30, 1997, and the four hotels subsequently acquired.
Suite revenue from the 60 Hotels, included without regard to
ownership, increased 11.8% for the six months ended June 30, 1997 from the same
period of 1996. The Original Hotels increased 8.6%, the CSS Hotels increased
21.0%, the 1996 Acquisition Hotels increased 8.2% and the 1997 Acquisition
Hotels increased 6.4% for the six months ended June 30, 1997 as compared to the
same period of 1996.
The Original Hotels were owned by the Company throughout all of the
first six months of both 1997 and 1996. Suite revenue for these hotels
increased $3.4 million over the same period in 1996. This improvement in suite
revenue resulted from increased ADR of 7.4% while maintaining the same
occupancy percentage of 77.7% during both periods. The hotels in this group
recorded increases in ADR ranging from 1.6% to 12.0%. The increases in ADR at
these hotels are attributed to the strength of the markets that these hotels
are in as well as aggressive rate management.
For the first six months of 1997 compared to the first six months of
1996 the CSS Hotels experienced an increase in ADR of 12.1% to $116.80 and a
6.0 percentage point increase in occupancy to 74.5%. The strength of the
improvement in the CSS Hotels is partially reflective of the $54 million suite
renovation program that was completed in the first quarter of 1997. This
program made substantial upgrades and improvements to these former CSS Hotels.
This group of hotels were also converted to the Embassy Suites (16) or
Doubletree Guest Suites (2) brand during 1996. The increase in both occupancy
and ADR is also attributable in part, to the stronger marketing presence of the
Embassy Suites and Doubletree Guest Suites brands.
The 1996 Acquisition hotels increased ADR by 5.9% to $117.83 and
occupancy increased 2.3 percentage points which resulted in suite revenue
increases for these hotels of $3.5 million in the first six months of 1997
compared to the same period in 1996. Some of the 1996 Acquisition Hotels
benefitted from suite renovations completed in 1996 or during the first quarter
of 1997 and the Company expects to commence renovation on several of the
remaining hotels in this group later in the year. The Company has committed to
reserving 4% of suite revenue for ongoing capital replacements and improvements
for all of its hotels, in addition to making repair and maintenance
expenditures and any necessary renovations for hotels acquired. Typically, the
Lessee spends 5% to 6% of suite revenue for repair and maintenance expenditures
annually.
The 1997 Acquisition hotels collectively, had increases in both ADR
and occupancy for the three and six months ended June 30, 1997 compared to the
same period of 1996. Certain of the individual 1997 Acquisition hotels,
however, had decreases in ADR and/or occupancy for such comparable periods.
These decreases are primarily the result of temporary declines attributed to
disruptions from the rebranding, repositioning and/or renovation of certain
hotels and, in the case of those hotels located in Atlanta, Georgia, the result
of supply additions in anticipation of above-normal demand attributable to the
1996 Summer Olympics which were held in Atlanta.
Comparison of the Hotels' Suite Revenue for the Years Ended December 31, 1996
and 1995
The following table presents comparative information with respect to
suite revenue, occupancy, ADR and revenue per available suite for the six
Initial Hotels, the seven Pre-CSS Hotels, the 18 CSS Hotels and the 12 1996
Acquisitions, regardless of ownership. The following figures reflect the
adverse impact of the loss of nearly 173,000 available suite nights
(approximately 5.5% of total available suite nights for the year) as a result
of the temporary removal of suites from service for renovation and upgrading
during 1996. The variance for suite revenue and RevPAR for the Hotels, as set
forth above, do not agree primarily because the leap year in 1996 added one
additional day.
-36-
<PAGE> 45
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 VARIANCE
--------- --------- ---------
<S> <C> <C> <C>
SUITE REVENUE (IN THOUSANDS):
Initial Hotels(6) . . . . . . . . . . . . . . . . . . . . . $ 43,540 $ 39,961 9.0%
Pre-CSS Hotels(7) . . . . . . . . . . . . . . . . . . . . . 35,083 31,766 10.4
--------- --------- ----
Original Hotels(13) . . . . . . . . . . . . . . . . . . . . 78,623 71,727 9.6
CSS Hotels(18) . . . . . . . . . . . . . . . . . . . . . . 118,300 114,408 3.4
1996 Acquisitions(12) . . . . . . . . . . . . . . . . . . . 83,921 80,699 4.0
--------- --------- ----
Totals(43) . . . . . . . . . . . . . . . . . . . $ 280,844 $ 266,834 5.3%
========= ========= ====
OCCUPANCY:
Initial Hotels . . . . . . . . . . . . . . . . . . . . . 77.5% 76.1% 1.4pts
Pre-CSS Hotels . . . . . . . . . . . . . . . . . . . . . 75.3 74.1 1.2
Original Hotels . . . . . . . . . . . . . . . . . . . . . 76.5 75.2 1.3
CSS Hotels . . . . . . . . . . . . . . . . . . . . . . . 67.8 69.6 (1.8)
1996 Acquisitions . . . . . . . . . . . . . . . . . . . . 73.0 75.2 (2.2)
Totals . . . . . . . . . . . . . . . . . . . . . 71.6% 72.6% (1.0)pts
ADR:
Initial Hotels . . . . . . . . . . . . . . . . . . . . $ 103.73 $ 97.27 6.6%
Pre-CSS Hotels . . . . . . . . . . . . . . . . . . . . 101.71 94.40 7.7
Original Hotels . . . . . . . . . . . . . . . . . . . . 102.82 95.98 7.1
CSS Hotels . . . . . . . . . . . . . . . . . . . . . . 103.31 97.75 5.7
1996 Acquisitions . . . . . . . . . . . . . . . . . . . 111.54 104.51 6.7
Totals . . . . . . . . . . . . . . . . . . . . $ 105.50 $ 99.20 6.3%
REVENUE PER AVAILABLE SUITE (REVPAR):
Initial Hotels . . . . . . . . . . . . . . . . . . . . $ 80.43 $ 74.02 8.7%
Pre-CSS Hotels . . . . . . . . . . . . . . . . . . . . 76.55 69.96 9.4
Original Hotels . . . . . . . . . . . . . . . . . . . . 78.65 72.17 9.0
CSS Hotels . . . . . . . . . . . . . . . . . . . . . . 70.05 68.01 3.0
1996 Acquisitions . . . . . . . . . . . . . . . . . . . 81.46 78.56 3.7
Totals . . . . . . . . . . . . . . . . . . . . $ 75.52 72.05 4.8%
</TABLE>
INITIAL HOTELS: Dallas (Park Central), TX; Jacksonville, FL; Nashville,
TN; Orlando (North), FL; Orlando (South), FL; Tulsa, OK.
PRE-CSS HOTELS: Boston -- Marlborough, MA; Brunswick, GA; Chicago --
Lombard, IL; Corpus Christi, TX; Dallas (Love Field), TX;
Flagstaff, AZ; New Orleans, LA.
ORIGINAL HOTELS: Initial Hotels and Pre-CSS Hotels combined.
CSS HOTELS: Anaheim, CA; Baton Rouge, LA; Birmingham, AL; Boca
Raton (Doubletree), FL; Deerfield Beach, FL; Ft.
Lauderdale, FL; El Segundo (LAX (Airport) South), CA;
Oxnard (Mandalay Beach), CA; Miami (Airport), FL;
Milpitas, CA; Minneapolis (Airport), MN; Minneapolis
(Downtown), MN; Napa, CA; Phoenix (Camelback), AZ;
South San Francisco (Airport North), CA; Burlingame (S.F.
Airport So.), CA; St. Paul, MN; Tampa (Busch Gardens),
FL(1).
1996 ACQUISITIONS: Avon (Beaver Creek Resort), CO; Boca Raton (Embassy),
FL; Charlotte, NC; Deerfield, IL; Cleveland, OH;
Indianapolis (North), IN; Lexington, KY(2); San Rafael
(Marin Co.), CA; Parsippany, NJ; Piscataway, NJ; Atlanta
(Buckhead), GA; Myrtle Beach (Kingston Plantation), SC(3).
- ------------------
(1) Operating as a Doubletree Guest Suites hotel.
(2) Operating as a Hilton Suites hotel.
(3) In the process of conversion to an Embassy Suites hotel.
-37-
<PAGE> 46
Pro forma revenues for the 43 hotels that the Company owned at
December 31, 1996, increased 5.3% over 1995. The majority of the increase came
from the Pre-CSS Hotels (10.4%) and the Initial Hotels (9.0%). The CSS Hotels
had only a slight increase in suite revenue (3.4%) as did the 1996 Acquisitions
(4.0%) primarily as a result of the commencement of major renovations in the
CSS Hotels and some of the 1996 Acquisitions. As a result of these renovations,
the Company lost nearly 173,000 available suite nights, or 5.5% of the total
available suite nights for the year.
The Initial Hotels and the Pre-CSS Hotels experienced increases in
both occupied suites, as a percentage of available suites (including those
temporarily out of service for renovation) and ADR over the prior year. The CSS
Hotels increased ADR by 5.7% but dropped in occupancy by 1.8 percentage points.
Similarly the 1996 Acquisitions increased ADR by 6.7% but dropped in occupancy
by 2.2 percentage points.
The CSS Hotels revenues were adversely affected by the suites taken
out of service during 1996 for renovation. During 1996 the Company took more
than 153,000 suite nights out of service in the CSS Hotels for renovation, this
represents more than 9% of the total available suite nights for these hotels.
This renovation adversely impacted the ADR at the hotels because of the
disruptions caused by the renovation and the occupancy was adversely impacted
by reducing the number of suites actually available. During the fourth quarter
of 1996, the 10 CSS Hotels where renovations had been substantially completed
by early in the fourth quarter experienced an increase in suite revenue in
excess of 15% compared to the same period in 1995. Management believes that
similar increases in suite revenue should occur in 1997 for the CSS Hotels as
the renovations had been substantially completed by year end 1996.
The Company expects that the Initial Hotels and the Pre-CSS Hotels
should continue increased suite revenue growth in 1997. The CSS Hotels should
start to benefit from the extensive renovation that was substantially completed
in 1996, and show solid revenue growth in 1997. The 1996 Acquisitions should
also start to benefit from renovations (many of which began in 1996) and show
improving suite revenue during 1997.
THE LESSEE -- ACTUAL
Comparison of the Six Months Ended June 30, 1997 and 1996
Total revenues increased 88.6% from $122.5 million in the first six
months of 1996 to $231.0 million for the same period of 1997. The primary
reasons for this increase are the number of hotels operated by the Lessee which
increased from 37 hotels at June 30, 1996 to 60 hotels at June 30, 1997 and the
increases in revenues at the hotels owned in both the first six months of 1997
and 1996. Percentage Lease expense, property operating costs, and other hotel
expenses increased in the first six months of 1997 compared to the same period
of 1996 and relate primary to the increased number of hotels operated by the
Lessee. The increase in percentage lease expense is also attributable in part
to the increase in the suite revenue. The Lessee had a net income of $1.0
million and a net loss of $204,000 for the six months ended June 30, 1997 and
1996, respectively.
Comparison of the Years Ended December 31, 1996 and 1995
For the years ended December 31, 1996 and 1995, the Lessee had
revenues of $269.2 million and $72.6 million respectively, consisting primarily
of suite revenues of $234.5 million and $65.6 million.
The 271% increase in total revenue is primarily attributable to the
increase in number of hotels leased, from 20 hotels at December 31, 1995 to 43
hotels at December 31, 1996. There were seven hotels which were leased for all
of 1996 and 1995. Suite revenues for these hotels increased 9.0% for the year
ended December 31, 1996 over the same period in 1995 (an increase of $4.3
million). All of these hotels experienced increases in suite revenue, ranging
from 2.6% to 12.5% over the prior year.
The Lessee recorded a net loss of $5.4 million for 1996, compared to a
net loss of $240,000 for 1995. The increased loss is reflected in the relative
increase in Percentage Lease expenses, from 37.1% of total revenue in 1995 to
40.1% of total revenue in 1996. Since Percentage Lease expense is principally
computed as a percentage of suite revenue, the losses of suite revenue from the
renovation and conversion of the CSS hotels (through suites taken out of
service and disruptions from the renovation) resulted in a larger portion of
the Percentage Lease expense to be fixed in nature and therefore increased as a
percentage of total revenue. The Lessee also incurred approximately $2.2
million in one-time conversion costs related to the CSS Hotels.
-38-
<PAGE> 47
Year Ended December 31, 1995
For the year ended December 31, 1995, the Lessee had suite revenue of
$65.5 million. The Percentage Lease payments, hotel expenses and operating
expenses were $26.9 million, $18.5 million and $26.6 million respectively, and
net loss was $240,000. The Lessee distributed approximately $200,000 to two of
its shareholders in 1995 and these shareholders purchased shares of Common
Stock of the Company in an amount equal to such distributions.
Period from July 28, 1994 (Inception of Operations) through December
31, 1994
For the period July 28, 1994 (inception of operations) through
December 31, 1994 the Lessee had suite revenue of $16.1 million. The Percentage
Lease payments, hotel expenses and operating expenses were $6.0 million, $4.7
million and $7.3 million, respectively, and net income was $109,000. The Lessee
distributed approximately $443,000 to its shareholders in 1994 and these
shareholders purchased shares of common stock of the Company in an amount equal
to such distributions.
Comparison of the Year Ended December 31, 1995 and the Period from
July 28, 1994 (Inception of Operations) through December 31, 1994
Total revenues increased 297% from 1994 to 1995, primarily because of
the partial year of operations in 1994 and the increase in the number of hotels
leased (from seven to 20). The Lessee recorded a net loss of $240,000 for 1995,
compared to net income of $109,000 in 1994, primarily as a result of the
relative increase in Percentage Lease payments, as a percentage of total
revenues, from 33.0% in 1994 to 37.1% in 1995, offset (in part) by a decline in
all other expenses, as a percentage of total revenues, from 66.4% in 1994 to
63.2% in 1995.
RENOVATIONS AND CAPITAL EXPENDITURES
The Company believes that one factor that differentiates it from many
other hotel companies is its commitment to make the necessary capital
expenditures on its hotels to maintain them and improve them to the Company's
high standards. This is approached in three ways: annual investments of a
minimum of 4% of suite revenue for capital improvements; an aggressive
renovation and upgrade program for hotels acquired to bring them up to Company
standards; and the construction of additional suites, meeting rooms and public
areas where market conditions indicate.
Renovations
The Company committed approximately $70 million during 1996 to the
upgrade and renovation of the CSS Hotels and the wholly owned 1996
Acquisitions. At June 30, 1997, the Company had spent approximately $51.4
million on the CSS Hotels renovations and upgrades. Additionally, in 1996 the
Company spent approximately $3 million on renovations to hotels owned prior to
the purchase of the CSS Hotels.
Room Additions
In 1996, the Company completed the addition of an aggregate of 48
suites at its hotels in Flagstaff, Arizona and New Orleans, Louisiana at an
approximate cost of $5.3 million, and at July 1, 1997, the Company added a net
of 129 suites, additional meeting rooms and other public area upgrades at its
Boston -- Marlborough, Massachusetts hotel with a completion cost of
approximately $15.8 million. Additionally, an aggregate of 224 additional
suites are currently in the process of development at three of the Company's
existing hotels at an aggregate estimated cost of approximately $20.5 million.
Capital Improvements
It is the Company's policy to invest approximately 4% of suite revenue
on annual capital improvements at its hotels. These investments are in addition
to the previously discussed renovations and room additions. During 1996 the
Company spent approximately $9.2 million on these type capital expenditures
totaling 4.3% of suite revenue of company owned hotels. These investments also
are in addition to the 5% to 6% of suite revenue spent by the Lessee for repair
and maintenance expenditures annually.
-39-
<PAGE> 48
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including repayments of Indebtedness, is its cash flow from the Percentage
Leases. For the six months ended June 30, 1997, cash flow provided by operating
activities, consisting primarily of Percentage Lease revenue, was $43.7 million
and funds from operations assuming the conversion of preferred stock, which is
the sum of net income, minority interest, and depreciation of real property
(including furniture and equipment), was $56.3 million. The Lessee's
obligations under the Percentage Leases are unsecured. The Lessee's ability to
make lease payments under the Percentage Leases and the Company's liquidity,
including repayments of Indebtedness, are substantially dependent on the
ability of the Lessee to generate sufficient cash flow from the operation of
the Hotels.
At June 30, 1997, the Lessee had paid all amounts then due FelCor LP
under the Percentage Leases. During the six months ended June 30, 1997, the
Lessee realized a net income of $1.0 million. The Lessee's accumulated
shareholders' deficit of $5.4 million at June 30, 1997 resulted primarily from
losses during 1996 as a consequence of the one-time costs of converting the CSS
Hotels to the Embassy Suites and Doubletree Guest Suites brands and the
substantial number of suite nights lost during 1996 due to renovation. It is
anticipated that a substantial portion of any future profits of the Lessee will
be retained until a positive shareholders' equity is restored. Although it is
currently anticipated that the Lessee could sustain a small loss during 1997,
it is anticipated that its future earnings will be sufficient to enable it to
continue to make its lease payments under the Percentage Leases when due.
Minority equity interests in three of DJONT's consolidated
subsidiaries, which relate to a total of 16 of the Hotels, are held by
unrelated third parties. These three subsidiaries have entered into separate
revolving credit agreements with an affiliate of Messrs. Feldman and Corcoran
and/or the holders of such minority equity interests, or affiliates thereof,
which provide these subsidiaries with the right to borrow up to an aggregate of
$9.0 million, to the extent necessary to enable them to pay rent and other
obligations due under the Percentage Leases relating to such Hotels. Amounts
borrowed thereunder, if any, will be subordinated in right of repayment to the
Percentage Leases. No loans were outstanding under such agreements at June 30,
1997.
The Company intends to acquire additional hotels and may incur
indebtedness to make such acquisitions, or to meet distribution requirements
imposed on a REIT under the Internal Revenue Code, to the extent that working
capital and cash flow from the Company's investments are insufficient to make
such distributions.
At June 30, 1997, the Company had $13.4 million of cash and cash
equivalents and had utilized $192 million of the amount available under the
Company's $400 million unsecured revolving Line of Credit. On August 14, 1997,
the Company amended and restated its existing unsecured Line of Credit to
increase availability from $400 million to $550 million, extend the term by one
year to September 30, 2000 and to reduce the effective interest rate.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into two separate interest rate swap
agreements. These interest rate swap agreements effectively convert variable
rate debt to a fixed rate. See "Description of Other Indebtedness."
The differences to be paid or received by the Company under the terms
of the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
To provide for additional flexibility, the Company registered up to an
aggregate of $1.0 billion in common stock, preferred stock, debt securities
and/or common stock warrants pursuant to two shelf registration statements, of
which approximately $332.1 million is currently available. One shelf
registration statement for $500 million was declared effective by the
Commission during 1996 and the second shelf registration statement for $500
million was declared effective during the second quarter of 1997. The terms and
conditions of the stock or debt securities issued thereunder are determined by
the Company based upon market conditions at the time of issuance. A total of
6,050,000 shares of Series A Preferred Stock at $25.00 per share were issued in
the second quarter of 1996 and 3,000,000 shares of common stock at $35.50 per
share were issued during the first quarter of 1997 pursuant to the shelf
registration declared effective in 1996, leaving approximately $242.3 million
available under that shelf registration. With regard to the shelf registration
declared effective in 1997, the Company issued an aggregate 11,200,000 shares
of common stock at $36.625 per share, leaving approximately $89.8 million
available under that shelf registration.
-40-
<PAGE> 49
The Company completed construction on and placed into service a net
addition of 129 suites at the Boston- Marlborough hotel on July 1, 1997.
Additionally, construction has begun on suite additions for 224 additional
suites at three of the Company's existing hotels at an aggregate estimated cost
of approximately $20.5 million and an expected completion in the first and
fourth quarters of 1998.
The Company's cash flow from financing activities of approximately
$456.4 million for the six months ended June 30, 1997 resulted from the
following: The sale of an aggregate of 13.2 million shares of Common Stock (3.0
million shares in the first quarter of 1997 at $35.50 per share and 10.2
million shares at June 30, 1997 at $36.625) less 1.2 million shares of Common
Stock repurchased from Promus with net proceeds of $413.5 million; net
borrowings under the Company's Line of Credit of $76 million; distributions
paid to common shareholders, preferred shareholders and limited partners of
$33.7 million; and proceeds from the exercise of stock options by a former
employee of $563,000.
INFLATION
Operators of hotels, in general, possess the ability to adjust room
rates periodically to reflect the effects of inflation. Competitive pressures
may, however, limit the Lessee's ability to raise room rates.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize other cash on
hand or borrowings under the Line of Credit to make distributions to its
shareholders or to make payments on the Notes.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128 "Earnings Per Share"
("SFAS 128"), No. 129 "Disclosure of Information About Capital Structure"
("SFAS 129"), No. 130 "Reporting Comprehensive Income" ("SFAS 130"), and No.
131 "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"), all of which are effective for fiscal years beginning after
December 15, 1997.
SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 129 establishes standards for
disclosing information about an entity's capital structure such as information
about securities, liquidation preference of preferred stock and redeemable
stock. SFAS 130 specifies the presentation and disclosure requirements for
reporting comprehensive income which includes those items which have been
formerly reported as a component of shareholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131
will not have a significant impact on the Company's financial statements.
-41-
<PAGE> 50
BUSINESS AND PROPERTIES
THE INDUSTRY
The United States hotel industry has experienced significant
improvement in the past five years. According to Coopers & Lybrand L.L.P.
Hospitality Directions, after a period of extended unprofitability in the late
1980's and early 1990's, lodging industry profit has increased every year from
1992 through 1996. The industry downturn in the late 1980's resulted primarily
from an increase in the supply of new hotel rooms that significantly outpaced
growth in demand. The industry began to turn around in 1991, and the percentage
growth in room demand exceeded the percentage growth in room supply from 1992
through 1996. As a result, according to Smith Travel Research, for All Upscale
U.S. Hotels (including both Upscale and Upper Upscale Hotels), occupancy
increased from 61.7% in 1991 to 68.4% in 1996, and ADR increased from $65.89 in
1991 to $85.54 in 1996.
Smith Travel Research classifies the hotel industry into six distinct
categories: Budget, Economy, Midscale, Midscale with Food & Beverage, Upscale
and Upper Upscale. All of the Company's properties are operated under brands
that are included in the Upper Upscale category. This category has experienced
relatively low levels of new construction.
The following table contains information with respect to average
occupancy, ADR and RevPAR for the Current Hotels, all Embassy Suites hotels,
all upscale U.S. hotels and all U.S. hotels for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OCCUPANCY:
Current Hotels(1) . . . -- -- -- -- 73.9% 72.6% 72.2%
Embassy Suites
Hotels(2) . . . . . 69.6% 69.4% 71.8% 73.1% 74.9 74.2 73.6
All Upscale U.S.
Hotels(3) . . . . . 61.6 61.7 64.7 66.8 68.1 68.4 68.4
All U.S. Hotels(4) . . 61.8 60.1 61.9 63.1 64.7 65.1 65.7
ADR
Current Hotels(1) . . . -- -- -- -- $ 92.87 $ 98.20 $105.23
Embassy Suites
Hotels(2) . . . . . $ 86.73 $ 88.19 $ 90.97 $ 93.78 97.18 101.90 107.36
All Upscale U.S.
Hotels(3) . . . . . 62.16 65.89 73.11 72.05 77.19 81.17 85.54
All U.S. Hotels(4) . . 58.70 59.12 59.62 61.30 64.24 67.66 71.66
REVPAR(5)
Current Hotels(1) . . . -- -- -- -- $ 68.63 $ 71.30 $ 75.97
Embassy Suites
Hotels(2) . . . . . $ 60.36 $ 61.20 $ 65.32 $ 68.55 72.86 75.61 79.02
All Upscale U.S.
Hotels(3) . . . . . 38.29 40.65 47.30 48.13 52.57 55.52 58.51
All U.S. Hotels(4) . . 36.28 35.53 36.90 38.68 41.56 44.05 47.08
</TABLE>
- ----------
(1) The information for the Current Hotels, for periods prior to their
acquisition by the Company, was obtained from the prior owners.
Information for certain of the Current Hotels was not available for
periods prior to 1994.
(2) Information provided by Promus.
(3) Information obtained from Smith Travel Research. This category
includes 49 hotel chains designated by such firm as "upper upscale"
(including Embassy Suites hotels, Doubletree Guest Suites hotels and
Sheraton hotels) or "upscale."
(4) Information obtained from Smith Travel Research.
(5) RevPAR is determined by dividing room or suite revenues by available
rooms or suites.
-42-
<PAGE> 51
BACKGROUND
FelCor was formed as a Delaware corporation on May 16, 1994 and was
reincorporated as a Maryland corporation on June 23, 1995. FelCor is a self
administered equity REIT formed for the purpose of acquiring and holding
interests in hotel properties.
In connection with the formation of FelCor, FelCor LP acquired the six
Initial Hotels through a merger with entities organized in 1991 and controlled
by Hervey A. Feldman and Thomas J. Corcoran, Jr. The consideration for the
acquisition consisted of (i) 1,695,146 Units, then representing approximately
26.5% of the equity interests in FelCor LP and (ii) the assumption and payment
of mortgage indebtedness and other obligations relating to the Initial Hotels
of approximately $76.0 million. The Units are exchangeable, subject to certain
limitations, for a like number of shares of the Common Stock of FelCor or for
cash, at the option of FelCor.
To enable the Company to qualify as a REIT, neither FelCor nor FelCor
LP can operate the hotels in which they invest. Accordingly, FelCor LP leases
all of the hotels owned by it to the Lessee, pursuant to the Percentage Leases.
The Lessee is a Delaware limited liability company, 25% of which is
beneficially owned by each of Messrs. Feldman and Corcoran, the Chairman of the
Board and the President of the Company, respectively, and 50% of which is owned
by RGC Leasing, Inc., a Nevada corporation owned by the children of Charles N.
Mathewson, a major initial investor in and a director of the Company. It is
anticipated that additional hotels acquired by the Company will be leased to
the Lessee upon similar terms. See "Certain Relationships and Related
Transactions" for additional information regarding the interests of affiliates
arising out of the acquisition of the Initial Hotels, the Percentage Leases and
certain other transactions.
BUSINESS STRATEGY
Overview
The Company's primary business objectives are to (i) focus on
selection of sound hotel investments, (ii) add value to its hotels through
active asset management and the strategic investment of capital, and (iii)
build solid working relationships with, and be the "owner-of-choice" for,
selected premium, full-service hotel brand owners/managers who are willing to
commit to the on-going success of the hotels they license/ manage for the
Company. The Company seeks to increase operating cash flow and, enhance its
value through both internal growth and acquisitions. The Company's internal
growth strategy is to utilize its asset management expertise to improve the
quality of its hotels by renovating, upgrading and repositioning, thereby
improving the revenue performance of the hotels, and to participate, through
the Percentage Leases, in any growth in revenues at its hotels. The Company's
acquisition growth strategy remains focused primarily upon the purchase of
additional existing and a limited number of newly developed hotels that meet
the Company's investment criteria.
Strategic Relationships
The Company currently maintains strategic brand owner/manager
relationships with Promus, Doubletree and Sheraton. Promus and Doubletree have
entered into a definitive agreement to merge their companies. The combined
company will constitute the lodging industry's third largest entity based on
annual revenue. The Company believes that this merger will increase the
Company's flexibility in branding its all suite hotels to capitalize on local
market conditions and brand representation. ITT Corporation, the parent of ITT
Sheraton Corporation, is currently the subject of a hostile tender offer by
Hilton Hotel Corporation and has also announced that it has entered into a
definitive agreement to merge with Starwood Lodging. The Company cannot now
predict what the ultimate outcome of these competing proposals will be.
o Promus Hotel Corporation is the largest operator of full-service,
all-suite hotels in the United States. Promus is also the owner
of the Embassy Suites brand and the manager of 50 of the
Company's Current Hotels. In addition, based on the closing price
of the Common Stock on the NYSE on September 30, 1997, Promus
owned more than $55 million of the aggregate Common Stock of
FelCor and Units of FelCor LP. The relationship with Promus has
provided the foundation for the Company's historical growth.
o Doubletree Hotels Corporation is the owner of the nation's second
largest full-service, all-suite hotel brand, Doubletree Guest
Suites. Doubletree provides hotel owners with management and
franchise services under its Doubletree Hotels, Doubletree Guest
Suites, Club Hotels by Doubletree, Red Lion Hotels and other
brands, as well as management services for other non-Doubletree
brand hotels. Doubletree is the manager of all of the 12 Current
Hotels operated under the Doubletree Guest Suites brand.
-43-
<PAGE> 52
o ITT Sheraton Corporation is the owner of the Sheraton brand and
one of the world's largest hotel companies, with more than 430
hotels in over 60 countries. This newest strategic alliance,
coupled with the purchase of six Sheraton hotels this year
(including a total of four non-suite hotels), provided the
Company with its initial entry into the upscale, full-service,
non-suite hotel market and should provide the Company with
opportunities for future growth.
The strength of the Company's strategic relationships with the
foregoing brand owners/managers are evidenced by their (i) significant equity
investments in 15 of the Company's hotels, (ii) agreements to make subordinated
loans to the Lessee (in support of the Lessee's obligations under certain
Percentage Leases with respect to certain hotels), (iii) subordination of
certain customary fees to the Lessee's obligations under applicable Percentage
Leases, (iv) grants of certain performance-based termination rights by the
managers to the Lessees, and (v) in one case, guarantee of a $25 million loan
to the Company.
Internal Growth Strategy
Beginning with the acquisition of the CSS Hotels, from the fourth
quarter of 1995 through September 30, 1997, the Company has acquired 58 hotels
containing an aggregate of 14,587 suites/rooms for approximately 1.4 billion,
resulting in an increase in its portfolio of suites/rooms by more than 500%.
The Company converted the 18 CSS Hotels to Embassy Suites hotels (16 hotels)
and Doubletree Guest Suites hotels (two hotels), investing over $50 million in
the complete renovation and upgrade of such hotels. As a consequence, RevPAR of
the CSS Hotels for the nine months ended September 30, 1997 increased
approximately 22.0% over the nine months ended September 30, 1996.
Additionally, for the 13 original hotels acquired by the Company prior to the
acquisition of the CSS Hotels, the Company achieved a 6.6% increase in RevPAR
for the nine months ended September 30, 1997 over the comparable period in
1996, from $79.39 to $84.61.
Acquisition Growth Strategy
At present, the Company intends to continue to focus its acquisition
strategy with respect to individual hotels primarily upon the purchase of
full-service, upscale hotels (both all-suite and non-suite) that will fit
within one of the Company's three premium brand/owner/manager alliances with
Promus, Doubletree and Sheraton. The Company believes that it has benefitted,
and will continue to benefit, from its strong relationships with its brand
owner/managers. The Company also may construct additional suites/rooms and/or
meeting space at certain of its hotels if market and other conditions warrant.
An aggregate of 224 additional suites are currently in the process of
development at three of the Company's existing hotels at an aggregate estimated
cost of approximately $20.5 million.
Capital Strategy
The Company intends to maintain a conservative capital structure that
enhances its access to the capital markets on favorable terms and promotes
future earnings growth. Since the IPO, the Company has completed five public
offerings of its capital stock, raising gross proceeds of more than $1 billion,
including one public offering of convertible preferred stock that raised $151.3
million in gross proceeds. In addition, the Company has reduced its payout
ratio (distributions as a percentage of Funds From Operations) from 80% for the
year ended December 31, 1995 to 68% for the 12 month period ended September 30,
1997.
The Board of Directors of the Company has adopted a policy which
limits the Company's indebtedness to not more than 40% of its investment in
hotel assets, at cost. At September 30, 1997, the Company had the $550 million
unsecured revolving Line of Credit, under which it had borrowed $296 million,
the unsecured Renovation Loan of $25 million (guaranteed by Promus), the
proceeds of which were used to finance the cost of renovations to the CSS
Hotels, and approximately $1 million of other unsecured indebtedness. The
Company also had at September 30, 1997, the $85 million secured Term Loan that
will be repaid from the proceeds of the Private Placement, and an additional
$12 million in secured debt. At September 30, 1997, after giving effect to the
Private Placement and the application of the proceeds therefrom, the total
Indebtedness of the Company would have been 26% of total assets and its ratio
of EBITDA to interest paid for the twelve months ended September 30, 1997 would
have been 5.9 to 1. The Company believes that its debt limitation policy, its
preference for unsecured debt and its success in raising equity capital for
expansion, demonstrate the Company's commitment to the maintenance of a
conservative but flexible capital structure.
-44-
<PAGE> 53
HOTEL PORTFOLIO
Current Hotels
Subsequent to the Company's formation and the concurrent acquisition
of the Initial Hotels, the Company completed the acquisition of interests in 65
additional hotels through September 30, 1997. Of the Current Hotels, the
Company owns 100% equity interests in 53 hotels, a 97% interest in the
partnership that owns one hotel, a 90% interest in partnerships that own three
hotels, and a 50% interest in separate partnerships that own 14 hotels. At
September 30, 1997, 51 of the Current Hotels were operated as Embassy Suites
hotels, 12 as Doubletree Guest Suites hotels, six as Sheraton hotels, one as a
Hilton Suites hotel, and one hotel was in the process of being converted to the
Embassy Suites brand. The Current Hotels are located in 26 states. The
following table provides certain information regarding the Current Hotels:
<TABLE>
<CAPTION>
NUMBER OF HOTELS AGGREGATE
ACQUIRED NUMBER OF SUITES ACQUISITION PRICE
-------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
1994
Initial Hotels . . . . . . . . . . . . 6 1,479 $ 81.5
4th Quarter . . . . . . . . . . . . . . 1 251 25.8
1995
1st Quarter . . . . . . . . . . . . . . 2 350 27.4
2nd Quarter . . . . . . . . . . . . . . 1 100 9.4
3rd Quarter . . . . . . . . . . . . . . 3 542 31.3(1)
4th Quarter . . . . . . . . . . . . . . 7 1,657 169.0
1996
1st Quarter . . . . . . . . . . . . . . 14 3,501 383.5
2nd Quarter . . . . . . . . . . . . . . 3 691 68.1
3rd Quarter . . . . . . . . . . . . . . 4 1,005 30.8(2)
4th Quarter . . . . . . . . . . . . . . 2 572 78.1
1997
1st Quarter . . . . . . . . . . . . . . 15 3,446 209.4(3)
2nd Quarter . . . . . . . . . . . . . . 9 2,715 264.9(4)
3rd Quarter . . . . . . . . . . . . . . 4 1,000 122.6
--- ------ --------
Subtotals . . . . . . . . . . . 71 17,309 $1,501.8
Additional suites constructed by the
Company at its hotels . . . . . . . . . -- 177 21.2
--- ------ --------
Totals . . . . . . . . . . . . 71 17,486 $1,523.0
=== ====== ========
</TABLE>
- ------------------------
(1) Includes the purchase price of the Company's 50% interest in the
unconsolidated partnership owning the 262-suite, Chicago-Lombard, Illinois
Embassy Suites hotel.
(2) Represents the purchase price of the Company's 50% interest in separate
unconsolidated partnerships owning Embassy Suites hotels in Marin County,
California; Parsippany, New Jersey; Charlotte, North Carolina; and
Indianapolis, Indiana, with an aggregate of 1,005 suites.
(3) Includes the purchase price of the Company's (a) 50% interests in separate
unconsolidated partnerships owning eight Embassy Suites hotels, with an
aggregate of 1,934 suites, and (b) 90% interests in consolidated
partnerships owning three Doubletree Guest Suites hotels, with an aggregate
of 691 suites.
(4) Includes the purchase price of the Company's 50% interest in an
unconsolidated partnership owning the 261-suite Embassy Suites hotel in San
Antonio (Airport), Texas.
Of the 1997 Acquisitions, nine consist of 50% interests in
unconsolidated partnerships owning an aggregate of eight Embassy Suites hotels,
bringing to 12 the number of hotels owned by joint ventures with Promus, and
three consist of 90% interests in consolidated partnerships, in which
Doubletree holds the remaining 10% interest, owning an aggregate of three
Doubletree Guest Suites hotels. Of the remaining hotels acquired in 1997, three
are Embassy Suites hotels, seven are Doubletree Guest Suites hotels (including
three that were converted from other brands), and six are Sheraton hotels.
-45-
<PAGE> 54
Other Potential Hotel Transactions
The Company is in various stages of evaluation and negotiation with
respect to a number of other available hotel transactions which, if the Company
were to elect to pursue all of such transactions, could require an additional
investment by the Company of more than $300 million. Due to the preliminary
status of such negotiations and evaluations, no assurance can be given that the
Company will elect to pursue, or succeed in the completion of, any of such
transactions.
Hotel Renovation and Conversion
The Company believes that its commitment to make the necessary capital
expenditures to upgrade and maintain its hotel properties in accordance with
its high standards differentiates it from many other hotel companies.
Typically, the Company renovates or upgrades hotels acquired by it and, in many
instances, incurs the cost of converting such hotels into national brands, like
Embassy Suites, Doubletree Guest Suites or Sheraton. The Company made capital
expenditures of approximately $52.2 million during 1996, in the conversion and
upgrade of hotels acquired by it through December 31, 1996. The majority of
such expenditures were made in connection with the complete renovation and
upgrading of the 18 CSS Hotels. The Company has incurred additional conversion
and upgrade costs of approximately $17.6 million during the first six months of
1997 with respect to various renovation and upgrade projects. Significant
additional conversion and upgrade costs may be incurred by the Company with
respect to any additional hotels acquired by it.
In addition to the conversion and upgrade costs typically incurred by
the Company in connection with newly acquired hotels, the Company is required
under the Percentage Leases to provide a capital replacement reserve,
consisting of 4% of suite revenues (on a cumulative basis), for recurring
capital improvements and replacements at its hotels. In addition to the capital
expenditures made, as described above, for the conversion and upgrade of newly
acquired hotels, the Company spent approximately $9.2 million (approximately
4.3% of suite revenues) during 1996, and approximately $3.9 million
(approximately 2.4% of suite revenues) during the six months ended June 30,
1997, on recurring capital replacements. In addition to such capital
expenditures by the Company, the Lessee also spent approximately $14.5 million
(approximately 6.2% of suite revenues) during 1996, and approximately $11.1
million (approximately 5.5% of suite revenues) during the six months ended June
30, 1997, on routine maintenance and repair of its hotels, for which the Lessee
is responsible under the Percentage Leases.
During 1996 and the first six months of 1997, the Company completed
the construction of 17 additional suites at its Flagstaff hotel, 31 additional
suites at its New Orleans hotel, and a net of 129 suites, additional meeting
rooms and other public area improvements to its Boston-Marlborough hotel at an
aggregate cost of approximately $21.2 million. Additionally, an aggregate of
224 additional suites are currently in the process of development at three of
the Company's existing hotels, at an estimated cost of approximately $20.5
million.
Embassy Suites Hotels
Fifty-one of the Current Hotels are, and one is in the process of
conversion to, Embassy Suites hotels operating under franchise licenses from
Promus. Embassy Suites hotels are upscale, full-service, all-suite hotels
designed to attract frequent business travelers, leisure travelers and weekend
guests. Embassy Suites consistently achieves one of the highest guest
satisfaction ratings in the industry. Among the services and amenities
typically offered by Embassy Suites hotels are: two-room suites, with each
suite containing two telephones, a mini-refrigerator, coffee maker, microwave
oven, wet bar, and two color televisions; complimentary, full, cooked-to-order
breakfast every morning; complimentary cocktails during two hours every evening
(subject to local laws and regulations) in an atrium environment; fitness
center, indoor heated pool, sauna, whirlpool and steam room; guest laundry and
valet services; and a 100% satisfaction guarantee. Restaurant, banquet, in-room
dining and lounge services are available to guests at customary rates. Embassy
Suites hotels are constructed, maintained and operated in accordance with a
comprehensive set of building, maintenance, operational, recordkeeping and
reservation system guidelines designed to ensure a uniformly high level of
service, appearance and quality. The Embassy Suites system was among the first
hotel chains to offer guests an unconditional 100% satisfaction guarantee.
Embassy Suites, the predecessor-in-interest to Promus, was organized
in 1983, and the first Embassy Suites hotel was opened in Overland Park, Kansas
in 1984. Mr. Feldman, Chairman of the Board of the Company, served as the
founding President and Chief Executive Officer of Embassy Suites from 1983
until 1990, and as its Chairman of the Board from 1990 until January 1992. In
March 1984, Embassy Suites, Inc. acquired the 24 hotel Granada Royale
Hometel(R)chain, and converted its hotels to the Embassy Suites system during
1985. By the spring of 1986, Embassy Suites hotels were located in 20 states,
making it a national upscale all-suite chain and the largest upscale all-suite
operator in the United States. The Embassy Suites chain has continued to grow
through franchising, new hotel development and the acquisition and conversion
of all-suite hotels from other brands. From 30 hotels in 10 states at December
31, 1984, the Embassy Suites chain has grown to 137 hotels in 35 states, the
District of Columbia, Canada, Colombia, Puerto Rico, and Thailand at August 31,
1997, making it the largest U.S. full-service, all-suite hotel chain. Of the
137 Embassy Suites hotels in operation at August 31, 1997, a total of 76 were
being operated by Promus as owner, lessee or manager.
-46-
<PAGE> 55
Doubletree Guest Suites Hotels
Twelve of the Current Hotels are Doubletree Guest Suites hotels. The
Doubletree Guest Suites all-suite hotels comprise one of the largest all-suite
hotel chains in the United States as measured by number of suites and system
revenues. Doubletree's all-suite hotels are targeted at business travelers and
families who have a need or desire for greater space than typically is provided
at most traditional hotels. The total guest room revenue for the year ended
December 31, 1996 for Doubletree's all-suite hotels was derived approximately
45% from business travelers, 29% from group meetings and 26% from leisure
travelers.
As of June 30, 1997, Doubletree's all-suite hotels included 42
Doubletree Guest Suites hotels in 18 states and the District of Columbia, with
a total of 8,987 guest rooms. The hotels range in size from 55 to 460 guest
suites. Suite rates generally range from $60 to $250 per night. Each guest
suite has a separate living room and dining/work area, with a color television,
refrigerator and wet bar.
Doubletree is one of the largest full-service hotel operating
companies in the United States. As of June 30, 1997, Doubletree and its
affiliates managed, leased, or franchised 255 hotels with an aggregate of
58,578 rooms in 40 states, the District of Columbia, Mexico, and the Caribbean.
This represents a 6% and 5% increase in number of hotels and aggregate room
count, respectively, for the first half of 1997. Doubletree provides hotel
owners with management and franchise services under its Doubletree Hotels,
Doubletree Guest Suites, Club Hotels by Doubletree, Red Lion Hotels and other
brands. As of June 30, 1997, Doubletree's portfolio of hotels included 101
Doubletree Hotels, 42 Doubletree Guest Suites hotels, 19 Club Hotels by
Doubletree, 16 Red Lion Hotels and 77 hotels operated by Doubletree under third
party brand names or as independent hotels.
Sheraton Hotels
Two of the Current Hotels are Sheraton Suites hotels. Sheraton Suites
hotels typically offer two-room suites, each with a wet bar, refrigerator,
microwave, coffee maker and two televisions. Restaurant, lounge, swimming pool
and fitness center facilities are also typically available to guests. Four of
the Current Hotels are full-service upscale Sheraton hotels. While each of
these hotels offers some suite accommodations, the substantial percentage of
the accommodations are non-suite rooms. Sheraton hotels generally offer
numerous amenities and facilities, such as multiple restaurants, banquet and
meeting space, recreational facilities (including indoor and/or outdoor pools
and fitness centers) and business centers.
Sheraton Hotels, including Sheraton Suites, are part of Sheraton
Hotels & Resorts, the upscale brand segment operated and franchised by ITT
Sheraton Corporation, which is a wholly-owned subsidiary of ITT Corporation.
ITT Sheraton Corporation owns, leases, manages and/or franchises over 430
luxury, upscale and mid-scale hotels, having over 135,000 guest rooms, in over
60 countries. In the upscale segment, which includes Sheraton hotels, Sheraton
owns, leases, manages and franchises approximately 290 properties with
approximately 105,000 rooms. Sheraton's origins date back to 1937 and its
history includes many firsts in the hospitality industry, including the first
hotel chain to be listed on the NYSE, the first chain to centralize and
automate the reservations function and the first to develop a toll-free 800-
number system for direct consumer access.
Other All-Suite Hotels
The Company also owns one Hilton Suites hotel. Hilton Suites is one of
the brands operated and franchised by Hilton Hotels Corporation. Hilton Suites
hotels provide a private bedroom and separate living room with amenities that
include a second television with a video cassette player, wet bar with
microwave, mini-refrigerator and coffee maker. In addition, a complimentary
prepared-to-order breakfast and evening beverage reception are offered daily.
-47-
<PAGE> 56
HOTEL OPERATIONS
At September 30, 1997, 50 of the Current Hotels were being managed by
Promus, 12 were being managed by Doubletree, six were being managed by Sheraton
and three were being managed by independent professional management companies.
During 1996, the ADR at the Current Hotels increased by approximately
7.2% which, when combined with a decline in occupancy of approximately 0.4
percentage points, resulted in an increase in RevPAR of 6.5%. These figures
reflect the adverse impact of the loss of nearly 173,000 available suite nights
(approximately 2.7% of total available suite nights for the year) as a result
of the temporary removal of suites from service for renovation and upgrading
during 1996. The performance of the CSS Hotels and certain of the other hotels
acquired during 1996, which underwent substantial renovation and upgrading
during the year, substantially offset the improved performance of the other
Current Hotels, which experienced an increase in RevPAR during 1996 of
approximately 8.5% over 1995.
-48-
<PAGE> 57
The following table sets forth historical operating data regarding the Current
Hotels for the periods presented, regardless of ownership.
<TABLE>
<CAPTION>
ADR($)
-------
TWELVE
# OF MONTHS
SUITES/ YEAR YEAR ENDED
LOCATION BRAND ROOMS OPENED ACQUIRED 9/30/97
---------- ------- ----- ------- -------- -------
<S> <C> <C> <C> <C> <C>
CURRENT HOTELS(1):
Birmingham, AL ............................ Embassy Suites(3) 242 1987 1996 $ 111.31
Flagstaff, AZ ............................. Embassy Suites(3) 119 1988 1995 94.00
Phoenix (Camelback), AZ ................... Embassy Suites(3) 233 1985 1996 147.14
Phoenix (Crescent), AZ .................... Sheraton 342 1986 1997 112.00
Anaheim, CA ............................... Embassy Suites(3) 222 1987 1996 100.59
Burlingame (S.F. Airport So.), CA ......... Embassy Suites(2)(3) 339 1986 1995 127.39
Covina, CA ................................ Embassy Suites(5) 264 1980 1997 79.63
Dana Point, CA ............................ Doubletree Guest Suites 198 1992 1997 93.10
El Segundo (LAX Airport South), CA ........ Embassy Suites(3) 350 1985 1996 84.95
Los Angeles (LAX Airport North), CA ....... Embassy Suites(2)(3) 215 1990 1997 104.59
Milpitas, CA .............................. Embassy Suites(3) 267 1987 1996 126.65
Napa, CA .................................. Embassy Suites(3) 205 1985 1996 127.62
Oxnard (Mandalay Beach), CA ............... Embassy Suites(3) 249 1986 1996 126.81
San Rafael (Marin Co.), CA ................ Embassy Suites(5) 235 1990 1996 117.27
South San Francisco (Airport North), CA ... Embassy Suites 312 1988 1996 124.61
Avon (Beaver Creek Resort), CO ............ Embassy Suites(3) 72 1989 1996 203.91
Boca Raton (Doubletree), FL ............... Doubletree Guest Suites(3) 182 1989 1995 80.10
Boca Raton (Embassy), ..................... Embassy Suites(3) 263 1989 1996 90.23
Deerfield Beach, FL ....................... Embassy Suites(3) 244 1987 1996 126.34
Ft. Lauderdale, FL ........................ Embassy Suites(3) 359 1986 1996 112.59
Jacksonville, FL .......................... Embassy Suites 210 1985 1994 110.14
Lake Buena Vista (Disney World), FL ....... Doubletree Guest Suites(2) 229 1987 1997 133.70
Miami (Airport), FL ....................... Embassy Suites(3) 314 1987 1996 100.72
Orlando (North), FL ....................... Embassy Suites 210 1985 1994 113.29
Orlando (South), FL ....................... Embassy Suites 244 1985 1994 120.98
Tampa (Busch Gardens), FL ................. Doubletree Guest Suites(3) 129 1985 1995 90.57
Tampa (Rocky Point), FL ................... Doubletree Guest Suites 203 1986 1997 109.37
Atlanta (Airport), GA ..................... Sheraton 395 1986 1997 93.54
Atlanta (Buckhead), GA .................... Embassy Suites 317 1988 1996 133.13
Atlanta (Galleria), GA .................... Sheraton 278 1990 1997 112.55
Atlanta (Perimeter Center), GA ............ Embassy Suites(5) 241 1985 1997 112.52
Brunswick, GA ............................. Embassy Suites(3) 130 1988 1995 73.12
Chicago -- Lombard, IL .................... Embassy Suites(5) 262 1990 1995 117.48
Chicago (O'Hare), IL ...................... Sheraton 297 1986 1997 125.59
Deerfield, IL ............................. Embassy Suites(3) 237 1987 1996 107.58
Indianapolis (North), IN .................. Embassy Suites(5) 222 1985 1996 103.76
Overland Park, KS ......................... Embassy Suites(5) 199 1984 1997 109.39
Lexington, KY ............................. Hilton Suites(3) 174 1987 1996 99.50
Baton Rouge, LA ........................... Embassy Suites(3) 224 1985 1996 96.15
New Orleans, LA ........................... Embassy Suites(3) 282 1984 1994 126.77
Boston -- Marlbourgh,MA ................... Embassy Suites(3) 229 1988 1995 112.40
Baltimore, MD ............................. Doubletree Guest Suites(4) 251 1987 1997 93.97
<CAPTION>
ADR($) REVPAR($)
------------------------------- ----------------------------------------
TWELVE
YEAR ENDED DECEMBER 31, MONTHS YEAR ENDED DECEMBER 31,
------------------------------- ENDED -----------------------------
1996 1995 1994 9/30/97 1996 1995 1994
---- ---- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT HOTELS(1):
Birmingham, AL ............................ 101.33 $ 94.13 $ 88.49 $ 69.98 $ 65.20 $ 64.30 $ 60.62
Flagstaff, AZ ............................. 92.04 89.98 89.13 63.49 64.23 60.31 61.80
Phoenix (Camelback), AZ ................... 140.12 130.49 121.73 111.21 96.70 95.69 90.40
Phoenix (Crescent), AZ .................... 107.71 95.53 72.94 78.93 76.54 69.61 54.24
Anaheim, CA ............................... 91.48 85.94 85.04 71.14 60.22 59.27 53.76
Burlingame (S.F. Airport So.), CA ......... 114.58 102.42 99.41 106.57 89.06 80.66 75.72
Covina, CA ................................ 79.13 75.64 79.91 48.82 42.59 40.56 40.84
Dana Point, CA ............................ 82.12 79.09 68.56 53.62 51.53 49.92 44.35
El Segundo (LAX Airport South), CA ........ 80.76 83.55 85.67 67.31 58.97 52.91 55.10
Los Angeles (LAX Airport North), CA ....... 102.67 102.72 100.12 81.77 79.59 72.32 80.09
Milpitas, CA .............................. 108.11 93.57 88.03 103.87 81.47 74.44 64.58
Napa, CA .................................. 115.84 111.52 112.72 84.43 77.78 72.53 76.48
Oxnard (Mandalay Beach), CA ............... 120.36 117.25 116.73 78.32 75.43 73.72 77.91
San Rafael (Marin Co.), CA ................ 111.78 108.49 101.64 93.35 86.04 85.46 79.92
South San Francisco (Airport North), CA ... 108.33 93.80 92.43 91.48 72.89 63.52 62.37
Avon (Beaver Creek Resort), CO ............ 185.60 150.72 149.21 101.40 95.26 93.21 85.44
Boca Raton (Doubletree), FL ............... 78.26 79.83 83.02 45.42 41.32 40.19 40.19
Boca Raton (Embassy), ..................... 85.67 86.26 83.36 67.16 62.68 63.48 59.27
Deerfield Beach, FL ....................... 119.06 119.93 122.46 88.73 72.94 78.85 79.42
Ft. Lauderdale, FL ........................ 105.92 106.44 105.47 84.40 74.31 70.46 70.14
Jacksonville, FL .......................... 106.17 96.43 84.41 85.37 81.40 72.75 64.01
Lake Buena Vista (Disney World), FL ....... 121.25 113.40 114.91 112.31 100.77 85.93 85.50
Miami (Airport), FL ....................... 86.07 88.52 84.99 77.76 64.02 67.41 65.43
Orlando (North), FL ....................... 103.56 97.49 93.47 94.81 86.58 77.97 74.04
Orlando (South), FL ....................... 114.74 109.37 103.61 105.89 96.66 86.19 81.83
Tampa (Busch Gardens), FL ................. 85.08 80.66 79.58 60.67 63.20 59.05 63.19
Tampa (Rocky Point), FL ................... 98.35 90.25 85.63 79.17 74.01 66.62 64.38
Atlanta (Airport), GA ..................... 102.13 82.20 71.01 58.02 68.13 55.56 51.46
Atlanta (Buckhead), GA .................... 138.39 120.82 107.40 102.83 103.66 98.12 86.95
Atlanta (Galleria), GA .................... 118.59 104.06 94.65 71.54 79.52 71.73 73.07
Atlanta (Perimeter Center), GA ............ 117.93 102.40 92.68 87.32 91.66 79.82 74.74
Brunswick, GA ............................. 71.03 61.22 49.07 52.12 52.72 45.30 37.07
Chicago -- Lombard, IL .................... 109.64 101.28 95.21 88.58 85.06 77.94 71.68
Chicago (O'Hare), IL ...................... 119.27 108.43 104.41 92.87 82.50 71.44 99.12
Deerfield, IL ............................. 100.96 96.74 90.90 81.77 75.05 74.85 67.53
Indianapolis (North), IN .................. 100.22 98.60 90.93 73.31 70.70 72.14 65.77
Overland Park, KS ......................... 102.94 97.93 91.73 81.53 77.21 72.81 69.72
Lexington, KY ............................. 96.71 88.12 82.70 76.63 74.99 70.16 65.38
Baton Rouge, LA ........................... 87.27 81.08 79.57 67.29 53.86 56.96 55.12
New Orleans, LA ........................... 119.90 114.48 105.76 92.59 90.82 83.42 87.48
Boston -- Marlbourgh,MA ................... 104.89 89.12 85.26 86.99 80.47 72.29 68.08
Baltimore, MD ............................. 89.41 82.03 82.97 71.26 67.88 62.09 57.88
<CAPTION>
OCCUPANCY(%)
--------------------------------
TWELVE
MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
9/30/97 1996 1995 1994
CURRENT HOTELS(1): ------- ---- ---- ----
<S> <C> <C> <C> <C>
Birmingham, AL ............................ 62.9% 64.3% 68.3% 68.5%
Flagstaff, AZ ............................. 67.5 69.8 67.0 69.3
Phoenix (Camelback), AZ ................... 75.6 69.0 73.3 74.3
Phoenix (Crescent), AZ .................... 70.5 71.1 72.9 74.4
Anaheim, CA ............................... 70.7 65.8 69.0 63.2
Burlingame (S.F. Airport So.), CA ......... 83.7 77.7 78.7 76.2
Covina, CA ................................ 61.3 53.8 53.6 51.1
Dana Point, CA ............................ 57.6 62.8 63.1 64.7
El Segundo (LAX Airport South), CA ........ 79.2 73.0 63.3 64.3
Los Angeles (LAX Airport North), CA ....... 78.2 77.5 70.4 80.0
Milpitas, CA .............................. 82.0 75.4 79.6 73.4
Napa, CA .................................. 66.2 67.1 65.0 67.8
Oxnard (Mandalay Beach), CA ............... 61.8 62.7 62.9 66.7
San Rafael (Marin Co.), CA ................ 79.6 77.0 78.8 78.6
South San Francisco (Airport North), CA ... 73.4 67.3 67.7 67.5
Avon (Beaver Creek Resort), CO ............ 49.7 51.3 61.8 57.3
Boca Raton (Doubletree), FL ............... 56.7 52.8 50.4 48.4
Boca Raton (Embassy), ..................... 74.4 73.2 73.6 71.1
Deerfield Beach, FL ....................... 70.2 61.3 65.7 64.9
Ft. Lauderdale, FL ........................ 75.0 70.2 66.2 66.5
Jacksonville, FL .......................... 77.5 76.7 75.4 75.8
Lake Buena Vista (Disney World), FL ....... 84.0 83.1 75.8 74.4
Miami (Airport), FL ....................... 77.2 74.4 76.1 77.0
Orlando (North), FL ....................... 83.7 83.6 80.0 79.2
Orlando (South), FL ....................... 87.5 84.2 78.8 79.0
Tampa (Busch Gardens), FL ................. 67.0 74.3 73.2 79.4
Tampa (Rocky Point), FL ................... 72.4 75.2 73.8 75.2
Atlanta (Airport), GA ..................... 62.0 66.7 67.6 72.5
Atlanta (Buckhead), GA .................... 77.2 74.9 81.2 81.0
Atlanta (Galleria), GA .................... 63.6 67.1 68.9 77.2
Atlanta (Perimeter Center), GA ............ 77.6 77.7 77.9 80.7
Brunswick, GA ............................. 71.3 74.2 74.0 75.5
Chicago -- Lombard, IL .................... 75.4 77.6 77.0 75.3
Chicago (O'Hare), IL ...................... 73.9 69.2 65.9 94.9
Deerfield, IL ............................. 76.0 74.3 77.4 74.3
Indianapolis (North), IN .................. 70.7 70.6 73.2 72.3
Overland Park, KS ......................... 74.5 75.0 74.4 76.0
Lexington, KY ............................. 77.0 77.5 79.6 79.1
Baton Rouge, LA ........................... 70.0 61.7 70.2 69.3
New Orleans, LA ........................... 73.0 75.7 72.9 82.7
Boston -- Marlbourgh,MA ................... 77.4 76.7 81.1 79.9
Baltimore, MD ............................. 75.8 75.9 75.7 69.8
</TABLE>
-49-
<PAGE> 58
<TABLE>
<CAPTION>
# of
Suites/ Year Year
Location Brand Rooms Opened Acquired
- -------------------------------------- --------------------------- ----- ------ --------
<S> <C> <C> <C> <C>
Troy, MI ............................. Doubletree Guest Suites(4) 251 1987 1997
Bloomington, MN ...................... Doubletree Guest Suites 219 1980 1997
Minneapolis (Airport), MN ............ Embassy Suites(3) 311 1986 1995
Minneapolis (Downtown), MN ........... Embassy Suites(3) 218 1984 1995
St. Paul, MN ......................... Embassy Suites(2)(3) 210 1983 1995
Kansas City (Cntry Club Plaza), MO ... Embassy Suites(2)(5) 266 1976 1997
Charlotte, NC ........................ Embassy Suites(5) 274 1989 1996
Raleigh/Durham, NC ................... Doubletree Guest Suites 203 1987 1997
Raleigh, NC .......................... Embassy Suites(5) 225 1987 1997
Omaha, NE ............................ Doubletree Guest Suites 189 1973 1997
Parsippany, NJ ....................... Embassy Suites(5) 274 1989 1996
Piscataway, NJ ....................... Embassy Suites(3) 225 1988 1996
Secaucus, NJ ......................... Embassy Suites(5) 261 1986 1997
Syracuse, NY ......................... Embassy Suites 215 1989 1997
Cleveland, OH ........................ Embassy Suites(3) 268 1990 1995
Tulsa, OK ............................ Embassy Suites 240 1985 1994
Philadelphia (Society Hill), PA ...... Sheraton 365 1986 1997
Myrtle Beach (Kingston Plantation), SC Embassy Suites(6) 255 1987 1996
Nashville (Airport), TN .............. Doubletree Guest Suites 138 1988 1997
Nashville, TN ........................ Embassy Suites 296 1986 1994
Austin (Airport North), TX ........... Embassy Suites(5) 261 1984 1997
Austin (Downtown), TX ................ Doubletree Guest Suites(4) 189 1987 1997
Corpus Christi, TX ................... Embassy Suites 150 1984 1995
Dallas (Love Field), TX .............. Embassy Suites 248 1986 1995
Dallas (Market Center), TX ........... Embassy Suites 244 1980 1997
Dallas (Park Central), TX ............ Embassy Suites 279 1985 1994
Dallas (Park Central), TX ............ Sheraton 545 1983 1997
San Antonio (Northwest), TX .......... Embassy Suites(5) 217 1979 1997
San Antonio (Airport), TX ............ Embassy Suites(5) 261 1985 1997
---
Totals .............................. 17,486
======
<CAPTION>
ADR($)
---------------------------------------------
Twelve Year Ended December 31,
Months -------------------------------
Ended
9/30/97 1996 1995 1994
------- ---- ---- ----
<S> <C> <C> <C> <C>
Troy, MI ............................. $ 99.58 $ 93.11 $ 84.25 $ 75.03
Bloomington, MN ...................... 108.41 108.83 104.67 97.86
Minneapolis (Airport), MN ............ 123.23 114.54 102.65 99.08
Minneapolis (Downtown), MN ........... 103.31 96.37 93.26 93.08
St. Paul, MN ......................... 97.24 91.20 82.44 79.81
Kansas City (Cntry Club Plaza), MO ... 107.53 102.41 98.86 93.47
Charlotte, NC ........................ 118.46 110.83 100.52 90.49
Raleigh/Durham, NC ................... 106.05 96.60 84.87 79.57
Raleigh, NC .......................... 117.46 112.31 103.53 92.74
Omaha, NE ............................ 89.49 91.29 89.61 83.35
Parsippany, NJ ....................... 133.29 126.09 116.02 109.42
Piscataway, NJ ....................... 115.13 102.28 101.98 96.46
Secaucus, NJ ......................... 133.00 122.48 111.62 107.92
Syracuse, NY ......................... 98.59 94.98 95.09 91.70
Cleveland, OH ........................ 103.89 103.85 99.40 86.98
Tulsa, OK ............................ 91.30 88.11 82.14 80.16
Philadelphia (Society Hill), PA ...... 134.57 124.92 112.43 107.26
Myrtle Beach (Kingston Plantation), SC 124.87 119.33 110.10 106.27
Nashville (Airport), TN .............. 82.53 84.21 79.01 74.77
Nashville, TN ........................ 106.99 103.00 100.92 94.27
Austin (Airport North), TX ........... 108.53 108.56 107.92 93.82
Austin (Downtown), TX ................ 115.11 107.27 102.50 91.64
Corpus Christi, TX ................... 90.86 82.95 77.66 77.54
Dallas (Love Field), TX .............. 108.25 104.14 98.95 92.81
Dallas (Market Center), TX ........... 121.62 117.93 109.72 103.43
Dallas (Park Central), TX ............ 107.12 105.13 95.50 86.24
Dallas (Park Central), TX ............ 105.70 96.01 85.74 77.78
San Antonio (Northwest), TX .......... 104.54 100.14 100.29 99.96
San Antonio (Airport), TX ............ 104.28 99.66 97.33 99.90
Totals .............................. 111.14 105.23 98.20 92.87
<CAPTION>
RevPAR($)
------------------------------------------
Twelve Year Ended December 31,
Months -------------------------------
Ended
9/30/97 1996 1995 1994
------- ---- ---- ----
Troy, MI ............................. $ 75.34 $ 69.04 $ 61.01 $ 57.85
Bloomington, MN ...................... 75.07 79.12 82.29 78.58
Minneapolis (Airport), MN ............ 91.22 79.38 75.52 75.27
Minneapolis (Downtown), MN ........... 67.51 53.40 62.04 64.78
St. Paul, MN ......................... 69.38 59.88 63.56 64.00
Kansas City (Cntry Club Plaza), MO ... 83.01 78.11 64.47 65.90
Charlotte, NC ........................ 86.23 80.28 74.14 69.46
Raleigh/Durham, NC ................... 81.00 71.70 64.76 57.02
Raleigh, NC .......................... 97.43 92.20 83.42 76.73
Omaha, NE ............................ 61.64 68.98 70.42 63.52
Parsippany, NJ ....................... 104.88 96.45 85.89 80.39
Piscataway, NJ ....................... 79.73 74.47 73.90 72.89
Secaucus, NJ ......................... 108.86 102.76 90.37 87.54
Syracuse, NY ......................... 74.05 70.81 68.58 68.72
Cleveland, OH ........................ 76.92 69.63 70.79 60.54
Tulsa, OK ............................ 65.50 64.92 59.51 58.18
Philadelphia (Society Hill), PA ...... 96.62 92.70 83.04 82.89
Myrtle Beach (Kingston Plantation), SC 91.55 88.62 83.27 79.52
Nashville (Airport), TN .............. 65.69 62.65 60.02 58.14
Nashville, TN ........................ 80.07 75.35 73.67 71.27
Austin (Airport North), TX ........... 84.06 79.06 80.00 71.30
Austin (Downtown), TX ................ 90.60 82.34 82.86 71.91
Corpus Christi, TX ................... 67.17 60.80 60.24 64.81
Dallas (Love Field), TX .............. 83.07 79.05 69.71 67.64
Dallas (Market Center), TX ........... 88.71 86.40 78.96 77.57
Dallas (Park Central), TX ............ 81.06 79.63 74.24 68.00
Dallas (Park Central), TX ............ 66.23 67.78 63.65 56.48
San Antonio (Northwest), TX .......... 73.00 70.69 69.55 71.98
San Antonio (Airport), TX ............ 78.56 75.74 73.38 78.28
Totals .............................. 81.41 75.97 71.30 68.63
<CAPTION>
Occupancy(%)
----------------------------------
Twelve Year Ended December 31,
Months ------------------------
Ended
9/30/97 1996 1995 1994
------- ---- ---- ----
<S> <C> <C> <C> <C>
Troy, MI ............................. 75.7% 74.1% 72.4% 77.1%
Bloomington, MN ...................... 69.2 72.7 78.6 80.3
Minneapolis (Airport), MN ............ 74.0 69.3 73.6 76.0
Minneapolis (Downtown), MN ........... 65.3 55.4 66.5 69.6
St. Paul, MN ......................... 71.3 65.7 77.1 80.2
Kansas City (Cntry Club Plaza), MO ... 77.2 76.3 65.2 70.5
Charlotte, NC ........................ 72.8 72.4 73.8 76.8
Raleigh/Durham, NC ................... 76.4 74.2 76.3 71.7
Raleigh, NC .......................... 82.9 82.1 80.6 82.7
Omaha, NE ............................ 68.9 75.6 78.6 76.2
Parsippany, NJ ....................... 78.7 76.5 74.0 73.5
Piscataway, NJ ....................... 69.3 72.8 72.5 75.6
Secaucus, NJ ......................... 81.9 83.9 81.0 81.1
Syracuse, NY ......................... 75.1 74.6 72.1 74.9
Cleveland, OH ........................ 74.0 67.1 71.2 69.6
Tulsa, OK ............................ 71.7 73.7 72.4 72.6
Philadelphia (Society Hill), PA ...... 71.8 74.2 73.9 77.3
Myrtle Beach (Kingston Plantation), SC 73.3 74.3 75.6 74.8
Nashville (Airport), TN .............. 79.6 74.4 76.0 77.8
Nashville, TN ........................ 74.8 73.2 73.0 75.6
Austin (Airport North), TX ........... 77.5 72.8 74.1 76.0
Austin (Downtown), TX ................ 78.7 76.8 80.8 78.5
Corpus Christi, TX ................... 73.9 73.3 77.6 83.6
Dallas (Love Field), TX .............. 76.7 75.9 70.4 72.9
Dallas (Market Center), TX ........... 72.9 73.3 72.0 75.0
Dallas (Park Central), TX ............ 75.7 75.7 77.7 78.8
Dallas (Park Central), TX ............ 62.7 70.6 74.2 72.6
San Antonio (Northwest), TX .......... 69.8 70.6 69.4 72.0
San Antonio (Airport), TX ............ 75.3 76.0 75.4 78.4
Totals .............................. 73.3 72.2 72.6 73.9
</TABLE>
(1) The information included in this table for periods prior to the
acquisition of a particular hotel by the Company or by FelCor
Affiliates was obtained from the prior owners.
(2) These hotels are situated upon parcels of land subject to ground
leases.
(3) This hotel underwent substantial renovation, upgrading and expansion
during 1996.
(4) The Company owns a 90% equity interest in the entity that owns these
hotels.
(5) The Company owns a 50% equity interest in the entity that owns these
hotels.
(6) This hotel is in the process of conversion to the Embassy Suites
brand.
-50-
<PAGE> 59
Each of the Current Hotels owned by the Company is leased to the
Lessee pursuant to a Percentage Lease. Accordingly, the Company derives
substantially all of its revenues from rents under the Percentage Leases, which
rents are directly affected by changes in suite revenue. See "-- The Percentage
Leases." The following table sets forth comparative suite revenue information
for each of the Current Hotels on a consolidated basis, with respect to
historical suite revenues, as if the hotels had been owned by the Company
throughout the periods presented.
<TABLE>
<CAPTION>
SUITE REVENUE(1) PERCENTAGE CHANGE
--------------------------------------------------------------------------
TWELVE
TWELVE MONTHS
MONTHS YEAR ENDED DECEMBER 31, ENDED
ENDED --------------------------- 9/30/97 1996 VS. 1995 VS.
LOCATION 9/30/97 1996 1995 1994 VS. 1996 1995 1994
-------- ------- ---- ---- ---- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT HOTELS:
Birmingham, AL(2) ................................. $ 6,181 $ 5,790 $ 5,680 $ 5,371 6.8% 1.9% 5.8%
Flagstaff, AZ(2) .................................. 2,758 2,614 2,245 2,301 5.5 16.4 (2.4)
Phoenix (Camelback), AZ(2) ........................ 9,418 8,239 8,160 7,666 14.3 1.0 6.4
Phoenix (Crescent), AZ ............................ 9,853 9,581 8,690 4,619 2.8 10.3 88.1
Anaheim, CA(2) .................................... 5,768 4,907 4,802 4,356 17.6 2.2 10.2
Burlingame (S.F. Airport So.), CA(2) .............. 13,225 11,070 9,948 9,355 19.5 11.3 6.3
Covina, CA ........................................ 4,633 4,053 3,908 3,936 14.3 3.7 (0.7)
Dana Point, CA .................................... 3,854 3,716 3,571 3,172 3.7 4.1 12.6
El Segundo Airport (LAX South), CA(2) ............. 8,574 7,538 6,760 7,033 13.7 11.5 (3.9)
Los Angeles (LAX Airport North), CA(2)............. 6,417 6,263 5,675 6,285 2.5 10.4 (9.7)
Milpitas, CA(2) ................................... 10,085 7,953 7,254 6,290 26.8 9.6 15.3
Napa, CA(2) ....................................... 6,317 5,846 5,427 5,723 8.1 7.7 (5.2)
Oxnard (Mandalay Beach), CA(2) .................... 7,118 6,893 6,700 7,081 3.3 2.9 (5.4)
San Rafael (Marin Co. ), CA ....................... 8,007 7,400 7,330 6,857 8.2 1.0 6.9
South San Francisco (Airport North), CA ........... 10,418 8,323 7,234 7,103 25.2 15.1 1.8
Avon (Beaver Creek Resort), CO(2) ................. 2,673 2,480 2,415 2,214 7.8 2.7 9.1
Boca Raton (Doubletree), FL(2) .................... 3,017 2,753 2,670 2,670 9.6 3.1 0.0
Boca Raton (Embassy), FL(2) ....................... 6,448 6,033 6,093 5,689 6.9 (1.0) 7.1
Deerfield Beach, FL(2) ............................ 7,902 6,531 7,023 7,073 21.0 (7.0) (0.7)
Ft. Lauderdale, FL(2) ............................. 11,059 9,788 9,233 9,180 13.0 6.0 0.6
Jacksonville, FL(2) ............................... 6,544 6,256 5,576 4,907 4.6 12.2 13.6
Lake Buena Vista (Disney World), FL ............... 9,387 8,446 7,183 7,146 11.1 17.6 0.5
Miami (Airport), FL(2) ............................ 8,969 7,388 7,726 7,498 21.4 (4.4) 3.0
Orlando (North), FL ............................... 7,267 6,654 5,976 5,675 9.2 11.3 5.3
Orlando (South), FL ............................... 9,431 8,632 7,676 7,287 9.3 12.5 5.3
Tampa (Busch Gardens), FL(2) ...................... 2,857 2,984 2,781 2,975 (4.3) 7.3 (6.5)
Tampa (Rocky Point), FL ........................... 5,866 5,499 4,936 4,771 6.7 11.4 3.5
Atlanta (Airport), GA ............................. 8,457 9,841 8,011 7,419 (14.1) 22.8 8.0
Atlanta (Buckhead), GA ............................ 11,898 12,026 11,353 10,410 (1.1) 5.9 9.1
Atlanta (Galleria), GA ............................ 7,339 8,091 7,279 7,415 (9.3) 11.2 (1.8)
Atlanta (Perimeter Center), GA .................... 7,681 8,085 7,021 6,575 (5.0) 15.2 6.8
Brunswick, GA(2) .................................. 2,473 2,508 2,149 1,759 (1.4) 16.7 22.2
Chicago -- Lombard, IL ............................ 8,471 8,156 7,454 6,855 3.9 9.4 8.7
Chicago (O'Hare), IL .............................. 10,177 8,973 7,796 7,457 13.4 15.1 4.5
Deerfield, IL(2) .................................. 7,093 6,510 6,457 5,825 9.0 0.8 10.8
Indianapolis (North), IN .......................... 5,913 5,738 5,845 5,329 3.0 (1.8) 9.7
Overland Park, KS ................................. 5,922 5,624 5,289 5,064 5.3 6.3 4.4
Lexington, KY (2) ................................. 4,867 4,776 4,456 4,152 1.9 7.2 7.3
Baton Rouge, LA (2) ............................... 5,484 4,428 4,657 4,507 23.8 (4.9) 3.3
New Orleans (2) ................................... 9,269 8,346 7,643 8,014 11.1 9.2 (4.6)
</TABLE>
-51-
<PAGE> 60
<TABLE>
<CAPTION>
SUITE REVENUE(1) PERCENTAGE CHANGE
------------------------------------------------------------------------------------
TWELVE
TWELVE MONTHS
MONTHS YEAR ENDED DECEMBER 31, ENDED
ENDED ------------------------------ 9/30/97 1996 VS. 1995 VS.
LOCATION 9/30/97 1996 1995 1994 VS. 1996 1995 1994
-------- ------- ---- ---- ---- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S> <C> <C> <C> <C> <C> <C> <C>
Boston-Marlbourgh, MA (2) . . $ 4,093 $ 2,945 $ 2,646 $ 2,485 39.0% 11.3% 6.5%
Baltimore, MD . . . . . . . . 6,529 6,236 5,688 5,303 4.7 9.6 7.3
Troy, MI . . . . . . . . . . 6,903 6,342 5,589 5,300 8.9 13.5 5.5
Bloomington, MN . . . . . . . 6,001 6,342 6,578 6,281 (5.4) (3.6) 4.7
Minneapolis (Airport),
MN (2) . . . . . . . . . . . 10,321 9,006 8,545 8,531 14.6 5.4 0.2
Minneapolis (Downtown),
MN (2) . . . . . . . . . . . 5,360 4,260 4,937 5,155 25.8 (13.7) (4.2)
St. Paul, MN (2) . . . . . . 5,318 4,602 4,872 4,906 15.5 (5.5) (0.7)
Kansas City (Country Club
Plaza), MO . . . . . . . . . 8,059 7,604 6,259 6,398 6.0 21.5 (2..2)
Charlotte, NC . . . . . . . . 8,624 8,051 7,415 6,947 7.1 8.6 6.7
Raleigh/Durham, NC . . . . . 6,002 5,327 7,498 4,225 12.7 11.0 13.6
Raleigh, NC . . . . . . . . . 8,002 7,592 6,851 6,302 5.4 10.8 8.7
Omaha, NE . . . . . . . . . . 4,230 4,754 4,858 4,382 (11.0) (2.1) 10.9
Parsippany, NJ . . . . . . . 10,489 9,673 8,590 8,039 8.4 12.6 6.9
Piscataway, NJ (2) . . . . . 6,528 6,132 6,069 5,986 6.5 1.0 1.4
Secaucus, NJ . . . . . . . . 10,371 9,816 8,609 8,340 5.7 14.0 3.0
Syracuse, NY . . . . . . . . 5,811 5,572 5,381 5,393 4.3 3.5 (0.2)
Cleveland, OH (2) . . . . . . 7,525 6,830 6,925 5,922 10.2 (1.4) 16.9
Tulsa, OK . . . . . . . . . . 5,738 5,703 5,213 5,097 0.6 9.4 2.3
Philadelphia
(Society Hill), PA . . . . . 13,100 12,384 11,064 11,044 5.8 11.9 0.2
Myrtle Beach (Kingston
(Plantation), SC . . . . . . 8,568 8,270 7,750 7,522 3.6 6.7 3.0
Nashville (Airport), TN . . . 3,242 3,164 3,023 2,928 2.5 4.7 3.2
Nashville, TN . . . . . . . . 8,651 8,163 7,960 7,678 6.0 2.6 3.7
Austin (Airport North), TX . 7,977 7,542 7,622 6,792 5.8 (1.0) 12.2
Austin (Downtown), TX . . . . 6,250 5,696 5,716 4,960 9.7 (0.3) 15.2
Corpus Christi, TX . . . . . 3,677 3,338 3,298 3,548 10.2 1.2 (7.0)
Dallas (Love Field), TX . . . 7,520 7,176 6,327 6,106 4.8 13.4 3.6
Dallas (Market Center), TX . 7,901 7,716 7,032 6,908 2.4 9.7 1.8
Dallas (Park Central), TX . . 8,255 8,131 7,560 6,925 1.5 7.6 9.2
Dallas (Park Central), TX . . 13,174 13,523 12,662 11,236 (2.6) 6.8 12.7
San Antonio (Northwest),
TX . . . . . . . . . . . . . 5,782 5,614 5,509 5,701 3.0 1.9 (3.4)
San Antonio (Airport), TX . . 7,484 7,235 6,990 7,457 3.4 3.5 (6.3)
--------- --------- --------- ---------
Totals . . . . . . . . . . . $ 516,575 $ 481,471 $ 450,419 $ 428,811 7.3% 6.9% 5.0%
========= ========= ========= =========
</TABLE>
- -----------------------
(1) The information included in this table with respect to suite revenues of
the Current Hotels, for periods prior to
their acquisition by the Company, was obtained from the prior owners.
Suite Revenue, as shown, reflects the Lessee's 100% interest in the
Current Hotels, even where the Company owns less than a 100% interest in
such hotels.
(2) This hotel underwent substantial renovation, upgrading or expansion
during 1996.
-52-
<PAGE> 61
THE PERCENTAGE LEASES
Pro Forma Lease Revenue
The following table reflects comparative pro forma Percentage Lease
Revenue received by the Company pursuant to the Percentage Leases for the 12
months ended September 30, 1997 and for the year ended December 31, 1996, as if
the Current Hotels had been subject to the Percentage Leases for the entire
periods presented.
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE
------------------------
TWELVE MONTHS YEAR ENDED
ENDED DECEMBER 31,
LOCATION BRAND 9/30/97 1996
-------- ----- ------- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED HOTELS:
Birmingham, AL . . . . . . . . . . . . . Embassy Suites $ 3,546 $ 3,332
Flagstaff, AZ . . . . . . . . . . . . . . Embassy Suites 1,201 1,138
Phoenix (Camelback), AZ . . . . . . . . . Embassy Suites 5,521 4,711
Phoenix (Crescent), AZ . . . . . . . . . Sheraton 3,615 3,525
Anaheim, CA . . . . . . . . . . . . . . . Embassy Suites 2,799 2,250
Burlingame (S.F. Airport So.), CA . . . . Embassy Suites 7,486 6,089
Dana Point, CA . . . . . . . . . . . . . Doubletree Guest Suites 1,446 1,395
El Segundo (LAX Airport South), CA . . . Embassy Suites 3,704 3,057
Los Angeles (LAX Airport North), CA . . . Embassy Suites 2,677 2,591
Milpitas, CA . . . . . . . . . . . . . . Embassy Suites 6,013 4,619
Napa, CA . . . . . . . . . . . . . . . . Embassy Suites 2,638 2,335
Oxnard (Mandalay Beach), CA . . . . . . . Embassy Suites 3,369 3,258
South San Francisco (Airport North), CA . Embassy Suites 5,376 4,029
Avon (Beaver Creek Resort), CO . . . . . Embassy Suites 742 631
Boca Raton (Doubletree), FL . . . . . . . Doubletree Guest Suites 1,290 1,119
Boca Raton (Embassy), FL . . . . . . . . Embassy Suites 2,494 2,240
Deerfield Beach, FL . . . . . . . . . . . Embassy Suites 4,070 3,214
Ft. Lauderdale, FL . . . . . . . . . . . Embassy Suites 6,393 5,600
Jacksonville, FL . . . . . . . . . . . . Embassy Suites 2,597 2,431
Lake Buena Vista (Disney World), FL . . . Doubletree Guest Suites 5,068 4,467
Miami (Airport), FL . . . . . . . . . . . Embassy Suites 4,526 3,507
Orlando (North), FL . . . . . . . . . . . Embassy Suites 3,538 3,163
Orlando (South), FL . . . . . . . . . . . Embassy Suites 3,942 3,441
Tampa (Busch Gardens), FL . . . . . . . . Doubletree Guest Suites 1,240 1,326
Tampa (Rocky Point), FL . . . . . . . . . Doubletree Guest Suites 2,930 2,703
Atlanta (Airport), GA . . . . . . . . . . Sheraton 3,355 4,156
Atlanta (Buckhead), GA . . . . . . . . . Embassy Suites 5,936 6,014
Atlanta (Galleria), GA . . . . . . . . . Sheraton 3,123 3,533
Brunswick, GA . . . . . . . . . . . . . . Embassy Suites 957 982
Chicago (O'Hare), IL . . . . . . . . . . Sheraton 5,648 4,709
Deerfield, IL . . . . . . . . . . . . . . Embassy Suites 3,423 3,066
Lexington, KY . . . . . . . . . . . . . . Hilton Suites 2,188 2,158
Baton Rouge, LA . . . . . . . . . . . . . Embassy Suites 2,507 1,830
New Orleans, LA . . . . . . . . . . . . . Embassy Suites 4,052 3,470
Boston -- Marlborough, MA . . . . . . . . Embassy Suites 2,227 1,484
Baltimore, MD . . . . . . . . . . . . . . Doubletree Guest Suites 3,165 2,943
Troy, MI . . . . . . . . . . . . . . . . Doubletree Guest Suites 3,656 3,250
Bloomington, MN . . . . . . . . . . . . . Doubletree Guest Suites 2,771 3,049
Minneapolis (Airport), MN . . . . . . . . Embassy Suites 5,883 5,006
Minneapolis (Downtown), MN . . . . . . . Embassy Suites 2,505 1,797
St. Paul, MN . . . . . . . . . . . . . . Embassy Suites 2,010 1,561
Raleigh/Durham, NC . . . . . . . . . . . Doubletree Guest Suites 2,881 2,623
Omaha, NE . . . . . . . . . . . . . . . . Doubletree Guest Suites 1,948 2,284
Piscataway, NJ . . . . . . . . . . . . . Embassy Suites 2,588 2,394
</TABLE>
-53-
<PAGE> 62
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE
------------------------
TWELVE MONTHS YEAR ENDED
ENDED DECEMBER 31,
LOCATION BRAND 9/3097 1996
-------- ----- ------ ----
(IN THOUSANDS)
S> <C> <C> <C>
Syracuse, NY . . . . . . . . . . . . . . Embassy Suites 2,227 2,130
Cleveland, OH . . . . . . . . . . . . . . Embassy Suites 2,564 2,131
Tulsa, OK . . . . . . . . . . . . . . . . Embassy Suites 2,497 2,489
Philadelphia (Society Hill), PA . . . . . Sheraton 6,505 5,753
Myrtle Beach (Kingston Plantation), SC . Embassy Suites 3,337 2,738
Nashville (Airport), TN . . . . . . . . . Doubletree Guest Suites 1,372 1,320
Nashville, TN . . . . . . . . . . . . . . Embassy Suites 3,646 3,360
Austin (Downtown), TX . . . . . . . . . . Doubletree Guest Suites 3,218 2,829
Corpus Christi, TX . . . . . . . . . . . Embassy Suites 1,680 1,463
Dallas (Love Field), TX . . . . . . . . . Embassy Suites 3,446 3,231
Dallas (Market Center), TX . . . . . . . Embassy Suites 3,704 3,583
Dallas (Park Central), TX . . . . . . . . Embassy Suites 3,670 3,609
Dallas (Park Central), TX . . . . . . . . Sheraton 5,973 6,031
-------- --------
Total Consolidated Hotels . . . . . . . $192,883 $173,147
======== ========
UNCONSOLIDATED HOTELS:
Covina, CA . . . . . . . . . . . . . . . Embassy Suites $ 1,688 $ 1,293
San Rafael (Marin Co.), CA . . . . . . . Embassy Suites 3,994 3,575
Atlanta (Perimeter Center), GA Embassy Suites 3,623 3,889
Chicago --Lombard, IL . . . . . . . . . . Embassy Suites 3,956 3,767
Indianapolis (North), IN . . . . . . . . Embassy Suites 2,569 2,450
Overland Park, KS . . . . . . . . . . . . Embassy Suites 2,835 2,641
Kansas City (Country Club Plaza), MO . . Embassy Suites 3,890 3,594
Charlotte, NC . . . . . . . . . . . . . . Embassy Suites 4,193 3,832
Raleigh, NC . . . . . . . . . . . . . . . Embassy Suites 3,949 3,693
Parsippany, NJ . . . . . . . . . . . . . Embassy Suites 5,006 4,471
Secaucus, NJ . . . . . . . . . . . . . . Embassy Suites 4,444 4,082
Austin (Airport North), TX . . . . . . . Embassy Suites 4,077 3,792
San Antonio (NW), TX . . . . . . . . . . Embassy Suites 2,597 2,488
San Antonio (Airport), TX . . . . . . . . Embassy Suites 3,217 3,114
--------- ---------
Total Unconsolidated Hotels . . . . . . 50,038 46,681
--------- ---------
Total Hotels . . . . . . . . . . . . . . $ 242,921 $ 219,828
========= =========
</TABLE>
Lease Terms
Each of the Current Hotels is leased to the Lessee pursuant to a
Percentage Lease generally having a term of 10 years and providing for rent
equal to the greater of Base Rent or Percentage Rent. The terms of each
Percentage Lease are approved by FelCor's Independent Directors, including the
Percentage Rent terms that are typically 17% of suite revenue up to a tier
amount (the "Suite Revenue Breakpoint") and 65% of suite revenue in excess of
the Suite Revenue Breakpoint. Each Percentage Lease also requires the Lessee to
pay as rent 5% of the food and beverage revenues from each Current Hotel in
which the restaurant and bar operations are conducted directly by the Lessee
and 98% of the food and beverage rent revenues from each Current Hotel in which
the restaurant and bar operations are subleased by the Lessee to an unrelated
third party.
The amount of Base Rent and of the Suite Revenue Breakpoint in each
Percentage Lease formula is subject to adjustment, annually, based upon a
formula taking into account changes in the Consumer Price Index over the
preceding two years; however, the adjustment in any year may not exceed 7%. An
adjustment of 0.73% was effective January 1, 1996 for the 10 hotels acquired by
the Company prior to July 1, 1995 and an adjustment of 1.42% will be effective
January 1, 1997 for the 37 Current Hotels acquired prior to July 1, 1996. The
adjustment is calculated at the beginning of each calendar year, for those
hotels acquired prior to July 1 of the preceding year.
Maintenance and Modifications. Under the Percentage Leases, the
Company is required to maintain the underground utilities and the structural
elements of the improvements, including exterior walls (excluding plate glass)
and the roof of each leased hotel. In addition, the Percentage Leases obligate
the Company to fund periodic improvements (in addition to maintenance of
structural elements) to the buildings and grounds comprising the leased hotels,
and the periodic repair, replacement and refurbishment of furniture, fixtures
and equipment in the leased hotels, when and as required to meet the
requirements of the applicable franchise licenses, and to establish and
maintain a
-54-
<PAGE> 63
reserve, which is available to the Lessee for such purposes, in an amount equal
to 4% of hotel suite revenues, on a cumulative basis. The Company's obligation
is not limited to the amount in such reserve. Otherwise, the Lessee is
required, at its expense, to maintain the leased hotels in good order and
repair, except for ordinary wear and tear, and to make nonstructural repairs,
whether foreseen or unforeseen, ordinary or extraordinary, which may be
necessary and appropriate to keep the leased hotels in good order and repair.
Insurance and Property Taxes. The Company is responsible for paying
real estate and personal property taxes and property and casualty insurance
premiums on the leased hotels (except to the extent that personal property
associated with the leased hotels is owned by the Lessee). The Lessee is
required to pay for all liability insurance on the leased hotels, which must
include extended coverage, comprehensive general public liability, workers'
compensation and other insurance appropriate and customary for properties
similar to the leased hotels.
Indemnification. Under each of the Percentage Leases, the Lessee will
indemnify, and will be obligated to hold harmless, the Company from and against
all liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) incurred by, imposed upon or asserted against the Company on account
of, among other things, (i) any accident or injury to person or property on or
about the leased hotels, (ii) any misuse by the Lessee or any of its agents of
the leased hotels, (iii) any environmental liability resulting from conditions
disclosed in the environmental audits received by the Company before it
acquired the leased hotels or caused or resulting thereafter from any action or
negligence of the Lessee, (iv) taxes and assessments in respect of the leased
hotels (other than real estate and personal property taxes and any income taxes
of the Company on income attributable to the leased hotels), (v) the sale or
consumption of alcoholic beverages on or in the real property or improvements
thereon, or (vi) any breach of the Percentage Leases by the Lessee; provided,
however, that such indemnification will not be construed to require the Lessee
to indemnify the Company against it's own grossly negligent acts or omissions
or willful misconduct.
Assignment and Subleasing. The Lessee is not permitted to sublet all
or substantially all of any one or more of the leased hotels or to assign its
interest under any of the Percentage Leases, other than to an affiliate of the
Lessee, without the prior written consent of the Company. The Lessee may,
however, sublet space to operators of gift shops, restaurants, lounges or other
amenities at the leased hotels. No assignment or subletting will release the
Lessee from any of its obligations under the Percentage Leases.
Damage to Current Hotels. In the event of damage to or destruction of
any leased hotel covered by insurance which renders the leased hotel unsuitable
for the Lessee's use and occupancy, the Lessee is generally obligated to
repair, rebuild, or restore the leased hotel or offer to acquire the leased
hotel on the terms set forth in the applicable Percentage Lease. If the Lessee
rebuilds the leased hotel, the Company is obligated to disburse to the Lessee,
from time to time and upon satisfaction of certain conditions, any insurance
proceeds actually received by the Company as a result of such damage or
destruction, and any excess costs of repair or restoration will be paid by the
Lessee. If the Lessee decides not to rebuild and the Company rejects the
Lessee's mandatory offer to purchase the leased hotel on the terms set forth in
the Percentage Lease, the Percentage Lease will terminate and the insurance
proceeds will be retained by the Company. If the Company accepts the Lessee's
offer to purchase the leased hotel, the Percentage Lease will terminate and the
Lessee will be entitled to the insurance proceeds. In the event that damage to
or destruction of a leased hotel which is covered by insurance does not render
the leased hotel wholly unsuitable for the Lessee's use and occupancy, the
Lessee generally will be obligated to repair or restore the leased hotel. In
the event of material damage to or destruction of any leased hotel which is not
covered by insurance, the Lessee is obligated to either repair, rebuild, or
restore the leased hotel or offer to purchase the leased hotel on the terms and
conditions set forth in the Percentage Lease. The Percentage Lease shall remain
in full force and effect during the first three months of any period required
for repair or restoration of any damaged or destroyed leased hotel, after which
time, rent will be equitably abated.
Condemnation of Current Hotels. In the event of a total condemnation
of a leased hotel, the relevant Percentage Lease will terminate as of the date
of taking, and the Company and the Lessee will be entitled to their shares of
the condemnation award in accordance with the provisions of the Percentage
Lease. In the event of a partial taking which does not render the leased hotel
unsuitable for the Lessee's use, the Lessee shall restore the untaken portion
of the leased hotel to a complete architectural unit and the Company shall
contribute to the cost of such restoration that part of the condemnation award
specified for restoration.
-55-
<PAGE> 64
Events of Default. Events of Default under the Percentage Leases
include, among others, the following:
(i) the occurrence of an Event of Default under any other
lease between the Company and the Lessee or any affiliate of the
Lessee;
(ii) the failure by the Lessee to pay Base Rent when due and
the continuation of such failure for a period of 10 days thereafter;
(iii) the failure by the Lessee to pay the excess of
Percentage Rent over Base Rent within 90 days after the end of the
calendar year in which such payment was due;
(iv) the failure by the Lessee to observe or perform any other
term of a Percentage Lease and the continuation of such failure for a
period of 30 days after receipt by the Lessee of notice from the
Company thereof, unless such failure cannot be cured within such
period and the Lessee commences appropriate action to cure such
failure within said 30 days and thereafter acts, with diligence, to
correct such failure within such time as is necessary;
(v) if the Lessee shall file a petition in bankruptcy or
reorganization 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 the
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 the Lessee shall be adjudicated a bankrupt and
such adjudication shall not be vacated or set aside or stayed within
60 days after the entry of an order in respect thereof, or if a
receiver of the Lessee or of the whole or substantially all of the
assets of the Lessee shall be appointed in any proceeding brought by
the Lessee or if any such receiver, trustee or liquidator shall be
appointed in any proceeding brought against the Lessee and shall not
be vacated or set aside or stayed within 60 days after such
appointment;
(vi) if the Lessee voluntarily discontinues operations of a
leased hotel for more than 30 days, except as a result of damage,
destruction, or condemnation; or
(vii) if the franchise agreement with respect to a leased
hotel is terminated by the franchisor as a result of any action or
failure to act by the Lessee or its agents.
If an Event of Default occurs and continues beyond any curative
period, the Company has the option of terminating the Percentage Lease or any
or all other Percentage Leases by giving the Lessee 10 days' prior written
notice of the date for termination of the Percentage Lease and, unless such
Event of Default is cured prior to the termination date set forth in said
notice, the specified Percentage Leases shall terminate on the date specified
in the Company's notice and the Lessee is required to surrender possession of
the affected leased hotels.
Termination of Percentage Leases on Disposition of the Current Hotels.
In the event the Company enters into an agreement to sell or otherwise transfer
a leased hotel, the Company has the right to terminate the Percentage Lease
with respect to such leased hotel upon 90 days' prior written notice upon
either (i) paying the Lessee the fair market value of the Lessee's leasehold
interest in the remaining term of the Percentage Lease to be terminated or (ii)
offering to lease to the Lessee a substitute hotel on terms that would create a
leasehold interest in such hotel with a fair market value equal to or exceeding
the fair market value of the Lessee's remaining leasehold interest under the
Percentage Lease to be terminated. The Company also is obligated to pay, or
reimburse the Lessee for, (x) any assignment fees, termination fees or other
liabilities arising under any franchise license agreement solely as a result of
the assignment or termination of such franchise license agreement in connection
with the Company's sale of a leased hotel and termination of the Percentage
Lease with respect thereto and (y) any termination fees payable under any
restaurant sublease solely as a result of the termination thereof upon
termination of the Percentage Lease with respect thereto.
Other Lease Covenants. The Lessee has agreed that during the term of
the Percentage Leases it will maintain a ratio of total debt to consolidated
net worth (as defined in the Percentage Leases) of less than or equal to 50%,
exclusive of capitalized leases. In addition, the Lessee has agreed that it
will not pay fees to any affiliate of the Lessee.
-56-
<PAGE> 65
Breach by Company. If the Company fails to cure a breach on its part
under a Percentage Lease, the Lessee may purchase the relevant leased hotel
from the Company for a purchase price equal to the leased hotel's then fair
market value. Upon notice from the Lessee that the Company has breached the
Lease, the Company has 30 days to cure the breach or proceed to cure the
breach, which period may be extended in the event of certain specified,
unavoidable delays.
Inventory. The initial standard inventory of goods and supplies
necessary for the operation of the leased hotels has been acquired by the
Lessee. The Lessee is required to purchase, at its expense, any and all
replacements and additions to such inventory as may be necessary for the
continued operation of the leased hotels and, upon the termination of the
applicable Percentage Lease, to surrender such leased hotel to the Company.
SEASONALITY
The Current Hotels' operations historically have been seasonal in
nature, reflecting higher occupancy rates primarily during the first three
quarters of each year. This seasonality can be expected to cause fluctuations
in the Company's quarterly lease revenue, particularly during the fourth
quarter, to the extent that it receives Percentage Rent. To the extent cash
flow from operations is insufficient during any quarter, due to temporary or
seasonal fluctuations in lease revenue, the Company expects to utilize other
cash on hand or borrowings under the Line of Credit to make distributions to
its shareholders.
COMPETITION
The hotel industry is highly competitive. Each of the Company's hotels
is located in a developed area that includes other hotel properties and
competes for guests primarily with other upscale hotels in its immediate
vicinity and secondarily with other full service hotel properties in its
geographic market. An increase in the number of competitive hotel properties in
a particular area could have a material adverse effect on the occupancy, ADR
and RevPAR of the Company's hotels in that area. The Company believes that
brand recognition, location, the quality of the hotel and services provided,
and price are the principal competitive factors affecting the Company's hotels.
The Company competes for investment opportunities with other entities,
some of which have substantially greater financial resources than the Company.
These larger entities may be able to accept more risk than the Company can
prudently manage. An increase in the number of purchasers for upscale hotel
properties may reduce the number of suitable investment opportunities offered
to the Company and may increase the bargaining power of owners seeking to sell
their hotels.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. Such
laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of hazardous or toxic
substances on the property. Furthermore, a person that arranges for the
disposal or treatment of, or transports for disposal or treatment, a hazardous
or toxic substance at any property may be liable for the costs of removal or
remediation of hazardous or toxic substances released into the environment at
or from that property. The costs of removal or remediation of such substances
may be substantial, and the presence of such substances, or the failure to
promptly remediate such substances, may adversely affect the owner's ability to
fully utilize such property without restriction, to sell such property or to
borrow using such property as collateral. In connection with the ownership and
operation of the Company's hotels, FelCor, FelCor LP and the Lessee, as the
case may be, may be potentially liable for any such costs.
Phase I environmental audits, by independent environmental engineers,
are customarily obtained with respect to hotels, prior to the acquisition
thereof by the Company. The principal purpose of Phase I audits is to identify
indications of potential environmental contamination for which such hotels may
be responsible and, secondarily, to assess, to a limited extent, the potential
for environmental regulatory compliance liabilities. The Phase I audits of the
Current Hotels were designed to meet the requirements of the then current
industry standards governing Phase I audits, and consistent with those
requirements, none of the audits involved testing of groundwater, soil or air.
Accordingly, they do not
-57-
<PAGE> 66
represent evaluations of conditions at the studied sites that would be revealed
only through such testing. In addition, their assessment of environmental
regulatory compliance issues was general in scope and was not a detailed
determination of the Current Hotels' complete compliance status. Similarly, the
audits did not involve comprehensive analysis of potential off-site liability.
The Phase I audit reports did not reveal any environmental liability that
management believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these reports do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware.
No assurances can be given that (i) future or amended laws, ordinances
or regulations or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability or (ii) the environmental condition of the Current Hotels will not be
affected by changes (of which the Company is unaware) occurring subsequent to
the date of such audits, by the condition of properties in the vicinity of such
hotels (such as the presence of leaking underground storage tanks) or by third
parties unrelated to the Company.
The Company believes that its Current Hotels are in compliance, in all
material respects, with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters, the
violation of which would have a material adverse effect on FelCor, FelCor LP or
the Lessee. The Company has not been notified by any governmental authority of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental matters in connection with any of its present
or former properties.
TAX STATUS
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its initial taxable year ending December 31, 1994. As a REIT,
the Company (subject to certain exceptions) will not be subject to federal
income taxation, at the corporate level, on its taxable income that is
distributed to the shareholders of the Company. A REIT is subject to a number
of organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its taxable income. The Company may,
however, be subject to certain state and local taxes on its income and
property. In connection with the Company's election to be taxed as a REIT, the
Company's Charter imposes restrictions on the transfer of shares of Common
Stock. The Company has adopted the calendar year as its taxable year.
EMPLOYEES
Messrs. Feldman and Corcoran have each entered into employment
agreements with the Company, pursuant to which they have agreed to devote
substantially all of their time to the business of the Company through 1999. In
addition, the Company had 28 other employees at September 30, 1997. All persons
employed in the day-to-day operation of the Company's Current Hotels are
employees of the management companies engaged by the Lessee to operate such
hotels.
PERSONNEL AND OFFICE SHARING ARRANGEMENTS
The Company shares executive offices with the Lessee and FelCor, Inc.,
a corporation owned by Messrs. Feldman and Corcoran. Each entity bears an
allocated share of the costs thereof, including but not limited to rent,
salaries of all personnel (other than Messrs. Feldman and Corcoran, who are
compensated solely by the Company), office supplies and telephones. Such
allocations of shared costs are subject to the approval of a majority of the
independent directors of the Company. During 1996 approximately $807,000
(approximately 38% of all allocable expenses) was borne by the Company under
this arrangement.
LEGAL PROCEEDINGS
The Company's Current Hotels are subject to various claims arising in
the ordinary course of business. These claims, exclusive of potential third
party recoveries, are not considered to be material. Furthermore, such claims
are substantially covered by insurance. Management does not believe that any
claims known to it (individually or in the aggregate) will have a material
adverse effect on the Company, without regard to any potential recoveries from
insurers or other third parties.
-58-
<PAGE> 67
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors currently consists of seven members, four of
whom are not officers or employees of the Company or any subsidiary or lessee
thereof ("Independent Directors"). The Board of Directors is divided into three
classes who serve staggered three-year terms with the term of each director
expiring at the annual meeting of shareholders held three years after his
election.
Set forth below is certain information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
YEAR
FIRST TERM
NAME POSITION ELECTED CLASS EXPIRES
---- -------- ------- ----- -------
<S> <C> <C> <C> <C>
Hervey A. Feldman . . . . . . . . . Chairman of the Board 1994 Class I 1998
Thomas J. Corcoran, Jr . . . . . . President and Chief Executive
Officer, Director 1994 Class II 1999
Richard S. Ellwood . . . . . . . . Independent Director 1994 Class III 2000
Richard O. Jacobson . . . . . . . . Independent Director 1994 Class III 2000
Charles N. Mathewson . . . . . . . Director 1994 Class I 1998
Thomas A. McChristy . . . . . . . . Independent Director 1994 Class III 2000
Donald J. McNamara . . . . . . . . Independent Director 1994 Class II 1999
Randall L. Churchey . . . . . . . . Senior Vice President, Chief
Financial Officer and Treasurer 1997 -- --
Lawrence D. Robinson . . . . . . . Senior Vice President, General
Counsel and Secretary 1996 -- --
Jack Eslick . . . . . . . . . . . . Vice President, Director of Asset
Management 1996 -- --
June H. McCutchen . . . . . . . . . Vice President, Director of
Design and Construction 1995 -- --
William P. Stadler . . . . . . . . Vice President, Director of
Acquisition and Development 1995 -- --
</TABLE>
Hervey A. Feldman (age 60) is the Chairman of the Board of the Company
and has served in such capacity since its formation in May 1994. He is also a
co-founder of FelCor, Inc. and has served as its Chairman since its formation
in 1991. Prior to that time, he held executive positions with Embassy Suites,
Inc., serving as its Chairman of the Board from June 1990 until January 1992,
and as its President and Chief Executive Officer from the founding of that
company in January 1983 to April 1990. Prior to 1990, Mr. Feldman had spent
over 25 years in the hotel industry, including serving in various management
positions with Brock Hotel Corporation during a period when that company was
one of the largest franchisees of Holiday Inn(R) hotels in the U.S.; as
Executive Vice President for North American Development of Holiday Inns, Inc.;
and President and Chief Executive Officer of Brock Residence Inns, Inc., which
founded the extended-stay, all-suite chain now known as Residence Inns by
Marriott(R).
Thomas J. Corcoran, Jr. (age 48) is the President and Chief Executive
Officer of the Company and has served in such capacity since its formation in
May 1994. He is also a co-founder of FelCor, Inc. and has served as its
President and Chief Executive Officer since its formation in 1991. From October
1990 to December 1991, he served as the Chairman, President and Chief Executive
Officer of Fiesta Foods, Inc., a manufacturer of tortilla chips and taco
shells. From 1979 to 1990, Mr. Corcoran held various positions with Integra --
A Hotel and Restaurant Company (formerly Brock Hotel Corporation), including
serving as the President and Chief Executive Officer of that company from 1986
to 1990, and with ShowBiz Pizza Time, Inc., an operator and franchisor of
family entertainment center/pizza restaurants.
-59-
<PAGE> 68
Richard S. Ellwood (age 66) is the founder and principal owner of R.
S. Ellwood & Co., Inc., a real estate investment banking firm which was
organized in 1987. Prior to 1987, as an investment banker, Mr. Ellwood was
elected successively in 1968 a general partner of White Weld & Co., in 1978 a
managing director of Warburg Paribas Becker, Incorporated and in 1984 a
managing director and senior banker of Merrill Lynch Capital Markets. Mr.
Ellwood has extensive experience in hotel financing. He was a founder of Hotel
Investors Trust, a REIT, and served as a Trustee from 1970 until its merger
with another REIT in 1987. He is currently a director of two additional REITs,
Apartment Investment and Management Company and Corporate Realty Income Trust.
Richard O. Jacobson (age 61) is the President and Chief Executive
Officer of Jacobson Warehouse Company, Inc., a privately-held warehouse company
with facilities in 15 locations in seven states, which Mr. Jacobson founded 29
years ago. He is also President and Chief Executive Officer of Jacobson
Transportation Company, Inc., a truckload common carrier with authority to
operate in 48 states and Canada. Mr. Jacobson is a member of the Boards of
Directors of Advanced Oxygen Technology, Inc., AlaTenn Resources, Inc., Allied
Group, Inc., Firstar Bank Des Moines, N.A., Firstar Bank of Iowa, N.A. and
Heartland Express, Inc.
Charles N. Mathewson (age 69) has served, for more than the past five
years, in various positions with International Game Technology ("IGT"), a
company engaged in the design and manufacture of microprocessor based gaming
products and gaming monitoring systems. Since February 1988, he has served as
the Chairman of the Board of IGT. He has served as a director of IGT since
December 1985, as President from December 1986 to February 1988, and as Chief
Executive Officer from December 1986 until June 1993 and from February 1996
until the present. Mr. Mathewson also is a member of the Board of Directors of
Baron Asset Fund.
Thomas A. McChristy (age 71) is the President of T.A. McChristy Co.
Inc., a real estate investment company, and has served in that capacity since
1957. Mr. McChristy also served as the President and Chief Operating Officer of
Syntech International, Inc., a lottery systems and equipment manufacturing
company, from 1986 to 1988 and as its Chief Executive Officer from 1989 to
1992.
Donald J. McNamara (age 44) is the founder and Chairman of The
Hampstead Group, a real estate investment company with substantial activities
in the hospitality and retirement housing industries. Mr. McNamara also is the
Chairman of the Board of Directors of Bristol Hotel Company and a director of
Mountasia Entertainment International and Catellus Development Corporation.
Randall L. Churchey (age 37) became the Senior Vice President, Chief
Financial Officer and Treasurer of the Company on November 1, 1997. For
approximately 15 years prior to joining the Company, Mr. Churchey held various
positions with Coopers & Lybrand, L.L.P. Most recently, Mr. Churchey served as
the Chairman of the Hospitality and Real Estate Practice for the Southwestern
United States.
Lawrence D. Robinson (age 54) has served as Senior Vice President,
General Counsel and Secretary of the Company since May 1996. From 1972 to 1989,
Mr. Robinson was a partner in the Kansas City-based law firm of Stinson, Mag &
Fizzell, for which he founded and managed a Dallas, Texas office from 1982 to
1989. From 1989 through April 1996, Mr. Robinson was a partner in the
Houston-based law firm of Bracewell & Patterson, L.L.P., where he served as the
managing partner of its Dallas office until 1992, as the head of that office's
corporate and securities law section and as chairman of its firm-wide
hospitality group.
Jack Eslick (age 45) joined the Company in April 1996 as its Vice
President, Director of Asset Management. Mr. Eslick has over 20 years
experience in hotel operations. From April 1991 until he joined the Company,
Mr. Eslick served as Vice President of Operations of Promus, where he had
direct responsibility for all operations in a region that grew from 14 hotels
to 26 hotels. Prior to April 1991, he served in various capacities with Holiday
Inns, Inc., including serving as general manager of various hotels and as a
Regional Director of Operations.
June H. McCutchen (age 42) joined the Company in October 1995 as Vice
President, Director of Design and Construction. Her most recent experience was
as Account Executive for Hospitality Restoration & Builders, Inc. since 1994.
From 1992 to 1994 she was Project Manager for American General Hospitality,
Inc. where she managed all capital improvement work for over 35 properties each
year. Prior to 1992, Ms. McCutchen was Project Manager for Hilton Hotels, Inc.
from 1987 to 1992, and prior to 1987, she served as design coordinator and
purchasing manager for Embassy Suites, Inc.
-60-
<PAGE> 69
William P. Stadler (age 42) began his employment with the Company in
July 1995 as Vice President, Director of Acquisition and Development. Mr.
Stadler has over 17 years of experience in hotel acquisition and development,
having served as Vice President-Development for Coastal Hotel Group from 1994
until he joined the Company in 1995, as Vice President-Development for Embassy
Suites, Inc. from 1992 to 1994, as Senior Vice President-Development for
Landmark Hotels, Inc. from 1989 to 1991 and as Vice President-Development for
Marriott Corporation from 1985 to 1989.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock and Series A Preferred Stock, as of November 1, 1997, by
(i) each director and director nominee, (ii) each named executive officer and
(iii) all directors and executive officers as a group. Unless otherwise
indicated, such shares of Common Stock and Series A Preferred Stock are owned
directly and the indicated person has sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL BENEFICIAL
NAME OF OWNERSHIP OF PERCENT OF OWNERSHIP OF PERCENT OF
BENEFICIAL OWNER COMMON STOCK CLASS(1) PREFERRED STOCK CLASS(1)
---------------- ------------ -------- --------------- --------
<S> <C> <C> <C> <C>
Hervey A. Feldman . . . . . . . . . . . . . . . . 464,315(2)(3) 1.3% 3,000 (10) *
Thomas J. Corcoran, Jr . . . . . . . . . . . . . 464,415(2)(4) 1.3% 3,000 *
Richard S. Ellwood . . . . . . . . . . . . . . . 4,500 * 0 0
Richard O. Jacobson . . . . . . . . . . . . . . . 21,200 * 0 0
Charles N. Mathewson . . . . . . . . . . . . . . 609,777 (5) 1.6% 90,000 (11) 1.5%
Thomas A. McChristy . . . . . . . . . . . . . . . 45,900 (6) * 0 0
Donald J. McNamara . . . . . . . . . . . . . . . 4,600 * 0 0
Lawrence D. Robinson . . . . . . . . . . . . . . 36,500 (7) * 0 0
Randall L. Churchey . . . . . . . . . . . . . . . 0 0 0 0
William P. Stadler . . . . . . . . . . . . . . . 12,577 (8) * 100 *
Jack Eslick . . . . . . . . . . . . . . . . . . . 12,000 (9) * 0 0
June H. McCutchen . . . . . . . . . . . . . . . . 4,000 * 0 0
All executive officers and directors as a
group (12 persons) . . . . . . . . . . . . . . . 1,384,869 3.5% 96,100 1.6%
</TABLE>
- ------------------
* Represents less than 1% of the outstanding shares of such class.
(1) Based upon 36,588,732 shares outstanding as of November 1, 1997.
(2) Includes 294,915 shares issuable to FelCor, Inc. upon exercise of
redemption rights with respect to Units issued to it in connection
with the IPO. Messrs. Feldman and Corcoran are the sole shareholders
and directors of FelCor, Inc. and each may be deemed to own
beneficially all of the Units owned by FelCor, Inc. Also includes (i)
an aggregate of 33,000 shares issued pursuant to stock grants (9,000
in February 1995, 9,000 in December 1995, and 15,000 in February
1997), which shares vest over a five-year period from the date of
grant at the rate of 20% per year and of which 5,400 shares are fully
vested, (ii) 120,000 shares issuable pursuant to currently exercisable
stock options, and (iii) 2,325 shares issuable upon the conversion of
3,000 shares of Series A Preferred Stock. Does not include 331,000
shares issuable pursuant to outstanding stock options which are not
currently exercisable.
(3) Includes 200 shares owned of record by Mr. Feldman's minor children.
(4) Includes 300 shares owned of record by Mr. Corcoran's minor children.
-61-
<PAGE> 70
(5) Includes 540,009 shares issuable to or for the benefit of Mr.
Mathewson upon exercise of redemption rights with respect to Units,
which represents Mr. Mathewson's pro rata interest in Units issued in
connection with the IPO to partnerships in which Mr. Mathewson is a
limited partner. Also includes 69,768 shares issuable upon conversion
of 90,000 shares of Series A Preferred Stock.
(6) Includes 38,000 shares owned of record by the T.A. McChristy Living
Trust, over which Mr. McChristy has sole investment and voting power,
and 3,000 shares owned of record by his spouse's individual retirement
account.
(7) Includes (i) 14,500 shares issued pursuant to stock grants, which
shares vest over a five-year period from the date of grant at the rate
of 20% per year and of which 2,400 shares are fully vested, and (ii)
20,000 shares issuable pursuant to currently exercisable stock
options. Does not include 100,000 shares issuable pursuant to
outstanding stock options which are not currently exercisable.
(8) Represents (i) 2,500 shares issued pursuant to a stock grant, which
shares vest over a five-year period from the date of grant at the rate
of 20% per year and of which 1,000 shares are fully vested, (ii)
10,000 shares issuable pursuant to currently exercisable stock options
and (iii) 77 shares issuable upon the conversion of 100 shares of
Series A Preferred Stock. Does not include 30,000 shares issuable
pursuant to outstanding stock options which are not currently
exercisable.
(9) Represents (i) 2,000 shares issued pursuant to a stock grant, which
shares are fully vested and (ii) 10,000 shares issuable pursuant to
currently exercisable stock options. Does not include 55,000 shares
issuable pursuant to outstanding stock options which are not currently
exercisable.
(10) Includes 1,000 shares owned by Mr. Feldman's spouse and 1,000 shares
owned by trust for the benefit of his minor children.
(11) Represents shares owned of record by the Charles M. Mathewson Trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FelCor and FelCor LP have entered into a number of transactions with
the Lessee and certain other affiliates. Mr. Feldman and Mr. Corcoran, who are
officers and directors of FelCor, control and are also officers and directors
of the Lessee.
THE PERCENTAGE LEASES
The Company and the Lessee have entered into the Percentage Leases,
each with a minimum term of ten years, relating to each hotel owned by the
Company. The Company anticipates that similar Percentage Leases will be
executed with respect to any additional hotel properties acquired by it in the
future. Pursuant to the terms of the Percentage Leases, the Lessee is required
to pay the greater of Base Rent or Percentage Rent and certain other additional
charges, and is entitled to all profits from the operation of the hotels after
the payment of operating, management and other expenses. Lease rent paid by the
Lessee under the Percentage Leases totaled approximately $108 million for the
year ended December 31, 1996 and approximately $97 million for the six months
ended June 30, 1997. The Lessee is a Delaware limited liability company, all of
the voting Class A membership interest in which (representing a 50% equity
interest) is beneficially owned one half by Mr. Feldman and one half by Mr.
Corcoran. All of the non-voting Class B membership interest in the Lessee
(representing the remaining 50% equity interest) is owned by RGC Leasing, Inc.,
a Nevada corporation owned by the children of Charles N. Mathewson.
-62-
<PAGE> 71
EMPLOYMENT AGREEMENTS
The Company has entered into the Employment Agreements with each of
Messrs. Feldman and Corcoran that will continue in effect until December 31,
1999 and automatically be renewed for successive one year terms, unless
otherwise terminated. Pursuant to such Employment Agreements, Mr. Feldman
serves as Chairman of the Board, and Mr. Corcoran serves as President and Chief
Executive Officer, of the Company. Each was paid a base salary of $5,000 per
month through 1994, $10,000 per month in 1995 and $10,270 in 1996. Effective
January 1, 1997, Mr. Feldman is entitled to receive $12,500 per month and Mr.
Corcoran is entitled to receive $16,667 per month. Messrs. Feldman and Corcoran
have agreed to devote substantially all of their time to the business of the
Company. The Compensation Committee of the Board may provide for additional
compensation as a bonus should it determine, in its discretion, based on merit,
the Company's anticipated financial performance and other criteria, that such
additional compensation is appropriate. The Company maintains a comprehensive
medical plan for the benefit of Messrs. Feldman and Corcoran and their
dependents.
OPTION AND RIGHT OF FIRST REFUSAL
In 1994, the Company was granted a two-year option to purchase, at
fair market value, and a right of first refusal with respect to an Embassy
Suites hotel located in St. Louis, Missouri that was developed by a FelCor
Affiliate and opened for business on December 21, 1994 under the management of
Promus. In anticipation of the December 21, 1996 expiration date of such option
and right of first refusal, the Independent Directors of FelCor, following an
inspection of the hotel and a thorough consideration of all matters deemed
relevant by them determined, at a meeting held at such hotel in June 1996, that
it would be in the best interests of the Company and its shareholders to allow
this option and right of first refusal to expire unexercised. Such decision was
based, in part, upon the fact that the Company had other purchase
opportunities, that the option was only exercisable at fair market value and
that the hotel offered little opportunity for the Company to benefit from
additional capital expenditures, or changes in brand or management.
Accordingly, this option and right of first refusal was not exercised and
expired by its terms on December 21, 1996.
SHARING OF OFFICES AND EMPLOYEES
The Company shares the executive offices and certain employees with
FelCor, Inc. and the Lessee, and each company bears its share of the costs
thereof, including an allocated portion of the rent, salaries of certain
personnel (other than Messrs. Feldman and Corcoran, whose salaries are borne
solely by the Company), office supplies, telephones and depreciation of office
furniture, fixtures and equipment. Any such allocation of shared expenses to
the Company must be approved by a majority of the Independent Directors. During
1996, the Company paid approximately $807,000 (approximately 38%) of the
allocable expenses under this arrangement.
COMPENSATION OF DIRECTOR FOR SPECIAL SERVICES
In connection with the Company's acquisition, during February 1997, of
interests in 10 hotels at an aggregate cost of approximately $139 million
(including the Company's share of certain assumed indebtedness), Mr. Richard S.
Ellwood, an Independent Director of the Company, was paid a one-time fee in the
amount of $200,000 for his services in facilitating this transaction.
-63-
<PAGE> 72
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company's indebtedness consists primarily of the outstanding Old
Notes, amounts borrowed under the Line of Credit, and the Renovation Loan. In
addition, the Company has assumed certain other indebtedness and capitalized
lease obligations in connection with the purchase of certain of the Current
Hotels. As of September 30, 1997, after giving effect to the Private Placement
and the application of the proceeds therefrom, the Company's total Indebtedness
would have been approximately $428 million, of which $300 million would have
been outstanding under the Notes, $91 million would have been outstanding under
the Line of Credit, $25 million would have been outstanding under the
Renovation Loan and $12 million would have been outstanding under other
Indebtedness.
Line of Credit. In September 1996, the Company obtained the Line of
Credit, originally a $250 million unsecured revolving credit facility from a
group of lenders co-arranged by The Chase Manhattan Bank and Wells Fargo Bank,
National Association. As subsequently amended and restated, the Line of Credit
has been increased to $550 million. The Line of Credit has a term of three
years ending October 1, 2000. Borrowings under the Line of Credit bear
interest, at the Company's option, (i) at a base rate ("Base Rate") equal to
the higher of the base rate announced from time to time by The Chase Manhattan
Bank or 0.5% plus the Federal funds rate, in either case plus an applicable
margin of 0% to 0.25%, or (ii) at a Eurodollar rate ("Eurodollar Rate") based
upon the 30, 60, or 90 day or 6-month LIBOR plus an applicable margin of 1.00%
to 1.75%. The applicable margin varies depending upon the Company's long-term
senior unsecured implied debt rating or its leverage ratio and, at September
30, 1997, was 0.0% in the case of Base Rate borrowings and 1.4% in the case of
Eurodollar Rate borrowings. The weighted average interest rate in effect for
borrowings under the Line of Credit was 7.22% at September 30, 1997. Up to 10%
of the amount available under the Line of Credit may be used for general
corporate or working capital purposes. The total amount available under the
Line of Credit is limited to 50% of the aggregate value of the Company's
eligible hotels, which generally includes hotels that are unencumbered. The
Company's availability under the Line of Credit, as of September 30, 1997, was
$550 million, of which $296 million had been borrowed.
The Line of Credit requires FelCor and FelCor LP to comply with
certain financial tests and to maintain certain financial ratios. FelCor and
FelCor LP must maintain: (i) a ratio of Adjusted EBITDA to Gross Interest
Expense for the four most recent quarters of not less than 2.5 to 1.0; (ii) a
ratio of Adjusted EBITDA to Fixed Charges for the four most recent quarters of
not less than 2.0 to 1.0; and (iii) Tangible Net Worth of not less than the sum
of (a) $825 million plus (b) 50% of the aggregate net proceeds received by the
Company or any of its subsidiaries after June 30, 1997 in connection with any
offering of stock or stock equivalents of the Company. FelCor and FelCor LP
shall ensure that at the end of each fiscal quarter at least 50% of the
aggregate Adjusted NOI generated by all hotels during the preceding four fiscal
quarters shall be generated by hotels wholly owned or leased by FelCor or
FelCor LP or its wholly owned subsidiaries; provided that, for hotels owned or
leased for less than four fiscal quarters only the Adjusted NOI generated by
such hotels since the date of acquisition of such hotel shall be included in
calculating such aggregate Adjusted NOI. In addition, FelCor and FelCor LP
shall not, during each fiscal quarter on a consolidated basis permit (a) Total
Indebtedness to exceed 50% of Total Value or (b) Total Secured Indebtedness to
exceed 20% of Total Value.
For purposes of the financial covenants in the Line of Credit, the
following terms have the definitions set forth below:
"Adjusted EBITDA" means, for any person, EBITDA less the aggregate
FF&E Reserves for such period in respect of each hotel owned or leased by such
person and its subsidiaries.
"Adjusted NOI" means, with respect to any hotel, for any period, the
net operating income for such hotel for such period less the FF&E Reserve for
such hotel.
"EBITDA" means, for any person for any period, the net income (loss)
for such period plus (a) the sum of the following amounts: (i) depreciation
expense, (ii) amortization expense and other non-cash charges, (iii) interest
expense, (iv) income tax expense, (v) extraordinary loses (and other losses on
certain asset sales not otherwise included in extraordinary loses determined on
a consolidated basis in accordance with generally accepted accounting
principles) and (vi) minority interests attributable to FelCor LP's partnership
units, less (b) the sum of the following amounts: (i) extraordinary gains (and
in the case of FelCor and FelCor LP, other gains on certain asset sales not
otherwise included in extraordinary gains), (ii) the applicable share of net
income (loss) of such person's unconsolidated entities; plus (c) such person's
pro rata share of EBITDA of such persons unconsolidated entities.
-64-
<PAGE> 73
"FF&E Reserve" means, for any person (or with respect to any hotel)
for any period, a reserve equal to 4% of suite revenues from any hotel owned by
such person for such period plus (a) for any person, such person's pro rata
share of any FF&E Reserve for any hotel owned by such person's unconsolidated
entities or (b) with respect to certain joint venture hotels, the FF&E Reserve
for such joint venture hotel multiplied by the applicable joint venture
percentage.
"Fixed Charges" means, for any person for any period, (a) Gross
Interest Expense for such period plus (b) the aggregate amount of scheduled
principal payments on the Total Indebtedness of such person (excluding optional
prepayments and scheduled principal payments in respect of any such Total
Indebtedness which is payable in a single installment at final maturity)
required to be made during such period.
"Gross Interest Expense" means, for any person for any period, the sum
of (a) the total interest expense in respect of all Indebtedness (excluding all
contingent obligations) of such person and its subsidiaries for such period
determined on a consolidated basis in conformity with generally accepted
accounting principles, plus capitalized interest of such person and its
subsidiaries plus (b) such person's pro rata share of Gross Interest Expense of
such person's unconsolidated entities.
"Indebtedness" of any person means, without duplication, the principal
amount of (i) all indebtedness of such person for borrowed money (including,
without limitation, reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured) or for the deferred purchase price of property or services (ii) all
obligations of such person evidenced by notes, bonds, debentures or similar
instruments, (ii) all indebtedness of such person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such person, (iv) all capitalized lease obligations of such person,
(v) all contingent obligations of such person, (vi) all obligations of such
person to purchase, redeem, retire, defease or otherwise acquire for value any
stock or stock equivalents of such person, valued, in the case of mandatorily
redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (vii) all
Indebtedness referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above
secured by any lien upon or in property owned by such person, even though such
person has not assumed or become liable for the payment of such Indebtedness
and (viii) all liabilities of such person under Title IV of ERISA.
"Tangible Net Worth" means, with respect to FelCor or FelCor LP at any
date, (a) the sum of (i) the total shareholders' equity of FelCor and (ii) the
value of all partnership interests in FelCor LP owned by persons other than
FelCor; minus (b) the sum of all intangible assets of FelCor, each as shown on
the consolidated balance sheet of FelCor as of such date.
"Total Indebtedness" of any person means the sum of the following
(without duplication): (a) all Indebtedness of such person and its subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles, plus (b) such person's pro rata share of Indebtedness
(excluding non-recourse indebtedness) of such person's unconsolidated entities.
"Total Secured Indebtedness" of any person means any Total
Indebtedness of such person for which the obligations thereunder are secured by
a pledge of or other encumbrance on any assets of such person or its
subsidiaries or unconsolidated entities
"Total Value" means the sum of: (A) for hotels owned or leased for
four quarters or more, Adjusted NOI on a consolidated basis from such hotels
for the preceding four quarters divided by ten percent; plus (B) for hotels (x)
owned or leased for less than four quarters (including newly acquired hotels
and hotels to be immediately acquired using the proceeds of any loans under the
Line of Credit) and (y) certain other hotels, but only for the year ending
December 31, 1997, FelCor or FelCor LP's investment in such hotels; plus (C)
the sum of $15,000,000, being the agreed aggregate sum of FelCor and FelCor
LP's investment at cost in certain properties; plus (D) FelCor or FelCor LP's
pro rata share of unencumbered cash or cash equivalents held by such person,
its subsidiaries or an unconsolidated entity; all as subject to adjustment in
certain limited cases.
-65-
<PAGE> 74
Failure to satisfy any of the financial covenants would constitute an
Event of Default, notwithstanding the ability of the Company to meet its debt
service obligations. An Event of Default also includes without limitation, a
cross-default to other indebtedness, bankruptcy and a change of control.
In addition to the financial covenants, the Line of Credit includes
certain other affirmative and negative covenants, including: (a) a requirement
that a certain percentage of the rooms/suites be (i) operated as "suite
hotels," (ii) maintained under "Embassy Suites," "Doubletree" or "Sheraton"
licenses and (iii) managed by Promus, Doubletree or Sheraton; (b) a restriction
on the creation or acquisition of any direct or indirect wholly owned
subsidiary unless such subsidiary becomes a guarantor under the Line of Credit;
(c) restrictions on the declaration or payment of dividends or other
distribution of assets, properties, cash, rights, obligations or securities in
respect of any stock or stock equivalents; (d) restrictions on the sale of
assets or merger of the Company or its subsidiaries and (e) restrictions on
construction of new hotels or investments in budget hotels.
Renovation Loan. The Renovation Loan is a $25 million loan facility
which was used by the Company to fund a portion of the renovation cost of the
CSS Hotels that were converted to Embassy Suites hotels. The facility is
guaranteed by Promus, bears interest at LIBOR plus 45 basis points, requires
quarterly principal payments of $1.25 million beginning in June 1999 and
matures in June 2000. At September 30, 1997, the Company had drawn the full $25
million under this loan facility and the interest rate in effect was 6.39%.
Interest Rate Swaps. During the fourth quarter of 1996, the Company
entered into two separate interest rate swap agreements to manage the relative
mix of its debt between fixed and variable rate instruments. These interest
rate swap agreements modify a portion of the interest characteristics of the
Company's outstanding debt without an exchange of the underlying principal
amount and effectively convert variable rate debt to a fixed rate. The fixed
rates to be paid, the effective fixed rate, and the variable rate to be
received by the Company at September 30, 1997 are summarized in the following
table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
(VARIABLE)
SWAP RATE EFFECTIVE AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 9/30/97 MATURITY
--------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C>
$50 million . . . . . . . . 6.11125% 7.61125% 6.37925% October 1999
25 million . . . . . . . . 5.95500 7.45500 6.09800 November 1999
</TABLE>
The differences to be paid or received by the Company under the terms
of the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
-66-
<PAGE> 75
DESCRIPTION OF THE NOTES AND GUARANTEES
Except as otherwise indicated below, the following summary applies to
both the Old Notes and the New Notes. As used herein, the term "Notes" shall
mean the Old Notes and the New Notes, unless otherwise indicated.
The form and terms of the New Notes are substantially identical to the
form and terms of the Old Notes, except that the exchange of the New Notes
pursuant to the Exchange Offer will be registered under the Securities Act and,
therefore, the New Notes will not bear any legends restricting transfer
thereof. The New Notes will evidence the same debt as the Old Notes and will be
treated as a single class under the Indenture with any Old Notes that remain
outstanding. Each series of New Notes will be issued solely in exchange for an
equal principal amount of the corresponding series of Old Notes. As of the date
hereof, $175 million in aggregate principal amount of Old 7 3/8% Notes and $125
million aggregate principal amount of Old 7 5/8% Notes, is outstanding. See
"The Exchange Offer." The following summary of certain provisions of the
Indenture, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, the definitions ascribed to such terms in the
Indenture are incorporated herein by reference. For definitions of certain
capitalized terms used in the following summary, see "-- Certain Definitions."
GENERAL
The Old Notes are, and the New Notes will be, unsecured senior
obligations of FelCor LP. The 7 3/8% Notes will be initially limited to $175
million in aggregate principal amount and will mature on October 1, 2004. The 7
5/8% Notes will be initially limited to $125 million in aggregate principal
amount and will mature on October 1, 2007. Each of the 7 3/8% Notes will
initially bear interest at 7 3/8% per annum, and each of the 7 5/8% Notes will
initially bear interest at 7 5/8% per annum, in each case, from October 1, 1997
or from the most recent Interest Payment Date to which interest has been paid
or provided for, payable semiannually (to Holders of record at the close of
business on the September 15 or the March 15 immediately preceding the Interest
Payment Date) on October 1 and April 1 of each year, commencing April 1, 1998.
Principal of, premium, if any, and interest on the Notes is payable,
and the Notes may be exchanged or transferred, at the office or agency of
FelCor LP in the Borough of Manhattan, the City of New York (which initially
will be the corporate trust office of the Trustee at First Chicago Trust
Company of New York, 14 Wall Street, Suite 4607, New York, New York 10005, as
agent for the Trustee); provided that, at the option of FelCor LP, payment of
interest may be made by check mailed to the Holders at their addresses as they
appear in the Security Register.
The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "-- Book-Entry; Delivery and Form." No service charge
will be made for any registration of transfer or exchange of Notes, but FelCor
LP may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and
applicable law, FelCor LP may issue additional Notes under the Indenture. The
Notes offered hereby and any additional notes subsequently issued under the
Indenture would be treated as a single class for all purposes under the
Indenture.
GUARANTEES
The Notes will be guaranteed on an unsecured senior basis by FelCor
and the Subsidiary Guarantors so long as FelCor and the Subsidiary Guarantors
are obligors on other Indebtedness of FelCor or FelCor LP, whether directly or
as a guarantor, which is pari passu with or subordinated to the Notes. The
guarantees, while outstanding, will be unconditional regardless of the
enforceability of the Notes and the Indenture. The covenants described below
applicable to FelCor and its Restricted Subsidiaries will only be applicable so
long as FelCor remains a Guarantor. FelCor currently conducts no other business
and has no significant assets other than its general partnership interest in
FelCor LP.
-67-
<PAGE> 76
Each future Restricted Subsidiary that subsequently guarantees
Indebtedness of FelCor LP or FelCor which is pari passu with or subordinate in
right of payment to the Notes will be required to execute a Subsidiary
Guarantee. See "Limitation on Issuances of Guarantees by Restricted
Subsidiaries."
OPTIONAL REDEMPTION
Each series of Notes will be redeemable in whole at any time or in
part from time to time, at the option of FelCor LP, at a redemption price equal
to the greater of (i) 100% of the principal amount of such Notes and (ii) the
sum of the present values of the remaining payments of principal and interest
thereon from the redemption date to the applicable maturity date discounted, in
each case, to the redemption date on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis
points, plus, in each case, accrued interest thereon to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Note to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Note. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with
FelCor LP.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, the average
of the Reference Treasury Dealer Quotations actually obtained by the Trustee
for such redemption date. "Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and any redemption date, the average,
as determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m.
on the third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc and
their respective successors; provided, that if any of the foregoing shall cease
to be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), FelCor LP shall substitute therefor another Primary Treasury
Dealer.
Notice of any redemption will be mailed at least 30 days but no more
than 60 days before the redemption date to each holder of Notes to be redeemed.
Unless FelCor LP defaults in payment of the redemption price, on and
after the redemption date interest will cease to accrue on the Notes or
portions thereof called for redemption.
SINKING FUND
There will be no sinking fund payments for the Notes.
REGISTRATION RIGHTS
In connection with the original issuance and sale of the Old Notes,
the Initial Purchasers and their assignees became entitled to the benefits of
the Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, FelCor LP and FelCor have agreed to use their best efforts, at their
cost, to file and cause to become effective a registration statement with
respect to a registered offer to exchange each series of Notes for an issue of
senior notes of FelCor LP ("Exchange Notes") with terms identical to such Notes
(including the guarantee by FelCor and the Subsidiary
-68-
<PAGE> 77
Guarantors), except that the Exchange Notes will not bear legends restricting
the transfer thereof. Upon such registration statement being declared
effective, FelCor LP shall offer the Exchange Notes in return for surrender of
the Notes. Such offer shall remain open for not less than 20 business days
after the date notice of the Exchange Offer is mailed to Holders. For each Note
surrendered to FelCor LP under the Exchange Offer, the Holder will receive an
Exchange Note of equal principal amount. Interest on each Exchange Note shall
accrue from the last Interest Payment Date on which interest was paid on the
Notes so surrendered or, if no interest has been paid on such Notes, from the
Closing Date. In the event that applicable interpretations of the staff of the
Commission do not permit FelCor LP and FelCor to effect the Exchange Offer, or
under certain other circumstances, FelCor LP and FelCor shall, at their cost,
use their best efforts to cause to become effective a shelf registration
statement ("Shelf Registration Statement") with respect to resales of the Notes
and to keep such Shelf Registration Statement effective until the expiration of
the time period referred to in Rule 144(k) under the Securities Act, or such
shorter period that will terminate when all Notes covered by the Shelf
Registration Statement have been sold pursuant thereto. FelCor LP and FelCor
shall, in the event of such a shelf registration, provide each Holder copies of
the prospectus, notify each Holder when the Shelf Registration Statement for
the Notes has become effective and take certain other actions as are required
to permit resales of the Notes. A Holder that sells its Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
those provisions of the Registration Rights Agreement that are applicable to
such Holder (including certain indemnification obligations).
In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to April 1, 1998,
the annual interest rate borne by such Notes will be increased by .5% until the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective.
RANKING
The indebtedness evidenced by the Notes will be unsecured senior
obligations of FelCor LP, and will rank pari passu in right of payment with
other Senior Indebtedness of FelCor LP, including, without limitation, the
obligations of FelCor LP under the Line of Credit. The Notes will be
effectively subordinated to Secured Indebtedness (as defined herein) of FelCor
LP and the Guarantors and to the Indebtedness of the non-guarantor
Subsidiaries. As of September 30, 1997, after giving effect to the Private
Placement and the application of the proceeds therefrom, the total Indebtedness
of FelCor LP and the Guarantors would have been approximately $428 million
(including approximately $12 million in Secured Indebtedness). The
non-guarantor Subsidiaries had no Indebtedness at such date.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition from such Person by a Restricted Subsidiary and not
incurred by such Person in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of the transactions by
which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of FelCor, FelCor LP and their respective
Restricted Subsidiaries for such period determined on a consolidated basis in
conformity with GAAP plus the minority interest in FelCor LP, if applicable;
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any Person
(other than FelCor LP, FelCor or a Restricted Subsidiary), except to the extent
of the amount of dividends or other distributions actually paid to FelCor LP,
FelCor or any of their respective Restricted Subsidiaries by such Person during
such period; (ii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iii) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (iv) for so long
-69-
<PAGE> 78
as the Notes are not rated Investment Grade, any amount paid or accrued as
dividends on Preferred Stock of FelCor LP, FelCor or any Restricted Subsidiary
owned by Persons other than FelCor or FelCor LP and any of their respective
Restricted Subsidiaries; and (v) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of FelCor LP, FelCor and their respective Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves), except to
the extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of FelCor LP, FelCor and their
respective Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of FelCor LP or FelCor and their
respective Restricted Subsidiaries, prepared in conformity with GAAP and filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant.
"Adjusted Total Assets" means, for any Person, the sum of (i) Total
Assets for such Person as of the end of the calendar quarter preceding the
Transaction Date as set forth on the most recent quarterly or annual
consolidated balance sheet of FelCor LP or FelCor and their respective
Restricted Subsidiaries, prepared in conformity with GAAP and filed with the
Commission or provided to the Trustee pursuant to the "Commission Reports and
Reports to Holders" covenant and (ii) any increase in Total Assets following
the end of such quarter including, without limitation, any increase in Total
Assets resulting from the application of the proceeds of any additional
Indebtedness.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For 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.
"Asset Acquisition" means (i) an investment by FelCor LP or FelCor or
any of their respective Restricted Subsidiaries in any other Person pursuant to
which such Person shall become a Restricted Subsidiary or shall be merged into
or consolidated with FelCor LP or FelCor or any of their respective Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary, incidental or complementary to the businesses of FelCor LP or FelCor
or any of their respective Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by FelCor LP or FelCor or any of their
respective Restricted Subsidiaries from any other Person that constitutes
substantially all of a division or line of business, or one or more hotel
properties, of such Person; provided that the property and assets acquired are
related, ancillary, incidental or complementary to the businesses of FelCor LP
or FelCor or any of their respective Restricted Subsidiaries on the date of
such acquisition.
"Asset Disposition" means the sale or other disposition by FelCor LP
or FelCor or any of their respective Restricted Subsidiaries (other than to
FelCor LP, FelCor or another Restricted Subsidiary) of (i) all or substantially
all of the Capital Stock of any Restricted Subsidiary or (ii) all or
substantially all of the assets that constitute a division or line of business,
or one or more hotel properties, of FelCor LP or FelCor or any of their
respective Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale- leaseback transaction) in one
transaction or a series of related transactions by FelCor LP or FelCor or any
of their Restricted Subsidiaries to any Person other than FelCor LP or FelCor
or any of their respective Restricted Subsidiaries of (i) all or any of the
Capital Stock of any Restricted Subsidiary other than sales permitted under
clause (iv) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant described below, (ii) all or substantially
all of the property and assets of an operating unit or business of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries or (iii) any other
property and assets of FelCor LP or FelCor or any of their respective
Restricted Subsidiaries outside the ordinary course of business of FelCor LP or
FelCor or such Restricted Subsidiary and, in each case, that is not governed by
the provisions of the Indenture applicable to mergers, consolidations and sales
of assets of FelCor LP and FelCor; provided that "Asset Sale" shall not include
(a) sales or other dispositions of inventory, receivables and other current
assets, (b) sales, transfers or other dispositions of assets with a fair market
value not in excess of $1 million in any transaction or series of related
transactions or (c) sales or other dispositions of assets for consideration at
least equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would satisfy clause (i)(B) of the
second sentence of the "Limitation on Asset Sales" covenant.
-70-
<PAGE> 79
"Average Life" means at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), including partnership interests, whether general or
limited, in the equity of such Person, whether outstanding on the Closing Date
or issued thereafter, including, without limitation, all Common Stock,
Preferred Stock and Units.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease as reflected on the balance
sheet of such Person in accordance with GAAP.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the Voting Stock of
FelCor or, other than by FelCor, of FelCor LP on a fully diluted basis; or (ii)
individuals who on the Closing Date constitute the Board of Directors (together
with any new or replacement directors whose election by the Board of Directors
or whose nomination by the Board of Directors for election by FelCor's
shareholders was approved by a vote of at least a majority of the members of
the Board of Directors then still in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting), which have no preference on liquidation or with respect
to distributions over any other class of Capital Stock, including partnership
interests, whether general or limited, of such Person's equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is,
or is required by GAAP to be, made), less all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis for
FelCor LP, FelCor and their respective Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on the last day of such period by FelCor
LP or FelCor or any of their respective Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, without
duplication, the aggregate amount of interest expense in respect of
Indebtedness (including, without limitation, amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with GAAP; all commissions, discounts and
other fees and expenses owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements
and Indebtedness that is Guaranteed or secured by assets of FelCor LP, FelCor
or any of their respective Restricted Subsidiaries and all but the principal
component of rentals in respect of capitalized lease obligations paid, accrued
or scheduled to be paid or to be accrued by FelCor LP,
-71-
<PAGE> 80
FelCor and their respective Restricted Subsidiaries) during such period, all as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP; excluding (i) the amount of such
interest expense of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated
Net Income pursuant to clause (ii) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary is excluded
from the calculation of Adjusted Consolidated Net Income pursuant to clause
(ii) of the definition thereof) and (ii) any premiums, fees and expenses (and
any amortization thereof) payable in connection with the offering of the Notes
or paid in connection with any other Indebtedness outstanding on August 31,
1997, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock, other than Units, at any time prior
to the Stated Maturity of the Notes or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness
having a scheduled maturity prior to the Stated Maturity of the Notes; provided
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described below and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to FelCor LP's repurchase of such Notes as are required to be repurchased
pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes upon a
Change of Control" covenants described below.
"DJONT" means DJONT Operations, L.L.C., a Delaware limited liability
company.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to
buy, as determined in good faith by the Board of Directors, whose determination
shall be conclusive if evidenced by a Board Resolution.
"Funds From Operations" for any period means the consolidated net
income of FelCor LP, FelCor and their respective Restricted Subsidiaries for
such period in conformity with GAAP excluding gains or losses from debt
restructurings and sales of property, plus depreciation of real property
(including furniture and equipment) and after adjustments for unconsolidated
partnerships and joint ventures plus the minority interest in FelCor LP, if
applicable; provided that for purposes of the payment of any dividend or
distribution by FelCor LP or FelCor, "Funds From Operations" shall be equal to
$80 million plus the amount thereof computed for the period commencing with the
first day of the fiscal quarter in which the Closing Date occurs and ending on
the last day of the last fiscal quarter preceding the payment of such dividend
or distribution.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
contained or referred to in the Indenture shall be computed in conformity with
GAAP applied on a consistent basis, except that calculations made for purposes
of determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to (i) the
amortization of any expenses incurred in connection with the offering of the
Notes and (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
-72-
<PAGE> 81
"Government Securities" means direct obligations of, obligations
guaranteed by, or participations in pools consisting solely of obligations of
or obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option of
the issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and, without limiting the generality of the foregoing, any obligation, direct
or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantors" means FelCor and the Subsidiary Guarantors, collectively,
so long as they remain obligors on any Indebtedness of FelCor or FelCor LP
which is pari passu with or subordinated to the Notes.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) the face amount of
letters of credit or other similar instruments (excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
unconditional obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except Trade
Payables, (v) all Capitalized Lease Obligations, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not
otherwise included in this definition or the definition of Consolidated
Interest Expense, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations of the type
described above and, with respect to obligations under any Guarantee, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation; provided that (A) the amount outstanding at any time of any
Indebtedness issued with original issue discount shall be deemed to be the face
amount with respect to such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at the date of
determination in conformity with GAAP, and (B) Indebtedness shall not include
any liability for federal, state, local or other taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have been
filed with the Commission or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant ("Four Quarter Period") to
(ii) the aggregate Consolidated Interest Expense during such Four Quarter
Period. In making the foregoing calculation, (A) pro forma effect shall be
given to any Indebtedness Incurred or repaid (other than in connection with an
Asset Acquisition or Asset Disposition) during the period ("Reference Period")
commencing on the first day of the Four Quarter Period and ending on the
Transaction Date (other than Indebtedness Incurred or repaid under a revolving
credit or similar arrangement to the extent of the commitment thereunder (or
under any predecessor revolving credit or similar arrangement) in effect on the
last day of such Four Quarter Period unless any portion of such
-73-
<PAGE> 82
Indebtedness is projected, in the reasonable judgment of the senior management
of FelCor LP or FelCor, to remain outstanding for a period in excess of 12
months from the date of the Incurrence thereof), in each case as if such
Indebtedness had been Incurred or repaid on the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months or, if shorter, at least equal to the remaining
term of such Indebtedness) had been the applicable rate for the entire period;
(C) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of proceeds
of any Asset Disposition and any Indebtedness Incurred or repaid in connection
with any such Asset Acquisitions or Asset Dispositions) that occur during such
Reference Period but subsequent to the end of the related Four Quarter Period
as if they had occurred and such proceeds had been applied on the first day of
such Reference Period; and (D) pro forma effect shall be given to asset
dispositions and asset acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition and any Indebtedness Incurred
or repaid in connection with any such asset acquisitions or asset dispositions)
that have been made by any Person that has become a Restricted Subsidiary or
has been merged with or into FelCor LP or FelCor or any of their respective
Restricted Subsidiaries during such Reference Period but subsequent to the end
of the related Four Quarter Period and that would have constituted Asset
Dispositions or Asset Acquisitions during such Reference Period but subsequent
to the end of the related Four Quarter Period had such transactions occurred
when such Person was a Restricted Subsidiary as if such asset dispositions or
asset acquisitions were Asset Dispositions or Asset Acquisitions and had
occurred on the first day of such Reference Period; provided that to the extent
that clause (C) or (D) of this sentence requires that pro forma effect be given
to an Asset Acquisition or Asset Disposition, such pro forma calculation shall
be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business, or one or more
hotel properties, of the Person that is acquired or disposed of to the extent
that such financial information is available.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement with respect to interest rates.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including without limitation by way of Guarantee
or similar arrangement, but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the consolidated balance sheet of FelCor LP, FelCor and their
respective Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property (tangible or intangible) to others or any
payment for property or services solely for the account or use of others, or
otherwise), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries of (or in) any Person that has ceased to be a Restricted
Subsidiary, including without limitation, by reason of any transaction
permitted by clause (iii) of the "Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant; provided that the fair
market value of the Investment remaining in any Person that has ceased to be a
Subsidiary shall be deemed not to exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made,
less the net reduction of such Investments. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to FelCor LP or FelCor or
any of their respective Restricted Subsidiaries)) of any Restricted Subsidiary
at the time such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Investment Grade" means a rating of the Notes by both S&P and
Moody's, each such rating being in one of such agency's four highest generic
rating categories that signifies investment grade (i.e. BBB- (or the
equivalent) or higher by S&P and Baa3 (or the equivalent) or higher by
Moody's); provided, in each case, such ratings are publicly available;
provided, further, that in the event Moody's or S&P is no longer in existence
for purposes of determining
-74-
<PAGE> 83
whether the Notes are rated "Investment Grade," such organization may be
replaced by a nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) designated by FelCor LP and FelCor,
notice of which shall be given to the Trustee.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Line of Credit" means the credit facility established pursuant to the
Third Amended and Restated Revolving Credit Agreement dated as of August 14,
1997 among FelCor LP, FelCor, the lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Wells Fargo Bank, National Association, as
Documentation Agent, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith, in
each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time; provided that, with respect to an agreement providing for the refinancing
of Indebtedness under the Line of Credit, such agreement shall be the Line of
Credit under the Indenture only if a notice to that effect is delivered by
FelCor LP and FelCor to the Trustee and there shall be at any time only one
instrument that is (together with the aforementioned related agreements,
instruments and documents) the Line of Credit under the Indenture.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to FelCor LP or FelCor or any of
their respective Restricted Subsidiaries) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes actually paid or payable as a result of such Asset Sale by FelCor
LP, FelCor and their respective Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either (A) is secured by a Lien on the
property or assets sold or (B) is required to be paid as a result of such sale
and (iv) amounts reserved by FelCor LP, FelCor and their respective Restricted
Subsidiaries against any liabilities associated with such Asset Sale, including
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
on a consolidated basis in conformity with GAAP and (b) with respect to any
issuance or sale of Capital Stock, the proceeds of such issuance or sale in the
form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees, accountants's
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of tax paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by FelCor LP,
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) ("Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless FelCor LP defaults in
the payment of the purchase price, any Note accepted for payment pursuant to
the Offer to Purchase shall cease to accrue interest on and after the Payment
Date; (v) that Holders electing to have a Note purchased pursuant to the Offer
to Purchase will be required to surrender the Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Payment Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing
-75-
<PAGE> 84
his election to have such Notes purchased; and (vii) that Holders whose Notes
are being purchased only in part will be issued new Notes equal in principal
amount to the unpurchased portion of the Notes surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of
$1,000 or integral multiples thereof. On the Payment Date, FelCor LP shall (i)
accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; and (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and shall promptly thereafter deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an
Officers' Certificate specifying the Notes or portions thereof accepted for
payment by FelCor LP. The Paying Agent shall promptly mail to the Holders of
Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal
in principal amount to any unpurchased portion of any Note surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof. FelCor LP will
publicly announce the results of an Offer to Purchase as soon as practicable
after the Payment Date. FelCor LP will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that FelCor LP is
required to repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in FelCor LP or FelCor
or any of their Restricted Subsidiaries or a Person which will, upon the making
of such Investment, become a Restricted Subsidiary or be merged or consolidated
with or into or transfer or convey all or substantially all its assets to,
FelCor LP or FelCor or any of their Restricted Subsidiaries; provided that such
person's primary business is related, ancillary, incidental or complementary to
the businesses of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries on the date of such Investment; (ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordances with GAAP; and (iv) stock, obligations or securities received in
satisfaction of judgments.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participation or other equivalents (however designated,
whether voting or non-voting), which have a preference on liquidation or with
respect to distributions over any other class of Capital Stock, including
preferred partnership interests, whether general or limited, or such Person's
preferred or preference stock, whether outstanding on the Closing Date or
issued thereafter, including, without limitation, all series and classes of
such preferred or preference stock.
"Restricted Subsidiary" means any Subsidiary of FelCor LP or FelCor
other than an Unrestricted Subsidiary.
"Secured Indebtedness" means an Indebtedness secured by a Lien upon
the property of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries.
"Senior Indebtedness" means the following obligations of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries, whether outstanding
on the Closing Date or thereafter Incurred: (i) all Indebtedness and all other
monetary obligations (including expenses fees and other monetary obligations)
of FelCor LP and FelCor under the Line of Credit; (ii) all Indebtedness and all
other monetary obligations of FelCor LP or FelCor or any of their respective
Restricted Subsidiaries (other than the Notes), including principal and
interest on such Indebtedness, unless such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued is expressly subordinated in right of payment to the Notes; and (iii)
Subsidiary Debt. Senior Indebtedness will also include interest accruing
subsequent to events of bankruptcy of FelCor LP and FelCor and their respective
Restricted Subsidiaries at the rate provided for the document governing such
Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under bankruptcy law.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of FelCor LP and FelCor, accounted for more than 10% of the
consolidated revenues of FelCor LP, FelCor and their respective Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of FelCor LP, FelCor and their respective
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements thereof for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
-76-
<PAGE> 85
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such
Person and one or more other Subsidiaries of such Person and the accounts of
which would be consolidated with those of such Person in its consolidated
financial statements in accordance with GAAP, if such statements were prepared
as of such date.
"Subsidiary Debt" means all unsecured Indebtedness of which a
Restricted Subsidiary is the primary obligor.
"Subsidiary Guarantee" means a Guarantee by each Subsidiary Guarantor
for payment of the Notes by such Subsidiary Guarantor. The Subsidiary Guarantee
will be an unsecured senior obligation of each Subsidiary Guarantor and will be
unconditional regardless of the enforceability of the Notes and the Indenture.
Notwithstanding the foregoing, each Subsidiary Guarantee by a Subsidiary
Guarantor shall provide by its terms that it shall remain in effect only so
long as such Subsidiary Guarantor remains an obligor on other Indebtedness of
FelCor or FelCor LP which is pari passu with or subordinated to the Notes and
that it shall be automatically and unconditionally released and discharged upon
any sale, exchange or transfer, to any Person not an Affiliate of FelCor LP or
FelCor, of all of the Capital Stock owned by FelCor LP, FelCor and their
respective Restricted Subsidiaries in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not then
prohibited by the Indenture).
"Subsidiary Guarantor" means each of (i) FelCor/CSS Hotels, L.L.C., a
Delaware limited liability company, (ii) FelCor/LAX Hotels, L.L.C., a Delaware
limited liability company, (iii) FelCor/CSS Holdings, L.P., a Delaware limited
partnership, (iv) FelCor/St. Paul Holdings, L.P., a Delaware limited
partnership, (v) FelCor/LAX Holdings, L.P., a Delaware limited partnership and
(vi) FelCor Eight Hotels, L.L.C., a Delaware limited liability company and each
other Restricted Subsidiary that executes a Subsidiary Guarantee in compliance
with the "Limitation on Issuances of Guarantees by Restricted Subsidiaries"
covenant below.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposits accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof, and which bank or
trust company has capital, surplus and undivided profits aggregating in excess
of $50 million and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of FelCor LP or
FelCor) organized and in existence under the laws of the United States of
America, any state thereof with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, and (v) securities with maturities of six months or less from
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
S&P or Moody's.
"Total Assets" means the sum of (i) Undepreciated Real Estate Assets
and (ii) all other assets of FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis determined in conformity with GAAP (but
excluding intangibles and accounts receivables).
"Total Unencumbered Assets" as of any date means the sum of (i) those
Undepreciated Real Estate Assets not securing any portion of Secured
Indebtedness and (ii) all other assets (but excluding intangibles and accounts
receivable) of FelCor LP, FelCor and their respective Restricted Subsidiaries
not securing any portion of Secured Indebtedness determined on a consolidated
basis in accordance with GAAP.
-77-
<PAGE> 86
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries
arising in the ordinary course of business in connection with the acquisition
of goods or services.
"Transaction Date" means, with the respect to the Incurrence of any
Indebtedness by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to
any Restricted Payment, the date such Restricted Payment is to be made.
"Undepreciated Real Estate Assets" means, as of any date, the cost
(being the original cost to FelCor LP or FelCor or any of their respective
Restricted Subsidiaries plus capital improvements) of real estate assets of
FelCor LP, FelCor and their Restricted Subsidiaries on such date, before
depreciation and amortization of such real estate assets, determined on a
consolidated basis in conformity with GAAP.
"Units" means the limited partnership units of FelCor LP, that by
their terms are redeemable at the option of the holder thereof and that, if so
redeemed, at the election of FelCor are redeemable for cash or Common Stock of
FelCor.
"Unrestricted Subsidiary" means (i) any Subsidiary of FelCor LP or
FelCor that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below; and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary (including any newly acquired or newly formed
Subsidiary of FelCor LP or FelCor) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, FelCor LP or FelCor or any of their respective Restricted Subsidiaries;
provided that (A) any Guarantee by FelCor LP or FelCor or any of their
respective Restricted Subsidiaries of any Indebtedness of the Subsidiary being
so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by FelCor LP or FelCor or such Restricted Subsidiary (or all, if
applicable) at the time of such designation: (B) either (I) the Subsidiary to
be so designated has total assets of $1,000 or less or (II) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described below and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" and "Limitation on Restricted Payments" covenants described
below. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation; and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred at
such time, have been permitted to be Incurred (and shall be deemed to have been
Incurred) for all purposes of the Indenture. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Unsecured Indebtedness" means any Indebtedness of FelCor LP or FelCor
or any of their respective Restricted Subsidiaries that is not Secured
Indebtedness.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by individuals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
The Indenture contains, among others, the following covenants,
provided that the Indenture provides that the "Limitation on Liens," the
"Limitation on Sale-Leaseback Transactions," the "Limitation on Restricted
Payments," the "Limitation on Dividend and other Payment Restrictions Affecting
Restricted Subsidiaries," the "Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries," the "Limitation on Issuances of Guarantees
by Restricted Subsidiaries," and the "Limitation on Transactions with
Affiliates" will not be applicable in the event, and only for so long as, the
Notes are rated Investment Grade.
-78-
<PAGE> 87
Limitation on Indebtedness
(a)(i) Neither FelCor LP nor FelCor will, and neither FelCor LP nor
FelCor will permit any of their respective Restricted Subsidiaries to, Incur
any Indebtedness if, immediately after giving effect to the Incurrence of such
additional Indebtedness, the aggregate principal amount of all outstanding
Indebtedness of FelCor LP, FelCor and their respective Restricted Subsidiaries
on a consolidated basis determined in accordance with GAAP is greater than 60%
of Adjusted Total Assets.
(ii) In addition to the foregoing limitations on the Incurrence of
Indebtedness, neither FelCor LP nor FelCor will, and neither FelCor LP nor
FelCor will permit any of their respective Restricted Subsidiaries to, Incur
any Subsidiary Debt or any Secured Indebtedness if, immediately after giving
effect to the Incurrence of such additional Subsidiary Debt or Secured
Indebtedness, the aggregate principal amount of all outstanding Subsidiary Debt
and Secured Indebtedness of FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total
Assets.
(b) In addition to the covenants specified in (a) above, neither
FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will permit any of
their respective Restricted Subsidiaries to, Incur any Indebtedness (other than
the Notes, the Subsidiary Guarantees and other Indebtedness existing on the
Closing Date); provided that FelCor LP or FelCor or any of their respective
Restricted Subsidiaries may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Interest Coverage Ratio of FelCor LP, FelCor and their
respective Restricted Subsidiaries on a consolidated basis would be greater
than 2.0 to 1.
(c) Notwithstanding paragraphs (a) or (b), FelCor LP or FelCor or any
of their respective Restricted Subsidiaries (except as specified below) may
Incur each and all of the following: (i) Indebtedness outstanding under the
Line of Credit at any time in an aggregate principal amount not to exceed $550
million less any amount of such Indebtedness permanently repaid as provided
under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness owed (A) to FelCor LP or FelCor evidenced by an unsubordinated
promissory note or (B) to any Restricted Subsidiary; provided that any event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to
FelCor LP or FelCor or any other Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, outstanding Indebtedness
(other than Indebtedness Incurred under clause (i), (ii), (iv) or (vi) of this
paragraph) and any refinancings thereof in an amount not to exceed the amount
so refinanced or refunded (plus premiums, accrued interest, fees and expenses);
provided that Indebtedness the proceeds of which are used to refinance or
refund the Notes or Indebtedness that is pari passu with or subordinated in
right of payment to, the Notes shall only be permitted under this clause (iii)
if (A) in case the Notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Notes, such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is pari passu with or is expressly made
subordinate in right of payment to the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the Notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such New Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of FelCor LP or FelCor that is pari passu with or
subordinated in right of payment to the Notes be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements (a) are designed solely to
protect FelCor LP or FelCor or any of their respective Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest rates and
(b) do not increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation payable
thereunder, and (C) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds securing any obligations
of FelCor LP or FelCor or any of their respective Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary (other than
Guarantees of Indebtedness Incurred by any Person acquiring
-79-
<PAGE> 88
all or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition), in a principal amount not to exceed the
gross proceeds actually received by FelCor LP, FelCor and their respective
Restricted Subsidiaries on a consolidated basis in connection with such
disposition; (v) Indebtedness of FelCor LP or FelCor, to the extent the net
proceeds thereof are promptly (A) used to purchase Notes tendered in an Offer
to Purchase made as a result of a Change in Control or (B) deposited to defease
the Notes as described below under "Defeasance"; or (vi) Guarantees of the
Notes and Guarantees of Indebtedness of FelCor LP or FelCor by any of their
respective Restricted Subsidiaries provided the guarantee of such Indebtedness
is permitted by and made in accordance with the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant described below.
(d) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that FelCor LP or
FelCor or any of their respective Restricted Subsidiaries may Incur pursuant to
this "Limitation on Indebtedness" covenant shall not be deemed to be exceeded,
with respect to any outstanding Indebtedness due solely to the result of
fluctuations in the exchange rates of currencies.
(e) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred
under the Line of Credit on or prior to the Closing Date shall be treated as
Incurred pursuant to clause (i) of paragraph (c) of this "Limitation on
Indebtedness" covenant, (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (3) any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more that one of the types of Indebtedness described in the above
clauses (other than Indebtedness referred to in clause (2) of the preceding
sentence), each of FelCor LP and FelCor, in its sole discretion, shall classify
such item of Indebtedness and only be required to include the amount and type
of such Indebtedness in one of such clauses; provided that FelCor LP and FelCor
must classify such item of Indebtedness in an identical fashion.
Maintenance of Total Unencumbered Assets
FelCor LP, FelCor and their respective Restricted Subsidiaries will
maintain Total Unencumbered Assets of not less than 150% of the aggregate
outstanding principal amount of the Unsecured Indebtedness of FelCor LP, FelCor
and their respective Restricted Subsidiaries on a consolidated basis.
Limitation on Liens
Neither FelCor LP nor FelCor shall secure any Indebtedness under the
Line of Credit by a Lien unless contemporaneously therewith effective provision
is made to secure the Notes equally and ratably with the Indebtedness under the
Line of Credit for so long as the Indebtedness under the Line of Credit is
secured by a Lien.
Limitation on Sale-Leaseback Transactions
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, enter into any
sale-leaseback transaction involving any of its assets or properties whether
now owned or hereafter acquired, whereby any of them sells or transfers such
assets or properties and then or thereafter leases such assets or properties or
any substantial part thereof.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between
FelCor LP or FelCor and any Wholly Owned Restricted Subsidiary or solely
between Wholly Owned Restricted Subsidiaries; or (iv) FelCor LP or FelCor or
any of their respective Restricted Subsidiaries, within 12 months after the
sale or transfer of any assets or properties is completed, applies an amount
not less than the net proceeds received from such sale in accordance with
clause (A) or (B) of the first paragraph of the "Limitation on Asset Sales"
covenant described below.
-80-
<PAGE> 89
Limitation on Restricted Payments
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to acquire shares of such Capital Stock and
(y) pro rata dividends or distributions on Common Stock of FelCor LP or any
Restricted Subsidiary held by minority stockholders) held by Persons other than
FelCor LP or FelCor or any of their respective Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of (A) FelCor LP, FelCor or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Person other than FelCor LP or FelCor or any of their respective
Restricted Subsidiaries unless in connection with such purchase the
Unrestricted Subsidiary is designated as a Restricted Subsidiary or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by an Affiliate of FelCor LP or FelCor
(other than a Wholly Owned Restricted Subsidiary) or any holder (or any
Affiliate of such holder) of 5% or more of the Capital Stock of FelCor LP or
FelCor, (iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or retirement
for value, of Indebtedness of FelCor LP or FelCor that is subordinated in right
of payment to the Notes or (iv) make an Investment, other than a Permitted
Investment, in any Person (such payments or any other actions described in
clauses (i) through (iv) above being collectively "Restricted Payments") if, at
the time of, and after giving effect to, the proposed Restricted Payment: (A) a
Default or Event of Default shall have occurred and be continuing, (B) FelCor
LP or FelCor could not Incur at least $1.00 of Indebtedness under the
paragraphs (a) and (b) of the "Limitation on Indebtedness" covenant or (C) the
aggregate amount of all Restricted Payments (the amount, if other than in cash,
to be determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) made after the Closing
Date shall exceed the sum of (1) 95% of the aggregate amount of the Funds From
Operations (or, if the Funds From Operations is a loss, minus 100% of the
amount of such loss) (determined by excluding income resulting from transfers
of assets by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries to an Unrestricted Subsidiary) accrued on a cumulative basis
during the period (taken as one accounting period) beginning on the first day
of the fiscal quarter in which the Closing Date occurs and ending on the last
day of the last fiscal quarter preceding the Transaction Date for which reports
have been filed with the Commission or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant plus (2) the aggregate Net
Cash Proceeds received by FelCor LP or FelCor after the Closing Date from the
issuance and sale permitted by the Indenture of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of FelCor LP or FelCor,
including an issuance or sale permitted by the Indenture of Indebtedness of
FelCor LP or FelCor for cash subsequent to the Closing Date upon the conversion
of such Indebtedness into Capital Stock (other than Disqualified Stock) of
FelCor LP or FelCor, or from the issuance to a Person who is not a Subsidiary
of FelCor LP or FelCor of any options, warrants or other rights to acquire
Capital Stock of FelCor LP or FelCor (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that are redeemable
at the option of the holder, or are required to be redeemed, prior to the
Stated Maturity of the Notes), plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to FelCor LP or
FelCor or any of their respective Restricted Subsidiaries or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Funds
From Operations) or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments") not to exceed, in each case, the amount of Investments
previously made by FelCor LP, FelCor and their respective Restricted
Subsidiaries in such Person or Unrestricted Subsidiary, plus (4) the purchase
price of noncash tangible assets acquired in exchange for an issuance of
Capital Stock (other than Disqualified Stock) of FelCor LP or FelCor; provided
that in any event FelCor LP or FelCor may declare or pay any dividend or make
any distribution that is necessary to maintain FelCor's status as a REIT under
the Code if (1) the aggregate principal amount of all outstanding Indebtedness
of FelCor LP or FelCor on a consolidated basis at such time is less than 60% of
Adjusted Total Assets and (2) no Default or Event of Default shall have
occurred and be continuing.
The provisions of the foregoing paragraph shall not be violated by
reason of: (i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would comply
with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or
other acquisition or retirement for value of Indebtedness that is subordinated
in right of payment to the Notes including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (iii) of paragraph (c) of the "Limitation on
Indebtedness" covenant; (iii) the repurchase, redemption or other acquisition
of Capital Stock of FelCor
-81-
<PAGE> 90
LP or FelCor or an Unrestricted Subsidiary (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the proceeds
of a substantially concurrent issuance of, shares of Capital Stock (other than
Disqualified Stock) of FelCor LP or FelCor (or options, warrants or other
rights to acquire such Capital Stock); (iv) the making of any principal payment
on, or the repurchase, redemption, retirement, defeasance or other acquisition
for value of, Indebtedness of FelCor LP or FelCor which is subordinated in
right of payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent issuance of, shares of the Capital Stock (other than
Disqualified Stock) of FelCor LP or FelCor (or options, warrants or other
rights to acquire such Capital Stock); (v) payments or distributions, to
dissenting stockholders pursuant to applicable law pursuant to or in connection
with a consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and transfers
of all or substantially all of the property and assets of FelCor LP or FelCor;
(vi) Investments in any Person or Persons in an aggregate amount not to exceed
$150 million; or (vii) the payment of any dividend or distribution on the
Capital Stock of FelCor LP or FelCor declared prior to the Closing Date,
provided that, except in the case of clauses (i), (iii) and (vii), no Default
or Event of Default shall have occurred and be continuing or occur as a direct
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof, an Investment referred to in clause (vi) thereof
or the dividends or distributions referred to in clause (vii) thereof), and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clauses
(iii) and (iv), shall be included in calculating whether the conditions of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met with respect to any subsequent Restricted Payments.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
FelCor LP or FelCor or any of their respective Restricted Subsidiaries, (ii)
pay any Indebtedness owed to FelCor LP, FelCor or any other Restricted
Subsidiary, (iii) make loans or advances to FelCor LP, FelCor or any other
Restricted Subsidiary or (iv) transfer its property or assets to FelCor LP,
FelCor or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or in the Line
of Credit, and any extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced, renewed or
replaced; (ii) existing under or by reason of applicable law; (iii) existing
with respect to any Person or the property or assets of such Person acquired by
FelCor LP, FelCor or any Restricted Subsidiary, existing at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of FelCor LP, FelCor or any Restricted
Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed
to in the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value of
property or assets of FelCor LP, FelCor or any Restricted Subsidiary in any
manner material to FelCor LP, FelCor and their respective Restricted
Subsidiaries taken as a whole; (v) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or property
and assets of, such Restricted Subsidiary; or (vi) contained in the terms of
any Indebtedness or any agreement pursuant to which such Indebtedness was
issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Notes than is customary
in comparable financings (as determined by FelCor LP and FelCor) and (C) each
of FelCor LP and FelCor determines that any such encumbrance or restriction
will not materially affect such Persons' ability to make principal or interest
payments on the Notes. Nothing contained in this
-82-
<PAGE> 91
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent FelCor LP, FelCor or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries that secure
Indebtedness of FelCor LP, FelCor or any of their respective Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries
Neither FelCor LP nor FelCor will sell, and neither FelCor LP nor
FelCor will permit any of their respective Restricted Subsidiaries, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except (i) to FelCor LP, FelCor or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to individuals of shares of Restricted Subsidiaries, to the extent required by
applicable law or to the extent necessary to obtain local liquor licenses;
(iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Subsidiary and any
Investment in such Person remaining after giving effect to such issuance or
sale would have been permitted to be made under the "Limitation on Restricted
Payments" covenant if made on the date of such issuance or sale or (iv) sales
of not greater than 20% of the Capital Stock of a newly-created Restricted
Subsidiary made in connection with, or in contemplation of, the acquisition or
development by such Restricted Subsidiary of one or more properties to any
Person that is, or is an Affiliate of, the entity that provides, franchise
management or other services, as the case may be, to one or more properties
owned by such Restricted Subsidiary.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
Neither FelCor LP nor FelCor will permit any of their respective
Restricted Subsidiaries, directly or indirectly, to Guarantee any Indebtedness
of FelCor LP or FelCor which is pari passu with or subordinate in right of
payment to the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Subsidiary Guarantee by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against FelCor LP,
FelCor or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
Incurred in connection with, or in contemplation of, such person becoming a
Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with
the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari
passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to
the Notes, then the Guarantee of such Guarantee Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of FelCor LP or FelCor, of all of
Capital Stock held by FelCor LP, FelCor and their respective Restricted
Subsidiaries in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee which resulted in
the creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
Limitation on Transactions with Affiliates
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitations, the purchase, sale, lease or exchange of property or assets, or
the rendering of any service) with any holder (or any Affiliate of such holder)
of 5% or more of any class of Capital Stock of FelCor LP or FelCor or with any
Affiliate of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, except upon fair and reasonable terms no less favorable to FelCor
LP, FelCor or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement, at
the time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
-83-
<PAGE> 92
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the independent directors of FelCor
or (B) for which FelCor LP, FelCor or any Restricted Subsidiary delivers to the
Trustee a written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to FelCor LP, FelCor or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely between
FelCor LP or FelCor and any of their respective Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii) the
payment of reasonable and customary fees and expenses to directors of FelCor
who are not employees of FelCor; (iv) any payments or other transactions
pursuant to any tax-sharing agreement between FelCor LP or FelCor and any other
Person with which FelCor LP or FelCor files a consolidated tax return or with
which FelCor LP or FelCor is part of a consolidated group for tax purposes; or
(v) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant. Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this "Limitation on
Transactions with Affiliates" covenant and not covered by clauses (ii) through
(v) of this paragraph, (a) the aggregate amount of which exceeds $2 million in
value or relates to the leasing of one or more hotel properties to DJONT, must
be approved or determined to be fair in the manner provided for in clause
(i)(A) or (B) above and (b) the aggregate amount of which exceeds $5 million in
value, must be determined to be fair in the manner provided for in clause
(i)(B) above.
Limitation on Asset Sales
Neither FelCor LP nor FelCor will, and neither FelCor LP or FelCor
will permit any of their respective Restricted Subsidiaries to, consummate any
Asset Sale, unless (i) the consideration received by FelCor LP, FelCor or such
Restricted Subsidiary is at least equal to the fair market value of the assets
sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments; provided, with respect to the
sale of one or more hotel properties that up to 75% of the consideration may
consist of indebtedness of the purchaser of such hotel properties; provided,
further, that such indebtedness is secured by a first priority Lien on the
hotel property or properties sold. In the event and to the extent that the Net
Cash Proceeds received by FelCor LP, FelCor or such Restricted Subsidiary from
one or more Asset Sales occurring on or after the Closing Date in any period of
12 consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of FelCor LP, FelCor and their
respective Restricted Subsidiaries has been filed with the Commission or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant), then FelCor LP or FelCor shall or shall cause the relevant
Restricted Subsidiary to (i) within twelve months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to permanently
reduce Senior Indebtedness of FelCor LP, FelCor, or any Restricted Subsidiary
or Indebtedness of any other Restricted Subsidiary, in each case owing to a
Person other than FelCor LP, FelCor or any of their respective Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in property or
assets (other than current assets) of a nature or type or that are used in a
business (or in a Restricted Subsidiary having property and assets of a nature
or type, or engaged in a business) similar or related to the nature or type of
the property and assets of, or the business of, FelCor LP or FelCor or any of
their respective Restricted Subsidiaries existing on the date of such
investment and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not previously subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, FelCor LP
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus,
in each case, accrued interest (if any) to the Payment Date.
-84-
<PAGE> 93
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
FelCor LP must commence, within 30 days of the occurrence of a Change
of Control, and consummate an Offer to Purchase for all Notes then outstanding,
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
There can be no assurance that FelCor LP will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any covenant that may be contained in other securities of FelCor LP or FelCor
which might be outstanding at the time). The above covenant requiring FelCor LP
to repurchase the Notes will, unless consents are obtained, require FelCor LP
to repay all indebtedness then outstanding which by its terms would prohibit
such Note repurchase, either prior to or concurrently with such Note
repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not FelCor LP or FelCor is then required to file reports
with the Commission, FelCor LP and FelCor shall file with the Commission all
such reports and other information as they would be required to file with
Commission by Sections 13(a) or 15(d) under the Securities Exchange Act of 1934
if they were subject thereto; provided that, if filing such documents by FelCor
LP or FelCor with the Commission is not permitted under Exchange Act, FelCor LP
or FelCor shall provide such documents to the Trustee and upon written request
supply copies of such documents to any prospective Holder; provided, further,
that if the rules and regulations of the Commission permit FelCor LP and FelCor
to file combined reports or information pursuant to the Securities Exchange Act
of 1934, FelCor LP and FelCor may file combined reports and information. FelCor
LP and FelCor shall supply the Trustee and each Holder or shall supply to the
Trustee for forwarding to each such Holder, without cost to such Holder, copies
of such reports and other information.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note
when the same becomes due and payable, and such default continues for a period
of 30 days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of FelCor LP and FelCor or the failure by
FelCor LP to make or consummate an Offer to Purchase in accordance with the
"Limitations on Asset Sales" or "Repurchase of Notes upon a Change of Control"
covenants; (d) FelCor LP or FelCor defaults in the performance of or breaches
any other covenant or agreement of FelCor LP or FelCor in the Indenture or
under the Notes (other than a default specified in clause (a), (b) or (c)
above) and such default or breach continues for a period of 30 consecutive days
after written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes; (e) there occurs with respect to any issue or
issues of Indebtedness of FelCor LP or FelCor or any Significant Subsidiary
having an outstanding principal amount of $10 million or more in the aggregate
for all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not covered by insurance) shall be rendered against FelCor LP or FelCor or
any Significant Subsidiary and shall not be paid or discharged, and there shall
be any period of 60 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $10
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (g) a court
having jurisdiction in the premises enters a decree or order for (A) relief in
respect of FelCor LP or FelCor or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of FelCor LP or FelCor or
any Significant Subsidiary or for all or substantially all of the property and
assets of FelCor LP or FelCor or any Significant Subsidiary or (C) the winding
up
-85-
<PAGE> 94
or liquidation of the affairs of FelCor LP or FelCor or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (h) FelCor LP or FelCor or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under such
law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
FelCor LP or FelCor or Significant Subsidiary or for all or substantially all
of the property and assets of FelCor LP or FelCor or any Significant Subsidiary
or (C) effects any general assignment for the benefit of its creditors.
If an Event of Default (other than an Event of Default specified in
clause (g) or (h) above that occurs with respect to FelCor LP or FelCor) occurs
and is continuing under the Indenture, the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes, then outstanding, by written
notice to FelCor LP and FelCor (and to the Trustee if such notice is given by
the Holders), may, and the Trustee at the request of such Holders shall,
declare the principal of, premium, if any, and accrued interest on the Notes to
be immediately due and payable. Upon a declaration of acceleration, such
principal of, premium, if any, and accrued interest shall be immediately due
and payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied or cured by FelCor LP, FelCor or the relevant Significant
Subsidiary or waived by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto. If an Event or
Default specified in clause (g) or (h) above occurs with respect to FelCor LP
or FelCor, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding Notes
by written notice to FelCor LP, FelCor and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment
of the principal of, premium, if any, and interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction. As to the waiver of defaults, see "--
Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless; (i) the Holder gives the Trustee written notice of a continuing Event
of Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the outstanding Notes do not give the
Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture will require certain officers of FelCor LP and FelCor to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of FelCor LP and
FelCor and their respective Restricted Subsidiaries and of their performance
under the Indenture and that FelCor LP and FelCor have fulfilled all
obligations thereunder, or, if there has been a default in fulfillment of any
such obligation, specifying each such default and the nature and status
thereof. FelCor LP and FelCor will also be obligated to notify the Trustee of
any default or defaults in the performance of any covenants or agreements under
the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither FelCor LP nor FelCor will merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into FelCor LP or FelCor unless: (i) FelCor
-86-
<PAGE> 95
LP or FelCor shall be the continuing Person, or the Person (if other than
FelCor LP or FelCor) formed by such consolidation or into which FelCor LP or
FelCor is merged or that acquired or leased such property and assets of FelCor
LP or FelCor shall be an entity organized and validly existing under the laws
of the United States of America or any state or jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of FelCor LP or FelCor on the Notes and under
the Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis FelCor
LP or FelCor, or any Person becoming the successor obligor of the Notes, as the
case may be, could Incur at least $1.00 of Indebtedness under paragraphs (a)
and (b) of the "Limitation on Indebtedness" covenant; provided that this clause
(iii) shall not apply to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; provided that, in connection
with any such merger or consolidation, no consideration (other than Capital
Stock (other than Disqualified Stock) in the surviving Person or FelCor LP or
FelCor) shall be issued or distributed to the holders of Capital Stock of
FelCor LP or FelCor; and (iv) FelCor LP or FelCor delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iii)) and an Opinion of Counsel, in each case stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; provided that
clause (iii) above does not apply if, in the good faith determination of the
Board of Directors of FelCor LP or FelCor, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction is
to change the state of domicile of FelCor LP or FelCor; and provided, further,
that any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that FelCor LP,
FelCor and the Subsidiary Guarantors will be deemed to have paid and will be
discharged from any and all obligations in respect of the Notes or any
Subsidiary Guarantee on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) FelCor LP has have deposited with the Trustee, in trust,
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, (B) FelCor LP has
have delivered to the Trustee (i) either (x) an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of FelCor LP's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which Opinion of
Counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling is
no longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after
giving effect to such deposit on a pro forma basis, no Event of Default, shall
have occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after the date of such deposit, and such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which FelCor
LP, FelCor or any of their respective Restricted Subsidiaries is a party or by
which FelCor LP, FelCor or any of their respective Restricted Subsidiaries are
bound and (D) if at such time the Notes are listed on a national securities
exchange, FelCor LP has delivered to the Trustee an Opinion of Counsel to the
effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clause (iii) under "Consolidation, Merger and Sale
of Assets" and all the covenants described herein under "Covenants," clause (c)
under "Events of Default" with respect to such clause (iii) under
"Consolidation, Merger and Sale of Assets," clause (d) under "Events of
Default" with respect to such other covenants and clauses (e) and (f) under
"Events of Default" shall be deemed not to be Events of Default upon, among
other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an
-87-
<PAGE> 96
amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance
with the terms of the Indenture and the Notes, the satisfaction of the
provisions described in clauses (B)(ii), (C) and (D) of the preceding paragraph
and the delivery by FelCor LP to the Trustee of an Opinion of Counsel to the
effect that, among other things, the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and defeasance
of certain covenants and Events of Default and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event FelCor LP
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, FelCor LP, FelCor
and the Subsidiary Guarantors will remain liable for such payments.
MODIFICATION AND WAIVER
Subject to certain limited exceptions, modifications and amendments of
the Indenture may be made by FelCor LP, FelCor and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
outstanding Notes; provided that no such modification or amendment may, without
the consent of each Holder affected thereby, (i) change the Stated Maturity of
the principal of, or any installment of interest on, any Note, (ii) reduce the
principal amount of, or premium, if any, or interest on, any Note, (iii) change
the place of payment of principal of, or premium, if any, or interest on, any
Note, (iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any Note, (v) reduce the above-stated percentages
of outstanding Notes the consent of whose Holders is necessary to modify or
amend the Indenture, (vi) waive a default in the payment of principal of,
premium, if any, or interest on the Notes, (vii) voluntarily release a
Guarantor of the Notes or (viii) reduce the percentage or aggregate principal
amount of outstanding Notes the consent of whose Holders is necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, PARTNERS, STOCKHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES
The Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon
any obligation, covenant or agreement of FelCor LP or FelCor in the Indenture,
or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, partner,
stockholder, officer, director, employee or controlling person of FelCor LP,
FelCor or the Subsidiary Guarantors or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties as are specifically set forth in such Indenture. If an Event of Default
has occurred and is continuing, the Trustee will use the same degree of care
and skill in its exercise of the rights and powers vested in it under the
Indenture as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of FelCor LP or FelCor, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
-88-
<PAGE> 97
BOOK ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons. Old Notes sold in reliance on Rule
144A are represented by the Global Old Notes. New Notes issued in exchange for
the Global Old Notes will be issued in the form of one or more Global New Notes
and will be deposited with the Trustee as custodian for, and registered in the
name of a nominee of, DTC.
Old Notes originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers ("Non-Global
Purchasers") were in registered form without interest coupons and represented
by the Certificated Old Notes. New Notes issued in exchange for the
Certificated Old Notes will be issued in the form of one or more Certificated
New Notes.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Global Note directly through DTC if they are participants in
such system, or indirectly through organizations that are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither FelCor LP, FelCor, any Subsidiary Guarantor, the Trustee nor
any Paying Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
FelCor LP expects that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records
of DTC or its nominee. FelCor LP also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
FelCor LP expects that DTC will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for Certificated Notes, which it will distribute to its participants and
which, in the case of a Global Old Note, may be legended with respect to the
restrictions on transfer thereof.
FelCor LP understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic
-89-
<PAGE> 98
book-entry changes in accounts of its participants, thereby eliminating the
need for physical movement of certificates and certain other organizations.
Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC is expected to follow the foregoing procedures in order
to facilitate transfers of interests in a Global Note among its participants,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither FelCor LP, FelCor,
any Subsidiary Guarantor, nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by FelCor LP
within 90 days, FelCor LP will issue Certificated Notes, which, in the case of
a Global Old Note, may bear a legend with respect to the restrictions on
transfer thereof, in exchange for the Global Notes. Holders of an interest in a
Global Note may receive Certificated Notes, which, in the case of a Global Old
Note, may bear a legend with respect to the restrictions on transfer thereof,
in accordance with the DTC's rules and procedures in addition to those provided
for under the Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Jenkens & Gilchrist, a Professional Corporation, the
following are the material U.S. federal income tax consequences of exchanging
Old Notes for New Notes pursuant to the Exchange Offer. The following opinion
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed regulations thereunder, Internal Revenue Service ("IRS")
rulings and pronouncements, reports of congressional committees, judicial
decisions and current administrative rulings and practice, all as in effect on
the date hereof, all of which are subject to change at any time, and any such
change may be applied retroactively in a manner that could adversely affect the
tax consequences described below.
This opinion applies only to Notes held as "capital assets" within the
meaning of section 1221 of the Code (generally property held for investment and
not for sale to customers in the ordinary course of a trade or business) by
holders who or which are (i) citizens or residents of the United States, (ii)
domestic corporations, partnerships or other entities or (iii) otherwise
subject to U.S. federal income taxation on a net income basis in respect of
income and gain from the Notes. This opinion does not address aspects of U.S.
federal income taxation that may be applicable to holders that are subject to
special tax rules, such as certain financial institutions, tax-exempt
organizations, insurance companies, dealers in securities, foreign corporations
and nonresident alien individuals. Moreover, this summary does not address any
of the U.S. federal income tax consequences of holders that do not acquire New
Notes pursuant to the Exchange Offer, nor does it address the applicability or
effect of any state, local or foreign tax laws.
The Company has not sought and will not seek any rulings from the IRS
with respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of exchanging Old Notes for New Notes.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for U.S. federal income tax purposes
because the New Notes will not be considered to differ materially in kind or
extent from the Old Notes. New Notes received by a holder of Old Notes will be
treated as a continuation of the Old Notes in the hands of such holder.
Accordingly, there will not be any U.S. federal income tax consequences to
holders exchanging Old Notes for New Notes pursuant to the Exchange Offer. A
holder's holding period of New Notes will include the holding period of the Old
Notes exchanged therefor.
-90-
<PAGE> 99
POTENTIAL CONTINGENT PAYMENTS
Holders of New Notes should be aware that it is possible that the IRS
could assert that the Liquidated Damages which the Company would have been
obligated to pay if the Exchange Offer registration statement had not been
filed or is not declared effective within the time periods set forth herein (or
certain other actions are not taken) (as described above under "Termination of
Certain Rights") are "contingent payments" for U.S. federal income tax
purposes. If so treated, the New Notes would be treated as contingent payment
debt instruments and a holder of a New Note would be required to accrue
interest income over the term of such New Note under the "noncontingent bond
method" set forth in the U.S. Treasury Regulations issued by the IRS (the
"Contingent Debt Regulations"). Under the Contingent Debt Regulations, any gain
recognized by a holder on the sale, exchange or retirement of a New Note could
be treated as interest income. However, the Contingent Debt Regulations
provide that, for purposes of determining whether a debt instrument is a
contingent payment debt instrument, remote or incidental contingencies are
ignored.
On the date of issue, the Company believed and has represented that to
the best knowledge of the Company, prior to and on the date the New Notes are
issued, the possibility of the payment of Liquidated Damages on the Old Notes
is remote. Assuming this representation, counsel is of the opinion that the Old
Notes will not be treated as contingent payment debt instruments. Accordingly,
based on this representation, the Old Notes should not be treated as contingent
payment debt instruments.
EACH HOLDER SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED ABOVE TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in
the Exchange Offer in connection with a distribution of the New Notes, (ii)
such broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in
exchange for Old Notes when such Old Notes were acquired as a result of
market-making activities or other trading activities. Each such broker-dealer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
New Notes. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any such broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sales of New Notes
by broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including
-91-
<PAGE> 100
the expenses of one counsel for the holders of the Notes) other than
commissions or concessions of any brokers or dealers and transfer taxes and
will indemnify the holders of Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
The New Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the New Notes
on any national securities exchange or to seek approval for quotation through
any automated quotation system. The Company has been advised by the Initial
Purchasers that following completion of the Exchange Offer, the Initial
Purchasers intend to make a market in the New Notes. However, the Initial
Purchasers are not obligated to do so and any market-making activities with
respect to the New Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the New Notes or as to the liquidity of or the trading market
for the New Notes. If a trading market does not develop or is not maintained,
the holders of the New Notes may experience difficulty in reselling the New
Notes or may be unable to sell them at all. If a market for the New Notes
develops, any such market may cease to continue at any time. If a public
trading market develops for the New Notes, future trading prices of the New
Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities and other factors, including the financial condition of the Company.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes will
be passed upon for FelCor and FelCor LP by Jenkens & Gilchrist, a Professional
Corporation, Dallas, Texas.
EXPERTS
The consolidated financial statements of FelCor Suite Hotels, Inc.,
FelCor Suites Limited Partnership, and DJONT Operations, L.L.C. as of December
31, 1996 and 1995 and for the years ended December 31, 1996 and 1995 and for
the period July 28, 1994 (inception of operations) through December 31, 1994,
included in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
-92-
<PAGE> 101
INDEX TO FINANCIAL STATEMENTS
FELCOR SUITE HOTELS, INC.
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 and the six months ended
June 30, 1997.......................................... F-3
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-5
Pro Forma Consolidated Balance Sheet as of June 30,
1997................................................... F-13
Notes to Pro Forma Consolidated Balance Sheet............. F-14
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at June 30, 1997............... F-15
Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996........................... F-16
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996........................... F-17
Notes to Consolidated Financial Statements................ F-18
Report of Independent Accountants........................... F-26
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-27
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-28
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996 and 1995 and the period from
May 16, 1994 through December 31, 1994.................... F-29
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-30
Notes to Consolidated Financial Statements.................. F-31
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996...................................... F-47
FELCOR SUITES LIMITED PARTNERSHIP
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 and the six months ended
June 30, 1997.......................................... F-48
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-50
Pro Forma Consolidated Balance Sheet as of June 30,
1997................................................... F-58
Notes to Pro Forma Consolidated Balance Sheet............. F-59
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at June 30, 1997............... F-60
Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996........................... F-61
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996........................... F-62
Notes to Consolidated Financial Statements................ F-63
Report of Independent Accountants........................... F-71
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-72
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-73
Consolidated Statements of Partners' Capital for the years
ended December 31, 1996 and 1995 and the period from May
16, 1994 through December 31, 1994........................ F-74
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-75
Notes to Consolidated Financial Statements.................. F-76
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996...................................... F-90
</TABLE>
F-1
<PAGE> 102
DJONT OPERATIONS, L.L.C.
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 and the six months ended
June 30, 1997.......................................... F-91
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-93
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at June 30, 1997............... F-96
Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996........................... F-97
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996........................... F-98
Notes to Consolidated Financial Statements................ F-99
Report of Independent Accountants........................... F-102
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-103
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-104
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996 and 1995 and the period from
July 28, 1994 (inception of operations) through December
31, 1994.................................................. F-105
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period from July 28,
1994 (inception of operations) through December 31,
1994...................................................... F-106
Notes to Consolidated Financial Statements.................. F-107
F-2
<PAGE> 103
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
The following unaudited Pro Forma Consolidated Statements of Operations of
FelCor Suite Hotels, Inc. (the "Company") are presented as if the acquisitions
of all hotels owned by the Company at December 31, 1996, those hotels acquired
in 1997 through August 31, 1997 and the pending 1997 acquisition (collectively
the "Hotels"), the proposed 1997 debt offering, the preferred stock offering
consummated during 1996 and the common stock offerings consummated during 1997,
and related transactions had occurred as of January 1, 1996 and the Hotels had
all been leased to DJONT Operations, L.L.C. or its consolidated subsidiaries
(the "Lessee") pursuant to Percentage Leases. Such pro forma information is
based in part upon the Consolidated Statements of Operations of the Company, Pro
Forma Statements of Operations of DJONT Operations, L.L.C. and the historical
statements of operations of the acquired hotels. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed on January 1, 1996, nor does it purport to represent the results of
operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------------------
1996 ACQUISITIONS 1997 ACQUISITIONS,
AND PREFERRED COMMON STOCK AND DEBT
ACTUAL STOCK OFFERING(A) OFFERINGS(B) PRO FORMA
-------- ----------------- --------------------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)... $ 97,950 $12,127 $63,070 $173,147
Income from unconsolidated
partnerships(D)............. 2,010 805 308 3,123
Other income(E)............... 984 (984)
-------- ------- ------- --------
Total revenues........... 100,944 11,948 63,378 176,270
-------- ------- ------- --------
Expenses:
General and
administrative(F)........... 1,819 76 1,408 3,303
Depreciation(G)............... 26,544 4,559 15,010 46,113
Taxes, insurance and
other(H).................... 13,897 1,292 9,600 24,789
Interest expense(I)........... 9,803 6,100 16,926 32,829
Minority interest in Operating
Partnership(J).............. 5,590 (417) (53) 5,120
Minority interest in other
partnerships(K)............. 236 236
-------- ------- ------- --------
Total expenses........... 57,653 11,610 43,127 112,390
-------- ------- ------- --------
Net income......................... 43,291 338 20,251 63,880
Preferred dividends(L)............. 7,734 4,064 11,798
-------- ------- ------- --------
Net income applicable to common
shareholders(M).................. $ 35,557 $(3,726) $20,251 $ 52,082
======== ======= ======= ========
Net income per common share(M)..... $ 1.54 $ 1.44
======== ========
Weighted average number of common
shares outstanding............... 23,076 36,237
======== ========
</TABLE>
F-3
<PAGE> 104
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------
PRO FORMA ADJUSTMENTS
1997 ACQUISITIONS
COMMON STOCK AND
ACTUAL DEBT OFFERINGS PRO FORMA
------- ---------------------- ---------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)................... $74,048 $27,127 $101,175
Income from unconsolidated partnerships(D).... 3,427 (95) 3,332
Other income(E)............................... 170 (170)
------- ------- --------
Total revenues........................... 77,645 26,862 104,507
------- ------- --------
Expenses:
General and administrative(F)................. 1,846 200 2,046
Depreciation(G)............................... 21,730 6,101 27,831
Taxes, insurance and other(H)................. 10,756 4,029 14,785
Interest expense(I)........................... 12,914 5,975 18,889
Minority interest in Operating
Partnership(J).............................. 2,942 64 3,006
Minority interest in other partnerships(K).... 142 88 230
------- ------- --------
Total expenses........................... 50,330 16,457 66,787
------- ------- --------
Net income......................................... 27,315 10,405 37,720
Preferred dividends(L)............................. 5,899 5,899
------- ------- --------
Net income applicable to common shareholders(M).... $21,416 $10,405 $ 31,821
======= ======= ========
Net income per common share(M)..................... $ 0.82 $ 0.87
======= ========
Weighted average number of common shares
outstanding...................................... 26,078 36,558
======= ========
</TABLE>
F-4
<PAGE> 105
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels acquired
by the Company in 1996 as adjusted to give effect to the provisions of the
Percentage Leases; the effect of the preferred stock offering prior to the
date issued in May 1996; and other pro forma adjustments reflecting
additional overhead expenses and interest expenses. Those hotels acquired
during 1996 and the dates of acquisition are as follows:
<TABLE>
<S> <C>
Anaheim, California, Embassy Suites......................... January 3, 1996
Baton Rouge, Louisiana, Embassy Suites...................... January 3, 1996
Birmingham, Alabama, Embassy Suites......................... January 3, 1996
Deerfield Beach, Florida, Embassy Suites.................... January 3, 1996
Ft. Lauderdale, Florida, Embassy Suites..................... January 3, 1996
Miami (Airport), Florida, Embassy Suites.................... January 3, 1996
Milpitas, California, Embassy Suites........................ January 3, 1996
Phoenix (Camelback), Arizona, Embassy Suites................ January 3, 1996
Burlingame (S.F. Airport So.), California, Embassy Suites... January 3, 1996
Lexington, Kentucky, Hilton Suites.......................... January 10, 1996
Piscataway, New Jersey, Embassy Suites...................... January 10, 1996
Avon (Beaver Creek Resort), Colorado, Embassy Suites........ February 20, 1996
Boca Raton, Florida, Embassy Suites......................... February 28, 1996
El Segundo (LAX South), California, Embassy Suites.......... March 27, 1996
Oxnard (Mandalay Beach), California, Embassy Suites......... May 8, 1996
Napa, California, Embassy Suites............................ May 8, 1996
Deerfield, Illinois, Embassy Suites......................... June 20, 1996
San Rafael (Marin Co.), California, Embassy Suites.......... July 18, 1996
Parsippany, New Jersey, Embassy Suites...................... August 1, 1996
Charlotte, North Carolina, Embassy Suites................... August 1, 1996
Indianapolis (North), Indiana, Embassy Suites............... August 1, 1996
Atlanta (Buckhead), Georgia, Embassy Suites................. October 17, 1996
Myrtle Beach (Kingston Plantation), South Carolina, Embassy
Suites.................................................... December 5, 1996
</TABLE>
F-5
<PAGE> 106
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(B) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels
acquired by the Company in 1997 through August 31, 1997 and the pending
1997 acquisition, as adjusted to give effect to the provisions of the
Percentage Leases; the effect of the Company's common stock offering in the
first quarter of 1997; the common stock offering in June 1997; the proposed
debt offering and other pro forma adjustments reflecting additional
overhead expenses and interest expense. Those hotels acquired during 1997
and dates of acquisition are as follows:
<TABLE>
<S> <C>
Omaha, Nebraska, Doubletree Guest Suites.................... February 1, 1997
Bloomington, Minnesota, Doubletree Guest Suites............. February 1, 1997
Atlanta (Perimeter Center), Georgia, Embassy Suites......... February 1, 1997
Kansas City (Country Club Plaza), Missouri, Embassy
Suites.................................................... February 1, 1997
Overland Park, Kansas, Embassy Suites....................... February 1, 1997
Raleigh, North Carolina, Embassy Suites..................... February 1, 1997
San Antonio (Northwest), Texas, Embassy Suites.............. February 1, 1997
Austin (Airport North), Texas, Embassy Suites............... February 1, 1997
Covina, California, Embassy Suites.......................... February 1, 1997
Secaucus, New Jersey, Embassy Suites........................ February 1, 1997
Los Angeles (LAX Airport North), California, Embassy
Suites.................................................... February 18, 1997
Dana Point, California, Doubletree Guest Suites............. February 21, 1997
Troy, Michigan, Doubletree Guest Suites..................... March 20, 1997
Austin (Downtown), Texas, Doubletree Guest Suites........... March 20, 1997
Baltimore, Maryland, Doubletree Guest Suites................ March 20, 1997
San Antonio (Airport), Texas, Embassy Suites................ May 16, 1997
Nashville (Airport), Tennessee, Doubletree Guest Suites..... June 5, 1997
Dallas (Market Center), Texas, Embassy Suites............... June 30, 1997
Syracuse, New York, Embassy Suites.......................... June 30, 1997
Atlanta (Airport), Georgia, Sheraton Gateway................ June 30, 1997
Atlanta (Galleria), Georgia, Sheraton Suites................ June 30, 1997
Chicago (O'Hare), Illinois, Sheraton Gateway Suites......... June 30, 1997
Dallas (Park Central), Texas, Sheraton...................... June 30, 1997
Phoenix (Crescent), Arizona, Sheraton....................... June 30, 1997
Lake Buena Vista (Disney World), Florida, Doubletree Guest
Suites.................................................... July 28, 1997
Raleigh/Durham, North Carolina, Doubletree Guest Suites..... July 28, 1997
Tampa (Rocky Point), Florida, Doubletree Guest Suites....... July 28, 1997
PENDING 1997 ACQUISITION:
Philadelphia (Society Hill), Pennsylvania, Sheraton
</TABLE>
F-6
<PAGE> 107
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(C) Represents historical or pro forma lease revenue from the Lessee to the
Company calculated by applying the contractual or anticipated rent
provisions of the Percentage Leases to the historical suite revenues, food
and beverage rents and food and beverage revenues of all the Hotels which
are consolidated for financial reporting purposes. The income from
unconsolidated partnerships is included as a separate line item in the
accompanying Pro Forma Statement of Operations as described in Note D.
Historical suite revenues for the time period prior to the acquisition by
the Company, the date of acquisition, the contractual or anticipated pro
forma Percentage Lease revenue for the time period prior to acquisition by
the Company and a summary of contractual or anticipated Percentage Lease
terms follows (in thousands):
<TABLE>
<CAPTION>
SUITE REVENUE FOR THE PERIOD
PRIOR TO ACQUISITION
BY THE COMPANY
---------------------------------
SIX MONTHS
DATE OF ENDED YEAR ENDED
DESCRIPTION OF PROPERTY ACQUISITION JUNE 30, 1997 DECEMBER 31, 1996
----------------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites... February 1, 1997 $ 379 $ 6,342
Omaha, NE, Doubletree Guest Suites......... February 1, 1997 336 4,754
Los Angeles (LAX Airport North), Embassy
Suites................................... February 18, 1997 830 6,263
Dana Point, CA, Doubletree Guest Suites.... February 21, 1997 485 3,716
Troy, MI, Doubletree Guest Suites.......... March 20, 1997 1,489 6,342
Austin (Downtown), TX, Doubletree Guest
Suites................................... March 20, 1997 1,366 5,696
Baltimore, MD, Doubletree Guest Suites..... March 20, 1997 1,167 6,236
Nashville, TN, Doubletree Guest Suites..... June 5, 1997 1,341 3,164
Dallas (Market Center), TX, Embassy
Suites................................... June 30, 1997 3,938 7,716
Syracuse, NY, Embassy Suites............... June 30, 1997 2,909 5,572
Dallas (Park Central), TX, Sheraton........ June 30, 1997 6,920 13,520
Phoenix (Crescent), AZ, Sheraton........... June 30, 1997 5,738 9,581
Chicago (O'Hare), IL, Sheraton Gateway
Suites................................... June 30, 1997 4,803 8,973
Atlanta (Airport), GA, Sheraton Gateway.... June 30, 1997 4,351 9,841
Atlanta (Galleria), GA, Sheraton Suites.... June 30, 1997 3,700 8,091
Lake Buena Vista (Disney World), FL,
Doubletree Guest Suites.................. July 28, 1997 5,312 8,446
Raleigh/Durham, NC, Doubletree Guest
Suites................................... July 28, 1997 3,111 5,327
Tampa (Rocky Point), FL, Doubletree Guest
Suites................................... July 28, 1997 3,407 5,499
Philadelphia (Society Hill), PA,
Sheraton................................. (1) 6,316 12,384
------- --------
Total consolidated hotels............ $57,898 $137,463
======= ========
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites................................... February 1, 1997 $ 600 $ 8,084
Austin (Airport North), TX, Embassy
Suites................................... February 1, 1997 528 7,542
Covina, CA, Embassy Suites................. February 1, 1997 417 4,053
Overland Park, KS, Embassy Suites.......... February 1, 1997 403 5,624
Kansas City (Country Club Plaza), MO,
Embassy Suites........................... February 1, 1997 548 7,604
Raleigh, NC, Embassy Suites................ February 1, 1997 624 7,592
San Antonio (Northwest), TX, Embassy
Suites................................... February 1, 1997 337 5,614
Secaucus, NJ, Embassy Suites............... February 1, 1997 722 9,816
San Antonio (Airport), TX, Embassy
Suites................................... May 16, 1997 2,874 7,235
------- --------
Total unconsolidated hotel
partnerships....................... $ 7,053 $ 63,164
======= ========
<CAPTION>
PERCENTAGE LEASE REVENUE
FOR THE PERIOD
PRIOR TO ACQUISITION ANNUAL PERCENTAGE
BY THE COMPANY LEASE TERMS
--------------------------------- ---------------------------
SIX MONTHS SUITE
ENDED YEAR ENDED FIRST SECOND REVENUE
DESCRIPTION OF PROPERTY JUNE 30, 1997 DECEMBER 31, 1996 TIER TIER BREAKPOINT
----------------------- ------------- ----------------- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites... $ 152 $ 3,049 17% 65% $2,468
Omaha, NE, Doubletree Guest Suites......... 150 2,285 17 65 1,703
Los Angeles (LAX Airport North), Embassy
Suites................................... 345 2,590 17 65 3,176
Dana Point, CA, Doubletree Guest Suites.... 175 1,395 17 65 2,211
Troy, MI, Doubletree Guest Suites.......... 791 3,316 17 65 1,935
Austin (Downtown), TX, Doubletree Guest
Suites................................... 710 2,829 17 65 1,961
Baltimore, MD, Doubletree Guest Suites..... 516 2,943 17 65 2,536
Nashville, TN, Doubletree Guest Suites..... 557 1,320 17 65 1,585
Dallas (Market Center), TX, Embassy
Suites................................... 1,844 3,583 17 65 3,069
Syracuse, NY, Embassy Suites............... 1,123 2,130 17 65 3,227
Dallas (Park Central), TX, Sheraton........ 3,131 6,031 17 65 6,490
Phoenix (Crescent), AZ, Sheraton........... 2,412 3,525 17 65 6,218
Chicago (O'Hare), IL, Sheraton Gateway
Suites................................... 2,577 4,709 17 65 2,760
Atlanta (Airport), GA, Sheraton Gateway.... 1,725 4,156 17 65 5,033
Atlanta (Galleria), GA, Sheraton Suites.... 1,540 3,533 17 65 3,777
Lake Buena Vista (Disney World), FL,
Doubletree Guest Suites.................. 2,951 4,467 17 65 2,272
Raleigh/Durham, NC, Doubletree Guest
Suites................................... 1,612 2,623 17 65 1,900
Tampa (Rocky Point), FL, Doubletree Guest
Suites................................... 1,785 2,703 17 65 1,939
Philadelphia (Society Hill), PA,
Sheraton................................. 3,031 5,883 17 65 5,143
------- -------
Total consolidated hotels............ $27,127 $63,070
======= =======
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites................................... $ 274 $ 3,889 17% 65% $2,949
Austin (Airport North), TX, Embassy
Suites................................... 249 3,792 17 65 2,378
Covina, CA, Embassy Suites................. 158 1,293 17 65 3,066
Overland Park, KS, Embassy Suites.......... 176 2,641 17 65 2,114
Kansas City (Country Club Plaza), MO,
Embassy Suites........................... 240 3,594 17 65 2,976
Raleigh, NC, Embassy Suites................ 300 3,693 17 65 2,711
San Antonio (Northwest), TX, Embassy
Suites................................... 120 2,487 17 65 2,474
Secaucus, NJ, Embassy Suites............... 274 4,082 17 65 4,788
San Antonio (Airport), TX, Embassy
Suites................................... 1,280 3,113 17 65 3,311
------- -------
Total unconsolidated hotel
partnerships....................... $ 3,071 $28,584
======= =======
</TABLE>
- ---------------
(1) Pending acquisition.
F-7
<PAGE> 108
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(D) Represents historical or pro forma income from unconsolidated partnerships
to the Company calculated by applying the Company's pro rata ownership
percentage to the net income of the unconsolidated partnerships, computed
using the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite revenues, food and beverage rents and food
and beverage revenues of all the hotels; historical taxes, insurance and
other; historical depreciation expense; and historical interest expenses.
The amortization of the Company's cost in excess of net book value of the
partnership assets is deducted to arrive at income from unconsolidated
partnerships. This computation is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Statements of operations information:
Percentage lease revenue............................ $3,071 $28,584
Depreciation........................................ 1,262 12,536
Taxes, insurance and other.......................... 531 3,166
Interest expense.................................... 1,116 9,725
------ -------
Net income (loss)................................... 162 3,157
50% of income (loss) attributable to the Company.... 81 1,579
Amortization of cost in excess of net book value
(See Note G)..................................... (176) (1,271)
------ -------
Income (loss) from unconsolidated partnerships...... $ (95) $ 308
====== =======
</TABLE>
(E) Represents elimination of historical interest income earned on excess cash.
(F) Pro forma general and administrative expenses represent executive
compensation, legal, audit and other expenses. These amounts are based on
historical general and administrative expenses as well as probable 1997
expenses.
F-8
<PAGE> 109
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(G) Represents depreciation on the Hotels. Depreciation is computed based on
estimated useful lives of 40 years for buildings and improvements and five
years for furniture, fixtures and equipment. These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general. The pro forma depreciation adjustment for the hotels
acquired in 1997 and for the year ended December 31, 1996 is as follows:
FELCOR SUITE HOTELS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET COST
-------------------------------------------------
DATE OF BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY ACQUISITION LAND IMPROVEMENTS AND FIXTURES TOTAL
----------------------- ----------------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites........... February 1, 1997 $ 2,038 $ 17,731 $ 612 $ 20,381
Omaha, NE, Doubletree Guest Suites................. February 1, 1997 1,876 16,328 563 18,767
Los Angeles (LAX Airport North), Embassy Suites.... February 18, 1997 2,208 19,205 662 22,075
Dana Point, CA, Doubletree Guest Suites............ February 21, 1997 1,787 15,545 536 17,868
Troy, MI, Doubletree Guest Suites.................. March 20, 1997 2,957 25,794 887 29,638
Austin (Downtown), TX, Doubletree Guest Suites..... March 20, 1997 2,506 21,858 752 25,116
Baltimore, MD, Doubletree Guest Suites............. March 20, 1997 2,566 22,381 770 25,717
Nashville, TN, Doubletree Guest Suites............. June 5, 1997 1,070 9,306 321 10,697
Dallas (Market Center), TX, Embassy Suites......... June 30, 1997 2,910 25,317 873 29,100
Syracuse, NY, Embassy Suites....................... June 30, 1997 1,774 15,433 532 17,739
Atlanta (Airport), GA, Sheraton Gateway............ June 30, 1997 3,006 26,151 902 30,059
Atlanta (Galleria), GA, Sheraton Suites............ June 30, 1997 3,606 31,376 1,082 36,064
Chicago (O'Hare), IL, Sheraton Gateway Suites...... June 30, 1997 4,808 41,830 1,442 48,080
Dallas (Park Central), TX, Sheraton................ June 30, 1997 5,012 43,603 1,503 50,118
Phoenix (Crescent), AZ, Sheraton................... June 30, 1997 3,605 31,370 1,082 36,057
Lake Buena Vista (Disney World), FL, Doubletree
Guest Suites..................................... July 28, 1997 2,986 25,978 896 29,860
Raleigh/Durham, NC, Doubletree Guest Suites........ July 28, 1997 2,124 18,476 637 21,237
Tampa (Rocky Point), FL, Doubletree Guest Suites... July 28, 1997 2,142 18,640 643 21,425
Philadelphia (Society Hill), PA, Sheraton hotel.... (1) 5,100 44,370 1,530 51,000
-------- -------- ------- --------
Total consolidated hotels.................... $ 54,081 $470,692 $16,225 $540,998
======== ======== ======= ========
<CAPTION>
ANNUAL DEPRECIATION EXPENSE
-------------------------------------
BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY IMPROVEMENTS AND FIXTURES TOTAL
----------------------- ------------ ------------ -------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites........... $ 443 $ 122 $ 565
Omaha, NE, Doubletree Guest Suites................. 408 113 521
Los Angeles (LAX Airport North), Embassy Suites.... 480 132 612
Dana Point, CA, Doubletree Guest Suites............ 389 107 496
Troy, MI, Doubletree Guest Suites.................. 645 177 822
Austin (Downtown), TX, Doubletree Guest Suites..... 546 150 696
Baltimore, MD, Doubletree Guest Suites............. 560 154 714
Nashville, TN, Doubletree Guest Suites............. 233 64 297
Dallas (Market Center), TX, Embassy Suites......... 633 175 808
Syracuse, NY, Embassy Suites....................... 386 106 492
Atlanta (Airport), GA, Sheraton Gateway............ 654 180 834
Atlanta (Galleria), GA, Sheraton Suites............ 784 217 1,001
Chicago (O'Hare), IL, Sheraton Gateway Suites...... 1,046 288 1,334
Dallas (Park Central), TX, Sheraton................ 1,090 301 1,391
Phoenix (Crescent), AZ, Sheraton................... 784 217 1,001
Lake Buena Vista (Disney World), FL, Doubletree
Guest Suites..................................... 649 179 828
Raleigh/Durham, NC, Doubletree Guest Suites........ 462 127 589
Tampa (Rocky Point), FL, Doubletree Guest Suites... 466 130 594
Philadelphia (Society Hill), PA, Sheraton hotel.... 1,108 306 1,415
------- ------ -------
Total consolidated hotels.................... $11,767 $3,245 $15,010
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION COST ANNUAL
DATE OF ACQUISITION IN EXCESS OF NET AMORTIZATION
ACQUISITION COST BOOK VALUE OF EXCESS COST
----------------- ----------- ----------------- --------------
<S> <C> <C> <C> <C>
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy Suites..... February 1, 1997 $ 9,620 $ 9,199 $ 230
Austin (Airport North), TX, Embassy Suites......... February 1, 1997 8,965 6,486 162
Covina, CA, Embassy Suites......................... February 1, 1997 2,229 (3,329) (83)
Overland Park, KS, Embassy Suites.................. February 1, 1997 5,673 4,928 123
Kansas City (Country Club Plaza), MO, Embassy
Suites........................................... February 1, 1997 8,224 7,161 179
Raleigh, NC, Embassy Suites........................ February 1, 1997 9,739 8,764 219
San Antonio (Northwest), TX, Embassy Suites........ February 1, 1997 4,768 3,445 86
Secaucus, NJ, Embassy Suites....................... February 1, 1997 9,001 7,103 178
San Antonio (Airport), TX, Embassy Suites.......... May 16, 1997 6,916 7,067 177
------- ------- ------
Total unconsolidated hotel partnerships...... $65,135 $50,824 $1,271
======= ======= ======
</TABLE>
- ---------------
(1) Pending acquisition
F-9
<PAGE> 110
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(H) Pro forma real estate, personal property tax, franchise taxes, property
insurance, ground lease and other expenses for the year ended December 31,
1996 represent expenses to be paid by the Partnership. Such amounts were
primarily derived from historical amounts paid with respect to the Hotels.
The six months ended June 30, 1997 real estate, personal property tax,
franchise taxes, property insurance, and ground lease expenses are computed
in a similar manner as the year ended December 31, 1996 pro forma
adjustments.
A schedule of property taxes and insurance derived from the historical
amounts paid for the hotels acquired in 1997 follows:
<TABLE>
<CAPTION>
PROPERTY TAXES PROPERTY INSURANCE
-------------------------- --------------------------
SIX MONTHS TWELVE MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
DESCRIPTION OF PROPERTY 1997 1996 1997 1996
----------------------- ---------- ------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest
Suites................................ $ 59 $ 707 $ 1 $ 17
Omaha, NE, Doubletree Guest Suites....... 16 170 1 13
Los Angeles (LAX Airport North), CA,
Embassy Suites........................ 44 320 20 91
Dana Point, CA, Doubletree Guest
Suites................................ 2 62 2 13
Troy, MI, Doubletree Guest Suites........ 91 354 5 21
Austin (Downtown), TX, Doubletree Guest
Suites................................ 111 466 3 13
Baltimore, MD, Doubletree Guest Suites... 38 223 2 7
Lake Buena Vista (Disney World), FL,
Doubletree Guest Suites............... 199 399 8 16
Raleigh, NC, Doubletree Guest Suites..... 77 149 7 14
Tampa (Rocky Point), FL, Doubletree Guest
Suites................................ 118 237 19 39
Nashville, TN, Doubletree Guest Suites... 36 75 3 8
Dallas (Market Center), TX, Embassy
Suites................................ 260 505 11 19
Syracuse, NY, Embassy Suites............. 167 329 9 16
Dallas (Park Central), TX, Sheraton...... 310 595 30 70
Phoenix (Crescent), AZ, Sheraton......... 404 748 12 24
Chicago (O'Hare), IL, Sheraton Gateway
Suites................................ 646 1,366 10 20
Atlanta (Airport), GA, Sheraton
Gateway............................... 216 443 12 25
Atlanta (Galleria), GA, Sheraton
Suites................................ 191 369 7 16
Philadelphia (Society Hill), PA,
Sheraton.............................. 304 609 12 24
------ ------ ---- ----
Total consolidated hotels........ $3,289 $8,126 $174 $466
====== ====== ==== ====
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites................................ $ 22 $ 172 $ 2 $ 17
Austin (Airport North), TX, Embassy
Suites................................ 41 435 2 17
Covina, CA, Embassy Suites............... 14 (810) 8 96
Overland Park, KS, Embassy Suites........ 34 370 1 14
Kansas City (Country Club Plaza), MO,
Embassy Suites........................ 35 359 3 29
Raleigh, NC, Embassy Suites.............. 17 171 1 16
San Antonio (Northwest), TX, Embassy
Suites................................ 35 385 1 15
Secaucus, NJ, Embassy Suites............. 47 560 2 22
San Antonio (Airport), TX, Embassy
Suites................................ 174 418 8 18
------ ------ ---- ----
Total unconsolidated hotel
partnerships................... $ 419 $2,060 $ 28 $244
====== ====== ==== ====
</TABLE>
(I) Represents both historical and pro forma interest expense computed based on
borrowings outstanding for the respective periods multiplied by the
applicable fixed or variable interest rate as stated in the applicable debt
instruments. The pro forma adjustment assumes (i) additional borrowings
against the
F-10
<PAGE> 111
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Line of Credit in the amount of $300.9 million were required in order to
finance the hotels acquired in 1997 through August 31, 1997, the pending
1997 acquisition purchase and includes additional interest expense incurred
prior to the acquisition date by the Company, (ii) the debt offering at the
weighted average interest rate of 7.85% per annum and (iii) repayment of
the $85 million term loan. The variable interest rates used to calculate
the pro forma adjustment to interest expense were the same as the
historical rates used to calculate the outstanding borrowings on the Line
of Credit for the same respective periods ended December 31, 1996 and June
30, 1997. The period end pro forma debt balances, average interest rates
and pro forma interest expense for the year end December 31, 1996 and June
30, 1997 follow:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit.......................................... $ 82,557 7.30% $ 3,206(2)
Debt offering........................................... 300,000 7.85 23,545(2)
Renovation loan......................................... 25,000 7.27 852
Other debt payable...................................... 1,550 6.75 3,520
Capital leases.......................................... 12,875 12.50 1,706
-------- -------
$421,982 $32,829
======== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit.......................................... $ 73,728 7.75% $ 5,150
Debt offering........................................... 300,000 7.85 11,773
Renovation loan......................................... 25,000 6.24 774
Other debt payable...................................... 650 6.00 440
Capital leases.......................................... 12,048 12.50 752
-------- -------
$411,426 $18,889
======== =======
</TABLE>
- ---------------
(1) Pro forma interest expense represents interest expense applicable to
the pro forma weighted average borrowings outstanding during the
periods presented which at times exceeds the pro forma borrowings
outstanding at the end of the periods.
(2) Pro forma weighted average borrowings under the Notes exceeded
historical weighted average borrowings under the Line of Credit for
much of 1996, resulting in additional interest expense relating to the
excess amount borrowed that could not be used to repay borrowings under
the Line of Credit. The pro forma statements of operations do not
include a pro forma adjustment to recognize interest income on such
excess cash and cash equivalents.
(J) Calculated as approximately 7.38% and 7.42% of income before minority
interest for pro forma results of operations for the six months ended June
30, 1997 and the year ended December 31, 1996, respectively.
(K) Represents historical and pro forma minority interest expense related to 3
hotels in which the Company has a 90% general partnership interest. Minority
interest is calculated as 10% of net income computed using the rent
provisions of the Percentage Leases to the historical suite revenues;
historical taxes,
F-11
<PAGE> 112
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
insurance and other; historical depreciation expense; and historical
interest expenses. This computation is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue............................. $2,017 $9,087
Depreciation......................................... 671 3,521
Taxes, insurance and other........................... 251 1,123
Interest expense..................................... 217 2,081
------- -------
Net income (loss) before minority interest........... $ 878 $2,362
======= =======
Minority interest expense -- 10% of net income....... $ 88 $ 236
======= =======
</TABLE>
(L) The 1996 pro forma adjustment to preferred dividends assumes the Series A
Preferred Stock was issued on January 1, 1996. The adjustment reflects the
additional dividends that would have been paid in 1996 prior to May 6,
1996, the actual date of issuance.
(M) Pro forma income applicable to common shareholders excludes the
extraordinary charge from write-off of deferred financing fees in the amount
of approximately $2,354,000 from the "Actual" for the year ended December
31, 1996.
F-12
<PAGE> 113
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
The following unaudited Pro Forma Consolidated Balance Sheet of FelCor
Suite Hotels, Inc. (the "Company") is presented as if the acquisition of the
hotels acquired through August 31, 1997, the pending acquisition of one Sheraton
hotel and the consummation of the 1997 issuance of additional common shares
pursuant to the underwriters' overallotment option and proposed debt offerings
and related transactions had occurred on June 30, 1997. Such pro forma
information is based in part upon the consolidated balance sheet of the Company.
In management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
The following unaudited Pro Forma Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position of the Company
would have been assuming such transactions had been completed as of June 30,
1997, nor does it purport to represent the future financial position of the
Company.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Investment in hotels................................... $1,320,982 $122,622(A) $1,443,604
Investment in unconsolidated partnerships.............. 126,714 126,714
Cash and cash equivalents.............................. 13,394 13,394
Deposits............................................... 1,616 1,616
Due from Lessee........................................ 9,059 9,059
Deferred expenses...................................... 3,363 8,861(B) 12,224
Other assets........................................... 4,446 4,446
---------- -------- ----------
Total assets................................. $1,479,574.. $131,483 $1,611,057
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Distributions payable.................................. $ 2,949 $ 2,949
Accrued expenses and other liabilities................. 6,379 6,379
Debt................................................... 302,650 $ 96,728(C) 399,378
Capital lease obligations.............................. 12,048 12,048
Minority interest in Operating Partnership............. 75,109 615(D) 75,724
Minority interest in other partnerships................ 8,164 8,164
---------- -------- ----------
Total liabilities............................ 407,299 97,343 504,642
---------- -------- ----------
Shareholders' Equity:
Preferred stock........................................ 151,250 151,250
Common stock........................................... 368 10(E) 378
Treasury stock......................................... (41,106) (41,106)
Additional paid in capital............................. 968,997 34,130(E) 1,003,127
Unearned officers' and directors' compensation......... (2,169) (2,169)
Distributions in excess of earnings.................... (5,065) (5,065)
---------- -------- ----------
Total shareholders' equity................... 1,072,275 34,140 1,106,415
---------- -------- ----------
Total liabilities and shareholders' equity... $1,479,574 $131,484 $1,611,057
========== ======== ==========
</TABLE>
F-13
<PAGE> 114
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA BALANCE SHEET
(A) Increase represents the purchase of three Doubletree Guest Suites hotels on
July 28, 1997 and the pending acquisition of one Sheraton hotel.
(B) Increase represents deferred loan costs associated with the debt offering.
(C) Increase represents additional borrowings necessary to purchase the
Doubletree Guest Suites hotels on July 28, 1997 and the pending acquisition
of one Sheraton hotel.
(D) Increase represents the adjustment necessary to reflect a pro forma 7.35%
minority interest in the Operating Partnership at June 30, 1997.
(E) Increase represents the issuance of additional shares of common stock
associated with the exercise of the underwriters' overallotment option from
the June 30, 1997 stock offering of FelCor Suite Hotels, Inc.
F-14
<PAGE> 115
FELCOR SUITE HOTELS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Investment in hotels, net of accumulated depreciation of
$58,411 at June 30, 1997.................................. $1,320,982
Investment in unconsolidated partnerships................... 126,714
Cash and cash equivalents................................... 13,394
Deposits.................................................... 1,616
Due from Lessee............................................. 9,059
Deferred expenses, net of accumulated amortization of $1,035
at June 30, 1997.......................................... 3,363
Other assets................................................ 4,446
----------
Total assets...................................... $1,479,574
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Distributions payable....................................... $ 2,949
Accrued expenses and other liabilities...................... 6,379
Debt........................................................ 302,650
Capital lease obligations................................... 12,048
Minority interest in Operating Partnership, 2,904 units
issued and outstanding at June 30, 1997................... 75,109
Minority interest in other partnerships..................... 8,164
----------
Total liabilities................................. 407,299
----------
Commitments and contingencies (Note 2)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized,
6,050 shares issued and outstanding at June 30, 1997... 151,250
Common stock, $.01 par value, 50,000 shares authorized,
35,594 shares issued, including shares in treasury, at
June 30 1997........................................... 368
Additional paid in capital................................ 968,997
Unearned officers' and directors' compensation............ (2,169)
Distributions in excess of earnings....................... (5,065)
----------
1,113,381
Less common stock in treasury at cost, 1,200 shares at
June 30, 1997.......................................... (41,106)
----------
Total shareholders' equity........................ 1,072,275
----------
Total liabilities and shareholders' equity........ $1,479,574
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 116
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $74,048 $47,385
Income from unconsolidated partnerships................... 3,427 485
Other income.............................................. 170 774
------- -------
Total revenue..................................... 77,645 48,644
------- -------
Expenses:
General and administrative................................ 1,846 848
Depreciation.............................................. 21,730 10,304
Taxes, insurance and other................................ 10,756 6,600
Interest expense.......................................... 12,914 4,513
Minority interest in Operating Partnership................ 2,942 3,142
Minority interest in other partnerships................... 142
------- -------
Total expenses.................................... 50,330 25,407
------- -------
Net income.................................................. 27,315 23,237
Preferred dividends......................................... 5,899 1,835
------- -------
Net income applicable to common shareholders................ $21,416 $21,402
======= =======
Per common share information:
Net income................................................ $ 0.82 $ 0.94
======= =======
Weighted average number of common shares outstanding...... 26,078 22,760
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 117
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 27,315 $ 23,237
Adjustments to reconcile net income to net cash provided
by operating activities, net of effects of
acquisitions:
Depreciation........................................... 21,730 10,304
Amortization of deferred financing fees and
organization costs.................................... 672 243
Amortization of unearned officers' and directors'
compensation.......................................... 510 177
Income from unconsolidated partnerships................ (3,427) (485)
Cash distributions from unconsolidated partnerships.... 1,402
Minority interest in Operating Partnership............. 2,942 3,142
Minority interest in other partnerships................ 142
Changes in assets and liabilities:
Due from Lessee........................................ (3,533) (1,355)
Deferred expenses and other assets..................... (4,225) (689)
Accrued expenses and other liabilities................. 168 (1,890)
--------- ---------
Net cash flow provided by operating activities.... 43,696 32,684
--------- ---------
Cash flows from investing activities:
Acquisition of hotels..................................... (409,587) (287,715)
Acquisition of interests in unconsolidated partnerships... (59,571)
Improvements and additions to hotels...................... (25,374) (30,944)
--------- ---------
Net cash flow used in investing activities........ (494,532) (318,659)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. 149,000 76,150
Repayment of borrowings................................... (72,900) (119,954)
Proceeds from sale of common stock........................ 480,075 40,584
Proceeds from sale of preferred stock..................... 151,250
Costs associated with public offerings.................... (25,480) (6,999)
Purchase of treasury stock................................ (41,106)
Proceeds from exercise of stock options................... 563
Distributions paid to limited partners.................... (2,835) (2,858)
Distributions paid to preferred shareholders.............. (5,899)
Distributions paid to common shareholders................. (24,981) (13,967)
--------- ---------
Net cash flow provided by financing activities.... 456,437 124,206
--------- ---------
Net change in cash and cash equivalents..................... 5,601 (161,769)
Cash and cash equivalents at beginning of periods........... 7,793 166,821
--------- ---------
Cash and cash equivalents at end of periods................. $ 13,394 $ 5,052
========= =========
Supplemental cash flow information --
Interest paid............................................. $ 9,760 $ 3,966
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 118
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
FelCor Suite Hotels, Inc., is a self-administered real estate investment
trust ("REIT"), which commenced operations on July 28, 1994. At the commencement
of operations, FelCor Suite Hotels, Inc. ("FelCor") acquired an equity interest
of approximately 75% in FelCor Suites Limited Partnership (the "Operating
Partnership"), which owned six Embassy Suites(R) hotels (the "Initial Hotels")
with an aggregate of 1,479 suites. The Operating Partnership had acquired the
Initial Hotels through a merger with entities, originally formed in 1991,
controlled by Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the
Board of Directors and Chief Executive Officer of the Company, respectively.
At June 30, 1997, FelCor owned interests in 67 hotels with an aggregate of
16,357 suites/rooms (collectively the "Hotels") through its 92.5% aggregate
ownership of the Operating Partnership and its subsidiaries (collectively, the
"Company"). FelCor also is the sole general partner of the Operating
Partnership. The Company owns 100% equity interests in 49 of the Hotels (11,854
suites), a 90% or greater interest in partnerships owning four hotels (1,041
suites), and 50% interests in separate partnerships that own 14 hotels (3,462
suites). At June 30, 1997, 51 of the Hotels were operated as Embassy Suites
hotels, nine as Doubletree Guest Suites(R) hotels, one as a Hilton
Suites(R)hotel, one hotel was in the process of conversion to an Embassy Suites
hotel, three hotels were operated as Sheraton(R) hotels and two were operated as
Sheraton Suites(R) hotels. The Hotels are located in 25 states, with 29 hotels
in California, Florida and Texas. The following table provides certain
information regarding the Hotels through June 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF HOTELS AGGREGATE
ACQUIRED NUMBER OF SUITES ACQUISITION PRICE
---------------- ---------------- ---------------------
(DOLLARS IN MILLIONS)
---------------------
<S> <C> <C> <C>
1994............................... 7 1,730 $ 107.3
1995............................... 13 2,649 237.1*
1996............................... 23 5,769 560.5**
1st Quarter 1997................... 15 3,446 209.4***
2nd Quarter 1997................... 9 2,715 264.9****
-- ------- --------
67 16,309 1,379.2
==
Additional suites constructed by the Company......... 48 5.3
------- --------
16,357 $1,384.5
======= ========
</TABLE>
- ---------------
* Includes the purchase price of the Company's 50% interest in an
unconsolidated partnership owning one hotel with 262 suites.
** Includes the purchase price of the Company's 50% interests in separate
unconsolidated partnerships owning four hotels with an aggregate 1,005
suites.
*** Includes the purchase price of the Company's 50% interests in separate
unconsolidated partnerships owning eight hotels with an aggregate 1,934
suites.
**** Includes the purchase price of the Company's 50% interest in an
unconsolidated partnership owning one hotel with 261 suites.
The Company completed construction and placed into service on July 1, 1997,
129 net additional suites, meeting rooms and other public area upgrades at its
Boston-Marlborough, Massachusetts hotel at an approximate cost of $15.8 million.
The Company has also begun construction on 67 suites at its Jacksonville,
Florida hotel and 67 suites at its Orlando (North), Florida hotel at an
aggregate projected cost of $10.2 million with an expected completion in early
1998.
F-18
<PAGE> 119
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases all of the Hotels to DJONT Operations, L.L.C. ("DJONT"),
or a consolidated subsidiary thereof (collectively, the "Lessee"), under
operating leases providing for the payment of percentage rent (the "Percentage
Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the
Board and President of the Company, respectively, beneficially own a 50% voting
equity interest in DJONT. The remaining 50% non-voting equity interest in DJONT
is beneficially owned by the children of Charles N. Mathewson, a director of the
Company and shareholder of the predecessor company. The Company's partners in
partnerships owning 13 of the Hotels hold special purpose non-voting equity
interests in the consolidated subsidiary of DJONT which leases such Hotels,
which interests entitle them to 50% of such subsidiary's net income before
overhead with respect to such Hotels. In addition, the Company's partner in a
partnership owning three of the Hotels holds a 50% non-voting equity interest in
the consolidated subsidiary of DJONT leasing those Hotels. See Note 2
Commitments and Related Party Transactions for additional discussion regarding
Lessee consolidated subsidiaries. The Lessee has entered into management
agreements pursuant to which 50 of the Hotels are managed by Promus Hotels, Inc.
("Promus"), nine of the Hotels are managed by a subsidiary of Doubletree Hotel
Corporation ("Doubletree"), five of the hotels are managed directly by, or by a
subsidiary of, ITT Sheraton Corporation ("Sheraton"), two of the Hotels are
managed by American General Hospitality, Inc. ("AGHI"), and one is managed by
Coastal Hotel Group, Inc. ("Coastal").
A brief discussion of the hotels acquired and other significant
transactions occurring in the six months ended June 30, 1997 follows:
- On February 3, 1997, the Company sold three million shares of Common
Stock to the public, at $35.50 per share, pursuant to the Company's
omnibus shelf registration statement ("Shelf Registration"), which
provides for offerings by the Company from time to time of up to an
aggregate of $500 million in securities, which may include its debt
securities, preferred stock, common stock and/or common stock warrants.
The Company received net proceeds of approximately $100.7 million from
this transaction. The proceeds from this offering were used to
immediately fund the acquisition of 10 hotels acquired on February 4,
1997.
- On February 4, 1997, the Company acquired 50% joint venture interests in
eight existing Embassy Suites hotels located in Atlanta, Georgia; Kansas
City, Missouri; Overland Park, Kansas; Raleigh, North Carolina; San
Antonio, Texas; Austin, Texas; Covina, California; and Secaucus, New
Jersey with a total of 1,934 suites for approximately $58 million,
subject to a 50% share of approximately $86 million in existing
non-recourse debt. Promus holds the remaining 50% joint venture interests
in these properties. The Company also acquired 100% ownership in two
Embassy Suites hotels located in Bloomington, Minnesota and Omaha,
Nebraska with a total of 408 suites for approximately $39 million. These
two hotels were subsequently converted to Doubletree Guest Suites hotels
on May 1, 1997.
- On February 19, 1997, the Company acquired the 215 suite Embassy
Suites -- Los Angeles Airport (LAX North) hotel for approximately $22
million from a Japanese-owned limited partnership which had filed for
bankruptcy. The hotel will remain an Embassy Suites hotel managed by
Promus.
- On February 21, 1997, the Company acquired the 198 suite Hilton Inn hotel
in Dana Point, California for approximately $17.2 million. The Dana Point
hotel was converted to a Doubletree Guest Suites hotel in May 1997 and is
managed by Doubletree.
- On March 10, 1997, the Company increased its unsecured revolving line of
credit ("Line of Credit") from $250 million to $400 million, under
substantially the same terms as the original Line of Credit, and agreed
upon a reduction in unused commitment fees from 35 basis points to 25
basis points. At the end of the first quarter of 1997, the Company had
drawn $243 million under the Line of Credit.
- On March 24, 1997, the Company acquired, through a 90% owned joint
venture, interests in three Doubletree Guest Suites hotels, totaling 691
suites, located in Troy, Michigan; Austin, Texas; and near the Baltimore
Washington International (BWI) Airport for approximately $80 million. The
Company
F-19
<PAGE> 120
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid approximately $72 million for its 90% ownership interest and
Doubletree paid approximately $8 million for its 10% limited partnership
interest. Doubletree will continue to manage these hotels.
- On May 15, 1997 the Company acquired a 50% partnership interest in the
261-suite Embassy Suites -- San Antonio Airport hotel for $1.7 million
cash and 139,286 Partnership Units, subject to the Company's share of
$12.4 million in existing non-recourse partnership debt. The remaining
50% interest in the hotel is owned by Promus, bringing to 12 the number
of hotels jointly owned with Promus. The hotel is managed by Promus.
- On June 5, 1997 the Company acquired the 138-suite Doubletree Guest
Suites hotel -- Nashville for $10.7 million in cash. This three story
hotel opened in 1988 and is the second hotel acquired by the Company in
Nashville, the other being the Embassy Suites -- Nashville Airport hotel
acquired by the Company in 1994. The hotel is managed by Doubletree.
- On June 30, 1997 the Company issued a net of 9 million shares of its
common stock, after giving effect to the 1.2 million shares it
repurchased from Promus, at an offering price of $36.625 per share,
providing net proceeds to the Company of approximately $312.8 million.
The proceeds of this offering were used to fund the acquisition of the
two Embassy Suites hotels and five Sheraton hotels which were acquired on
June 30, 1997 and were used to reduce debt outstanding under its Line of
Credit.
- On June 30, 1997 the Company acquired the 244-suite Embassy
Suites -- Dallas Market Center and the 215-suite Embassy
Suites -- Syracuse hotels from Promus for an aggregate cash purchase
price of $46.7 million. These acquisitions were the Company's first hotel
in New York and third hotel in Dallas, Texas. Both hotels are managed by
Promus.
- On June 30, 1997 the Company acquired five Sheraton hotels with a total
of 1,857 rooms and suites and approximately 85,000 square feet of meeting
space from Sheraton for an aggregate cash purchase price of $200.0
million. This portfolio of hotels included the Sheraton Suites hotels at
Chicago O'Hare Airport and at the Galleria in Atlanta, Georgia. Also
included in this portfolio were three traditional upscale full service
Sheraton hotels located at the Atlanta Airport, Dallas Park Central and
Phoenix Crescent. These three hotels represent the Company's first
acquisition of non-suite hotels. All of these hotels are managed by
Sheraton.
- The Company executed a definitive agreement to acquire the Doubletree
Guest Suite hotels located in Lake Buena Vista, Florida, Raleigh/Durham,
North Carolina and Tampa (Rocky Point), Florida from PSH Master L.P. I, a
publicly traded Master Limited Partnership. The closing occurred on July
31, 1997 following approval by the MLP's unitholders. All of these hotels
are managed by Doubletree.
- The Company and Promus announced the execution of a letter of intent
whereby Promus would develop five to ten Embassy Suites hotels in key
markets and the Company would acquire these hotels upon completion at a
price agreed upon prior to the commencement of construction.
- The Company completed the public space renovations at the Embassy Suites
hotels in Mandalay Beach and Napa, California.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the financial statements and notes thereto of
the Company and the Lessee included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "10-K"). The notes to the
financial statements included herein highlight significant changes to the notes
included in the 10-K and present interim disclosures required by the SEC.
F-20
<PAGE> 121
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUPPLEMENTAL CASH FLOW INFORMATION
In the first six months of 1997 the Company purchased certain assets and
assumed certain liabilities of hotels. These purchases were recorded under the
purchase method of accounting. The fair value of the acquired assets and
liabilities recorded at the date of acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired................................... $417,609
Minority interest contribution in other
partnerships.................................... (8,022)
--------
Net cash paid........................... $409,587
========
</TABLE>
In the first six months of 1997 the Company purchased interests in nine
unconsolidated partnerships that hold hotel properties. The hotels associated
with these unconsolidated subsidiaries are located in Atlanta (Perimeter), GA;
Austin, TX; Covina, CA; Kansas City (Plaza), MO; Overland Park, KS; Raleigh, NC;
San Antonio, TX; San Antonio (Airport), TX; and Secaucus, NJ.
These purchases were recorded under the equity method of accounting. The
value of the assets recorded at the date of acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired.................................... $64,672
Partnership units issued........................... (5,101)
-------
Net cash paid............................ $59,571
=======
</TABLE>
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Upon final completion of the conversion of one hotel, the Hotels will
operate as Embassy Suites (52), Doubletree Guest Suites (9), Sheraton Suites
(2), Sheraton (3) and Hilton Suites (1) hotels. The Embassy Suites hotels and
Hilton Suites hotel will operate pursuant to franchise license agreements which
require the payment of fees based on a percentage of suite revenue. These fees
are paid by the Lessee. There are no separate franchise license agreements with
respect to the Doubletree Guest Suites hotels, Sheraton hotels or Sheraton
Suites hotels, which rights are included in the management agreement.
The Hotels are managed by Promus (50), Doubletree (9), Sheraton (5), AGHI
(2) and Coastal (1) on behalf of the Lessee. The Lessee generally pays the
managers a base management fee based on a percentage of total revenue and an
incentive management fee based on the Lessee's net income before overhead
expenses.
The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19
hotels) and 2007 (15 hotels). The rental income under the Percentage Leases
between the 14 unconsolidated partnerships, of which the Company owns 50%, and
the Lessee are payable to the respective partnerships and as such is not
included in the following schedule of future lease commitments to the Company.
Minimum future rental income (i.e., base rents) to the Company under these
noncancellable operating leases at June 30, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1997........................................... $ 47,032
1998........................................................ 94,467
1999........................................................ 94,467
2000........................................................ 94,466
2001........................................................ 94,466
2002 and thereafter......................................... 466,588
--------
$891,486
========
</TABLE>
F-21
<PAGE> 122
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minority equity interests in two of DJONT's consolidated subsidiaries,
which relate to a total of 15 of the Hotels, are held by unrelated third
parties. These two subsidiaries have entered into separate revolving credit
agreements with an affiliate of Messrs. Feldman and Corcoran and/or the holders
of such minority equity interests or affiliates thereof, which provide these
subsidiaries with the right to borrow up to an aggregate of $9.0 million, to the
extent necessary to enable them to pay rent and other obligations due under the
Percentage Leases relating to such Hotels. Amounts borrowed thereunder, if any,
will be subordinate to the payment of rent and other obligations under such
Percentage Leases. No loans were outstanding under such agreements at June 30,
1997.
4. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations at June 30, 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Line of Credit.................................... $192,000
Term loan......................................... 85,000
Renovation loan................................... 25,000
Other debt payable................................ 650
--------
$302,650
========
</TABLE>
In March 1997, the Company increased its unsecured Line of Credit from $250
million to $400 million under substantially the same terms as the original Line
of Credit obtained in September 1996. As of August 14, 1997, the Company amended
its existing unsecured Line of Credit to increase availability to $550 million,
extend the term by one year to September 30, 2000 and to reduce the effective
interest rate. Interest payable on borrowings under the Line of Credit is
variable, determined from a ratings-based pricing matrix, and at June 30, 1997,
was set at LIBOR plus 175 basis points.
The Company had an $85 million collateralized term loan outstanding at June
30, 1997. This term loan bears interest at LIBOR plus 150 basis points. Also
outstanding at June 30, 1997 was a renovation loan of $25 million that bears
interest at LIBOR plus 45 basis points. At June 30, 1997, 30 day LIBOR was
5.71875%.
Under its loan agreements the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at June 30, 1997.
Capital lease obligations at June 30, 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Capital land and building lease obligations........ $ 9,506
Capital equipment lease obligations................ 2,542
-------
$12,048
=======
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
At June 30, 1997, the Company owned 50% interests in separate partnerships,
including accounting for the acquisition by the Company owning 14 hotels, a
parcel of undeveloped land and a condominium management company. The Company is
accounting for its investments in these unconsolidated partnerships under the
equity method.
F-22
<PAGE> 123
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Balance sheet information:
Partnership assets (primarily hotel assets)..... $393,031
Non-recourse mortgage debt...................... $159,372
Equity.......................................... $253,428
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue........................ $23,729 $1,771
Expenses:
Depreciation................................. 7,214 600
Taxes, insurance and other................... 3,178 163
Interest expense............................. 5,001
------- ------
Total expenses.......................... 15,393 763
------- ------
Net income...................................... $ 8,336 $1,008
======= ======
50% of net income attributable to the Company... $ 4,168 $ 504
Amortization of cost in excess of book value.... (741) (19)
------- ------
Income from unconsolidated partnerships......... $ 3,427 $ 485
======= ======
</TABLE>
6. TREASURY STOCK
In conjunction with the June 30, 1997 common stock offering of 10.2 million
shares, the Company purchased, at the offering price of $36.625, 1.2 million
shares of its common stock from Promus. The stock was purchased at an aggregate
cost of $41.1 million (after allocation of offering expenses) and is recorded
using the cost method of accounting. All of the acquired shares are held as
common stock in treasury.
7. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the six months
ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Real estate and personal property taxes........... $ 8,833 $5,018
Property insurance................................ 863 618
Land lease expense................................ 660 601
State franchise taxes............................. 300 330
Other............................................. 100 33
------- ------
Total taxes, insurance and other........ $10,756 $6,600
======= ======
</TABLE>
F-23
<PAGE> 124
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations for
the six months ended June 30, 1997 and 1996 are presented as if the acquisitions
of all hotels owned by the Company at June 30, 1997, the equity offerings
consummated during 1996 and 1997 and the purchase of three hotels on July 31,
1997 (see Note 9) had occurred as of January 1, 1996 and the Hotels had all been
leased to the Lessee pursuant to Percentage Leases. Such pro forma information
is based in part upon the Consolidated Statements of Operations of the Company
and pro forma Statements of Operations of the Lessee included elsewhere in these
financial statements. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.
The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed on January 1, 1996, nor does it purport to represent the results of
operations for future periods.
F-24
<PAGE> 125
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $ 99,562 $89,209
Income from unconsolidated partnerships................... 3,316 3,023
-------- -------
Total revenue..................................... 102,878 92,232
-------- -------
Expenses:
General and administrative................................ 2,046 1,648
Depreciation.............................................. 27,770 17,802
Taxes, insurance and other................................ 14,317 13,940
Interest expense.......................................... 15,520 12,627
Minority interest in Operating Partnership................ 3,365 4,698
Minority interest in other partnerships................... 230 260
-------- -------
Total expenses.................................... 63,248 50,975
-------- -------
Net income.................................................. 39,630 41,257
Preferred dividends......................................... 5,899 5,899
-------- -------
Net income applicable to common shareholders................ $ 33,731 $35,358
======== =======
Per common share information:
Net income................................................ $ 0.92 $ 0.98
======== =======
Weighted average number of common shares outstanding...... 36,558 36,064
======== =======
</TABLE>
Depreciation and interest expense increased from 1996 to 1997 due to
approximately $71 million in capital expenditures made in 1996 and placed in
service in late 1996 or early 1997.
9. SUBSEQUENT EVENTS
On July 1, 1997, the Company declared a dividend of $0.50 per share of
Common Stock and $0.4875 per share on its Series A Preferred Stock, which was
paid on July 30, 1997 to holders of record on July 15, 1997.
In conjunction with the 10.2 million share stock offering completed on June
30, 1997, the Company issued an additional 1 million shares of its common stock
pursuant to the underwriters' exercise of the overallotment option on July 15,
1997, providing the Company with additional net proceeds of approximately $34.8
million.
On July 31, 1997 the Company acquired three Doubletree Guest Suites hotels,
totaling 635 suites, located in Lake Buena Vista, Florida; Raleigh/Durham, North
Carolina; and Tampa (Rocky Point), Florida. The Company paid approximately $71.2
million in cash. Doubletree will continue to manage the hotels.
F-25
<PAGE> 126
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Suite Hotels, Inc.
We have audited the accompanying consolidated financial statements and the
financial statement schedule of FelCor Suite Hotels, Inc. These financial
statements and financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FelCor Suite Hotels, Inc. as of December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for the years ended December
31, 1996 and 1995 and the period from July 28, 1994 (inception of operations)
through December 31, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 22, 1997
except as to the information
presented in the second paragraph
of Note 5, the first paragraph of
Note 6 and Note 17 for which the
date is March 10, 1997
F-26
<PAGE> 127
FELCOR SUITE HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of
$36,718 in 1996 and $10,244 in 1995....................... $899,691 $325,155
Investment in unconsolidated partnerships................... 59,867 13,819
Cash and cash equivalents................................... 7,793 166,821
Deposits and prepayments.................................... 1,616 35,317
Due from Lessee............................................. 5,526 2,396
Deferred expenses, net of accumulated amortization of $364
in 1996 and $252 in 1995.................................. 3,235 1,713
Other assets................................................ 1,060 3,138
-------- --------
Total assets...................................... $978,788 $548,359
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Distributions payable....................................... $ 16,090 $ 4,918
Accrued expenses and other liabilities...................... 5,235 3,552
Debt........................................................ 226,550 8,410
Capital lease obligations................................... 12,875 11,256
Minority interest in Partnership, 2,786 and 2,695 units
issued and outstanding at December 31, 1996 and 1995,
respectively.............................................. 76,112 58,837
-------- --------
Total liabilities................................. 336,862 86,973
-------- --------
Commitments and contingencies (Notes 5 and 9)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized,
6,050 shares issued and outstanding at December 31,
1996...................................................... 151,250
Common stock, $.01 par value, 50,000 shares authorized,
23,502 and 21,135 shares issued and outstanding at
December 31, 1996 and 1995, respectively.................. 235 211
Additional paid in capital.................................. 505,082 463,524
Unearned officers' and directors' compensation.............. (1,454) (473)
Distributions in excess of earnings......................... (13,187) (1,876)
-------- --------
Total shareholders' equity........................ 641,926 461,386
-------- --------
Total liabilities and shareholders' equity........ $978,788 $548,359
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 128
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue.................................. $ 97,950 $23,787 $6,043
Income from unconsolidated partnerships................... 2,010 513
Other income.............................................. 984 1,691 207
-------- ------- ------
Total revenues.................................... 100,944 25,991 6,250
-------- ------- ------
Expenses:
General and administrative................................ 1,819 870 355
Depreciation.............................................. 26,544 5,232 1,487
Taxes, insurance and other................................ 13,897 2,563 881
Interest expense.......................................... 9,803 2,004 109
Minority interest......................................... 5,590 3,131 907
-------- ------- ------
Total expenses.................................... 57,653 13,800 3,739
-------- ------- ------
Income before extraordinary charge.......................... 43,291 12,191 2,511
Extraordinary charge from write off of deferred financing
fees...................................................... 2,354
-------- ------- ------
Net income.................................................. 40,937 12,191 2,511
Preferred dividends......................................... 7,734
-------- ------- ------
Net income applicable to common shareholders................ $ 33,203 $12,191 $2,511
======== ======= ======
Per common share information:
Net income applicable to common shareholders before
extraordinary charge................................... $ 1.54 $ 1.70 $ 0.54
Extraordinary charge...................................... 0.10
-------- ------- ------
Net income................................................ $ 1.44 $ 1.70 $ 0.54
======== ======= ======
Weighted average number of common shares outstanding...... 23,076 7,165 4,690
======== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 129
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM MAY 16, 1994 THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
--------------- OFFICERS'
NUMBER ADDITIONAL AND DISTRIBUTIONS TOTAL
PREFERRED OF PAID-IN DIRECTORS' IN EXCESS OF SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
--------- ------ ------ ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common shares, net of
offering expenses and allocation to
minority interest................... 4,686 $ 47 $ 69,691 $ 69,738
Issuance of directors' shares......... 4 85 $ (85)
Distributions declared:
$0.657 per common share............. $ (3,079) (3,079)
Amortization of unearned directors'
compensation........................ 85 85
Net income............................ 2,511 2,511
-------- ------ ---- -------- ------- -------- --------
Balance at December 31, 1994.......... 4,690 47 69,776 (568) 69,255
Issuance of common shares, net
of offering expenses................ 16,411 164 402,124 402,288
Allocation to minority interest....... (9,115) (9,115)
Issuance of officers' and directors'
shares.............................. 34 739 (631) 108
Distributions declared:
$1.84 per common share.............. (13,499) (13,499)
Amortization of unearned officers' and
directors' compensation............. 158 158
Net income............................ 12,191 12,191
-------- ------ ---- -------- ------- -------- --------
Balance at December 31, 1995.......... 21,135 211 463,524 (473) (1,876) 461,386
Issuance of common shares............. 1,913 19 50,952 50,971
Issuance of officers' and directors'
shares.............................. 53 1 1,486 (1,487)
Conversion of Partnership units to
common shares....................... 401 4 4
Issuance of preferred stock, net of
offering
expenses............................ $151,250 (6,998) 144,252
Distributions/dividends declared:
$1.92 per common share.............. (44,514) (44,514)
$1.2783 per preferred share......... (7,734) (7,734)
Allocation to minority interest....... (3,882) (3,882)
Amortization of unearned officers' and
directors' compensation............. 506 506
Net income............................ 40,937 40,937
-------- ------ ---- -------- ------- -------- --------
Balance at December 31, 1996.......... $151,250 23,502 $235 $505,082 $(1,454) $(13,187) $641,926
======== ====== ==== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 130
FELCOR SUITE HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS) THROUGH DECEMBER 31,
1994
( IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 40,937 $ 12,191 $ 2,511
Adjustments to reconcile net income to net cash provided
by operating activities, net of effects of
acquisitions:
Depreciation......................................... 26,544 5,385 1,487
Amortization of deferred financing fees and
organization
costs.............................................. 554 228 24
Amortization of unearned officers' and directors'
compensation....................................... 506 158 85
Income from unconsolidated partnerships.............. (2,010) (513)
Cash distributions from unconsolidated
partnerships....................................... 1,954
Extraordinary charge for write off of deferred
financing fees..................................... 2,354
Fully vested officer stock grant..................... 108
Minority interest.................................... 5,590 3,131 907
Changes in assets and liabilities:
Due from Lessee...................................... (3,130) (1,137) (1,259)
Deferred costs and other assets...................... 353 (2,217) (407)
Accrued expenses and other liabilities............... 280 741 611
--------- --------- ---------
Net cash flow provided by operating
activities.................................... 73,932 18,075 3,959
--------- --------- ---------
Cash flows from investing activities:
Acquisition of hotels................................... (365,907) (219,164) (23,550)
Prepayments under purchase agreements................... (21,701)
Acquisition of unconsolidated partnerships.............. (43,424) (13,166)
Improvements and additions to hotels.................... (71,051) (5,166) (77,243)
--------- --------- ---------
Net cash flow used in investing activities...... (480,382) (259,197) (100,793)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings................................ 303,350 128,600 8,800
Repayment of borrowings................................. (193,954) (129,850)
Deferred financing fees................................. (4,484) (1,072) (721)
Proceeds from sale of common stock...................... 44,978 426,502 99,583
Proceeds from sale of preferred stock................... 151,250
Costs associated with public offerings.................. (6,998) (27,874) (7,973)
Proceeds from sale of partnership units................. 25,000
Distributions paid to limited partners.................. (5,353) (2,993) (462)
Distributions paid to common shareholders............... (36,583) (11,488) (1,275)
Dividends paid to preferred shareholders................ (4,784)
--------- --------- ---------
Net cash flow provided by financing
activities.................................... 247,422 406,825 97,952
--------- --------- ---------
Net change in cash and cash equivalents................... (159,028) 165,703 1,118
Cash and cash equivalents at beginning of periods......... 166,821 1,118
--------- --------- ---------
Cash and cash equivalents at end of years................. $ 7,793 $ 166,821 $ 1,118
========= ========= =========
Supplemental cash flow information -- interest paid....... $ 9,168 $ 1,467
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 131
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Suite Hotels, Inc., formed as a self-administered real estate
investment trust ("REIT"), was incorporated on May 16, 1994 and commenced
operations on July 28, 1994. At the commencement of operations, FelCor Suite
Hotels, Inc. ("FelCor") acquired an equity interest of approximately 75% in
FelCor Suites Limited Partnership (the "Partnership"), which owned six Embassy
Suites(R) hotels (the "Initial Hotels") with an aggregate of 1,479 suites. The
Partnership had acquired the Initial Hotels through a merger with entities,
originally formed in 1991, controlled by Hervey A. Feldman and Thomas J.
Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive
Officer of the Company, respectively.
At December 31, 1996, FelCor owned interests in 43 hotels with an aggregate
of 10,196 suites (collectively the "Hotels") through its 89.4% aggregate
ownership of the Partnership and its consolidated subsidiaries (collectively,
the "Company"). FelCor also acts as the sole general partner in the Partnership.
The Company owns 100% equity interests in 37 of the Hotels, a 97% interest in
the partnership that owns the Los Angeles International Airport hotel and 50%
interests in separate partnerships that own five hotels. At December 31, 1996,
39 of the Hotels are operated as Embassy Suites hotels, two as Doubletree Guest
Suites(R) hotels, one as a Hilton Suites(R) hotel and one hotel is in the
process of being converted to an Embassy Suites hotel. The Hotels are located in
16 states, with 17 hotels in California and Florida. The following table
provides certain information regarding the Company's Hotels acquired through
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER NUMBER
OF HOTELS OF AGGREGATE
ACQUIRED SUITES ACQUISITION PRICE
---------------- -------- ---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1994
Initial Hotels.......................... 6 1,479 $ 81.5
4th Quarter............................. 1 251 25.8
1995
1st Quarter............................. 2 350 27.4
2nd Quarter............................. 1 100 9.4
3rd Quarter............................. 3 542 31.3*
4th Quarter............................. 7 1,657 169.0
1996
1st Quarter............................. 14 3,501 383.5
2nd Quarter............................. 3 691 68.1
3rd Quarter............................. 4 1,005 30.8**
4th Quarter............................. 2 572 78.1
-- ------ -------
43 10,148 904.9
==
Additional suites constructed by the
Company at Hotels..................... 48 5.3
------ -------
10,196 $910.2
====== =======
</TABLE>
- ---------------
* Includes the purchase price of the Company's 50% interest in the
unconsolidated partnership owning the 262 suite, Chicago-Lombard, Illinois
hotel.
** Represents the purchase price of the Company's 50% interest in separate
unconsolidated partnerships owning hotels in Marin County, California;
Parsippany, New Jersey; Charlotte, North Carolina; and Indianapolis, Indiana,
with an aggregate 1,005 suites.
In addition, the Company has started construction on 129 net additional
suites, meeting rooms and other public area upgrades at one of the Hotels, at an
estimated cost of $15.8 million.
F-31
<PAGE> 132
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leased all of the Hotels to DJONT Operations, L.L.C. or a
consolidated subsidiary (collectively the "Lessee") under operating leases
providing for the payment of percentage rent (the "Percentage Leases"). Messrs.
Feldman and Corcoran beneficially own 50% of the common equity interest in the
Lessee. The remaining 50% of the Lessee is beneficially owned by the children of
Charles N. Mathewson, a director of the Company. The Lessee has entered into
management agreements pursuant to which 38 of the Hotels are managed by Promus
Hotels, Inc. ("Promus"), two of the Hotels are managed by a subsidiary of
Doubletree Hotel Corporation ("Doubletree"), two of the Hotels are managed by
American General Hospitality, Inc. ("AGHI") and one is managed by Coastal Hotel
Group, Inc. ("Coastal").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of FelCor, the Partnership and the Holdings Partnerships as
described in Note 8. All significant intercompany balances and transactions have
been eliminated.
Investment in Hotels -- Hotels are stated at cost and are depreciated using
the straight-line method over estimated useful lives ranging from 31-40 years
for buildings and improvements and 5 to 7 years for furniture, fixtures and
equipment.
The Company reviews the carrying value of each hotel to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel or that depreciation periods should be modified. If
facts or 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 and determine if the investment in such hotel 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. The Company does not believe that there are any
factors or circumstances indicating impairment of any of its investment in
hotels.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the related gain or loss is included in operations.
Investment in Unconsolidated Partnerships -- The Company carries its
investment in unconsolidated partnerships at cost, plus its equity in net
earnings, less distributions received since the date of acquisition. Equity in
net earnings is being adjusted for the straight-line amortization, over a 40
year period, of the difference between the Company's cost and its proportionate
share of the underlying net assets at date of acquisition.
Cash and Cash Equivalents -- All highly liquid investments with a maturity
of three months or less when purchased are considered to be cash equivalents.
Deposits and Prepayments -- Deposits and prepayments at December 31, 1996
consist of deposits associated with the capitalized land and building lease
further described in Note 5. At December 31, 1995 the deposits and prepayments
consisted of the aforementioned deposits and prepayments associated with hotel
purchases.
F-32
<PAGE> 133
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Expenses -- Deferred expenses at December 31, 1996 and 1995
consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Organization costs................................. $ 349 $ 172
Deferred financing fees............................ 3,250 1,793
------ ------
3,599 1,965
Accumulated amortization........................... (364) (252)
------ ------
$3,235 $1,713
====== ======
</TABLE>
Amortization of organization costs is computed using the straight-line
method over three to five years. Amortization of deferred financing fees is
computed using the interest method over the maturity of the loans.
Revenue Recognition -- Percentage lease revenue is recognized when earned
from the Lessee under the Percentage Lease agreements (Note 9). The Lessee is in
compliance with its obligations under the Percentage Leases.
Net Income Per Common Share -- Net income per common share has been
computed by dividing net income applicable to common shareholders by the
weighted average number of common shares and equivalents outstanding. Common
share equivalents that have an immaterial dilutive effect include convertible
preferred stock and outstanding common stock options.
Distributions and Dividends -- The Company pays regular quarterly
distributions on its common stock which are dependent on receipt of
distributions from the Partnership. Additionally, the Company pays regular
quarterly dividends on preferred stock in accordance with its preferred stock
dividend requirements.
Minority Interest -- Minority interest in the Partnership represents the
limited partners' proportionate share of the equity in the Partnership. Income
is allocated to minority interest based on the weighted average percentage
ownership throughout the year.
Stock Based Compensation Plans -- The Company applies APB Opinion No. 25
and related interpretations in its accounting for stock based compensation
plans. Accordingly the Company has adopted the disclosure only provisions of
SFAS No. 123, "Accounting for Stock Based Compensation."
Income Taxes -- The Company is qualified as a REIT under Sections 856 to
860 of the Internal Revenue Code. Accordingly, no provision for federal income
taxes has been reflected in the financial statements.
Earnings and profits, which will determine the taxability of distributions
to shareholders, will differ from income reported for financial reporting
purposes primarily due to the differences for federal income tax purposes in the
estimated useful lives used to compute depreciation. Distributions made in 1996
and 1995 represent approximately a 11.5% and 8.7% return of capital,
respectively, for federal income tax purposes.
F-33
<PAGE> 134
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN HOTELS
Investment in hotels at December 31, 1996 and 1995 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land........................................... $ 89,106 $ 31,123
Building and improvements...................... 744,758 279,349
Furniture, fixtures and equipment.............. 77,526 19,704
Construction in progress....................... 25,019 5,223
-------- --------
936,409 335,399
Accumulated depreciation....................... (36,718) (10,244)
-------- --------
$899,691 $325,155
======== ========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
The Company owned 50% interests in separate partnerships owning five
hotels, a parcel of undeveloped land and a condominium management company at
December 31, 1996 and one hotel at December 31, 1995. The Company is accounting
for its investments in these unconsolidated partnerships under the equity
method.
Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels......................... $110,394 $ 23,385
Non-recourse mortgage debt................... $ 49,402
Equity....................................... $ 91,156 $ 24,609
Statement of operations information:
Percentage lease revenue..................... $ 9,974 $ 1,420
Net income................................... $ 4,366 $ 1,050
</TABLE>
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt at December 31, 1996 and 1995 consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- ------
<S> <C> <C>
Line of Credit................................... $115,000
Term loan........................................ 85,000
Renovation Loan.................................. 25,000
Promus note related to CSS purchase.............. $7,500
Other debt payable............................... 1,550 910
-------- ------
$226,550 $8,410
======== ======
</TABLE>
On September 30, 1996 the Company obtained a $250 million unsecured
revolving credit facility ("Line of Credit"). Under this facility, the Company
has the right to borrow up to $250 million based upon its ownership of
qualifying unencumbered hotel assets until October 1, 1999, at which time the
principal amount then outstanding will be due and payable. Interest payable on
borrowings is variable, determined from a ratings based pricing matrix,
initially set at LIBOR plus 175 basis points and is paid current throughout the
F-34
<PAGE> 135
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
year. Additionally, the Company is required to pay an unused commitment fee
which is variable, determined from a ratings based pricing matrix, initially set
at 35 basis points. The Company paid unused commitment fees of approximately
$164,000 during 1996. At December 31, 1996, the line of credit interest rate was
7.25%.
On March 10, 1997 the Company announced that it increased its Line of
Credit from $250 million to $400 million which included a reduction in unused
commitment fees from 35 basis points to 25 basis points, under substantially the
same terms as the original Line of Credit.
Simultaneous with the closing of the Line of Credit in September, 1996, the
Company retired a $65 million collateralized term loan and replaced an existing
$100 million collateralized revolving credit facility with an $85 million
four-year collateralized term loan. This term loan bears interest at LIBOR plus
150 basis points, interest is paid current throughout the year, and the note is
collateralized by interests in nine of the Company's hotels. Principal payments
commence on October 1, 1997 and are based on a 15 year amortization schedule,
adjusted annually for the then current interest rates. All outstanding principal
and accrued interest is due and payable on September 30, 2000. At December 31,
1996 the term loan interest rate was 7.125%.
The Company has a $25 million loan facility ("Renovation Loan") which has
been used to fund a portion of the renovation cost of the CSS Hotels (Note 8)
converted to Embassy Suites hotels. The facility is guaranteed by Promus, bears
interest at LIBOR plus 45 basis points (6.08% at December 31, 1996), requires
monthly interest payments, and quarterly principal payments of $1.25 million
beginning June 1999 and matures in June 2000.
Under its loan agreements, the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at December 31, 1996.
During the fourth quarter of 1996, the Company entered into two separate
interest rate swap agreements to manage the relative mix of its debt between
fixed and variable rate instruments. These interest rate swap agreements modify
a portion of the interest characteristics of FelCor's outstanding debt without
an exchange of the underlying principal amount and effectively convert variable
rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate,
and the variable rate to be received by FelCor at December 31, 1996 are
summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/96 MATURITY
- --------------- ------------ ---------- ------------- --------
<C> <C> <C> <C> <S>
50$million... 6.11125% 7.61125% 5.53516% October 1999
25$million... 5.95500% 7.45500% 5.5000% November 1999
</TABLE>
The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which is limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
F-35
<PAGE> 136
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital lease obligations at December 31, 1996 and 1995 consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Capital land and building lease obligations...... $ 9,675 $10,043
Capital equipment lease obligations.............. 3,200 1,213
------- -------
$12,875 $11,256
======= =======
</TABLE>
The Company assumed the obligation for a capital industrial revenue bond
lease for land and building associated with the purchase of the Embassy Suites
hotel -- St. Paul in November 1995. The term of the lease is through August 31,
2011 and contains a provision that allows the Company to purchase the property
at the termination of the lease, under certain conditions, for a nominal amount.
The Company assumed various capital equipment leases associated with hotels
purchased in 1995 and 1996. These capital leases are generally for telephones
and televisions and vary in remaining terms from one year to four years.
Minimum future lease payments under capital leases at December 31, 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997............................................... $ 3,297
1998............................................... 2,731
1999............................................... 1,464
2000............................................... 1,300
2001............................................... 1,217
2002 and thereafter................................ 11,770
-------
21,779
Executory costs.................................... (846)
Imputed interest................................... (8,058)
-------
Present value of net minimum lease payments........ $12,875
=======
</TABLE>
The Company's charter limits consolidated indebtedness to 40% of the
Company's investment in hotels, at cost, on a consolidated basis, after giving
effect to the Company's use of proceeds from any indebtedness. For purposes of
this limitation, the Company's consolidated indebtedness includes borrowings and
capital lease obligations and consolidated investment in hotels, at cost, is its
investment, at cost, in hotels, as reflected in its consolidated financial
statements plus (to the extent not otherwise reflected) the value (as determined
by the Board of Directors at the time of issuance) of any equity securities
issued, otherwise than for cash, by the Company or any of its subsidiaries in
connection with the acquisition of hotels. Under this definition as of December
31, 1996, the Company's investment in hotels at cost was $1.0 billion.
Accordingly, the Company's maximum permitted indebtedness would have been
approximately $400 million (of which $239 million was borrowed at December 31,
1996). Assuming all of this additional debt capacity, and the Company's
available cash and cash equivalents were used for the acquisition of additional
hotels, the Company's investment in hotels would increase to approximately $1.3
billion and the maximum permitted indebtedness would increase to approximately
$525 million.
F-36
<PAGE> 137
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK
At December 31, 1996 the Company had completed the following public
offerings:
<TABLE>
<CAPTION>
OFFERING PRICE
SECURITY DATE COMPLETED PER SHARE SHARES SOLD NET PROCEEDS
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Common Stock (Initial Public
Offering).................. July 28, 1994 $ 21.25 4,686,250 $ 91.6 million
Common Stock................. May 30, 1995 $ 25.00 3,450,000 $ 81.0 million
Common Stock................. December 20, 1995 $ 26.50 12,650,000 $312.6 million
Preferred Stock.............. May 6, 1996 $ 25.00 6,050,000 $144.3 million
</TABLE>
On April 25, 1996, the SEC declared effective the Company's omnibus shelf
registration statement ("Shelf Registration"), which provides for offerings by
the Company from time to time of up to an aggregate of $500 million in
securities, which may include its debt securities, preferred stock, common stock
and/or common stock warrants. The Company had issued approximately $151 million
under the Shelf Registration at December 31, 1996 leaving approximately $349
million available. In February 1997, the Company issued approximately $107
million in common stock under the Shelf Registration.
Preferred Stock
The Board of Directors is authorized to provide for the issuance of up to
10,000,000 shares of Preferred Stock in one or more series, to establish the
number of shares in each series and to fix the designation, powers preferences,
and rights of each such series and the qualifications, limitations or
restrictions thereof. On May 6, 1996, the Company completed an offering,
pursuant to the Shelf Registration of six million shares of its $1.95 Series A
Cumulative Convertible Preferred Stock ("Series A Preferred Stock") at $25 per
share. An additional fifty thousand shares of Series A Preferred Stock were
issued at $25 per share pursuant to the exercise of the underwriters'
over-allotment option. The Series A Preferred Stock bears an annual dividend
equal to the greater of $1.95 per share (yielding 7.8% based on the $25 purchase
price) or the cash distributions declared or paid for the corresponding period
on the number of shares of common stock into which the Series A Preferred Stock
is then convertible and is cumulative from May 6, 1996. Each share of the Series
A Preferred Stock is convertible at the shareholder's option to 0.7752 shares of
common stock, subject to certain adjustments, and may not be redeemed by the
Company before April 30, 2001. At December 31, 1996, all dividends then payable
on the Preferred Stock had been paid.
Common Stock
In addition to the aforementioned public offerings of Common Stock, Promus
purchased an aggregate of approximately 1.9 million shares of Common Stock,
pursuant to subscription agreements, during 1995 and 1996 at a subscription
price of $26.50 per share for an aggregate cost of $50 million. Promus has
satisfied its commitment to purchase Common Stock under the aforementioned
subscription agreements.
Partnership Units
The outstanding units of limited partnership interests in the Partnership
("Units") are redeemable at the option of the holder for a like number of shares
of Common Stock or, at the option of the Company, for the cash equivalent
thereof.
Pursuant to a subscription agreement with Promus, the Partnership issued an
aggregate 1.0 million Units to Promus in November and December 1995, at the
subscription price of $25.00 per Unit. An aggregate of 491,703 additional
Partnership Units were issued to sellers in conjunction with the purchase of two
hotels and
F-37
<PAGE> 138
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the acquisition of partnership interests in two additional hotels in 1996.
Promus has satisfied its commitment to purchase Units under the aforementioned
subscription agreement.
7. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the years
ended December 31, 1996 and 1995 and for the period from July 28, 1994
(inception of operations) through December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ----
<S> <C> <C> <C>
Real estate and personal property taxes............. $11,110 $2,233 $620
Property insurance.................................. 1,312 155 69
Land lease expense.................................. 952
State franchise taxes............................... 472 175 192
Other............................................... 51
------- ------ ----
Total taxes, insurance and other.......... $13,897 $2,563 $881
======= ====== ====
</TABLE>
8. BUSINESS COMBINATION
On December 29, 1995 the Partnership acquired approximate 99% limited
partnership interests in entities ("Holdings Partnerships") formed to facilitate
the acquisition and financing of up to 18 Crown Sterling Suites(R) hotels ("CSS
Hotels") and certain other hotels pending the completion of a common stock
offering. Such common stock offering was completed on December 20, 1995 and at
that date the Holdings Partnerships had acquired six of the CSS Hotels and one
additional hotel.
A summary of the fair values of the acquired assets and liabilities of the
Holdings Partnerships recorded at the date of acquisition, at December 29, 1995,
is as follows (in thousands):
<TABLE>
<S> <C>
Investment in hotels.............................. $166,307
Prepayments under Purchase Agreements............. 13,616
Due from Lessee................................... 908
Other assets...................................... 715
--------
181,546
--------
Debt and capital lease obligations................ 11,266
Accrued expenses and other liabilities............ 1,657
--------
12,923
--------
Total purchase price.............................. $168,623
========
</TABLE>
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of the Holdings Partnerships since acquisition have been
included in the Company's consolidated statements of operations.
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS
After conversion of the Myrtle Beach hotel acquired in December 1996, the
Company will own interests in 40 Embassy Suites hotels, 2 Doubletree Guest
Suites hotels and one Hilton Suites hotel. The Embassy Suites hotels and the
Hilton Suites hotel operate pursuant to franchise license agreements, which
require the payment of fees based on a percentage of suite revenue. These fees
are paid by the Lessee. There are no separate franchise license agreements for
the Doubletree Guest Suites hotels.
F-38
<PAGE> 139
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Hotels are managed by Promus, Doubletree, AGHI or Coastal on behalf of
the Lessee. The Lessee pays the managers a base management fee based on a
percentage of suite revenue and an incentive management fee based on the
Lessee's income before overhead expenses for each hotel.
The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels) and 2006 (19
hotels). The rental income under the Percentage Leases between the partnerships
owning five hotels, of which the Company owns 50%, and the Lessee is payable to
the respective partnerships and as such is not included in the following
schedule of future lease commitments to the Company. Minimum future rental
income (base rents) under these noncancellable operating leases (excluding
hotels owned by the previously noted partnerships) at December 31, 1996 is as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997.............................................. $ 61,996
1998.............................................. 61,996
1999.............................................. 61,996
2000.............................................. 61,996
2001.............................................. 61,996
2002 and thereafter............................... 240,386
--------
$550,366
========
</TABLE>
At December 31, 1996 and 1995, the Lessee owed the Company approximately
$5.5 million and $2.4 million, respectively, for such Percentage Lease rent to
be paid in March of the subsequent year.
The Percentage Lease revenue is based on a percentage of suite revenues,
food and beverage revenues, and food and beverage rents of the Hotels. Both the
base rent and the threshold suite revenue in each lease computation are subject
to adjustments for changes in the Consumer Price Index ("CPI"). The adjustment
is calculated at the beginning of each calendar year, for the hotels acquired
prior to July of the previous year. The adjustment in any lease year may not
exceed 7%. The CPI adjustments made in January 1997 and 1996 are 1.42% and 0.73%
respectively.
Under the Percentage Leases, the Partnership is obligated to pay the costs
of real estate and personal property taxes, property insurance, maintenance of
underground utilities and structural elements of the Hotels, and to set aside 4%
of suite revenues per month, on a cumulative basis, to fund therefrom (or from
other sources) capital expenditures for the periodic replacement or
refurbishment of furniture, fixtures and equipment required for the retention of
the franchise licenses with respect to the Hotels. In addition, the Company will
incur certain additional capital expenditures in connection with the conversion
and upgrade of acquired hotels, which may be funded from cash on hand or
borrowings under its line of credit.
At December 31, 1996 the Company is committed to fund capital improvements
to certain of its hotels of approximately $22 million pursuant to product
improvements plans as required by the franchisors. These capital improvements
are expected to be funded in 1997.
The Company has entered into employment contracts with Messrs. Feldman and
Corcoran, that will continue in effect until December 31, 1999 and, unless
terminated, will be automatically renewed for successive one year terms.
Pursuant to such agreements, Messrs. Feldman and Corcoran each received $5,000
per month during 1994, $10,000 per month during 1995 and $10,270 per month in
1996. Effective January 1, 1997, Mr. Feldman is entitled to receive $12,500 per
month and Mr. Corcoran is entitled to receive $16,667 per month. In addition,
the Company is required to maintain a comprehensive medical plan for such
persons.
F-39
<PAGE> 140
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company shares the executive offices and certain employees with FelCor,
Inc. and the Lessee, and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel
(other than Messrs. Feldman and Corcoran, whose compensation is borne solely by
the Company), office supplies, telephones and depreciation of office furniture,
fixtures and equipment. Any such allocation of shared expenses to the Company
must be approved by a majority of the independent directors. During 1996 and
1995, the Company paid approximately $807,000 (approximately 38%) and $316,000
(approximately 31%), respectively, of the allocable expenses under this
agreement.
10. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Company purchased certain assets and assumed certain liabilities in
connection with the acquisition of hotels. These purchases were recorded under
the purchase method of accounting. The fair values of the acquired assets and
liabilities recorded at the date of acquisition are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Assets acquired............................ $ 494,354 $221,213 $25,750
Prepayments assumed........................ 13,616
Liabilities assumed........................ (108,744) (910) (2,200)
Capital land lease assumed................. (10,045)
Capital equipment leases assumed........... (2,823) (1,211)
Common stock issued........................ (6,000) (3,499)
Partnership units issued................... (10,880)
--------- -------- -------
Net cash paid.................... $ 365,907 $219,164 $23,550
========= ======== =======
</TABLE>
The Company purchased interests in unconsolidated partnerships during 1996
and 1995. These unconsolidated partnerships separately own five hotels located
in Chicago-Lombard, Illinois; Marin County, California; Parsippany, New Jersey;
Charlotte, North Carolina; and Indianapolis, Indiana, a parcel of undeveloped
land in Myrtle Beach, South Carolina and a condominium management company in
Myrtle Beach, South Carolina. These purchases were recorded under the equity
method of accounting. The value of the assets recorded at the date of
acquisition is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Acquisition of interests in unconsolidated
partnerships................................... $45,992 $13,166
Partnership units issued......................... (2,568)
------- -------
Net cash paid.......................... $43,424 $13,166
======= =======
</TABLE>
In 1994, limited partnership Units in the Partnership with a net book value
of $25,237 were issued in exchange for the Initial Hotels. In exchange for the
limited partnership Units, the Partnership acquired hotels for approximately
$79,439 (recorded on an historical cost basis) and assumed debt of approximately
$75,992 resulting in a net surplus of approximately $3,447.
Approximately $16,090, $3,813 and $1,804 of aggregate preferred stock
dividends and common stock distributions had been declared as of December 31,
1996, 1995 and 1994, respectively. These amounts were paid in January following
each such year.
11. STOCK BASED COMPENSATION PLANS
The Company sponsors the FelCor Suite Hotels, Inc. 1994 Restricted Stock
and Stock Option Plan ("1994 Plan"), and the FelCor Suite Hotels, Inc. 1995
Restricted Stock and Stock Option Plan (the "1995 Plan" and collectively, the
"Plan"), which are stock based incentive compensation plans as described below.
F-40
<PAGE> 141
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion 25 and related interpretations in accounting for
the Plan. In 1995, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123 Accounting for Stock-Based Compensation ("SFAS 123") which, if
fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the Plan. Adoption of the cost recognition provisions of
SFAS 123 is optional and the Company has decided not to adopt these provisions
of SFAS 123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are
presented below.
Stock Options
The Company is authorized to issue 450,000 shares of common stock under the
1994 Plan and 1,200,000 shares of common stock under the 1995 Plan pursuant to
awards granted in the form of incentive stock options qualified under Section
422 of the Internal Revenue Code of 1986, as amended, non-qualified stock
options and restricted stock. All options have 10 year contractual terms and
vest over five years, (20% per year), beginning in the year following the date
of grant. Awards may be made to key executives and other key employees of the
Company, including officers of the Company and its subsidiaries.
A total of 50,000 shares of stock may be issued as restricted stock under
the 1994 Plan and a total of 133,333 shares of stock may be issued as restricted
stock under the 1995 Plan.
Under the Plan, the Company granted a total of 345,000 nonqualified stock
options in 1995 and 327,500 nonqualified stock options in 1996.
A summary of the status of the Company's nonqualified stock options as of
December 31, 1996 and the changes during the year ended on that date is
presented below:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of the year...... 515,000 $24.72 170,000 $20.81
Granted................................... 327,500 $30.08 345,000 $26.64
Exercised................................. 0 n/a 0 n/a
Forfeited................................. 5,000 $30.00 0 n/a
Expired................................... 0 n/a 0 n/a
Outstanding at end of year................ 837,500 $26.78 515,000 $24.72
Exercisable at end of year................ 155,000 $23.17 38,000 $20.59
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
NUMBER WGTD. AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WGTD. AVG. EXERCISABLE WGTD. AVG.
EXERCISE PRICES AT 12/31/96 CONTR. LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ---------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$18.75 to $22.00 170,000 6.76 $20.81 86,000 $20.38
$22.00 to $31.37 667,500 9.12 $28.30 69,000 $26.64
- ---------------- ------- ---- ------ ------- ------
$18.75 to $31.37 837,500 8.64 $26.78 155,000 $23.17
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: dividend yield of 8.00%; risk free interest rates are
different for each grant and range from 5.57% to 6.47%; the expected lives of
options are 6 years; and volatility of 24.42% for all grants. The weighted
average fair value of options granted during 1996 was $3.76 per share and the
weighted average fair value of options granted during 1995 was $3.13 per share.
F-41
<PAGE> 142
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Stock
The Company may grant restricted (i.e., nonvested) shares of common stock
under the 1994 Plan and 1995 Plan. Under the 1994 Plan, the Company may grant to
employees (including officers and directors who also are employees and
independent directors), as restricted common stock all or a portion of the
50,000 shares of common stock reserved under the 1994 Plan. Under the 1995 Plan,
the Company may grant to employees (including officers and directors who also
are employees and independent directors), as restricted common stock all or a
portion of the 133,333 shares of common stock reserved under the 1995 Plan.
In 1995, the Company issued 46,500 shares of restricted common stock under
the Plan. A total of 42,500 shares vest over a five year period (20% per year,
beginning in the year following the date of grant), and the remaining 4,000
shares, granted to independent directors in lieu of cash compensation, vested
immediately on the date of grant.
In 1996, the Company issued 33,000 shares of restricted common stock under
the Plan. A total of 26,500 of the shares vest over a five year period (20% per
year, beginning in the year following the first anniversary date of the grant),
4,000 shares granted to independent directors in lieu of cash compensation,
vested immediately on the date of grant, and the remaining 2,500 shares vest
100% on January 1, 1997.
In accordance with APB 25, upon the issuance of restricted shares of common
stock under the Plan, the Company recognized a compensation cost for the
restricted common stock in the amount of $1.5 million for 1996 and $631,000 for
1995. This cost is charged to shareholders' equity and recognized as
amortization expense ratably over the applicable vesting period, in the amount
of $507,000 for 1996 and $158,000 for 1995. The weighted average share price at
the date of grant for 33,000 restricted shares of common stock issued in 1996 is
$29.99. The weighted average share price at the date of grant for 46,500
restricted shares of common stock issued in 1995 is $24.09.
A summary of the status of the Company's restricted stock grants as of
December 31, 1996 and the changes during the year ended on that date is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FAIR MARKET FAIR MARKET
# SHARES VALUE AT GRANT # SHARES VALUE AT GRANT
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of the year... 46,500 $24.09 0 n/a
Granted:
With 5 year graded vesting........... 26,500 $29.94 42,500 $24.32
Vest 100% at grant date.............. 4,000 $30.00 4,000 $21.63
Vest 100% within 12 months of
grant............................. 2,500 $30.50 0 n/a
Total granted.......................... 33,000 $29.99 46,500 $24.09
Outstanding at end of year............. 79,500 $26.54 46,500 $24.09
Vested at end of year.................. 16,500 $25.05 4,000 $21.63
</TABLE>
F-42
<PAGE> 143
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Net Income and Net Income Per Common Share
Had the compensation cost for the Company's stock based compensation plans
been determined in accordance with SFAS 123, the Company's net income and net
income per common share for 1996 and 1995 would approximate the pro forma
amounts below (in thousands, except per share data):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
12/31/96 12/31/96 12/31/95 12/31/95
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
SFAS 123 charge......................... $ 882 $ 176
APB 25 charge........................... $ 507 $ 158
Net income.............................. $33,203 $32,828 $12,191 $12,173
Net income per common share............. $ 1.44 $ 1.42 $ 1.70 $ 1.70
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock based
compensation plans.
12. LESSEE
All of the Company's percentage lease revenues is derived from the
Percentage Leases with the Lessee. Certain information related to the Lessee's
financial statements is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents............. $ 5,208 $5,345
Total assets.......................... $18,471 $9,599
Due to FelCor Suite Hotels, Inc. ..... $ 5,526 $2,396
Shareholders' deficit................. $(6,403) $ (773)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Statement of Operations Information:
Suite revenue..................... $234,451 $65,649 $16,094
Percentage lease expenses......... $107,935 $26,945 $ 6,043
Net income (loss)................. $ (5,430) $ (240) $ 109
</TABLE>
13. PREDECESSOR COMPANY
The Initial Hotels have been determined to be the Predecessor of the
Company and represent the hotels acquired upon the completion of the initial
public offering of Common Stock. Certain information related to the Initial
Hotels financial statements for the period from January 1, 1994 through July 27,
1994 (before the Company's initial public offering) is as follows (in
thousands):
<TABLE>
<S> <C>
Suite revenue........................... $21,884
Net income.............................. $ 1,562
Cash flows provided by operating
activities............................ $ 3,995
Cash flows used in investing
activities............................ $(1,327)
Cash flows used in financing
activities............................ $(1,640)
</TABLE>
F-43
<PAGE> 144
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") 107 requires all
entities to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, the Company reports the carrying amount of
cash and cash equivalents, amounts due from the Lessee, accounts payable and
accrued expenses at cost which approximates fair value due to the short maturity
of these instruments. The carrying amount of the Company's borrowings
approximates fair value due to the Company's ability to obtain such borrowings
at comparable interest rates.
15. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the acquisition of hotels in 1996 and 1995, the
historical results of operations may not be indicative of future results of
operations and net income per common share.
The following unaudited Pro Forma Consolidated Statements of Operations for
the years ended December 31, 1996 and 1995 are presented as if the acquisition
of all 43 hotels owned at December 31, 1996, and the consummation of the public
offerings and the application of the net proceeds therefrom had occurred by
January 1, 1995, and all of the hotels had been leased to the Lessee pursuant to
the Percentage Leases.
The pro forma consolidated statements of operations do not purport to
present what actual results of operations would have been if the acquisition of
all 43 hotels owned at December 31, 1996 and the consummation of the public
offerings had occurred on such date or to project results for any future period.
For instance, in accordance with SEC regulations, the following unaudited Pro
Forma Consolidated Statements of Operations do not include pro forma earnings
associated with the Company's pro forma cash and short-term investments.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues:
Percentage lease revenue.............. $110,077 $102,878
Income from unconsolidated
partnerships....................... 2,815 2,160
-------- --------
Total income.......................... 112,892 105,038
Expenses:
General and administrative............ 1,895 1,783
Depreciation.......................... 31,103 26,617
Taxes, insurance and other............ 15,189 13,617
Interest expense...................... 15,903 15,004
Minority interest..................... 5,173 5,090
-------- --------
Net income.............................. 43,629 42,927
Preferred dividends..................... 11,798 11,798
-------- --------
Net income applicable to common
shareholders.......................... $ 31,831 $ 31,129
======== ========
Net income per common share............. $ 1.36 $ 1.33
======== ========
Weighted average number of common shares
outstanding........................... 23,482 23,443
======== ========
</TABLE>
16. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
SFAS No. 128, "Earnings Per Share" ("EPS"), was issued in October 1996.
This statement specifies the computation, presentation, and disclosure
requirements for EPS and is effective for financial statements issued for
periods ending after December 15, 1997. The statement requires restatement of
all prior period EPS data
F-44
<PAGE> 145
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
presented, including interim financial statement, summaries of earnings, and
selected financial data, after the effective date. The Company has determined
the effect of adoption will have an immaterial impact on previously reported EPS
numbers.
17. SUBSEQUENT EVENTS
On February 3, 1997 the Company announced the closing of a common stock
offering pursuant to the Company's $500 million Shelf Registration, covering a
variety of debt and equity securities. The offering was for 3 million shares of
common stock to the public at $35.50 per share, providing the Company with net
proceeds of approximately $100.7 million.
The Company used the majority of the proceeds of this common stock offering
to purchase 50% joint venture interests in eight existing Embassy Suite hotels
and to acquire full ownership of two additional hotels. Promus continues to own
the remaining 50% interest in the eight joint venture hotels, which will
continue to operate as Embassy Suites under management by Promus. The two
wholly-owned hotels will be converted to Doubletree Guest Suites hotels by the
end of the second quarter of 1997 and are being managed by a subsidiary of
Doubletree Hotels Corporation. The aggregate purchase price for the Company's
interest in these 10 hotels was approximately $139 million, including the
Company's pro rata share of approximately $86 million in non-recourse debt held
by the joint ventures.
On February 18, 1997 the Company purchased the 215-suite Embassy Suites Los
Angeles Airport (LAX) North hotel for approximately $22 million cash. Promus
will continue to manage the hotel as an Embassy Suites hotel.
On February 20, 1997 the Company purchased a 198-suite hotel in Dana Point,
CA for approximately $17.2 million cash. The Dana Point hotel will be converted
to a Doubletree Guest Suites hotel and will be managed by a subsidiary of
Doubletree Hotels Corporation.
18. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's unaudited consolidated quarterly operating data for the years
ended December 31, 1996 and 1995 follows (in thousands, except per share data).
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of quarterly results have been
reflected in the data. It is also management's opinion, however, that quarterly
operating data for hotel enterprises are not indicative of results to be
achieved in succeeding quarters or years. In order to obtain a more accurate
indication of performance, there should be a review of operating results,
changes in shareholders' equity and cash flows for a period of several years.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
F-45
<PAGE> 146
FELCOR SUITE HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.............................. $23,976 $23,409 $25,263 $25,302
Income from unconsolidated partnerships............... 320 165 927 598
Other income.......................................... 146 628 163 47
------- ------- ------- -------
Total revenues................................ 24,442 24,202 26,353 25,947
------- ------- ------- -------
Expenses:
General and administrative............................ 382 466 458 513
Depreciation.......................................... 4,516 5,788 7,529 8,711
Taxes, insurance and other............................ 3,529 3,070 3,260 4,038
Interest expense...................................... 2,424 2,089 1,760 3,530
Minority interest..................................... 1,620 1,523 1,477 970
------- ------- ------- -------
Total expenses................................ 12,471 12,936 14,484 17,762
------- ------- ------- -------
Income before extraordinary charge...................... 11,971 11,266 11,869 8,185
Extraordinary charge from write off of deferred
financing fees........................................ 2,354
------- ------- ------- -------
Net income.............................................. 11,971 11,266 9,515 8,185
Preferred dividends..................................... 1,835 2,949 2,950
------- ------- ------- -------
Net income applicable to common shareholders............ $11,971 $ 9,431 $ 6,566 $ 5,235
======= ======= ======= =======
Per common share information:
Net income applicable to common shareholders before
extraordinary charge............................... $ 0.53 $ 0.41 $ 0.38 $ 0.22
Extraordinary charge.................................. (0.10)
------- ------- ------- -------
Net income............................................ $ 0.53 $ 0.41 $ 0.28 $ 0.22
======= ======= ======= =======
Weighted average number of common shares
outstanding........................................ 22,614 22,905 23,276 23,502
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.............................. $ 5,372 $ 5,977 $ 6,138 $ 6,300
Income from unconsolidated partnerships............... 290 223
Other income.......................................... 8 209 215 1,259
------- ------- ------- -------
Total revenues................................ 5,380 6,186 6,643 7,782
------- ------- ------- -------
Expenses:
General and administrative............................ 184 240 215 231
Depreciation.......................................... 1,058 1,178 1,455 1,541
Taxes, insurance and other............................ 559 580 616 808
Interest expense...................................... 353 566 143 942
Minority interest..................................... 854 814 724 739
------- ------- ------- -------
Total expenses................................ 3,008 3,378 3,153 4,261
------- ------- ------- -------
Net income applicable to common shareholders............ $ 2,372 $ 2,808 $ 3,490 $ 3,521
======= ======= ======= =======
Per common share information:
Net income............................................ $ 0.50 $ 0.48 $ 0.43 $ 0.36
======= ======= ======= =======
Weighted average number of common shares
outstanding........................................ 4,707 5,850 8,170 9,867
======= ======= ======= =======
</TABLE>
F-46
<PAGE> 147
FELCOR SUITE HOTELS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
---------------------------------- -------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
----------------------- ------- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX.............. $ 1,497 $ 12,722 $ 647 $ 28 1,091
Nashville, TN.......................... 1,118 9,506 961 28 1,093
Jacksonville, FL....................... 1,130 9,608 456 28 627
Orlando (North), FL.................... 1,673 14,218 684 28 664
Orlando (South), FL.................... 1,632 13,870 799 28 967
Tulsa, OK.............................. 525 7,344 3,117 139 1,523
New Orleans, LA........................ 2,570 22,300 895 523 890
Flagstaff, AZ.......................... 900 6,825 268 1,523 993
Dallas (Love Field), TX................ 1,934 16,674 757 167 899
Boston-Marlborough, MA................. 948 8,143 325 $761 721
Brunswick, GA.......................... 705 6,067 247 431
Corpus Christi, TX..................... 1,113 9,618 390 51 1,268
Burlingame (SF Airport So.), CA........ 39,929 818 55 2,041
Minneapolis (Airport), MN.............. 5,417 36,508 602 62 2,052
Boca Raton (Doubletree), FL............ 5,427 3,066 304 29 503
Minneapolis (Downtown), MN............. 818 16,820 505 56 2,462
St. Paul, MN........................... 1,156 17,315 849 27 2,210
Tampa (Busch Gardens), FL.............. 672 12,387 226 5
Cleveland, OH.......................... 1,755 15,329 527 129 236
Anaheim, CA............................ 2,548 14,832 607 491 2,517
Baton Rouge, LA........................ 2,350 19,092 525 497 2,140
Birmingham, AL......................... 2,843 29,286 160 706 2,140
Deerfield Beach, FL.................... 4,523 29,443 917 849 2,088
Ft. Lauderdale, FL..................... 5,329 47,850 903 1,142 2,558
Miami (Airport), FL.................... 4,135 24,950 1,171 684 2,658
Milpitas, CA........................... 4,021 23,677 562 912 2,920
Phoenix (Camelback), AZ................ 39,003 612 810 2,604
So. San Francisco (Airport N.), CA..... 3,418 31,737 527 769 3,378
Lexington, KY.......................... 1,955 13,604 587 79
Piscataway, NJ......................... 1,755 17,563 527 12 168
Avon (Beaver Creek Resort), CO......... 1,134 9,864 340 162 568
Boca Raton (Embassy), FL............... 1,868 16,253 560 1,604
El Segundo (LAX South), CA............. 2,660 17,997 798 179 2,595
Oxnard (Mandalay Beach), CA............ 2,930 22,125 879 529 441
Napa, CA............................... 3,287 14,205 494 398 245
Deerfield, IL.......................... 2,305 20,054 692 2
Atlanta (Buckhead), GA................. 7,303 38,996 2,437
Kingston Plantation, SC................ 2,940 24,988 1,470
------- -------- ------- ---- ------- -------
Total.......................... $88,294 $733,768 $28,145 $812 $10,990 $49,381
======= ======== ======= ==== ======= =======
<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
---------------------------------- BUILDINGS AND BUILDINGS AND
BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS;
AND AND FURNITURE & FURNITURE AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES
----------------------- ------- ------------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX.............. 1,497 $ 12,750 $ 1,738 $ 15,985 $ 1,840 $ 14,145
Nashville, TN.......................... 1,118 9,534 2,054 12,706 2,230 10,476
Jacksonville, FL....................... 1,130 9,636 1,083 11,849 1,171 10,678
Orlando (North), FL.................... 1,673 14,246 1,348 17,267 1,916 15,351
Orlando (South), FL.................... 1,632 13,898 1,766 17,296 1,823 15,473
Tulsa, OK.............................. 525 7,483 4,640 12,648 3,485 9,163
New Orleans, LA........................ 2,570 22,823 1,785 27,178 1,699 25,479
Flagstaff, AZ.......................... 900 8,348 1,261 10,509 687 9,822
Dallas (Love Field), TX................ 1,934 16,841 1,656 20,431 1,118 19,313
Boston-Marlborough, MA................. 1,709 8,143 1,046 10,898 495 10,403
Brunswick, GA.......................... 705 6,067 678 7,450 317 7,133
Corpus Christi, TX..................... 1,164 9,618 1,658 12,440 628 11,812
Burlingame (SF Airport So.), CA........ 39,984 2,859 42,843 1,514 41,329
Minneapolis (Airport), MN.............. 5,417 36,570 2,654 44,641 1,378 43,263
Boca Raton (Doubletree), FL............ 5,427 3,095 807 9,329 234 9,095
Minneapolis (Downtown), MN............. 818 16,876 2,967 20,661 845 19,816
St. Paul, MN........................... 1,156 17,342 3,059 21,557 895 20,662
Tampa (Busch Gardens), FL.............. 672 12,387 231 13,290 383 12,907
Cleveland, OH.......................... 1,755 15,458 763 17,976 511 17,465
Anaheim, CA............................ 2,548 15,323 3,124 20,995 813 20,182
Baton Rouge, LA........................ 2,350 19,589 2,665 24,604 681 23,923
Birmingham, AL......................... 2,843 29,992 2,300 35,135 804 34,331
Deerfield Beach, FL.................... 4,523 30,292 3,005 37,820 981 36,839
Ft. Lauderdale, FL..................... 5,329 48,992 3,461 57,782 1,629 56,153
Miami (Airport), FL.................... 4,135 25,634 3,829 33,598 1,031 32,567
Milpitas, CA........................... 4,021 24,589 3,482 32,092 991 31,101
Phoenix (Camelback), AZ................ 39,813 3,216 43,029 1,208 41,821
So. San Francisco (Airport N.), CA..... 3,418 32,506 3,905 39,829 1,085 38,744
Lexington, KY.......................... 1,955 13,604 666 16,225 403 15,822
Piscataway, NJ......................... 1,755 17,575 695 20,025 484 19,541
Avon (Beaver Creek Resort), CO......... 1,134 10,026 908 12,068 291 11,777
Boca Raton (Embassy), FL............... 1,868 16,253 2,164 20,285 481 19,804
El Segundo (LAX South), CA............. 2,660 18,176 3,393 24,229 1,394 22,835
Oxnard (Mandalay Beach), CA............ 2,930 22,654 1,320 26,904 512 26,392
Napa, CA............................... 3,287 14,603 739 18,629 318 18,311
Deerfield, IL.......................... 2,305 20,054 694 23,053 321 22,732
Atlanta (Buckhead), GA................. 7,303 38,996 2,437 48,736 122 48,614
Kingston Plantation, SC................ 2,940 24,988 1,470 29,398 29,398
------- -------- ------- -------- ------- --------
Total.......................... $89,106 $744,758 $77,526 $911,390 $36,718 $874,672
======= ======== ======= ======== ======= ========
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
DATE OF IN STATEMENT
DESCRIPTION OF PROPERTY CONSTRUCTION IS COMPUTED
----------------------- ------------ ------------
<S> <C> <C>
Dallas (Park Central), TX.............. 1985 5-40 Yrs
Nashville, TN.......................... 1986 5-40 Yrs
Jacksonville, FL....................... 1985 5-40 Yrs
Orlando (North), FL.................... 1985 5-40 Yrs
Orlando (South), FL.................... 1985 5-40 Yrs
Tulsa, OK.............................. 1985 5-40 Yrs
New Orleans, LA........................ 1984 5-40 Yrs
Flagstaff, AZ.......................... 1988 5-40 Yrs
Dallas (Love Field), TX................ 1986 5-40 Yrs
Boston-Marlborough, MA................. 1988 5-40 Yrs
Brunswick, GA.......................... 1988 5-40 Yrs
Corpus Christi, TX..................... 1984 5-40 Yrs
Burlingame (SF Airport So.), CA........ 1986 5-40 Yrs
Minneapolis (Airport), MN.............. 1986 5-40 Yrs
Boca Raton (Doubletree), FL............ 1989 5-40 Yrs
Minneapolis (Downtown), MN............. 1984 5-40 Yrs
St. Paul, MN........................... 1983 5-40 Yrs
Tampa (Busch Gardens), FL.............. 1985 5-40 Yrs
Cleveland, OH.......................... 1990 5-40 Yrs
Anaheim, CA............................ 1987 5-40 Yrs
Baton Rouge, LA........................ 1985 5-40 Yrs
Birmingham, AL......................... 1987 5-40 Yrs
Deerfield Beach, FL.................... 1987 5-40 Yrs
Ft. Lauderdale, FL..................... 1986 5-40 Yrs
Miami (Airport), FL.................... 1987 5-40 Yrs
Milpitas, CA........................... 1987 5-40 Yrs
Phoenix (Camelback), AZ................ 1985 5-40 Yrs
So. San Francisco (Airport N.), CA..... 1988 5-40 Yrs
Lexington, KY.......................... 1987 5-40 Yrs
Piscataway, NJ......................... 1988 5-40 Yrs
Avon (Beaver Creek Resort), CO......... 1990 5-40 Yrs
Boca Raton (Embassy), FL............... 1989 5-40 Yrs
El Segundo (LAX South), CA............. 1985 5-40 Yrs
Oxnard (Mandalay Beach), CA............ 1986 5-40 Yrs
Napa, CA............................... 1985 5-40 Yrs
Deerfield, IL.......................... 1987 5-40 Yrs
Atlanta (Buckhead), GA................. 1988 5-40 Yrs
Kingston Plantation, SC................ 1987 5-40 Yrs
Total..........................
(a) Reconciliation of Real Estate:
Balance at July 28, 1994.................................. $ 82,979
Additions during the period............................... 26,847
--------
Balance at December 31, 1994.............................. 109,826
Additions during the period............................... 233,572
--------
Balance at December 31, 1995.............................. 343,398
Additions during the period............................... 568,073
Dispositions during the period............................ (81)
--------
Balance at December 31, 1996.............................. $911,390
========
(b) Reconciliation of Accumulated Depreciation:
Balance at July 28, 1994
Accumulated depreciation assumed with predecessor
historical cost basis................................... $ 3,540
Depreciation expense during the period.................... 1,486
--------
Balance at December 31, 1994.............................. 5,026
Depreciation expense during the period.................... 5,371
--------
Balance at December 31, 1995.............................. 10,397
Depreciation expense during the period.................... 26,321
--------
Balance at December 31, 1996.............................. $ 36,718
========
</TABLE>
F-47
<PAGE> 148
FELCOR SUITES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
The following unaudited Pro Forma Consolidated Statements of Operations of
FelCor Suites Limited Partnership (the "Partnership") are presented as if the
acquisitions of all hotels owned by FelCor Suite Hotels, Inc. and its
consolidated subsidiaries (collectively the "Company") at December 31, 1996,
those hotels acquired in 1997 through August 31, 1997 and the pending 1997
acquisition (collectively the "Hotels"), the proposed 1997 debt offering, the
preferred stock offering consummated during 1996 and the common stock offerings
consummated during 1997, and related transactions had occurred as of January 1,
1996 and the Hotels had all been leased to DJONT Operations, L.L.C. or its
consolidated subsidiaries (the "Lessee") pursuant to Percentage Leases. Such pro
forma information is based in part upon the Consolidated Statements of
Operations of the Partnership, Pro Forma Statements of Operations of DJONT
Operations, L.L.C. and the historical Statements of Operations of the acquired
hotels. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Partnership would have been assuming such transactions had
been completed on January 1, 1996, nor does it purport to represent the results
of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
1997
ACQUISITIONS,
1996 ACQUISITIONS COMMON STOCK
HISTORICAL AND PREFERRED AND DEBT
PARTNERSHIP STOCK OFFERING(A) OFFERINGS(B) TOTAL
----------- ----------------- ------------- --------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)........... $ 97,950 $12,127 $63,070 $173,147
Income from unconsolidated
partnerships(D)..................... 2,010 805 308 3,123
Other income(E)....................... 984 (984)
-------- ------- ------- --------
Total revenues................... 100,944 11,948 63,378 176,270
-------- ------- ------- --------
Expenses:
General and administrative(F)......... 1,819 76 1,408 3,303
Depreciation(G)....................... 26,544 4,559 15,010 46,113
Taxes, insurance and other(H)......... 13,897 1,292 9,600 24,789
Interest expense(I)................... 9,803 6,100 16,926 32,829
Minority interest in other
partnerships(J)..................... 236 236
-------- ------- ------- --------
Total expenses................... 52,063 12,027 43,180 107,270
-------- ------- ------- --------
Net income................................. 48,881 (79) 20,198 69,000
Preferred distributions(K)................. 7,734 4,064 11,798
-------- ------- ------- --------
Net income applicable to unitholders(L).... $ 41,147 $(4,143) $20,198 $ 57,202
======== ======= ======= ========
Net income per unit(L)..................... $ 1.58 $ 1.45
======== ========
Weighted average number of units
outstanding.............................. 26,037 39,407
======== ========
</TABLE>
F-48
<PAGE> 149
FELCOR SUITES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
--------------------------------
PRO FORMA
ADJUSTMENTS: 1997
ACQUISITIONS,
COMMON STOCK
HISTORICAL AND DEBT
PARTNERSHIP OFFERINGS(B) TOTAL
----------- ----------------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Percentage lease revenue(C)...................... $74,048 $27,127 $101,175
Income from unconsolidated partnerships(D)....... 3,427 (95) 3,332
Other income(E).................................. 170 (170)
------- ------- --------
Total revenues.............................. 77,645 26,862 104,507
------- ------- --------
Expenses:
General and administrative(F).................... 1,846 200 2,046
Depreciation(G).................................. 21,730 6,101 27,831
Taxes, insurance and other(H).................... 10,756 4,029 14,785
Interest expense(I).............................. 12,914 5,975 18,889
Minority interest in other partnerships(J)....... 142 88 230
------- ------- --------
Total expenses.............................. 47,388 16,393 63,781
------- ------- --------
Net income............................................ 30,257 10,469 40,726
Preferred distributions(K)............................ 5,899 5,899
------- ------- --------
Net income applicable to unitholders(L)............... $24,358 $10,469 $ 34,827
======= ======= ========
Net income per unit(L)................................ $ 0.84 $ 0.88
======= ========
Weighted average number of units outstanding.......... 28,886 39,472
======= ========
</TABLE>
F-49
<PAGE> 150
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels acquired
by the Company in 1996 as adjusted to give effect to the provisions of the
Percentage Leases; the effect of the preferred stock offering prior to the
date issued in May 1996; and other pro forma adjustments reflecting
additional overhead expenses and interest expenses. Those hotels acquired
during 1996 and the dates of acquisition are as follows:
<TABLE>
<S> <C>
Anaheim, California, Embassy Suites......................... January 3, 1996
Baton Rouge, Louisiana, Embassy Suites...................... January 3, 1996
Birmingham, Alabama, Embassy Suites......................... January 3, 1996
Deerfield Beach, Florida, Embassy Suites.................... January 3, 1996
Ft. Lauderdale, Florida, Embassy Suites..................... January 3, 1996
Miami (Airport), Florida, Embassy Suites.................... January 3, 1996
Milpitas, California, Embassy Suites........................ January 3, 1996
Phoenix (Camelback), Arizona, Embassy Suites................ January 3, 1996
Burlingame (S.F. Airport So.), California, Embassy Suites... January 3, 1996
Lexington, Kentucky, Hilton Suites.......................... January 10, 1996
Piscataway, New Jersey, Embassy Suites...................... January 10, 1996
Avon (Beaver Creek Resort), Colorado, Embassy Suites........ February 20, 1996
Boca Raton, Florida, Embassy Suites......................... February 28, 1996
El Segundo (LAX South), California, Embassy Suites.......... March 27, 1996
Oxnard (Mandalay Beach), California, Embassy Suites......... May 8, 1996
Napa, California, Embassy Suites............................ May 8, 1996
Deerfield, Illinois, Embassy Suites......................... June 20, 1996
San Rafael (Marin Co.), California, Embassy Suites.......... July 18, 1996
Parsippany, New Jersey, Embassy Suites...................... August 1, 1996
Charlotte, North Carolina, Embassy Suites................... August 1, 1996
Indianapolis (North), Indiana, Embassy Suites............... August 1, 1996
Atlanta (Buckhead), Georgia, Embassy Suites................. October 17, 1996
Myrtle Beach (Kingston Plantation), South Carolina, Embassy
Suites.................................................... December 5, 1996
</TABLE>
F-50
<PAGE> 151
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(B) Represents pro forma adjustments to reflect the historical results of
operations prior to the acquisition by the Company for those hotels
acquired by the Company in 1997 through August 31, 1997 and the pending
1997 acquisition as adjusted, to give effect to the provisions of the
Percentage Leases; the effect of the Company's common stock offering in the
first quarter of 1997; the common stock offering in June 1997; the proposed
debt offering; and other pro forma adjustments reflecting additional
overhead expenses and interest expense. Those hotels acquired during 1997
and dates of acquisition are as follows:
<TABLE>
<S> <C>
Omaha, Nebraska, Doubletree Guest Suites.................... February 1, 1997
Bloomington, Minnesota, Doubletree Guest Suites............. February 1, 1997
Atlanta (Perimeter Center), Georgia, Embassy Suites......... February 1, 1997
Kansas City (Country Club Plaza), Missouri, Embassy
Suites.................................................... February 1, 1997
Overland Park, Kansas, Embassy Suites....................... February 1, 1997
Raleigh, North Carolina, Embassy Suites..................... February 1, 1997
San Antonio (Northwest), Texas, Embassy Suites.............. February 1, 1997
Austin (Airport North), Texas, Embassy Suites............... February 1, 1997
Covina, California, Embassy Suites.......................... February 1, 1997
Secaucus, New Jersey, Embassy Suites........................ February 1, 1997
Los Angeles (LAX Airport North), California, Embassy
Suites.................................................... February 18, 1997
Dana Point, California, Doubletree Guest Suites............. February 21, 1997
Troy, Michigan, Doubletree Guest Suites..................... March 20, 1997
Austin (Downtown), Texas, Doubletree Guest Suites........... March 20, 1997
Baltimore, Maryland, Doubletree Guest Suites................ March 20, 1997
San Antonio (Airport), Texas, Embassy Suites................ May 16, 1997
Nashville (Airport), Tennessee, Doubletree Guest Suites..... June 5, 1997
Dallas (Market Center), Texas, Embassy Suites............... June 30, 1997
Syracuse, New York, Embassy Suites.......................... June 30, 1997
Atlanta (Airport), Georgia, Sheraton Gateway................ June 30, 1997
Atlanta (Galleria), Georgia, Sheraton Suites................ June 30, 1997
Chicago (O'Hare), Illinois, Sheraton Gateway Suites......... June 30, 1997
Dallas (Park Central), Texas, Sheraton...................... June 30, 1997
Phoenix (Crescent), Arizona, Sheraton....................... June 30, 1997
Lake Buena Vista (Disney World), Florida, Doubletree Guest
Suites.................................................... July 28, 1997
Raleigh/Durham, North Carolina, Doubletree Guest Suites..... July 28, 1997
Tampa (Rocky Point), Florida, Doubletree Guest Suites....... July 28, 1997
PENDING 1997 ACQUISITION:
Philadelphia (Society Hill), Pennsylvania, Sheraton
</TABLE>
F-51
<PAGE> 152
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(C) Represents historical or pro forma lease revenue from the Lessee to the
Company calculated by applying the contractual or anticipated rent
provisions of the Percentage Leases to the historical suite revenues, food
and beverage rents and food and beverage revenues of all the Hotels which
are consolidated for financial reporting purposes. The income from
unconsolidated partnerships is included as a separate line item in the
accompanying Pro Forma Statements of Operations as described in Note D.
Historical suite revenues for the time period prior to the acquisition by
the Company, the date of acquisition, the contractual or anticipated pro
forma Percentage Lease revenue for the time period prior to acquisition by
the Company and a summary of contractual or anticipated Percentage Lease
terms follows (in thousands):
<TABLE>
<CAPTION>
SUITE REVENUE FOR THE PERCENTAGE LEASE REVENUE
PERIOD FOR THE PERIOD
PRIOR TO ACQUISITION PRIOR TO ACQUISITION
BY THE COMPANY BY THE COMPANY
------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
DATE OF JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
DESCRIPTION OF PROPERTY ACQUISITION 1997 1996 1997 1996
- ----------------------- ----------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites.... February 1, 1997 $ 379 $ 6,342 $ 152 $ 3,049
Omaha, NE, Doubletree Guest Suites.......... February 1, 1997 336 4,754 150 2,285
Los Angeles (LAX North), Embassy Suites..... February 18, 1997 830 6,263 345 2,590
Dana Point, CA, Doubletree Guest Suites..... February 21, 1997 485 3,716 175 1,395
Troy, MI, Doubletree Guest Suites........... March 20, 1997 1,489 6,342 791 3,316
Austin (Downtown), TX, Doubletree Guest
Suites.................................... March 20, 1997 1,366 5,696 710 2,829
Baltimore (BWI), MD, Doubletree Guest
Suites.................................... March 20, 1997 1,167 6,236 516 2,943
Nashville, TN, Doubletree Guest Suites...... June 5, 1997 1,341 3,164 557 1,320
Dallas Market Center, TX, Embassy Suites.... June 30, 1997 3,938 7,716 1,844 3,583
Syracuse, NY, Embassy Suites................ June 30, 1997 2,909 5,572 1,123 2,130
Dallas (Park Central), TX, Sheraton......... June 30, 1997 6,920 13,520 3,131 6,031
Phoenix (Crescent), AZ, Sheraton............ June 30, 1997 5,738 9,581 2,412 3,525
Chicago (O'Hare), IL, Sheraton Gateway
Suites.................................... June 30, 1997 4,803 8,973 2,577 4,709
Atlanta (Airport), GA, Sheraton Gateway..... June 30, 1997 4,351 9,841 1,725 4,156
Atlanta (Galleria), GA, Sheraton Suites..... June 30, 1997 3,700 8,091 1,540 3,533
Lake Buena Vista, FL, Doubletree Guest
Suites.................................... July 28, 1997 5,312 8,446 2,951 4,467
Raleigh, NC, Doubletree Guest Suites........ July 28, 1997 3,111 5,327 1,612 2,623
Tampa (Rocky Point), FL, Doubletree Guest
Suites.................................... July 28, 1997 3,407 5,499 1,785 2,703
Philadelphia (Society Hill), PA, Sheraton... (1) 6,316 12.384 3,031 5,883
------- -------- ------- -------
Total consolidated hotels............. $57,898 $137,463 $27,127 $63,070
======= ======== ======= =======
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites.................................... February 1, 1997 $ 600 $ 8,084 $ 274 $ 3,889
Austin (Airport North), TX, Embassy
Suites.................................... February 1, 1997 528 7,542 249 3,792
Covina, CA, Embassy Suites.................. February 1, 1997 417 4,053 158 1,293
Overland Park, KS, Embassy Suites........... February 1, 1997 403 5,624 176 2,641
Kansas City (Plaza), MO, Embassy Suites..... February 1, 1997 548 7,604 240 3,594
Raleigh, NC, Embassy Suites................. February 1, 1997 624 7,592 300 3,693
San Antonio (NW I-10), TX, Embassy Suites... February 1, 1997 337 5,614 120 2,487
Secaucus, NJ, Embassy Suites................ February 1, 1997 722 9,816 274 4,082
San Antonio (Airport), TX, Embassy Suites... May 16, 1997 2,874 7,235 1,280 3,113
------- -------- ------- -------
Total unconsolidated hotel
partnerships........................ $ 7,053 $ 63,164 $ 3,071 $28,584
======= ======== ======= =======
<CAPTION>
ANNUAL PERCENTAGE
LEASE TERMS
---------------------------
SUITE
FIRST SECOND REVENUE
DESCRIPTION OF PROPERTY TIER TIER BREAKPOINT
- ----------------------- ----- ------ ----------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest 17% 65% $2,468
Omaha, NE, Doubletree Guest Suite 17 65 1,703
Los Angeles (LAX North), Embassy 17 65 3,176
Dana Point, CA, Doubletree Guest 17 65 2,211
Troy, MI, Doubletree Guest Suites 17 65 1,935
Austin (Downtown), TX, Doubletree
Suites......................... 17 65 1,961
Baltimore (BWI), MD, Doubletree G
Suites......................... 17 65 2,536
Nashville, TN, Doubletree Guest S 17 65 1,585
Dallas Market Center, TX, Embassy 17 65 3,069
Syracuse, NY, Embassy Suites..... 17 65 3,227
Dallas (Park Central), TX, Sherat 17 65 4,997
Phoenix (Crescent), AZ, Sheraton. 17 65 5,175
Chicago (O'Hare), IL, Sheraton Ga
Suites......................... 17 65 1,602
Atlanta (Airport), GA, Sheraton G 17 65 4,215
Atlanta (Galleria), GA, Sheraton 17 65 3,185
Lake Buena Vista, FL, Doubletree
Suites......................... 17 65 2,272
Raleigh, NC, Doubletree Guest Sui 17 65 1,900
Tampa (Rocky Point), FL, Doubletr
Suites......................... 17 65 1,939
Philadelphia (Society Hill), PA, 17 65 5,143
Total consolidated hotels..
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, E
Suites......................... 17% 65% $2,949
Austin (Airport North), TX, Embas
Suites......................... 17 65 2,378
Covina, CA, Embassy Suites....... 17 65 3,066
Overland Park, KS, Embassy Suites 17 65 2,114
Kansas City (Plaza), MO, Embassy 17 65 2,976
Raleigh, NC, Embassy Suites...... 17 65 2,711
San Antonio (NW I-10), TX, Embass 17 65 2,474
Secaucus, NJ, Embassy Suites..... 17 65 4,788
San Antonio (Airport), TX, Embass 17 65 3,311
Total unconsolidated hotel
partnerships.............
</TABLE>
- ---------------
(1) Pending acquisition.
F-52
<PAGE> 153
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(D) Represents historical or pro forma income from unconsolidated partnerships
to the Company calculated by applying the Company's pro rata ownership
percentage to the net income of the unconsolidated partnerships, computed
using the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite revenues, food and beverage rents and food
and beverage revenues of all the hotels; historical taxes, insurance and
other; historical depreciation expense; and historical interest expenses.
The Company's cost in excess of net book value of the partnership assets is
deducted to arrive at income from unconsolidated partnerships. This
computation is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Statements of operations information:
Percentage lease revenue........................ $3,071 $28,584
Depreciation.................................... 1,262 12,536
Taxes, insurance and other...................... 531 3,166
Interest expense................................ 1,116 9,725
------- -------
Net income (loss)............................... 162 3,157
50% of income (loss) attributable to the
Company...................................... 81 1,579
Amortization of cost in excess of net book value
(See Note G)................................. (176) (1,271)
------- -------
Income (loss) from unconsolidated
partnerships................................. $ (95) $ 308
======= =======
</TABLE>
(E) Represents elimination of historical interest income earned on excess cash.
(F) Pro forma general and administrative expenses represent executive
compensation, legal, audit and other expenses. These amounts are based on
historical general and administrative expenses as well as probable 1997
expenses.
(G) Represents depreciation on the Hotels. Depreciation is computed based on
estimated useful lives of 40 years for buildings and improvements and five
years for furniture, fixtures and equipment. These estimated useful lives
are based on management's knowledge of the properties and the hotel industry
in general.
F-53
<PAGE> 154
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
The pro forma depreciation adjustment for the hotels acquired in 1997 and
for the year ended December 31, 1996 is as follows:
FELCOR SUITES LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET COST
-----------------------------------------------
DATE OF BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY ACQUISITION LAND IMPROVEMENTS AND FIXTURES TOTAL
- ----------------------- ----------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites...... February 1, 1997 $ 2,038 $ 17,731 $ 612 $ 20,381
Omaha, NE, Doubletree Guest Suites............ February 1, 1997 1,876 16,328 563 18,767
Los Angeles (LAX North), Embassy Suites....... February 18, 1997 2,208 19,205 662 22,075
Dana Point, CA, Doubletree Guest Suites....... February 21, 1997 1,787 15,545 536 17,868
Troy, MI, Doubletree Guest Suites............. March 20, 1997 2,957 25,794 887 29,638
Austin (Downtown), TX, Doubletree Guest
Suites...................................... March 20, 1997 2,506 21,858 752 25,116
Baltimore (BWI), MD, Doubletree Guest
Suites...................................... March 20, 1997 2,566 22,381 770 25,717
Nashville, TN Doubletree Guest Suites......... June 5, 1997 1,070 9,306 321 10,697
Dallas (Market Center), TX Embassy Suites..... June 30, 1997 2,910 25,317 873 29,100
Syracuse, NY Embassy Suites................... June 30, 1997 1,774 15,433 532 17,739
Atlanta (Airport), GA Sheraton Gateway........ June 30, 1997 3,006 26,151 902 30,059
Atlanta (Galleria), GA Sheraton Suites........ June 30, 1997 3,606 31,376 1,082 36,064
Chicago (O'Hare), IL Sheraton Gateway Suite... June 30, 1997 4,808 41,830 1,442 48,080
Dallas (Park Central), TX Sheraton............ June 30, 1997 5,012 43,603 1,503 50,118
Phoenix (Crescent), AZ Sheraton............... June 30, 1997 3,605 31,370 1,082 36,057
Lake Buena Vista, FL, Doubletree Guest
Suites...................................... July 28, 1997 2,986 25,978 896 29,860
Raleigh, NC, Doubletree Guest Suites.......... July 28, 1997 2,124 18,476 637 21,237
Tampa (Rocky Point), FL, Doubletree Guest
Suites...................................... July 28, 1997 2,142 18,640 643 21,425
Philadelphia (Society Hill), PA, Sheraton
hotel....................................... (1) 5,100 44,370 1,530 51,000
------- -------- ------- --------
Total consolidated hotels............... $54,081 $470,692 $16,225 $540,998
======= ======== ======= ========
<CAPTION>
ANNUAL DEPRECIATION EXPENSE
-------------------------------------
BUILDING AND FURNITURE
DESCRIPTION OF PROPERTY IMPROVEMENTS AND FIXTURES TOTAL
- ----------------------- ------------ ------------ -------
<S> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest $ 443 $ 122 $ 565
Omaha, NE, Doubletree Guest Suite 408 113 521
Los Angeles (LAX North), Embassy 480 132 612
Dana Point, CA, Doubletree Guest 389 107 496
Troy, MI, Doubletree Guest Suites 645 177 822
Austin (Downtown), TX, Doubletree
Suites......................... 546 150 696
Baltimore (BWI), MD, Doubletree G
Suites......................... 560 154 714
Nashville, TN Doubletree Guest Su 233 64 297
Dallas (Market Center), TX Embass 633 175 808
Syracuse, NY Embassy Suites...... 386 106 492
Atlanta (Airport), GA Sheraton Ga 654 180 834
Atlanta (Galleria), GA Sheraton S 784 217 1,001
Chicago (O'Hare), IL Sheraton Gat 1,046 288 1,334
Dallas (Park Central), TX Sherato 1,090 301 1,391
Phoenix (Crescent), AZ Sheraton.. 784 217 1,001
Lake Buena Vista, FL, Doubletree
Suites......................... 649 179 828
Raleigh, NC, Doubletree Guest Sui 462 127 589
Tampa (Rocky Point), FL, Doubletr
Suites......................... 466 130 594
Philadelphia (Society Hill), PA,
hotel.......................... 1,108 306 1,415
------- ------ -------
Total consolidated hotels.. $11,767 $3,245 $15,010
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION COST ANNUAL
DATE OF ACQUISITION IN EXCESS OF NET AMORTIZATION
ACQUISITION COST BOOK VALUE OF EXCESS COST
---------------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy Suites............ February 1, 1997 $ 9,620 $ 9,199 $ 230
Austin (Airport North), TX, Embassy Suites................ February 1, 1997 8,965 6,486 162
Covina, CA, Embassy Suites................................ February 1, 1997 2,229 (3,329) (83)
Overland Park, KS, Embassy Suites......................... February 1, 1997 5,673 4,928 123
Kansas City (Plaza), MO, Embassy Suites................... February 1, 1997 8,224 7,161 179
Raleigh, NC, Embassy Suites............................... February 1, 1997 9,739 8,764 219
San Antonio (NW I-10), TX, Embassy Suites................. February 1, 1997 4,768 3,445 86
Secaucus, NJ, Embassy Suites.............................. February 1, 1997 9,001 7,103 178
San Antonio (Airport), TX, Embassy Suites................. May 16, 1997 6,916 7,067 177
------- ------- -------
Total unconsolidated hotel partnerships............. $65,135 $50,824 $ 1,271
======= ======= =======
</TABLE>
- ---------------
(1) Pending acquisition
F-54
<PAGE> 155
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(H) Pro forma real estate, personal property tax, franchise taxes, property
insurance, ground lease and other expenses for the year ended December 31,
1996 represent expenses to be paid by the Partnership. Such amounts were
primarily derived from historical amounts paid with respect to the Hotels.
The six months ended June 30, 1997 real estate, personal property tax,
franchise taxes, property insurance, and ground lease expenses are computed
in a similar manner as the year ended December 31, 1996 pro forma
adjustments.
A schedule of property taxes and insurance derived from the historical
amounts paid for the hotels acquired in 1997 follows:
<TABLE>
<CAPTION>
PROPERTY TAXES PROPERTY INSURANCE
----------------------- -----------------------
SIX TWELVE SIX TWELVE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
DESCRIPTION OF PROPERTY 1997 1996 1997 1996
----------------------- -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Hotels:
Bloomington, MN, Doubletree Guest Suites... $ 59 $ 707 $ 1 $ 17
Omaha, NE, Doubletree Guest Suites......... 16 170 1 13
Los Angeles (LAX North), CA, Embassy
Suites.................................. 44 320 20 91
Dana Point, CA, Doubletree Guest Suites.... 2 62 2 13
Troy, MI, Doubletree Guest Suites.......... 91 354 5 21
Austin (Downtown), TX, Doubletree Guest
Suites.................................. 111 466 3 13
Baltimore (BWI), MD, Doubletree Guest
Suites.................................. 38 223 2 7
Lake Buena Vista, FL, Doubletree Guest
Suites.................................. 199 399 8 16
Raleigh, NC, Doubletree Guest Suites....... 77 149 7 14
Tampa (Rocky Point), FL, Doubletree Guest
Suites.................................. 118 237 19 39
Nashville, TN, Doubletree Guest Suites..... 36 75 3 8
Dallas Market Center, TX, Embassy Suites... 260 505 11 19
Syracuse, NY, Embassy Suites............... 167 329 9 16
Dallas (Park Central), TX, Sheraton........ 310 595 30 70
Phoenix Crescent, AZ, Sheraton............. 404 748 12 24
Chicago (O'Hare), IL, Sheraton Gateway
Suites.................................. 646 1,366 10 20
Atlanta (Airport), GA, Sheraton Gateway.... 216 443 12 25
Atlanta (Galleria), GA, Sheraton Suites.... 191 369 7 16
Philadelphia (Society Hill), PA,
Sheraton................................ 304 609 12 24
------ ------ ---- ----
Total consolidated hotels.......... $3,289 $8,126 $174 $466
====== ====== ==== ====
Unconsolidated Partnership Hotels:
Atlanta (Perimeter Center), GA, Embassy
Suites.................................. $ 22 $ 172 $ 2 $ 17
Austin (Airport North), TX, Embassy
Suites.................................. 41 435 2 17
Covina, CA, Embassy Suites................. 14 (810) 8 96
Overland Park, KS, Embassy Suites.......... 34 370 1 14
Kansas City (Plaza), MO, Embassy Suites.... 35 359 3 29
Raleigh, NC, Embassy Suites................ 17 171 1 16
San Antonio (NW I-10), TX, Embassy
Suites.................................. 35 385 1 15
Secaucus, NJ, Embassy Suites............... 47 560 2 22
San Antonio (Airport), TX, Embassy
Suites.................................. 174 418 8 18
------ ------ ---- ----
Total unconsolidated hotel
partnerships..................... $ 419 $2,060 $ 28 $244
====== ====== ==== ====
</TABLE>
F-55
<PAGE> 156
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(I) Represents both historical and pro forma interest expense computed based on
borrowings outstanding for the respective periods multiplied by the
applicable fixed or variable interest rate as stated in the applicable debt
instruments. The pro forma adjustment assumes additional borrowings against
the Line of Credit in the amount of $300.9 million were required in order
to finance the hotels purchased in 1997 through August 31, 1997, the
pending 1997 acquisition purchase, repayment of the $85 million term loan
and the debt offering at the weighted average interest rate of 7.85% per
annum. The variable interest rates used to calculate the pro forma
adjustment to interest expense were the same as the historical rates used
to calculate the outstanding borrowings on the Line of Credit for the same
respective periods ended December 31, 1996 and June 30, 1997. The period
end pro forma debt balances, average interest rates and pro forma interest
expense for the year end December 31, 1996 and June 30, 1997 follow:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit....................................... $ 82,557 7.30% $ 3,206(2)
Debt offering........................................ 300,000 7.85 23,545(2)
Renovation loan...................................... 25,000 7.27 852
Other debt payable................................... 1,550 6.75 3,520
Capital leases....................................... 12,875 12.50 1,706
-------- -------
$421,982 $32,829
======== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Line of Credit....................................... $ 73,728 7.75% $ 5,150
Debt Offering........................................ 300,000 7.85 11,773
Renovation loan...................................... 25,000 6.24 774
Other debt payable................................... 650 6.00 440
Capital leases....................................... 12,048 12.50 752
-------- -------
$411,426 $18,889
======== =======
</TABLE>
- ---------------
(1) Pro forma interest expense represents interest expense applicable to
the pro forma weighted average borrowings outstanding during the
periods presented which at times exceeds the pro forma borrowings
outstanding at the end of the periods.
(2) Pro forma weighted average borrowings under the Notes exceeded
historical weighted average borrowings under the Line of Credit for
much of 1996, resulting in additional interest expense relating to the
excess amount borrowed that could not be used to repay borrowings under
the Line of Credit. The pro forma statements of operations do not
include a pro forma adjustment to recognize interest income on such
excess cash and cash equivalents.
F-56
<PAGE> 157
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(J) Represents historical and pro forma minority interest expense related to 3
hotels in which the Company has a 90% general partnership interest.
Minority interest is calculated as 10% of net income computed using the
rent provisions of the Percentage Leases to the historical suite revenues;
historical taxes, insurance and other; historical depreciation expense; and
historical interest expenses. This computation is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue............................ $2,017 $9,087
Depreciation........................................ 671 3,521
Taxes, insurance and other.......................... 251 1,123
Interest expense.................................... 217 2,081
------ -------
Net income (loss) before minority interest.......... $ 878 $2,362
====== =======
Minority interest expense -- 10% of net income...... $ 88 $ 236
====== =======
</TABLE>
(K) The 1996 pro forma adjustment to preferred distributions assumes the Series
A Preferred Stock was issued on January 1, 1996. The adjustment reflects the
additional distributions that would have been paid in 1996 prior to May 6,
1996, the actual date of issuance.
(L) Pro forma income applicable to unitholders excludes the extraordinary
charge from write-off of deferred financing fees in the amount of
approximately $2,354,000 from the "Historical Partnership" for the year
ended December 31, 1996.
F-57
<PAGE> 158
FELCOR SUITES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
The following unaudited Pro Forma Consolidated Balance Sheet of FelCor
Suites Limited Partnership (the "Partnership") is presented as if the
acquisition of the hotels acquired through August 31, 1997, the pending
acquisition of one Sheraton hotel and the consummation of the 1997 equity and
proposed debt offerings and related transactions had occurred on June 30, 1997.
Such pro forma information is based in part upon the consolidated balance sheet
of the Partnership. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.
The following unaudited Pro Forma Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position of the Partnership
would have been assuming such transactions had been completed as of June 30,
1997, nor does it purport to represent the future financial position of the
Partnership.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Investment in hotels............................ $1,320,982 $ 122,622(A) $1,443,604
Investment in unconsolidated partnerships....... 126,714 126,714
Cash and cash equivalents....................... 13,394 13,394
Deposits........................................ 1,616 1,616
Due from Lessee................................. 9,059 9,059
Deferred expenses............................... 3,363 8,861(B) 12,224
Other assets.................................... 4,446 4,446
---------- ---------- ----------
Total assets.......................... $1,479,574 $ 131,483 $1,611,057
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Distributions payable........................... $ 2,949 $ 2,949
Accrued expenses and other liabilities.......... 6,379 6,379
Debt............................................ 302,650 $ 96,728(C) 399,378
Capital lease obligations....................... 12,048 12,048
Minority interest in other partnerships......... 8,164 8,164
---------- ---------- ----------
Total liabilities..................... 332,190 96,728 428,918
---------- ---------- ----------
Redeemable units, at redemption value........... 108,192 108,192
Preferred units................................. 151,250 151,250
Partners' capital............................... 887,942 34,755(D) 922,697
---------- ---------- ----------
Total liabilities and partners'
capital............................. $1,479,574 $ 131,483 $1,611,057
========== ========== ==========
</TABLE>
F-58
<PAGE> 159
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Increase represents the purchase of three Doubletree Guest Suites hotels on
July 28, 1997 and the pending acquisition of one Sheraton hotel.
(B) Increase represents deferred loan costs associated with the debt offering.
(C) Increase represents additional borrowings necessary to purchase the
Doubletree Guest Suites hotels on July 28, 1997 and the pending acquisition
hotel.
(D) Increase represents cash contributed from the issuance of additional units
associated with the exercise of the underwriters' overallotment option to
purchase common stock from the June 30, 1997 stock offering of FelCor Suite
Hotels, Inc.
F-59
<PAGE> 160
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C>
Investment in hotels, net of accumulated depreciation of
$58,411 at June 30, 1997.................................. $1,320,982
Investment in unconsolidated partnerships................... 126,714
Cash and cash equivalents................................... 13,394
Deposits.................................................... 1,616
Due from Lessee............................................. 9,059
Deferred expenses, net of accumulated amortization of $1,035
at June 30, 1997.......................................... 3,363
Other assets................................................ 4,446
----------
Total assets...................................... $1,479,574
==========
LIABILITIES AND PARTNERS' CAPITAL
Distributions payable....................................... $ 2,949
Accrued expenses and other liabilities...................... 6,379
Debt........................................................ 302,650
Capital lease obligations................................... 12,048
Minority interest in other partnerships..................... 8,164
----------
Total liabilities................................. 332,190
----------
Commitments and contingencies (Note 2)
Redeemable units, at redemption value....................... 108,192
Preferred units............................................. 151,250
Partners' capital........................................... 887,942
----------
Total liabilities and partners' capital........... $1,479,574
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE> 161
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $74,048 $47,385
Income from unconsolidated partnerships................... 3,427 485
Other income.............................................. 170 774
------- -------
Total revenue..................................... 77,645 48,644
------- -------
Expenses:
General and administrative................................ 1,846 848
Depreciation.............................................. 21,730 10,304
Taxes, insurance and other................................ 10,756 6,600
Interest expense.......................................... 12,914 4,513
Minority interest in other partnerships................... 142
------- -------
Total expenses.................................... 47,388 22,265
------- -------
Net income.................................................. 30,257 26,379
Preferred distributions..................................... 5,899 1,835
------- -------
Net income applicable to unitholders........................ $24,358 $24,544
======= =======
Per unit information:
Net income................................................ $ 0.84 $ 0.95
======= =======
Weighted average number of units outstanding.............. 28,886 25,843
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
<PAGE> 162
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 30,257 $ 26,379
Adjustments to reconcile net income to net cash provided
by
operating activities, net of effects of acquisitions:
Depreciation........................................... 21,730 10,304
Amortization of deferred financing fees and
organization costs.................................... 672 243
Amortization of unearned officers' and directors'
compensation.......................................... 510 177
Income from unconsolidated partnerships................ (3,427) (485)
Cash distributions from unconsolidated partnerships.... 1,402
Minority interest in other partnerships................ 142
Changes in assets and liabilities:
Due from Lessee........................................ (3,533) (1,355)
Deferred expenses and other assets..................... (4,225) (689)
Accrued expenses and other liabilities................. 168 (1,890)
--------- ---------
Net cash flow provided by operating activities.... 43,696 32,684
--------- ---------
Cash flows from investing activities:
Acquisition of hotels..................................... (409,587) (287,715)
Acquisition of interests in unconsolidated partnerships... (59,571)
Improvements and additions to hotels...................... (25,374) (30,944)
--------- ---------
Net cash flow used in investing activities........ (494,532) (318,659)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. 149,000 76,150
Repayment of borrowings................................... (72,900) (119,954)
Contributions............................................. 414,052 33,585
Contributions from preferred units........................ 151,250
Distributions paid........................................ (27,816) (16,825)
Distributions paid to preferred unitholders............... (5,899)
--------- ---------
Net cash flow provided by financing activities.... 456,437 124,206
--------- ---------
Net change in cash and cash equivalents..................... 5,601 (161,769)
Cash and cash equivalents at beginning of periods........... 7,793 166,821
--------- ---------
Cash and cash equivalents at end of periods................. $ 13,394 $ 5,052
========= =========
Supplemental cash flow information --
Interest paid............................................. $ 9,760 $ 3,966
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE> 163
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
FelCor Suites Limited Partnership (the "Partnership"), a Delaware limited
partnership, commenced operations on July 28, 1994. Simultaneously with the
closing of the initial public offering (the "IPO") of FelCor Suite Hotels, Inc.
("FelCor"), which is the sole general partner of the Partnership, contributed
the net proceeds of the IPO to the Partnership in exchange for an approximate
75% general partnership interest.
The Partnership owned six Embassy Suites(R) hotels (the "Initial Hotels")
with an aggregate of 1,479 suites, which it had acquired through a merger with
entities, originally formed in 1991, controlled by Hervey A. Feldman and Thomas
J. Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive
Officer of the Company, respectively.
At June 30, 1997, the Partnership owned interests in 67 hotels with an
aggregate of 16,357 suites/rooms (collectively the "Hotels") through its
consolidated subsidiaries (collectively, the "Company"). The Company owns 100%
equity interests in 49 of the Hotels (11,854 suites), a 90% or greater interest
in partnerships owning four hotels (1,041 suites), and 50% interests in separate
partnerships that own 14 hotels (3,462 suites). At June 30, 1997, 51 of the
Hotels were operated as Embassy Suites hotels, nine as Doubletree Guest
Suites(R) hotels, one as a Hilton Suites(R)hotel, one hotel was in the process
of conversion to an Embassy Suites hotel, three hotels were operated as
Sheraton(R) hotels and two were operated as Sheraton Suites(R) hotels. The
Hotels are located in 25 states, with 29 hotels in California, Florida and
Texas. The following table provides certain information regarding the Hotels
through June 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF HOTELS AGGREGATE
ACQUIRED NUMBER OF SUITES ACQUISITION PRICE
---------------- ---------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1994................................. 7 1,730 $ 107.3
1995................................. 13 2,649 237.1*
1996................................. 23 5,769 560.5**
1st Quarter 1997..................... 15 3,446 209.4***
2nd Quarter 1997..................... 9 2,715 264.9****
-- ------- --------
67 16,309 1,379.2
==
Additional suites constructed by the
Company............................ 48 5.3
------- --------
16,357 $1,384.5
======= ========
</TABLE>
- ---------------
* Includes the purchase price of the Company's 50% interest in an
unconsolidated partnership owning one hotel with 262 suites.
** Includes the purchase price of the Company's 50% interests in separate
unconsolidated partnerships owning four hotels with an aggregate 1,005
suites.
*** Includes the purchase price of the Company's 50% interests in separate
unconsolidated partnerships owning eight hotels with an aggregate 1,934
suites.
**** Includes the purchase price of the Company's 50% interest in an
unconsolidated partnership owning one hotel with 261 suites.
The Company completed construction and placed into service on July 1, 1997,
129 net additional suites, meeting rooms and other public area upgrades at its
Boston-Marlborough, Massachusetts hotel at an approximate cost of $15.8 million.
The Company has also begun construction on 67 suites at its Jacksonville,
Florida hotel and 67 suites at its Orlando (North), Florida hotel at an
aggregate projected cost of $10.2 million with an expected completion in early
1998.
F-63
<PAGE> 164
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases all of the Hotels to DJONT Operations, L.L.C. ("DJONT"),
or a consolidated subsidiary thereof (collectively, the "Lessee"), under
operating leases providing for the payment of percentage rent (the "Percentage
Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the
Board and President of the Company, respectively, beneficially own a 50% voting
equity interest in DJONT. The remaining 50% non-voting equity interest in DJONT
is beneficially owned by the children of Charles N. Mathewson, a director of the
Company and shareholder of the predecessor company. The Company's partners in
partnerships owning 12 of the Hotels hold special purpose non-voting equity
interests in the consolidated subsidiary of DJONT which leases such Hotels,
which interests entitle them to 50% of such subsidiary's net income before
overhead with respect to such Hotels. In addition, the Company's partner in a
partnership owning three of the Hotels holds a 50% non-voting equity interest in
the consolidated subsidiary of DJONT leasing those Hotels. See Note 2
Commitments and Related Party Transactions for additional discussion regarding
Lessee consolidated subsidiaries. The Lessee has entered into management
agreements pursuant to which 50 of the Hotels are managed by Promus Hotels, Inc.
("Promus"), nine of the Hotels are managed by a subsidiary of Doubletree Hotel
Corporation ("Doubletree"), five of the hotels are managed directly by, or by a
subsidiary of, ITT Sheraton Corporation ("Sheraton"), two of the Hotels are
managed by American General Hospitality, Inc. ("AGHI"), and one is managed by
Coastal Hotel Group, Inc. ("Coastal").
A brief discussion of the hotels acquired and other significant
transactions occurring in the six months ended June 30, 1997 follows:
- On February 3, 1997, FelCor sold three million shares of Common Stock to
the public, at $35.50 per share, pursuant to their omnibus shelf
registration statement ("Shelf Registration"), which provides for
offerings from time to time of up to an aggregate of $500 million in
securities, which may include its debt securities, preferred stock,
common stock and/or common stock warrants. FelCor received net proceeds
of approximately $100.7 million from this transaction and contributed the
proceeds to the Partnership. The proceeds from this offering were used to
immediately fund the acquisition of 10 hotels acquired on February 4,
1997.
- On February 4, 1997, the Company acquired 50% joint venture interests in
eight existing Embassy Suites hotels located in Atlanta, Georgia; Kansas
City, Missouri; Overland Park, Kansas; Raleigh, North Carolina; San
Antonio, Texas; Austin, Texas; Covina, California; and Secaucus, New
Jersey with a total of 1,934 suites for approximately $58 million,
subject to a 50% share of approximately $86 million in existing
non-recourse debt. Promus holds the remaining 50% joint venture interests
in these properties. The Company also acquired 100% ownership in two
Embassy Suites hotels located in Bloomington, Minnesota and Omaha,
Nebraska with a total of 408 suites for approximately $39 million. These
two hotels were subsequently converted to Doubletree Guest Suites hotels
on May 1, 1997.
- On February 19, 1997, the Company acquired the 215 suite Embassy
Suites -- Los Angeles Airport (LAX North) hotel for approximately $22
million from a Japanese-owned limited partnership which had filed for
bankruptcy. The hotel will remain an Embassy Suites hotel managed by
Promus.
- On February 21, 1997, the Company acquired the 198 suite Hilton Inn hotel
in Dana Point, California for approximately $17.2 million. The Dana Point
hotel will be converted to a Doubletree Guest Suites hotel by May 1997
and is managed by Doubletree.
- On March 10, 1997, the Company increased its unsecured revolving line of
credit ("Line of Credit") from $250 million to $400 million, under
substantially the same terms as the original Line of Credit, and agreed
upon a reduction in unused commitment fees from 35 basis points to 25
basis points. At the end of the first quarter of 1997, the Company had
drawn $243 million under the Line of Credit.
- On March 24, 1997, the Company acquired, through a 90% owned joint
venture, interests in three Doubletree Guest Suites hotels, totaling 691
suites, located in Troy, Michigan; Austin, Texas; and near the Baltimore
Washington International (BWI) Airport for approximately $80 million. The
Company
F-64
<PAGE> 165
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid approximately $72 million for its 90% ownership interest and
Doubletree paid approximately $8 million for its 10% limited partnership
interest. Doubletree will continue to manage the capitalized hotels.
- On May 15, 1997 the Company acquired a 50% partnership interest in the
261-suite Embassy Suites -- San Antonio Airport hotel for $1.7 million
cash and 139,286 Partnership Units, subject to the Company's share of
$12.4 million in existing non-recourse partnership debt. The remaining
50% interest in the hotel is owned by Promus, bringing to 12 the number
of hotels jointly owned with Promus. The hotel is managed by Promus.
- On June 5, 1997 the Company acquired the 138-suite Doubletree Guest
Suites hotel -- Nashville for $10.7 million in cash. This three story
hotel opened in 1988 and is the second hotel acquired by the Company in
Nashville, the other being the Embassy Suites -- Nashville Airport hotel
acquired by the Company in 1994. The hotel is managed by a subsidiary of
Doubletree.
- On June 30, 1997 FelCor issued a net of 9 million shares of its common
stock, after giving effect to the 1.2 million shares it repurchased from
Promus, at an offering price of $36.625 per share, providing net proceeds
of approximately $312.8 million which were contributed to the Company.
The proceeds of this offering were used to fund the acquisition of the
two Embassy Suites hotels and five Sheraton hotels which were acquired on
June 30, 1997 and were used to reduce debt outstanding under its Line of
Credit.
- On June 30, 1997 the Company acquired the 244-suite Embassy
Suites -- Dallas Market Center and the 215-suite Embassy
Suites -- Syracuse hotels from Promus for an aggregate cash purchase
price of $46.7 million. These acquisitions were the Company's first hotel
in New York and third hotel in Dallas, Texas. Both hotels are managed by
Promus.
- On June 30, 1997 the Company acquired five Sheraton hotels with a total
of 1,857 rooms and suites and approximately 85,000 square feet of meeting
space from Sheraton for an aggregate cash purchase price of $200.0
million. This portfolio of hotels included the Sheraton Suites hotels at
Chicago O'Hare Airport and at the Galleria in Atlanta, Georgia. Also
included in this portfolio were three traditional upscale full service
Sheraton hotels located at the Atlanta Airport, Dallas Park Central and
Phoenix Crescent. These three hotels represent the Company's first
acquisition of non-suite hotels. All of these hotels are managed by
Sheraton.
- The Company executed a definitive agreement to acquire the Doubletree
Guest Suite hotels located in Lake Buena Vista, Florida, Raleigh/Durham,
North Carolina and Tampa (Rocky Point), Florida from PSH Master L.P. I, a
publicly traded Master Limited Partnership. The closing occurred on July
31, 1997 following approval by the MLP's unitholders. All of these hotels
are managed by Doubletree.
- The Company and Promus announced the execution of a letter of intent
whereby Promus would develop five to ten Embassy Suites hotels in key
markets and the Company would acquire these hotels upon completion at a
price agreed upon prior to the commencement of construction.
- The Company completed the public space renovations at the Embassy Suites
hotels in Mandalay Beach and Napa, California.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and
should be read in conjunction with the audited financial statements and notes
thereto of the Company and the Lessee included herein. The notes to the
financial statements included herein highlight significant changes to the notes
included in the audited financial statements and present interim disclosures
required by the SEC.
F-65
<PAGE> 166
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUPPLEMENTAL CASH FLOW INFORMATION
In the first six months of 1997 the Company purchased certain assets and
assumed certain liabilities of hotels. These purchases were recorded under the
purchase method of accounting. The fair value of the acquired assets and
liabilities recorded at the date of acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired................................... $417,609
Minority interest contribution in other
partnerships.................................... (8,022)
--------
Net cash paid........................... $409,587
========
</TABLE>
In the first six months of 1997 the Company purchased interests in nine
unconsolidated partnerships that hold hotel properties. The hotels associated
with these unconsolidated subsidiaries are located in Atlanta (Perimeter), GA;
Austin, TX; Covina, CA; Kansas City (Plaza), MO; Overland Park, KS; Raleigh, NC;
San Antonio, TX; San Antonio (Airport), TX; and Secaucus, NJ.
These purchases were recorded under the equity method of accounting. The
value of the assets recorded at the date of acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired.................................... $64,672
Partnership units issued........................... (5,101)
-------
Net cash paid............................ $59,571
=======
</TABLE>
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Upon final completion of the conversion of one hotel, the Hotels will
operate as Embassy Suites (52), Doubletree Guest Suites (9), Sheraton Suites
(2), Sheraton (3) and Hilton Suites (1) hotels. The Embassy Suites hotels and
Hilton Suites hotel will operate pursuant to franchise license agreements which
require the payment of fees based on a percentage of suite revenue. These fees
are paid by the Lessee. There are no separate franchise license agreements with
respect to the Doubletree Guest Suites hotels, Sheraton hotels or Sheraton
Suites hotels, which rights are included in the management agreement.
The Hotels are managed by Promus (50), Doubletree (9), Sheraton (5), AGHI
(2) and Coastal (1) on behalf of the Lessee. The Lessee generally pays the
managers a base management fee based on a percentage of total revenue and an
incentive management fee based on the Lessee's net income before overhead
expenses.
The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels), 2006 (19
hotels) and 2007 (15 hotels). The rental income under the Percentage Leases
between the 14 unconsolidated partnerships, of which the Company owns 50%, and
the Lessee are payable to the respective partnerships and as such is not
included in the following schedule of future lease commitments to the Company.
Minimum future rental income (i.e., base rents) to the Company under these
noncancellable operating leases at June 30, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1997................................. $ 47,032
1998.............................................. 94,467
1999.............................................. 94,467
2000.............................................. 94,466
2001.............................................. 94,466
2002 and thereafter............................... 466,588
--------
$891,486
========
</TABLE>
F-66
<PAGE> 167
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minority equity interests in two of DJONT's consolidated subsidiaries,
which relate to a total of 15 of the Hotels, are held by unrelated third
parties. These two subsidiaries have entered into separate revolving credit
agreements with an affiliate of Messrs. Feldman and Corcoran and/or the holders
of such minority equity interests or affiliates thereof, which provide these
subsidiaries with the right to borrow up to an aggregate of $9.0 million, to the
extent necessary to enable them to pay rent and other obligations due under the
Percentage Leases relating to such Hotels. Amounts borrowed thereunder, if any,
will be subordinate to the payment of rent and other obligations under such
Percentage Leases. No loans were outstanding under such agreements at June 30,
1997.
4. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations at June 30, 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Line of Credit.................................... $192,000
Term loan......................................... 85,000
Renovation loan................................... 25,000
Other debt payable................................ 650
--------
$302,650
========
</TABLE>
In March 1997, the Company increased its unsecured Line of Credit from $250
million to $400 million under substantially the same terms as the original Line
of Credit obtained in September 1996. As of August 14, 1997, the Company amended
its existing unsecured Line of Credit to increase availability to $550 million,
extend the term by one year to September 30, 2000 and to reduce the effective
interest rate. Interest payable on borrowings under the Line of Credit is
variable, determined from a ratings-based pricing matrix, and at June 30, 1997,
was at LIBOR plus 175 basis points.
The Company had an $85 million collateralized term loan outstanding at June
30, 1997. This term loan bears interest at LIBOR plus 150 basis points. Also
outstanding at June 30, 1997 was a renovation loan of $25 million that bears
interest at LIBOR plus 45 basis points. At June 30, 1997, 30 day LIBOR was
5.71875%.
Under its loan agreements the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at June 30, 1997.
Capital lease obligations at June 30, 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Capital land and building lease obligations........ $ 9,506
Capital equipment lease obligations................ 2,542
-------
$12,048
=======
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
At June 30, 1997, the Company owned 50% interests in separate partnerships,
including accounting for the acquisition by the Company owning 14 hotels, a
parcel of undeveloped land and a condominium management company. The Company is
accounting for its investments in these unconsolidated partnerships under the
equity method.
F-67
<PAGE> 168
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Balance sheet information:
Partnership assets (primarily hotel assets)..... $393,031
Non-recourse mortgage debt...................... $159,372
Equity.......................................... $253,428
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Statement of operations information:
Percentage lease revenue........................ $23,729 $1,771
Expenses:
Depreciation................................. 7,214 600
Taxes, insurance and other................... 3,178 163
Interest expense............................. 5,001
------- ------
Total expenses.......................... 15,393 763
------- ------
Net income...................................... $ 8,336 $1,008
======= ======
50% of net income attributable to the Company... $ 4,168 $ 504
Amortization of cost in excess of book value.... (741) (19)
------- ------
Income from unconsolidated partnerships......... $ 3,427 $ 485
======= ======
</TABLE>
6. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the six months
ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Real estate and personal property taxes........... $ 8,833 $5,018
Property insurance................................ 863 618
Land lease expense................................ 660 601
State franchise taxes............................. 300 330
Other............................................. 100 33
------- ------
Total taxes, insurance and other........ $10,756 $6,600
======= ======
</TABLE>
7. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations for
the six months ended June 30, 1997 and 1996 are presented as if the acquisitions
of all hotels owned by the Company at June 30, 1997, the equity offerings (and
subsequent contribution of proceeds to the Company) consummated during 1996 and
1997 and the purchase of three hotels on July 31, 1997 (see Note 9) had occurred
as of January 1, 1996 and the Hotels had all been leased to the Lessee pursuant
to Percentage Leases. Such pro forma information is based in part upon the
Consolidated Statements of Operations of the Company and pro forma
F-68
<PAGE> 169
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Operations of the Lessee included elsewhere in these financial
statements. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed on January 1, 1996, nor does it purport to represent the results of
operations for future periods.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues:
Percentage lease revenue.................................. $ 99,562 $89,209
Income from unconsolidated partnerships................... 3,316 3,023
-------- -------
Total revenue..................................... 102,878 92,232
-------- -------
Expenses:
General and administrative................................ 2,046 1,648
Depreciation.............................................. 27,770 17,802
Taxes, insurance and other................................ 14,317 13,940
Interest expense.......................................... 15,520 12,627
Minority interest in other partnerships................... 230 260
-------- -------
Total expenses.................................... 59,883 46,277
-------- -------
Net income.................................................. 42,995 45,955
Preferred distributions..................................... 5,899 5,899
-------- -------
Net income applicable to unitholders........................ $ 37,096 $40,056
======== =======
Per unit information:
Net income................................................ $ 0.94 $ 1.02
======== =======
Weighted average number of units outstanding.............. 39,472 39,412
======== =======
</TABLE>
Depreciation and interest expense increased from 1996 to 1997 due to
approximately $71 million in capital expenditures made in 1996 and placed in
service in late 1996 or early 1997.
F-69
<PAGE> 170
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONSOLIDATING FINANCIAL INFORMATION
FelCor/CSS Holdings, L.P.; FelCor/St. Paul Holdings, L.P.; and FelCor/LAX
Holdings, L.P. (collectively "Subsidiary Guarantors") are subsidiaries of the
Partnership that are guarantors of the proposed debt offering. The following
tables show consolidating information for the Subsidiary Guarantors.
<TABLE>
<CAPTION>
CONSOLIDATED
FELCOR/ NON- FELCOR SUITES
FELCOR/CSS ST. PAUL FELCOR/LAX GUARANTOR LIMITED
HOLDINGS, L.P. HOLDINGS, L.P. HOLDINGS, L.P. SUBSIDIARIES PARTNERSHIP
-------------- -------------- -------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Selected balance sheet data, at
June 30, 1997:
Investment in hotels, net of
depreciation................. $538,481 $21,991 $22,835 $737,675 $1,320,982
Capitalized lease liability..... 1,924 9,568 232 324 12,048
Partners' Capital............... 536,557 12,423 22,603 316,359 887,942
Selected operating statement data,
for the six months ended June
30, 1997
Percentage lease revenue........ $ 33,725 $ 983 $ 1,954 $ 37,386 $ 74,048
Property tax expense............ 4,246 306 151 4,130 8,833
Property insurance expense...... 524 9 63 267 863
Interest expense................ 221 454 30 12,209 12,914
Depreciation expense............ 11,090 748 1,214 8,678 21,730
</TABLE>
9. SUBSEQUENT EVENTS
On July 1, 1997, the Company declared a distribution of $0.50 per unit and
$0.4875 per preferred unit, which was paid on July 30, 1997 to holders of record
on July 15, 1997.
In conjunction with the 10.2 million share stock offering completed on June
30, 1997, FelCor issued an additional 1 million shares of its common stock
pursuant to the underwriters' exercise of the overallotment option on July 15,
1997, with additional net proceeds of approximately $34.8 million which were
subsequently contributed to the Company.
On July 31, 1997 the Company acquired three Doubletree Guest Suites hotels,
totaling 635 suites, located in Lake Buena Vista, Florida; Raleigh/Durham, North
Carolina; and Tampa (Rocky Point), Florida. The Company paid approximately $71.2
million in cash. Doubletree will continue to manage the hotels.
F-70
<PAGE> 171
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Suite Hotels, Inc.
We have audited the accompanying consolidated financial statements and the
financial statement schedule of FelCor Suites Limited Partnership. These
financial statements and financial statement schedule are the responsibility of
FelCor Suite Hotels, Inc.'s (the "Company") 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FelCor Suites Limited Partnership as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 and the period from July 28, 1994 (inception of
operations) through December 31, 1994 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 22, 1997
except as to the information
presented in the second paragraph
of Note 5, the first paragraph of
Note 6 and Note 16 for which the
date is March 10, 1997
F-71
<PAGE> 172
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of
$36,718 in 1996 and $10,244 in 1995....................... $899,691 $325,155
Investment in unconsolidated partnerships................... 59,867 13,819
Cash and cash equivalents................................... 7,793 166,821
Deposits and prepayments.................................... 1,616 35,317
Due from Lessee............................................. 5,526 2,396
Deferred expenses, net of accumulated amortization of $364
in 1996 and $252 in 1995.................................. 3,235 1,713
Other assets................................................ 1,060 3,138
-------- --------
Total assets...................................... $978,788 $548,359
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Distributions payable....................................... $ 16,090 $ 4,918
Accrued expenses and other liabilities...................... 5,235 3,552
Debt........................................................ 226,550 8,410
Capital lease obligations................................... 12,875 11,256
-------- --------
Total liabilities................................. 260,750 28,136
-------- --------
Commitments and contingencies (Notes 5 and 9)
Redeemable units, at redemption value....................... 98,542 74,790
Preferred units............................................. 151,250
Partners' capital........................................... 468,247 445,433
-------- --------
Total liabilities and partners' capital........... $978,789 $548,359
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-72
<PAGE> 173
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue.............................. $ 97,950 $23,787 $6,043
Income from unconsolidated partnerships............... 2,010 513
Other income.......................................... 984 1,691 207
-------- ------- ------
Total revenues................................ 100,944 25,991 6,250
-------- ------- ------
Expenses:
General and administrative............................ 1,819 870 355
Depreciation.......................................... 26,544 5,232 1,487
Taxes, insurance and other............................ 13,897 2,563 881
Interest expense...................................... 9,803 2,004 109
-------- ------- ------
Total expenses................................ 52,063 10,669 2,832
-------- ------- ------
Income before extraordinary charge...................... 48,881 15,322 3,418
Extraordinary charge from write off of deferred
financing
fees.................................................. 2,354
-------- ------- ------
Net income.............................................. 46,527 15,322 3,418
Preferred distributions................................. 7,734
-------- ------- ------
Net income applicable to unitholders.................... $ 38,793 $15,322 $3,418
======== ======= ======
Per unit information:
Net income applicable to unit holders before
extraordinary charge............................... $ 1.58 $ 1.70 $ 0.54
Extraordinary charge.................................. 0.09
-------- ------- ------
Net income............................................ $ 1.49 $ 1.70 $ 0.54
======== ======= ======
Weighted average number of units outstanding.......... 26,037 8,956 6,385
======== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-73
<PAGE> 174
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM MAY 16, 1994 THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
-----------------
<S> <C>
Contributions............................................... $ 59,694
Distributions declared...................................... (4,194)
Allocations to redeemable units............................. 2,967
Net income.................................................. 3,418
--------
Balance, December 31, 1994.................................. 61,885
Contributions............................................... 402,554
Distributions declared...................................... (17,593)
Allocation to redeemable units.............................. (16,735)
Net income.................................................. 15,322
--------
Balance at December 31, 1995................................ 445,433
Contributions............................................... 44,483
Distributions declared...................................... (57,892)
Allocation to redeemable units.............................. (10,304)
Net income.................................................. 46,527
--------
Balance, December 31, 1996.................................. $468,247
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-74
<PAGE> 175
FELCOR SUITES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS) THROUGH DECEMBER 31,
1994
( IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 46,527 $ 15,322 $ 3,418
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation...................................... 26,544 5,385 1,487
Amortization of deferred financing fees and
organization costs.............................. 554 228 24
Amortization of unearned officers' and directors'
compensation.................................... 506 158 85
Income from unconsolidated partnerships........... (2,010) (513)
Cash distributions from unconsolidated
partnerships.................................... 1,954
Extraordinary charge for write off of deferred
financing fees.................................. 2,354
Fully vested officer stock grant.................. 108
Changes in assets and liabilities:
Due from Lessee................................... (3,130) (1,137) (1,259)
Deferred costs and other assets................... 353 (2,217) (407)
Accrued expenses and other liabilities............ 280 741 611
--------- --------- ---------
Net cash flow provided by operating
activities................................. 73,932 18,075 3,959
--------- --------- ---------
Cash flows from investing activities:
Acquisition of hotels................................ (365,907) (219,164) (23,550)
Prepayments under purchase agreements................ (21,701)
Acquisition of unconsolidated partnerships........... (43,424) (13,166)
Improvements and additions to hotels................. (71,051) (5,166) (77,243)
--------- --------- ---------
Net cash flow used in investing activities... (480,382) (259,197) (100,793)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings............................. 303,350 128,600 8,800
Repayment of borrowings.............................. (193,954) (129,850)
Deferred financing fees.............................. (4,484) (1,072) (721)
Contributions........................................ 37,980 423,628 91,610
Proceeds from sale of preferred units................ 151,250
Distributions paid to unitholders.................... (41,936) (14,481) (1,737)
Distributions paid to preferred unitholders.......... (4,784)
--------- --------- ---------
Net cash flow provided by financing
activities................................. 247,422 406,825 97,952
--------- --------- ---------
Net change in cash and cash equivalents................ (159,028) 165,703 1,118
Cash and cash equivalents at beginning of periods...... 166,821 1,118
--------- --------- ---------
Cash and cash equivalents at end of years.............. $ 7,793 $ 166,821 $ 1,118
========= ========= =========
Supplemental cash flow information -- interest paid.... $ 9,168 $ 1,467
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-75
<PAGE> 176
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Suites Limited Partnership (the "Partnership"), a Delaware limited
partnership, commenced operations on July 28, 1994. Simultaneously with the
closing of the initial public offering (the "IPO") of FelCor Suite Hotels, Inc.
("FelCor"), which is the sole general partner of the Partnership, contributed
the net proceeds of the IPO to the Partnership in exchange for an approximate
75% general partnership interest.
The Partnership owned six Embassy Suites(R) hotels (the "Initial Hotels")
with an aggregate of 1,479 suites, which it had acquired through a merger with
entities, originally formed in 1991, controlled by Hervey A. Feldman and Thomas
J. Corcoran, Jr., the Chairman of the Board of Directors and Chief Executive
Officer of the Company, respectively.
At December 31, 1996, FelCor Suite Hotels, Inc. and its consolidated
subsidiaries (collectively the "Company") owned interests in 43 hotels with an
aggregate of 10,196 suites (collectively the "Hotels"). The Company owns 100%
equity interests in 37 of the Hotels, a 97% interest in the partnership that
owns the Los Angeles International Airport hotel and 50% interests in separate
partnerships that own five hotels. At December 31, 1996, 39 of the Hotels are
operated as Embassy Suites hotels, two as Doubletree Guest Suites(R) hotels, one
as a Hilton Suites(R) hotel and one hotel is in the process of being converted
to an Embassy Suites hotel. The Hotels are located in 16 states, with 17 hotels
in California and Florida. The following table provides certain information
regarding the Company's Hotels acquired through December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER AGGREGATE
HOTELS ACQUIRED OF SUITES ACQUISITION PRICE
--------------- --------- ---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1994
Initial Hotels............................ 6 1,479 $ 81.5
4th Quarter............................... 1 251 25.8
1995
1st Quarter............................... 2 350 27.4
2nd Quarter............................... 1 100 9.4
3rd Quarter............................... 3 542 31.3*
4th Quarter............................... 7 1,657 169.0
1996
1st Quarter............................... 14 3,501 383.5
2nd Quarter............................... 3 691 68.1
3rd Quarter............................... 4 1,005 30.8**
4th Quarter............................... 2 572 78.1
-- ------ -------
43 10,148 904.9
==
Additional suites constructed by the
Company at Hotels....................... 48 5.3
------ -------
10,196 $910.2
====== =======
</TABLE>
- ---------------
* Includes the purchase price of the Company's 50% interest in the
unconsolidated partnership owning the 262 suite, Chicago-Lombard, Illinois
hotel.
** Represents the purchase price of the Company's 50% interest in separate
unconsolidated partnerships owning hotels in Marin County, California;
Parsippany, New Jersey; Charlotte, North Carolina; and Indianapolis, Indiana,
with an aggregate 1,005 suites.
In addition, the Company has started construction on 129 net additional
suites, meeting rooms and other public area upgrades at one of the Hotels, at an
estimated cost of $15.8 million.
F-76
<PAGE> 177
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leased all of the Hotels to DJONT Operations, L.L.C. or a
consolidated subsidiary (collectively the "Lessee") under operating leases
providing for the payment of percentage rent (the "Percentage Leases"). Messrs.
Feldman and Corcoran beneficially own 50% of the common equity interest in the
Lessee. The remaining 50% of the Lessee is beneficially owned by the children of
Charles N. Mathewson, a director of the Company. The Lessee has entered into
management agreements pursuant to which 38 of the Hotels are managed by Promus
Hotels, Inc. ("Promus"), two of the Hotels are managed by a subsidiary of
Doubletree Hotel Corporation ("Doubletree"), two of the Hotels are managed by
American General Hospitality, Inc. ("AGHI") and one is managed by Coastal Hotel
Group, Inc. ("Coastal").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Partnership and the Holdings Partnerships as
described in Note 8. All significant intercompany balances and transactions have
been eliminated.
Investment in Hotels -- Hotels are stated at cost and are depreciated using
the straight-line method over estimated useful lives ranging from 31-40 years
for buildings and improvements and 5 to 7 years for furniture, fixtures and
equipment.
The Company reviews the carrying value of each hotel to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel or that depreciation periods should be modified. If
facts or 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 and determine if the investment in such hotel 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. The Company does not believe that there are any
factors or circumstances indicating impairment of any of its investment in
hotels.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the related gain or loss is included in operations.
Investment in Unconsolidated Partnerships -- The Company carries its
investment in unconsolidated partnerships at cost, plus its equity in net
earnings, less distributions received since the date of acquisition. Equity in
net earnings is being adjusted for the straight-line amortization, over a 40
year period, of the difference between the Company's cost and its proportionate
share of the underlying net assets at date of acquisition.
Cash and Cash Equivalents -- All highly liquid investments with a maturity
of three months or less when purchased are considered to be cash equivalents.
Deposits and Prepayments -- Deposits and prepayments at December 31, 1996
consist of deposits associated with the capitalized land and building lease
further described in Note 5. At December 31, 1995 the deposits and prepayments
consisted of the aforementioned deposits and prepayments associated with hotel
purchases.
F-77
<PAGE> 178
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Expenses -- Deferred expenses at December 31, 1996 and 1995
consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Organization costs................................. $ 349 $ 172
Deferred financing fees............................ 3,250 1,793
------ ------
3,599 1,965
Accumulated amortization........................... (364) (252)
------ ------
$3,235 $1,713
====== ======
</TABLE>
Amortization of organization costs is computed using the straight-line
method over three to five years. Amortization of deferred financing fees is
computed using the interest method over the maturity of the loans.
Revenue Recognition -- Percentage lease revenue is recognized when earned
from the Lessee under the Percentage Lease agreements (Note 9). The Lessee is in
compliance with its obligations under the Percentage Leases.
Net Income Per Unit -- Net income per unit has been computed by dividing
net income applicable to unitholders by the weighted average number of units
outstanding.
Distributions -- The Partnership pays regular quarterly distributions on
its units. Additionally, the Partnership pays regular quarterly dividends on
preferred units in accordance with its preferred unit dividend requirements.
Income Taxes -- No provision for income taxes is provided since all taxable
income or loss or tax credits are passed through to the partners.
FelCor qualifies as a real estate investment trust ("REIT") and generally
will not be subject to federal income tax to the extent it distributes its REIT
taxable income to shareholders. REITs are subject to a number of organizational
and operational requirements. If FelCor fails to qualify as a REIT in any
taxable year, FelCor will be subject to federal income tax on its taxable income
at regular corporate rates. 3. INVESTMENT IN HOTELS
Investment in hotels at December 31, 1996 and 1995 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land........................................... $ 89,106 $ 31,123
Building and improvements...................... 744,758 279,349
Furniture, fixtures and equipment.............. 77,526 19,704
Construction in progress....................... 25,019 5,223
-------- --------
936,409 335,399
Accumulated depreciation....................... (36,718) (10,244)
-------- --------
$899,691 $325,155
======== ========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
The Company owned 50% interests in separate partnerships owning five
hotels, a parcel of undeveloped land and a condominium management company at
December 31, 1996 and one hotel at December 31, 1995. The Company is accounting
for its investments in these unconsolidated partnerships under the equity
method.
F-78
<PAGE> 179
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized combined financial information for unconsolidated partnerships,
of which the Company owns 50%, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Balance sheet information:
Investment in hotels.......................... $110,394 $23,385
Non-recourse mortgage debt.................... $ 49,402
Equity........................................ $ 91,156 $24,609
Statement of operations information:
Percentage lease revenue...................... $ 9,974 $ 1,420
Net income.................................... $ 4,366 $ 1,050
</TABLE>
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt at December 31, 1996 and 1995 consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- ------
<S> <C> <C>
Line of Credit................................... $115,000
Term loan........................................ 85,000
Renovation Loan.................................. 25,000
Promus note related to CSS purchase.............. $7,500
Other debt payable............................... 1,550 910
-------- ------
$226,550 $8,410
======== ======
</TABLE>
On September 30, 1996 the Company obtained a $250 million unsecured
revolving credit facility ("Line of Credit"). Under this facility, the Company
has the right to borrow up to $250 million based upon its ownership of
qualifying unencumbered hotel assets until October 1, 1999, at which time the
principal amount then outstanding will be due and payable. Interest payable on
borrowings is variable, determined from a ratings based pricing matrix,
initially set at LIBOR plus 175 basis points and is paid current throughout the
year. Additionally, the Company is required to pay an unused commitment fee
which is variable, determined from a ratings based pricing matrix, initially set
at 35 basis points. The Company paid unused commitment fees of approximately
$164,000 during 1996. At December 31, 1996, the line of credit interest rate was
7.25%.
On March 10, 1997 the Company announced that it increased its Line of
Credit from $250 million to $400 million which included a reduction in unused
commitment fees from 35 basis points to 25 basis points, under substantially the
same terms as the original Line of Credit.
Simultaneous with the closing of the Line of Credit in September, 1996, the
Company retired a $65 million collateralized term loan and replaced an existing
$100 million collateralized revolving credit facility with an $85 million
four-year collateralized term loan. This term loan bears interest at LIBOR plus
150 basis points, interest is paid current throughout the year, and the note is
collateralized by interests in nine of the Company's hotels. Principal payments
commence on October 1, 1997 and are based on a 15 year amortization schedule,
adjusted annually for the then current interest rates. All outstanding principal
and accrued interest is due and payable on September 30, 2000. At December 31,
1996 the term loan interest rate was 7.125%.
The Company has a $25 million loan facility ("Renovation Loan") which has
been used to fund a portion of the renovation cost of the CSS Hotels (Note 8)
converted to Embassy Suites hotels. The facility is guaranteed by Promus, bears
interest at LIBOR plus 45 basis points (6.08% at December 31, 1996), requires
F-79
<PAGE> 180
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
monthly interest payments, and quarterly principal payments of $1.25 million
beginning June 1999 and matures in June 2000.
Under its loan agreements, the Company is required to satisfy various
affirmative and negative covenants. The Company was in compliance with these
covenants at December 31, 1996.
During the fourth quarter of 1996, the Company entered into two separate
interest rate swap agreements to manage the relative mix of its debt between
fixed and variable rate instruments. These interest rate swap agreements modify
a portion of the interest characteristics of the Company's outstanding debt
without an exchange of the underlying principal amount and effectively convert
variable rate debt to a fixed rate. The fixed rates to be paid, the effective
fixed rate, and the variable rate to be received by FelCor at December 31, 1996
are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/96 MATURITY
- --------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
50 million 6.11125% 7.61125% 5.53516% October 1999
25 million 5.95500% 7.45500% 5.5000% November 1999
</TABLE>
The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which is limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
Capital lease obligations at December 31, 1996 and 1995 consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Capital land and building lease obligations...... $ 9,675 $10,043
Capital equipment lease obligations.............. 3,200 1,213
------- -------
$12,875 $11,256
======= =======
</TABLE>
The Company assumed the obligation for a capital industrial revenue bond
lease for land and building associated with the purchase of the Embassy Suites
hotel -- St. Paul in November 1995. The term of the lease is through August 31,
2011 and contains a provision that allows the Company to purchase the property
at the termination of the lease, under certain conditions, for a nominal amount.
The Company assumed various capital equipment leases associated with hotels
purchased in 1995 and 1996. These capital leases are generally for telephones
and televisions and vary in remaining terms from one year to four years.
F-80
<PAGE> 181
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under capital leases at December 31, 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997............................................... $ 3,297
1998............................................... 2,731
1999............................................... 1,464
2000............................................... 1,300
2001............................................... 1,217
2002 and thereafter................................ 11,770
-------
21,779
Executory costs.................................... (846)
Imputed interest................................... (8,058)
-------
Present value of net minimum lease payments........ $12,875
=======
</TABLE>
The Company's charter limits consolidated indebtedness to 40% of the
Company's investment in hotels, at cost, on a consolidated basis, after giving
effect to the Company's use of proceeds from any indebtedness. For purposes of
this limitation, the Company's consolidated indebtedness includes borrowings and
capital lease obligations and consolidated investment in hotels, at cost, is its
investment, at cost, in hotels, as reflected in its consolidated financial
statements plus (to the extent not otherwise reflected) the value (as determined
by the Board of Directors of the general partner at the time of issuance) of any
equity securities issued, otherwise than for cash, by the Company or any of its
subsidiaries in connection with the acquisition of hotels. Under this definition
as of December 31, 1996, the Company's investment in hotels at cost was $1.0
billion. Accordingly, the Company's maximum permitted indebtedness would have
been approximately $400 million (of which $239 million was borrowed at December
31, 1996). Assuming all of this additional debt capacity, and the Company's
available cash and cash equivalents were used for the acquisition of additional
hotels, the Company's investment in hotels would increase to approximately $1.3
billion and the maximum permitted indebtedness would increase to approximately
$525 million.
6. PARTNERS' CAPITAL
At December 31, 1996 FelCor had completed the following public offerings
the proceeds of which were contributed to the Company:
<TABLE>
<CAPTION>
OFFERING PRICE
SECURITY DATE COMPLETED PER SHARE SHARES SOLD NET PROCEEDS
-------- ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Common Stock (Initial
Public Offering)........ July 28, 1994 $21.25 4,686,250 $91.6 million
Common Stock.............. May 30, 1995 $25.00 3,450,000 $81.0 million
Common Stock.............. December 20, 1995 $26.50 12,650,000 $312.6 million
Preferred Stock........... May 6, 1996 $25.00 6,050,000 $144.3 million
</TABLE>
On April 25, 1996, the SEC declared effective FelCor's omnibus shelf
registration statement ("Shelf Registration"), which provides for offerings by
FelCor from time to time of up to an aggregate of $500 million in securities,
which may include its debt securities, preferred stock, common stock and/or
common stock warrants. FelCor had issued approximately $151 million under the
Shelf Registration at December 31, 1996 leaving approximately $349 million
available. In February 1997, FelCor issued approximately $107 million in common
stock under the Shelf Registration.
F-81
<PAGE> 182
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Units
FelCor's Board of Directors is authorized to provide for the issuance of up
to 10,000,000 shares of Preferred Stock in one or more series, to establish the
number of shares in each series and to fix the designation, powers preferences,
and rights of each such series and the qualifications, limitations or
restrictions thereof. On May 6, 1996, FelCor completed an offering, pursuant to
the Shelf Registration of six million shares of its $1.95 Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") at $25 per share. An
additional fifty thousand shares of Series A Preferred Stock were issued at $25
per share pursuant to the exercise of the underwriters' over-allotment option.
The Series A Preferred Stock bears an annual dividend equal to the greater of
$1.95 per share (yielding 7.8% based on the $25 purchase price) or the cash
distributions declared or paid for the corresponding period on the number of
shares of common stock into which the Series A Preferred Stock is then
convertible and is cumulative from May 6, 1996. Each share of the Series A
Preferred Stock is convertible at the shareholder's option to 0.7752 shares of
common stock, subject to certain adjustments, and may not be redeemed by FelCor
before April 30, 2001. At December 31, 1996, all dividends then payable on the
Preferred Stock had been paid. All preferred stock proceeds have been
contributed to the Partnership in exchange for preferred units.
Common Stock
In addition to the aforementioned public offerings of Common Stock, Promus
purchased an aggregate of approximately 1.9 million shares of Common Stock,
pursuant to subscription agreements, during 1995 and 1996 at a subscription
price of $26.50 per share for an aggregate cost of $50 million which was then
contributed to the Partnership. Promus has satisfied its commitment to purchase
Common Stock under the aforementioned subscription agreements. The proceeds of
these subscription agreements were contributed to the Partnership.
Partnership Units
The outstanding units of limited partnership interests in the Partnership
("Units") are redeemable at the option of the holder for a like number of shares
of Common Stock of FelCor Suite Hotels, Inc. or, at the option of FelCor, for
the cash equivalent thereof. Due to these redemption rights, these limited
partnership units have been excluded from partners' capital included in
redeemable units and measured at redemption value as of the end of the periods
presented.
Pursuant to a subscription agreement with Promus, the Partnership issued an
aggregate 1.0 million Units to Promus in November and December 1995, at the
subscription price of $25.00 per Unit. An aggregate of 491,703 additional
Partnership Units were issued to sellers in conjunction with the purchase of two
hotels and the acquisition of partnership interests in two additional hotels in
1996. Promus has satisfied its commitment to purchase Units under the
aforementioned subscription agreement.
F-82
<PAGE> 183
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the years
ended December 31, 1996 and 1995 and for the period from July 28, 1994
(inception of operations) through December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ----
<S> <C> <C> <C>
Real estate and personal property taxes............. $11,110 $2,233 $620
Property insurance.................................. 1,312 155 69
Land lease expense.................................. 952
State franchise taxes............................... 472 175 192
Other............................................... 51
------- ------ ----
Total taxes, insurance and other.......... $13,897 $2,563 $881
======= ====== ====
</TABLE>
8. BUSINESS COMBINATION
On December 29, 1995 the Partnership acquired approximate 99% limited
partnership interests in entities ("Holdings Partnerships") formed to facilitate
the acquisition and financing of up to 18 Crown Sterling Suites(R) hotels ("CSS
Hotels") and certain other hotels pending the completion of a common stock
offering. Such common stock offering was completed on December 20, 1995 and at
that date the Holdings Partnerships had acquired six of the CSS Hotels and one
additional hotel.
A summary of the fair values of the acquired assets and liabilities of the
Holdings Partnerships recorded at the date of acquisition, at December 29, 1995,
is as follows (in thousands):
<TABLE>
<S> <C>
Investment in hotels.............................. $166,307
Prepayments under Purchase Agreements............. 13,616
Due from Lessee................................... 908
Other assets...................................... 715
--------
181,546
--------
Debt and capital lease obligations................ 11,266
Accrued expenses and other liabilities............ 1,657
--------
12,923
--------
Total purchase price.............................. $168,623
========
</TABLE>
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of the Holdings Partnerships since acquisition have been
included in the Company's consolidated statements of operations.
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS
After conversion of the Myrtle Beach hotel acquired in December 1996, the
Company will own interests in 40 Embassy Suites hotels, 2 Doubletree Guest
Suites hotels and one Hilton Suites hotel. The Embassy Suites hotels and the
Hilton Suites hotel operate pursuant to franchise license agreements, which
require the payment of fees based on a percentage of suite revenue. These fees
are paid by the Lessee. There are no separate franchise license agreements for
the Doubletree Guest Suites hotels.
The Hotels are managed by Promus, Doubletree, AGHI or Coastal on behalf of
the Lessee. The Lessee pays the managers a base management fee based on a
percentage of suite revenue and an incentive management fee based on the
Lessee's income before overhead expenses for each hotel.
F-83
<PAGE> 184
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is to receive rental income from the Lessee under the
Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels) and 2006 (19
hotels). The rental income under the Percentage Leases between the partnerships
owning five hotels, of which the Company owns 50%, and the Lessee is payable to
the respective partnerships and as such is not included in the following
schedule of future lease commitments to the Company. Minimum future rental
income (base rents) under these noncancellable operating leases (excluding
hotels owned by the previously noted partnerships) at December 31, 1996 is as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997.............................................. $ 61,996
1998.............................................. 61,996
1999.............................................. 61,996
2000.............................................. 61,996
2001.............................................. 61,996
2002 and thereafter............................... 240,386
--------
$550,366
========
</TABLE>
At December 31, 1996 and 1995, the Lessee owed the Company approximately
$5.5 million and $2.4 million, respectively, for such Percentage Lease rent to
be paid in March of the subsequent year.
The Percentage Lease revenue is based on a percentage of suite revenues,
food and beverage revenues, and food and beverage rents of the Hotels. Both the
base rent and the threshold suite revenue in each lease computation are subject
to adjustments for changes in the Consumer Price Index ("CPI"). The adjustment
is calculated at the beginning of each calendar year, for the hotels acquired
prior to July of the previous year. The adjustment in any lease year may not
exceed 7%. The CPI adjustments made in January 1997 and 1996 are 1.42% and 0.73%
respectively.
Under the Percentage Leases, the Partnership is obligated to pay the costs
of real estate and personal property taxes, property insurance, maintenance of
underground utilities and structural elements of the Hotels, and to set aside 4%
of suite revenues per month, on a cumulative basis, to fund therefrom (or from
other sources) capital expenditures for the periodic replacement or
refurbishment of furniture, fixtures and equipment required for the retention of
the franchise licenses with respect to the Hotels. In addition, the Company will
incur certain additional capital expenditures in connection with the conversion
and upgrade of acquired hotels, which may be funded from cash on hand or
borrowings under its line of credit.
At December 31, 1996 the Company is committed to fund capital improvements
to certain of its hotels of approximately $22 million pursuant to product
improvements plans as required by the franchisors. These capital improvements
are expected to be funded in 1997.
The Company has entered into employment contracts with Messrs. Feldman and
Corcoran, that will continue in effect until December 31, 1999 and, unless
terminated, will be automatically renewed for successive one year terms.
Pursuant to such agreements, Messrs. Feldman and Corcoran each received $5,000
per month during 1994, $10,000 per month during 1995 and $10,270 per month in
1996. Effective January 1, 1997, Mr. Feldman is entitled to receive $12,500 per
month and Mr. Corcoran is entitled to receive $16,667 per month. In addition,
the Company is required to maintain a comprehensive medical plan for such
persons.
The Company shares the executive offices and certain employees with FelCor,
Inc. and the Lessee, and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel
(other than Messrs. Feldman and Corcoran, whose compensation is borne solely by
the Company), office supplies, telephones and depreciation of office furniture,
fixtures and equipment. Any such allocation of shared expenses to the Company
must be approved by a majority of the independent directors of
F-84
<PAGE> 185
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the general partner. During 1996 and 1995, the Company paid approximately
$807,000 (approximately 38%) and $316,000 (approximately 31%), respectively, of
the allocable expenses under this agreement.
10. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Company purchased certain assets and assumed certain liabilities in
connection with the acquisition of hotels. These purchases were recorded under
the purchase method of accounting. The fair values of the acquired assets and
liabilities recorded at the date of acquisition are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Assets acquired.............................. $ 494,354 $221,213 $25,750
Prepayments assumed.......................... 13,616
Liabilities assumed.......................... (108,744) (910) (2,200)
Capital land lease assumed................... (10,045)
Capital equipment leases assumed............. (2,823) (1,211)
Units issued................................. (6,000) (3,499)
Partnership units issued..................... (10,880)
--------- -------- -------
Net cash paid...................... $ 365,907 $219,164 $23,550
========= ======== =======
</TABLE>
The Company purchased interests in unconsolidated partnerships during 1996
and 1995. These unconsolidated partnerships separately own five hotels located
in Chicago-Lombard, Illinois; Marin County, California; Parsippany, New Jersey;
Charlotte, North Carolina; and Indianapolis, Indiana, a parcel of undeveloped
land in Myrtle Beach, South Carolina and a condominium management company in
Myrtle Beach, South Carolina. These purchases were recorded under the equity
method of accounting. The value of the assets recorded at the date of
acquisition is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Acquisition of interests in unconsolidated
partnerships.................................... $45,992 $13,166
Partnership units issued.......................... (2,568)
------- -------
Net cash paid........................... $43,424 $13,166
======= =======
</TABLE>
In 1994, limited partnership Units in the Partnership with a net book value
of $25,237 were issued in exchange for the Initial Hotels. In exchange for the
limited partnership Units, the Partnership acquired hotels for approximately
$79,439 (recorded on an historical cost basis) and assumed debt of approximately
$75,992 resulting in a net surplus of approximately $3,447.
Approximately $16,090, $3,813 and $1,804 of aggregate preferred unit
distributions and unit distributions had been declared as of December 31, 1996,
1995 and 1994, respectively. These amounts were paid in January following each
such year.
F-85
<PAGE> 186
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LESSEE
All of the Company's percentage lease revenues is derived from the
Percentage Leases with the Lessee. Certain information related to the Lessee's
financial statements is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents............. $ 5,208 $5,345
Total assets.......................... $18,471 $9,599
Due to FelCor Suite Hotels Limited
Partnership........................ $ 5,526 $2,396
Shareholders' deficit................. $(6,403) $ (773)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Statement of Operations Information:
Suite revenue............................. $234,451 $65,649 $16,094
Percentage lease expenses................. $107,935 $26,945 $ 6,043
Net income (loss)......................... $ (5,430) $ (240) $ 109
</TABLE>
12. PREDECESSOR COMPANY
The Initial Hotels have been determined to be the Predecessor of the
Company. Certain information related to the Initial Hotels financial statements
for the period from January 1, 1994 through July 27, 1994 (before the Company's
initial public offering) is as follows (in thousands):
<TABLE>
<S> <C>
Suite revenue..................................... $21,884
Net income........................................ $ 1,562
Cash flows provided by operating activities....... $ 3,995
Cash flows used in investing activities........... $(1,327)
Cash flows used in financing activities........... $(1,640)
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") 107 requires all
entities to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, the Company reports the carrying amount of
cash and cash equivalents, amounts due from the Lessee, accounts payable and
accrued expenses at cost which approximates fair value due to the short maturity
of these instruments. The carrying amount of the Company's borrowings
approximates fair value due to the Company's ability to obtain such borrowings
at comparable interest rates.
14. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the acquisition of hotels in 1996 and 1995, the
historical results of operations may not be indicative of future results of
operations and net income per unit.
The following unaudited Pro Forma Consolidated Statements of Operations for
the years ended December 31, 1996 and 1995 are presented as if the acquisition
of all 43 hotels owned at December 31, 1996, and the consummation of the public
offerings and the application of the net proceeds therefrom had occurred by
January 1, 1995, and all of the hotels had been leased to the Lessee pursuant to
the Percentage Leases.
F-86
<PAGE> 187
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma consolidated statements of operations do not purport to
present what actual results of operations would have been if the acquisition of
all 43 hotels owned at December 31, 1996 and the consummation of the public
offerings had occurred on such date or to project results for any future period.
For instance, in accordance with SEC regulations, the following unaudited Pro
Forma Consolidated Statements of Operations do not include pro forma earnings
associated with the Company's pro forma cash and short-term investments.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues:
Percentage lease revenue.............. $110,077 $102,878
Income from unconsolidated
partnerships....................... 2,815 2,160
-------- --------
Total income.......................... 112,892 105,038
Expenses:
General and administrative............ 1,895 1,783
Depreciation.......................... 31,103 26,617
Taxes, insurance and other............ 15,189 13,617
Interest expense...................... 15,903 15,004
Net income.............................. 48,802 48,017
Preferred distributions................. 11,798 11,798
-------- --------
Net income applicable to unitholders.... $ 37,004 $ 36,219
======== ========
Net income per unit..................... $ 1.41 $ 1.38
======== ========
Weighted average number of units
outstanding........................... 26,268 26,228
======== ========
</TABLE>
15. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
SFAS No. 128, "Earnings Per Share" ("EPS"), was issued in October 1996.
This statement specifies the computation, presentation, and disclosure
requirements for EPS and is effective for financial statements issued for
periods ending after December 15, 1997. The statement requires restatement of
all prior period EPS data presented, including interim financial statement,
summaries of earnings, and selected financial data, after the effective date.
The Company has determined the effect of adoption will have an immaterial impact
on previously reported EPS numbers.
16. SUBSEQUENT EVENTS
On February 3, 1997 FelCor announced the closing of a common stock offering
pursuant to their $500 million Shelf Registration, covering a variety of debt
and equity securities. The offering was for 3 million shares of common stock to
the public at $35.50 per share, providing FelCor with net proceeds of
approximately $100.7 million which were contributed to the Partnership.
The Company used the majority of the proceeds of this common stock offering
to purchase 50% joint venture interests in eight existing Embassy Suite hotels
and to acquire full ownership of two additional hotels. Promus continues to own
the remaining 50% interest in the eight joint venture hotels, which will
continue to operate as Embassy Suites under management by Promus. The two
wholly-owned hotels will be converted to Doubletree Guest Suites hotels by the
end of the second quarter of 1997 and are being managed by a subsidiary of
Doubletree Hotels Corporation. The aggregate purchase price for the Company's
interest in these 10 hotels was approximately $139 million, including the
Company's pro rata share of approximately $86 million in non-recourse debt held
by the joint ventures.
F-87
<PAGE> 188
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 18, 1997 the Company purchased the 215-suite Embassy Suites Los
Angeles Airport (LAX) North hotel for approximately $22 million cash. Promus
will continue to manage the hotel as an Embassy Suites hotel.
On February 20, 1997 the Company purchased a 198-suite hotel in Dana Point,
CA for approximately $17.2 million cash. The Dana Point hotel will be converted
to a Doubletree Guest Suites hotel and will be managed by a subsidiary of
Doubletree Hotels Corporation.
17. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's unaudited consolidated quarterly operating data for the years
ended December 31, 1996 and 1995 follows (in thousands, except per share data).
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of quarterly results have been
reflected in the data. It is also management's opinion, however, that quarterly
operating data for hotel enterprises are not indicative of results to be
achieved in succeeding quarters or years. In order to obtain a more accurate
indication of performance, there should be a review of operating results,
changes in shareholders' equity and cash flows for a period of several years.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.......................... $23,976 $23,409 $25,263 $25,302
Income from unconsolidated partnerships........... 320 165 927 598
Other income...................................... 146 628 163 47
------- ------- ------- -------
Total revenues............................ 24,442 24,202 26,353 25,947
------- ------- ------- -------
Expenses:
General and administrative........................ 382 466 458 513
Depreciation...................................... 4,516 5,788 7,529 8,711
Taxes, insurance and other........................ 3,529 3,070 3,260 4,038
Interest expense.................................. 2,424 2,089 1,760 3,530
------- ------- ------- -------
Total expenses............................ 10,851 11,413 13,007 16,792
------- ------- ------- -------
Income before extraordinary charge.................. 13,591 12,789 13,346 9,155
Extraordinary charge from write off of deferred
financing fees.................................... 2,354
------- ------- ------- -------
Net income.......................................... 13,591 12,789 10,992 9,155
Preferred distributions............................. 1,835 2,949 2,950
------- ------- ------- -------
Net income applicable to unitholders................ $13,591 $10,954 $ 8,043 $ 6,205
======= ======= ======= =======
Per unit information:
Net income applicable to unitholders before
extraordinary charge........................... $ 0.53 $ 0.42 $ 0.40 $ 0.24
Extraordinary charge.............................. (0.09)
------- ------- ------- -------
Net income........................................ $ 0.53 $ 0.42 $ 0.31 $ 0.24
======= ======= ======= =======
Weighted average number of units outstanding...... 25,675 26,011 26,172 26,288
======= ======= ======= =======
</TABLE>
F-88
<PAGE> 189
FELCOR SUITES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue.......................... $ 5,372 $ 5,977 $ 6,138 $ 6,300
Income from unconsolidated partnerships........... 290 223
Other income...................................... 8 209 215 1,259
------- ------- ------- -------
Total revenues............................ 5,380 6,186 6,643 7,782
------- ------- ------- -------
Expenses:
General and administrative........................ 184 240 215 231
Depreciation...................................... 1,058 1,178 1,455 1,541
Taxes, insurance and other........................ 559 580 616 808
Interest expense.................................. 353 566 143 942
------- ------- ------- -------
Total expenses............................ 2,154 2,564 2,429 3,522
------- ------- ------- -------
Net income applicable to unitholders................ $ 3,226 $ 3,622 $ 4,214 $ 4,260
======= ======= ======= =======
Per unit information:
Net income........................................ $ 0.50 $ 0.48 $ 0.43 $ 0.36
======= ======= ======= =======
Weighted average number of units outstanding...... 6,402 7,545 9,866 11,940
======= ======= ======= =======
</TABLE>
F-89
<PAGE> 190
FELCOR SUITES LIMITED PARTNERSHIP
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
---------------------------------- -------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
----------------------- ------- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX.............. $ 1,497 $ 12,722 $ 647 $ 28 1,091
Nashville, TN.......................... 1,118 9,506 961 28 1,093
Jacksonville, FL....................... 1,130 9,608 456 28 627
Orlando (North), FL.................... 1,673 14,218 684 28 664
Orlando (South), FL.................... 1,632 13,870 799 28 967
Tulsa, OK.............................. 525 7,344 3,117 139 1,523
New Orleans, LA........................ 2,570 22,300 895 523 890
Flagstaff, AZ.......................... 900 6,825 268 1,523 993
Dallas (Love Field), TX................ 1,934 16,674 757 167 899
Boston-Marlborough, MA................. 948 8,143 325 $761 721
Brunswick, GA.......................... 705 6,067 247 431
Corpus Christi, TX..................... 1,113 9,618 390 51 1,268
Burlingame (SF Airport So.), CA........ 39,929 818 55 2,041
Minneapolis (Airport), MN.............. 5,417 36,508 602 62 2,052
Boca Raton (Doubletree), FL............ 5,427 3,066 304 29 503
Minneapolis (Downtown), MN............. 818 16,820 505 56 2,462
St. Paul, MN........................... 1,156 17,315 849 27 2,210
Tampa (Busch Gardens), FL.............. 672 12,387 226 5
Cleveland, OH.......................... 1,755 15,329 527 129 236
Anaheim, CA............................ 2,548 14,832 607 491 2,517
Baton Rouge, LA........................ 2,350 19,092 525 497 2,140
Birmingham, AL......................... 2,843 29,286 160 706 2,140
Deerfield Beach, FL.................... 4,523 29,443 917 849 2,088
Ft. Lauderdale, FL..................... 5,329 47,850 903 1,142 2,558
Miami (Airport), FL.................... 4,135 24,950 1,171 684 2,658
Milpitas, CA........................... 4,021 23,677 562 912 2,920
Phoenix (Camelback), AZ................ 39,003 612 810 2,604
So. San Francisco (Airport N.), CA..... 3,418 31,737 527 769 3,378
Lexington, KY.......................... 1,955 13,604 587 79
Piscataway, NJ......................... 1,755 17,563 527 12 168
Avon (Beaver Creek Resort), CO......... 1,134 9,864 340 162 568
Boca Raton (Embassy), FL............... 1,868 16,253 560 1,604
El Segundo (LAX South), CA............. 2,660 17,997 798 179 2,595
Oxnard (Mandalay Beach), CA............ 2,930 22,125 879 529 441
Napa, CA............................... 3,287 14,205 494 398 245
Deerfield, IL.......................... 2,305 20,054 692 2
Atlanta (Buckhead), GA................. 7,303 38,996 2,437
Kingston Plantation, SC................ 2,940 24,988 1,470
------- -------- ------- ---- ------- -------
Total.................................. $88,294 $733,768 $28,145 $812 $10,990 $49,381
======= ======== ======= ==== ======= =======
<CAPTION>
GROSS AMOUNTS AT WHICH ACCUMULATED NET BOOK
CARRIED AT CLOSE OF PERIOD DEPRECIATION VALUE
---------------------------------- BUILDINGS AND BUILDINGS AND
BUILDINGS FURNITURE IMPROVEMENTS; IMPROVEMENTS;
AND & FURNITURE & FURNITURE AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL FIXTURES FIXTURES
----------------------- ------- ------------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX.............. 1,497 $ 12,750 $ 1,738 $ 15,985 $ 1,840 $ 14,145
Nashville, TN.......................... 1,118 9,534 2,054 12,706 2,230 10,476
Jacksonville, FL....................... 1,130 9,636 1,083 11,849 1,171 10,678
Orlando (North), FL.................... 1,673 14,246 1,348 17,267 1,916 15,351
Orlando (South), FL.................... 1,632 13,898 1,766 17,296 1,823 15,473
Tulsa, OK.............................. 525 7,483 4,640 12,648 3,485 9,163
New Orleans, LA........................ 2,570 22,823 1,785 27,178 1,699 25,479
Flagstaff, AZ.......................... 900 8,348 1,261 10,509 687 9,822
Dallas (Love Field), TX................ 1,934 16,841 1,656 20,431 1,118 19,313
Boston-Marlborough, MA................. 1,709 8,143 1,046 10,898 495 10,403
Brunswick, GA.......................... 705 6,067 678 7,450 317 7,133
Corpus Christi, TX..................... 1,164 9,618 1,658 12,440 628 11,812
Burlingame (SF Airport So.), CA........ 39,984 2,859 42,843 1,514 41,329
Minneapolis (Airport), MN.............. 5,417 36,570 2,654 44,641 1,378 43,263
Boca Raton (Doubletree), FL............ 5,427 3,095 807 9,329 234 9,095
Minneapolis (Downtown), MN............. 818 16,876 2,967 20,661 845 19,816
St. Paul, MN........................... 1,156 17,342 3,059 21,557 895 20,662
Tampa (Busch Gardens), FL.............. 672 12,387 231 13,290 383 12,907
Cleveland, OH.......................... 1,755 15,458 763 17,976 511 17,465
Anaheim, CA............................ 2,548 15,323 3,124 20,995 813 20,182
Baton Rouge, LA........................ 2,350 19,589 2,665 24,604 681 23,923
Birmingham, AL......................... 2,843 29,992 2,300 35,135 804 34,331
Deerfield Beach, FL.................... 4,523 30,292 3,005 37,820 981 36,839
Ft. Lauderdale, FL..................... 5,329 48,992 3,461 57,782 1,629 56,153
Miami (Airport), FL.................... 4,135 25,634 3,829 33,598 1,031 32,567
Milpitas, CA........................... 4,021 24,589 3,482 32,092 991 31,101
Phoenix (Camelback), AZ................ 39,813 3,216 43,029 1,208 41,821
So. San Francisco (Airport N.), CA..... 3,418 32,506 3,905 39,829 1,085 38,744
Lexington, KY.......................... 1,955 13,604 666 16,225 403 15,822
Piscataway, NJ......................... 1,755 17,575 695 20,025 484 19,541
Avon (Beaver Creek Resort), CO......... 1,134 10,026 908 12,068 291 11,777
Boca Raton (Embassy), FL............... 1,868 16,253 2,164 20,285 481 19,804
El Segundo (LAX South), CA............. 2,660 18,176 3,393 24,229 1,394 22,835
Oxnard (Mandalay Beach), CA............ 2,930 22,654 1,320 26,904 512 26,392
Napa, CA............................... 3,287 14,603 739 18,629 318 18,311
Deerfield, IL.......................... 2,305 20,054 694 23,053 321 22,732
Atlanta (Buckhead), GA................. 7,303 38,996 2,437 48,736 122 48,614
Kingston Plantation, SC................ 2,940 24,988 1,470 29,398 29,398
------- -------- ------- -------- ------- --------
Total.................................. $89,106 $744,758 $77,526 $911,390 $36,718 $874,672
======= ======== ======= ======== ======= ========
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
DATE OF IN STATEMENT
DESCRIPTION OF PROPERTY CONSTRUCTION IS COMPUTED
----------------------- ------------ ------------
<S> <C> <C>
Dallas (Park Central), TX.............. 1985 5-40 Yrs
Nashville, TN.......................... 1986 5-40 Yrs
Jacksonville, FL....................... 1985 5-40 Yrs
Orlando (North), FL.................... 1985 5-40 Yrs
Orlando (South), FL.................... 1985 5-40 Yrs
Tulsa, OK.............................. 1985 5-40 Yrs
New Orleans, LA........................ 1984 5-40 Yrs
Flagstaff, AZ.......................... 1988 5-40 Yrs
Dallas (Love Field), TX................ 1986 5-40 Yrs
Boston-Marlborough, MA................. 1988 5-40 Yrs
Brunswick, GA.......................... 1988 5-40 Yrs
Corpus Christi, TX..................... 1984 5-40 Yrs
Burlingame (SF Airport So.), CA........ 1986 5-40 Yrs
Minneapolis (Airport), MN.............. 1986 5-40 Yrs
Boca Raton (Doubletree), FL............ 1989 5-40 Yrs
Minneapolis (Downtown), MN............. 1984 5-40 Yrs
St. Paul, MN........................... 1983 5-40 Yrs
Tampa (Busch Gardens), FL.............. 1985 5-40 Yrs
Cleveland, OH.......................... 1990 5-40 Yrs
Anaheim, CA............................ 1987 5-40 Yrs
Baton Rouge, LA........................ 1985 5-40 Yrs
Birmingham, AL......................... 1987 5-40 Yrs
Deerfield Beach, FL.................... 1987 5-40 Yrs
Ft. Lauderdale, FL..................... 1986 5-40 Yrs
Miami (Airport), FL.................... 1987 5-40 Yrs
Milpitas, CA........................... 1987 5-40 Yrs
Phoenix (Camelback), AZ................ 1985 5-40 Yrs
So. San Francisco (Airport N.), CA..... 1988 5-40 Yrs
Lexington, KY.......................... 1987 5-40 Yrs
Piscataway, NJ......................... 1988 5-40 Yrs
Avon (Beaver Creek Resort), CO......... 1990 5-40 Yrs
Boca Raton (Embassy), FL............... 1989 5-40 Yrs
El Segundo (LAX South), CA............. 1985 5-40 Yrs
Oxnard (Mandalay Beach), CA............ 1986 5-40 Yrs
Napa, CA............................... 1985 5-40 Yrs
Deerfield, IL.......................... 1987 5-40 Yrs
Atlanta (Buckhead), GA................. 1988 5-40 Yrs
Kingston Plantation, SC................ 1987 5-40 Yrs
Total..................................
(a) Reconciliation of Real Estate:
Balance at July 28, 1994.................................. $ 82,979
Additions during the period............................... 26,847
--------
Balance at December 31, 1994.............................. 109,826
Additions during the period............................... 233,572
--------
Balance at December 31, 1995.............................. 343,398
Additions during the period............................... 568,073
Dispositions during the period............................ (81)
--------
Balance at December 31, 1996.............................. $911,390
========
(b) Reconciliation of Accumulated Depreciation:
Balance at July 28, 1994
Accumulated depreciation assumed with predecessor
historical cost basis................................... $ 3,540
Depreciation expense during the period.................... 1,486
--------
Balance at December 31, 1994.............................. 5,026
Depreciation expense during the period.................... 5,371
--------
Balance at December 31, 1995.............................. 10,397
Depreciation expense during the period.................... 26,321
--------
Balance at December 31, 1996.............................. $ 36,718
========
</TABLE>
F-90
<PAGE> 191
DJONT OPERATIONS, L.L.C.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
The following unaudited Pro Forma Consolidated Statements of Operations of
DJONT Operations, L.L.C. (the "Lessee") are presented as if the acquisitions of
all hotels owned by FelCor Suite Hotels, Inc. (the "Company") at December 31,
1996 and those hotels acquired in 1997, through August 31, 1997, the pending
1997 acquisition and related transactions had occurred as of January 1, 1996 and
the Hotels had all been leased to the Lessee pursuant to Percentage Leases. Such
pro forma information is based in part upon the Pro Forma Consolidated
Statements of Operations of the Company, the historical Consolidated Financial
Statements of the Lessee and the historical Statements of Operations of the 1997
Acquisitions. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
The following unaudited Pro Forma Consolidated Statements of Operations for
the periods presented are not necessarily indicative of what actual results of
operations of the Lessee would have been assuming such transactions had been
completed on January 1, 1996, nor does it purport to represent the results of
operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
1996 ACQUISITIONS 1997 ACQUISITIONS
AND PREFERRED AND EQUITY PRO FORMA
HISTORICAL STOCK OFFERING(A) OFFERINGS(B) ADJUSTMENTS TOTAL
---------- ----------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Suite revenue.......... $234,451 $46,393 $200,627 $481,471
Food and beverage
revenue............. 15,119 8,194 41,616 64,929
Food and beverage
rent................ 2,334 408 538 3,280
Other revenue.......... 17,340 2,802 14,382 $ (316)(C) 34,208
-------- ------- -------- -------- --------
Total
revenues..... 269,244 57,797 257,163 (316) 583,887
-------- ------- -------- -------- --------
Expenses:
Property operating
costs and
expenses............ 66,236 12,417 60,752 139,405
Other operating
expenses............ 81,045 20,182 90,252 191,479
Management and
franchise fees...... 11,770 5,491 11,480 (2,498)(D) 26,243
Taxes, insurance and
other............... 5,912 (862) 19,212 (13,207)(E) 11,055
Interest expense....... 30,850 (30,850)(F)
Depreciation and
amortization........ 32,953 (32,953)(G)
Percentage lease
payments............ 107,935 20,248 3,396 88,129(H) 219,708
Lessee overhead
expenses............ 1,776 (236) -- 1,540
-------- ------- -------- -------- --------
Income (loss) before
minority interest...... (5,430) 557 8,268 (8,938) (5,543)
Minority interest........ (92)(I) (92)
-------- ------- -------- -------- --------
Net loss................. $ (5,430) $ 557 $ 8,268 $ (8,846) $ (5,451)
======== ======= ======== ======== ========
</TABLE>
F-91
<PAGE> 192
DJONT OPERATIONS, L.L.C.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------
1997
ACQUISITIONS
HISTORICAL AND EQUITY PRO FORMA
COMPANY OFFERING(B) ADJUSTMENTS TOTAL
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Suite revenue....................... $202,085 $ 64,951 $267,036
Food and beverage revenue........... 10,189 18,472 28,661
Food and beverage rent.............. 2,023 55 2,078
Other revenue....................... 16,720 4,331 21,051
-------- --------- --------- --------
Total revenues.............. 231,017 87,809 318,826
-------- --------- --------- --------
Expenses:
Property operating costs and
expenses......................... 56,366 17,545 73,911
Other operating expenses............ 60,291 34,081 94,372
Management and franchise fees....... 11,472 4,528 1,337(D) 17,337
Taxes, insurance and other.......... 3,382 6,185 (3,918)(E) 5,649
Interest expense.................... 6,622 (6,622)(F)
Depreciation and amortization....... 9,542 (9,542)(G)
Percentage lease payments........... 97,074 1,871 28,646(H) 127,591
Lessee overhead expenses............ 1,044 1,044
-------- --------- --------- --------
Income before minority interest....... 1,388 7,435 (9,901) (1,078)
Minority interest..................... 375 851(I) (476)
-------- --------- --------- --------
Net income............................ $ 1,013 $ 7,435 $ (9,050) $ (602)
======== ========= ========= ========
</TABLE>
F-92
<PAGE> 193
DJONT OPERATIONS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) Represents the historical results of operations and pro forma adjustments,
for the period prior to the acquisition by the Company, of the hotels
acquired by the Company in 1996. Those hotels acquired in 1996 and dates of
acquisition are as follows:
<TABLE>
<S> <C>
Anaheim, California, Embassy Suites......................... January 3, 1996
Baton Rouge, Louisiana, Embassy Suites...................... January 3, 1996
Birmingham, Alabama, Embassy Suites......................... January 3, 1996
Deerfield Beach, Florida, Embassy Suites.................... January 3, 1996
Ft. Lauderdale, Florida, Embassy Suites..................... January 3, 1996
Miami (Airport), Florida, Embassy Suites.................... January 3, 1996
Milpitas, California, Embassy Suites........................ January 3, 1996
Phoenix (Camelback), Arizona, Embassy Suites................ January 3, 1996
Burlingame (S.F. Airport So.), California, Embassy Suites... January 3, 1996
Lexington, Kentucky, Hilton................................. January 10, 1996
Piscataway, New Jersey, Embassy Suites...................... January 10, 1996
February 20,
Avon (Beaver Creek Resort), Colorado, Embassy Suites........ 1996
February 28,
Boca Raton, Florida, Embassy Suites......................... 1996
El Segundo (LAX South), California, Embassy Suites.......... March 27, 1996
Oxnard (Mandalay Beach), California, Embassy Suites......... May 8, 1996
Napa, California, Embassy Suites............................ May 8, 1996
Deerfield, Illinois, Embassy Suites......................... June 20, 1996
San Rafael (Marin Co.), California, Embassy Suites.......... July 18, 1996
Parsippany, New Jersey, Embassy Suites...................... August 1, 1996
Charlotte, North Carolina, Embassy Suites................... August 1, 1996
Indianapolis (North), Indiana, Embassy Suites............... August 1, 1996
Atlanta (Buckhead), Georgia, Embassy Suites................. October 17, 1996
Myrtle Beach (Kingston Plantation), South Carolina, Embassy December 5, 1996
Suites....................................................
</TABLE>
F-93
<PAGE> 194
DJONT OPERATIONS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(B) Represents the historical results of operations for the period prior to the
acquisition by the Company, for those hotels acquired by the Company in
1997. Those hotels acquired during 1997 and dates of acquisition are as
follows:
<TABLE>
<S> <C>
1997 Acquisitions
Omaha, Nebraska, Embassy Suites........................... February 1, 1997
Bloomington, Minnesota, Embassy Suites.................... February 1, 1997
Atlanta (Perimeter Center), Georgia, Embassy Suites....... February 1, 1997
Kansas City (Country Club Plaza), Missouri, Embassy
Suites................................................. February 1, 1997
Overland Park, Kansas, Embassy Suites..................... February 1, 1997
Raleigh, North Carolina, Embassy Suites................... February 1, 1997
San Antonio (I-10), Texas, Embassy Suites................. February 1, 1997
Austin (Downtown), Texas, Embassy Suites.................. February 1, 1997
Covina, California, Embassy Suites........................ February 1, 1997
Secaucus, New Jersey, Embassy Suites...................... February 1, 1997
Los Angeles (LAX Airport North), California, Embassy
Suites................................................. February 18, 1997
Dana Point, California, Hilton Inn........................ February 21, 1997
Troy, Michigan, Doubletree Guest Suites................... March 20, 1997
Austin, Texas, Doubletree Guest Suites.................... March 20, 1997
Baltimore, Maryland, Doubletree Guest Suites.............. March 20, 1997
San Antonio (Airport), Texas, Embassy Suites.............. May 16, 1997
Nashville (Airport), Tennessee, Doubletree Guest Suites... June 5, 1997
Dallas (Market Center), Texas, Embassy Suites............. June 30, 1997
Syracuse, New York, Embassy Suites........................ June 30, 1997
Atlanta (Gateway), Georgia, Sheraton...................... June 30, 1997
Atlanta (Galleria), Georgia, Sheraton Suites.............. June 30, 1997
Chicago (O'Hare), Illinois, Sheraton Suites............... June 30, 1997
Dallas (Park Central), Texas, Sheraton.................... June 30, 1997
Phoenix (Crescent), Arizona, Sheraton..................... June 30, 1997
Lake Buena Vista (Disney World), Florida, Doubletree Guest
Suites................................................. July 28, 1997
Raleigh/Durham, North Carolina, Doubletree Guest Suites... July 28, 1997
Tampa (Rocky Point), Florida, Doubletree Guest Suites..... July 28, 1997
Pending 1997 Acquisition:
Philadelphia (Society Hill), Pennsylvania, Sheraton
</TABLE>
(C) Reflects the elimination of historical interest income earned on excess
cash.
(D) Represents the elimination of historical management and franchise fees, and
the addition of management and franchise fees to be incurred under the new
management agreements for the 1997 Acquisitions. The management fees were
calculated based on the terms of the management agreements. Also included in
the pro forma adjustment are computations for the incentive management fee
which varies according to the management agreement.
(E) Reflects the elimination of historical real estate and personal property
taxes and property insurance which is to be paid by the Partnership for the
1997 Acquisitions.
(F) Reflects the elimination of historical interest expense for the 1997
Acquisitions. Any future interest expense related to debt will be paid by
the Partnership.
(G) Reflects the elimination of historical depreciation and amortization for the
1997 Acquisitions.
F-94
<PAGE> 195
DJONT OPERATIONS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(H) Represents lease expenses calculated on a pro forma basis by applying the
contractual or anticipated rent provisions of the Percentage Leases to the
historical suite revenues, pro forma restaurant rent and historical food and
beverage revenues of the Hotels.
(I) Represents minority interest from preferred equity positions in
subsidiaries of DJONT.
F-95
<PAGE> 196
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED, IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Cash and cash equivalents................................... $19,705
Accounts receivable, net.................................... 18,111
Inventories................................................. 2,727
Prepaid expenses............................................ 251
Other assets................................................ 3,829
-------
Total assets...................................... $44,623
=======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable, trade..................................... $ 4,702
Accounts payable, other..................................... 8,860
Due to FelCor Suite Hotels, Inc............................. 9,059
Due to other partnerships................................... 4,961
Accrued expenses and other liabilities...................... 22,431
-------
Total liabilities................................. 50,013
-------
Shareholders' deficit:
Capital..................................................... 1
Distributions in excess of earnings......................... (5,391)
-------
Total shareholders' deficit....................... (5,390)
-------
Total liabilities and shareholders' deficit....... $44,623
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-96
<PAGE> 197
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Suite revenue............................................. $202,085 $105,557
Food and beverage revenue................................. 10,189 8,144
Food and beverage rent.................................... 2,023 998
Other revenue............................................. 16,720 7,839
-------- --------
Total revenues.................................... 231,017 122,538
Expenses:
Property operating costs and expenses..................... 56,366 28,451
General and administrative................................ 16,317 8,741
Advertising and promotion................................. 15,523 7,850
Repair and maintenance.................................... 11,071 5,987
Utilities................................................. 8,691 5,146
Management fee............................................ 5,288 3,013
Franchise fee............................................. 6,184 2,221
Food and beverage expenses................................ 8,689 8,412
Percentage lease expenses................................. 97,074 49,156
Lessee overhead expenses.................................. 1,044 727
Liability insurance....................................... 1,500 800
Other..................................................... 1,882 2,238
-------- --------
Total expenses.................................... 229,629 122,742
-------- --------
Income (loss) before minority interest...................... 1,388 (204)
Minority interest........................................... 375
-------- --------
Net income (loss)........................................... $ 1,013 $ (204)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-97
<PAGE> 198
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 1,013 $ (204)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in assets and liabilities:
Accounts receivable.................................. (9,411) (4,583)
Inventories.......................................... (622) 379
Prepaid expenses..................................... 4 (369)
Other assets......................................... (1,626) (169)
Due to FelCor Suite Hotels, Inc...................... 3,533 1,355
Accounts payable, accrued expenses and other
liabilities......................................... 21,606 7,930
------- -------
Net cash flow provided by operating activities.... 14,497 4,339
------- -------
Net change in cash and cash equivalents..................... 14,497 4,339
Cash and cash equivalents at beginning of periods........... 5,208 5,345
------- -------
Cash and cash equivalents at end of periods................. $19,705 $ 9,684
======= =======
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements.
F-98
<PAGE> 199
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
DJONT Operations, L.L.C. is a Delaware limited liability company ("DJONT")
which began operations on July 28, 1994. All of the voting Class A membership
interest in DJONT (representing a 50% equity interest) is beneficially owned by
Hervey A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and
officers of FelCor Suite Hotels, Inc., (the "Company") and as managers and
officers of DJONT. All of the non-voting Class B membership interest in DJONT
(representing the remaining 50% equity interest) is owned by RGC Leasing, Inc.,
a Nevada corporation owned by the children of Mr. Mathewson, a director of the
Company and shareholder of the predecessor company. Each of the 67 hotels in
which FelCor Suites Limited Partnership (the "Operating Partnership") had an
ownership interest at June 30, 1997 (the "Hotels"), is leased to DJONT or a
consolidated subsidiary thereof (collectively, the "Lessee") pursuant to
percentage leases ("Percentage Leases"). The Company's partners in partnerships
owning interests in 12 of the Hotels hold special purpose non-voting equity
interests in the consolidated subsidiary of DJONT which leases such Hotels,
which interests entitle them to 50% of such subsidiary's net income before
overhead with respect to such Hotels. In addition, the Company's partner in a
partnership owning three of the Hotels holds a 50% non-voting equity interest in
the consolidated subsidiary of DJONT leasing those Hotels. These subsidiaries of
DJONT have entered into separate revolving credit agreements with an affiliate
of Messrs. Feldman and Corcoran and/or the holders of such non-voting equity
interests, or affiliates thereof, which provide these subsidiaries with the
right to borrow up to an aggregate of $9.0 million, to the extent necessary to
enable them to pay rent and other obligations due under the Percentage Leases
relating to such hotels. Amounts borrowed thereunder, if any, will be
subordinated in right of repayment to rent and other obligations under such
Percentage Leases. No loans were outstanding under such agreements at June 30,
1997.
Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate 50%
of DJONT, have entered into an agreement with the Company pursuant to which they
have agreed that, for a period of ten years, any distributions received by them
from DJONT (in excess of their tax liabilities with respect to the income of
DJONT) will be utilized to purchase common stock from the Company or units of
limited partner interest in the Operating Partnership at then current market
prices. The agreement stipulates that Messrs. Feldman and Corcoran are
restricted from selling any stock or unit so acquired for a period of two years
from the date of purchase. RGC Leasing, Inc., which owns the other 50% of DJONT,
may elect to purchase common stock or units upon similar terms, at its option.
The independent directors of the Company may suspend or terminate such agreement
at any time.
Fifty-one of the Hotels are, and the Radisson at Kingston Plantation in
Myrtle Beach, South Carolina is in the process of conversion to, Embassy
Suites(R) hotels, 50 of which are being managed for the Lessee by a subsidiary
of Promus Hotel Corporation ("Promus"). Two Embassy Suites hotels are managed
for the Lessee by American General Hospitality, Inc., ("AGHI") and Coastal Hotel
Group, Inc., ("Coastal"). Nine of the Hotels are Doubletree Guest Suites(R)
hotels and are managed by a subsidiary of Doubletree Hotels Corporation
("Doubletree"). Five of the Hotels are Sheraton Suites (2) or Sheraton hotels
(3) and are being managed for the Lessee directly by, or by a subsidiary of, ITT
Sheraton Corporation ("Sheraton"). One of the Hotels is operated under a Hilton
Suites(R) hotel franchise and managed by AGHI.
F-99
<PAGE> 200
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Lessee has future lease commitments under the Percentage Leases which
expire in 2004 (7 hotels), 2005 (13 hotels), 2006 (23 hotels) and 2007 (24
hotels). Minimum future rental payments are computed based on the base rent as
defined under these noncancellable operating leases and are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
Remainder of 1997........................................... $ 60,525
1998........................................................ 121,453
1999........................................................ 121,453
2000........................................................ 121,452
2001........................................................ 121,452
2002 and thereafter......................................... 599,761
----------
$1,146,096
==========
</TABLE>
The Lessee typically pays a franchise fee ranging up to 5% of suite
revenue, and marketing and reservation fees ranging from 1% to 3.5% of suite
revenue. In the cases where there is not a separate franchise agreement, the
right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of total revenues. Incentive
management fees are based upon the hotel's net income before overhead and
typically range from 50% to 75% subject to a maximum annual payment of between
2% and 3% of applicable hotel revenues. In many cases managers and franchisors
have agreed to subordinate all or a portion of their fees at a specific hotel or
group of hotels either for a set period of time, or until the hotel or group of
hotels provides a predetermined return to the Lessee, or both.
3. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations for
the six months ended June 30, 1997 and 1996 are presented as if Lessee had
leased and operated all of the Hotels, including the three hotels acquired July
31, 1997, beginning on January 1, 1996. Such information should be read in
conjunction with the financial statements listed in the Index on page 2. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The Pro Forma Consolidated Statements of Operations
do not purport to present what actual results of operations would have been if
such hotels had been operated by Lessee pursuant to the Percentage Leases since
such date or to project the results of operations for any future periods.
F-100
<PAGE> 201
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Suite revenue............................................. $260,058 $236,677
Food and beverage revenue................................. 25,157 30,166
Food and beverage rent.................................... 2,078 1,631
Other revenue............................................. 20,450 16,705
-------- --------
Total revenues.................................... 307,743 285,179
-------- --------
Expenses:
Property operating costs and expenses..................... 71,283 64,444
General and administrative................................ 22,208 21,604
Advertising and promotion................................. 20,284 19,434
Repair and maintenance.................................... 14,511 14,318
Utilities................................................. 11,505 11,461
Management fee............................................ 8,766 6,605
Franchise fee............................................. 8,029 7,563
Food and beverage expenses................................ 20,271 25,856
Percentage lease payments................................. 124,554 110,754
Lessee overhead expenses.................................. 1,044 730
Liability insurance....................................... 1,942 1,913
Other..................................................... 3,357 4,201
-------- --------
Total expenses.................................... 307,754 288,883
-------- --------
Loss before minority interest............................... (11) (3,704)
Minority interest......................................... 1,218 1,032
-------- --------
Net loss.................................................... $ (1,229) $ (4,736)
======== ========
</TABLE>
F-101
<PAGE> 202
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
FelCor Suite Hotels, Inc.
We have audited the accompanying balance sheets of DJONT Operations, L.L.C.
as of December 31, 1996 and 1995 and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995 and the period from July 28, 1994 (inception of operations) through
December 31, 1994. 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 DJONT Operations, L.L.C. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995 and the period from July
28, 1994 (inception of operations) through December 31, 1994 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
January 22, 1997
except as to the information
presented in Note 7 for which
the date is February 21, 1997
F-102
<PAGE> 203
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash and cash equivalents................................... $ 5,208 $ 5,345
Accounts receivable, net.................................... 8,700 3,129
Inventories................................................. 2,105 532
Prepaid expenses............................................ 255 288
Other assets................................................ 2,203 305
------- -------
Total assets...................................... $18,471 $ 9,599
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable, trade..................................... $ 1,273 $ 1,393
Accounts payable, other..................................... 2,398 605
Due to FelCor Suite Hotels Limited Partnership.............. 5,526 2,396
Accrued expenses and other liabilities...................... 15,677 5,978
------- -------
Total liabilities................................. 24,874 10,372
------- -------
Commitments and contingencies (Note 4)
Shareholders' deficit:
Capital................................................... 1 1
Distributions in excess of earnings....................... (6,404) (774)
------- -------
Total shareholders' deficit....................... (6,403) (773)
------- -------
Total liabilities and shareholders' deficit....... $18,471 $ 9,599
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE> 204
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Suite revenue............................................. $234,451 $65,649 $16,094
Food and beverage revenue................................. 15,119 2,462 1,112
Food and beverage rent.................................... 2,334 534 61
Other revenue............................................. 17,340 3,924 1,020
-------- ------- -------
Total revenues.................................... 269,244 72,569 18,287
-------- ------- -------
Expenses:
Property operating costs and expenses..................... 66,236 18,455 4,699
General and administrative................................ 20,123 5,547 1,506
Advertising and promotion................................. 18,520 5,410 1,572
Repair and maintenance.................................... 14,453 4,010 994
Utilities................................................. 12,248 3,384 866
Management fee............................................ 6,077 1,561 333
Franchise fee............................................. 5,693 2,473 642
Food and beverage expenses................................ 15,701 2,723 1,143
Percentage lease payments................................. 107,935 26,945 6,043
Lessee overhead expenses.................................. 1,776 834 106
Liability insurance....................................... 1,818 468 106
Conversion cost........................................... 2,165 297
Other expenses............................................ 1,929 702 168
-------- ------- -------
Total Expenses.................................... 274,674 72,809 18,178
-------- ------- -------
Net income (loss)......................................... $ (5,430) $ (240) $ 109
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE> 205
DJONT OPERATIONS, L.L.C
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Capital contributions.............................. $ 1
Distributions declared............................. (443)
Net income......................................... 109
-------
Balance at December 31, 1994....................... (333)
Distributions declared............................. (200)
Net loss........................................... (240)
-------
Balance at December 31, 1995....................... (773)
Distributions declared............................. (200)
Net loss........................................... (5,430)
-------
Balance at December 31, 1996....................... $(6,403)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE> 206
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JULY 28, 1994 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(5,430) $ (240) $ 109
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in assets and liabilities:
Accounts receivable.................................. (5,571) (2,003) (1,126)
Inventories.......................................... (1,573) (205) (327)
Prepaid expenses..................................... 33 (262) (26)
Other assets......................................... (1,898) (141) (164)
Due to FelCor Suite Hotels Limited Partnership....... 3,130 1,137 1,259
Accounts payable, accrued expenses and other
liabilities....................................... 11,372 4,000 3,976
------- ------ -------
Net cash flow provided by operating activities.... 63 2,286 3,701
------- ------ -------
Cash flows from financing activities:
Capital contributions..................................... 1
Distributions paid........................................ (200) (200) (443)
------- ------ -------
Net cash flow used in financing activities........ (200) (200) (442)
------- ------ -------
Net change in cash and cash equivalents..................... (137) 2,086 3,259
Cash and cash equivalents at beginning of periods........... 5,345 3,259
------- ------ -------
Cash and cash equivalents at end of years................... $ 5,208 $5,345 $ 3,259
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE> 207
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
DJONT Operations, L.L.C. is a Delaware limited liability company (together
with its consolidated subsidiaries, the "Lessee") which was formed on June 29,
1994 and began operations on July 28, 1994. All of the voting Class A membership
interest in the Lessee (representing a 50% equity interest) is owned by Hervey
A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and officers of
FelCor Suite Hotels Limited Partnership (the "Company") and as managers and
officers of the Lessee. All of the non-voting Class B membership interest in the
Lessee (representing the remaining 50% equity interest) is owned by RGC Leasing,
Inc., a Nevada corporation owned by the children of Mr. Charles N. Mathewson, a
director of the Company. The Lessee leases each of the 43 hotels (the "Hotels")
in which FelCor Suites Limited Partnership (the "Partnership") had an ownership
interest at December 31, 1996, pursuant to percentage leases ("Percentage
Leases").
Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate 50%
of the Lessee, have entered into an agreement with the Company pursuant to which
they have agreed that, for a period of ten years, any distributions received by
them from the Lessee (in excess of their tax liabilities with respect to the
income of the Lessee) will be utilized to purchase common stock from the Company
annually, at a price based upon a formula approved by the independent directors
of the Company relating to the then current market prices. The agreement
stipulates that Messrs. Feldman and Corcoran are restricted from selling any
stock so acquired for a period of two years from the date of purchase. RGC
Leasing, Inc., which owns the other 50% of the Lessee, may elect to purchase
common stock of the Company or Partnership units upon similar terms, at its
option. The independent directors of the Company may suspend or terminate such
agreement at any time.
At December 31, 1996, 39 of the Hotels are operated as Embassy Suites(R)
hotels, two as Doubletree Guest Suites(R) hotels, one as a Hilton Suites(R)
hotel and one hotel is in the process of being converted to an Embassy Suites
hotel. The Lessee has entered into management agreements pursuant to which 38 of
the Hotels are managed by Promus Hotels, Inc. ("Promus"), two of the Hotels are
managed by a subsidiary of Doubletree Hotel Corporation ("Doubletree"), two of
the Hotels are managed by American General Hospitality, Inc. ("AGHI") and one is
managed by Coastal Hotel Group, Inc. ("Coastal").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents -- All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost or market.
Revenue Recognition -- Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible. Such losses have been within management's expectations.
Franchise Costs -- The cost of obtaining the franchise licenses is paid by
the Partnership and the ongoing franchise fees are paid by the Lessee. These
fees are generally computed as a percentage of suite revenue for each hotel in
accordance with franchise agreements.
Income Taxes -- The Lessee is a limited liability Company which is taxed
for federal income taxes purposes as a limited partnership and, accordingly, all
taxable income or loss flows through to the shareholders.
3. ACCUMULATED DEFICIT
During 1996, the Lessee incurred a net loss of approximately $5.4 million
and a cumulative shareholder's deficit of approximately $6.4 million.
Management's analyses indicate that a significant portion of such loss is
attributable to the one-time costs of converting the Crown Sterling Suites(R)
hotels to Embassy Suites and
F-107
<PAGE> 208
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Doubletree Guest Suites, and operations of hotels during periods of substantial
renovation. Such renovations are required under the terms of the related
franchise agreements. In accordance with the terms of the Percentage Leases,
although a portion of the suites are not available for guests to rent, the
Lessee is required to pay the full required lease payment. In addition, during
periods of renovation, management believes, and operating data indicates, that
overall the performances of the hotels is impacted as evidenced by improved
operating performances immediately following completion of renovations.
Management is exploring several options to anticipate negative operating cash
flow during renovations, including potential changes to the terms of leases for
future renovation hotels which might mitigate losses for the Lessee during such
renovation periods.
At December 31, 1996 the Lessee had paid all amounts then due the Company
under the Percentage Leases. It is anticipated that a substantial portion of any
future profits of the Lessee will be retained until a positive shareholder's
equity is restored. Although it is currently anticipated that the lessee may
sustain a smaller loss during 1997, it is anticipated that its future earnings
will be sufficient to enable it to continue to make necessary payments when due.
Accordingly, management deems the Lessee to be a viable going concern and, as
such, no adjustments are required to the accompanying financial statements.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Lessee has future lease commitments under the Percentage Leases which
expire in 2004 (7 hotels), 2005 (13 hotels) and 2006 (23 hotels). Minimum future
rental payments are computed based on the base rent as defined under these
noncancellable operating leases and are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1997.............................................. $ 72,140
1998.............................................. 72,140
1999.............................................. 72,140
2000.............................................. 72,140
2001.............................................. 72,140
2002 and thereafter............................... 285,928
--------
$646,628
========
</TABLE>
The Lessee recognized Percentage Lease rent expense of approximately
$107,935,000, $26,945,000 and $6,043,000 for the years ended December 31, 1996
and 1995 and for the period from July 28, 1994 (inception of operations) through
December 31, 1994 respectively. At December 31, 1996 and 1995, the Lessee owed
the Company $5,526,000 and $2,396,000 for such lease rent. In accordance with
the terms of the lease, the Lessee intends to pay such balances by March of each
subsequent year.
The Percentage Lease expense is based on a percentage of suite revenues,
food and beverage revenues and food and beverage rents of the Hotels. Both the
base rent and the threshold suite revenue in each lease computation is subject
to adjustments in the Consumer Price Index. The adjustment is calculated at the
beginning of each calendar year for the hotels acquired prior to July of the
previous year. The adjustment in any lease year may not exceed 7%. The
adjustments made in January 1997 and 1996 are 1.42% and 0.73% respectively.
Other than real estate and personal property taxes, casualty insurance,
capital improvements and maintenance of underground utilities and structural
elements, which are obligations of the Partnership, the Percentage Leases
require the Lessee to pay rent, liability insurance premiums, all costs,
expenses, utilities and other charges incurred in the operation of the leased
hotels.
F-108
<PAGE> 209
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Lessee is also obligated to indemnify and hold harmless the Partnership
from and against all liabilities, costs and expenses incurred by or asserted
against the Partnership in the normal course of operating the Hotels.
The Lessee is not permitted to sublet all or any substantial part of the
Hotels or assign its interest under any of the Percentage Leases without the
prior written consent of the Partnership.
The Lessee has agreed that during the term of the Percentage Leases it will
maintain a ratio of total debt to consolidated net worth (as defined in the
Percentage Leases) of less than or equal to 50%, exclusive of capital leases. In
addition, the Lessee has agreed that it will not pay fees to any affiliate of
the Lessee.
The Lessee typically pays a franchise fee ranging from 0% to 5% of suite
revenue, and marketing and reservation fees ranging from 1% to 3.5% of suite
revenue. In the cases where there is not a separate franchise agreement, the
right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of total revenues. Incentive
management fees are based upon the hotel's net income before overhead and
typically range from 50% to 75% subject to a maximum annual payment of between
2% and 3% of total revenues. In many cases managers and franchisors have agreed
to subordinate all or a portion of their fees at a specific hotel either for a
set period of time, or until the hotel provides a predetermined return to the
Lessee, or both.
In the event the Company enters into an agreement to sell or otherwise
transfer a leased hotel, the Company has the right to terminate the Percentage
Lease with respect to such leased hotel upon 90 days' prior written notice upon
either (1) paying the Lessee the fair market value of the Lessee's leasehold
interest in the remaining term of the Percentage Lease to be terminated or (2)
offering to lease to the Lessee a substitute hotel on terms that would create a
leasehold interest in such hotel with a fair market value equal to or exceeding
the fair market value of the Lessee's remaining leasehold interest under the
Percentage Lease to be terminated. The Company also is obligated to pay or
reimburse the Lessee for any assignment fees, termination fees or other
liabilities arising under any franchise license agreement and restaurant
sublease agreements.
The Lessee and the Company share executive offices and the services of
certain employees. Each Company bears its share of the costs including an
allocated portion of the rent, salaries of personnel (other than Messrs. Feldman
and Corcoran), office supplies and telephones.
5. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the additional hotels operated by the Lessee pursuant
to the Percentage Leases discussed in Note 1, historical results of operations
may not be indicative of future results of operations.
The following unaudited Pro Forma Statements of Operations for the years
ended December 31, 1996 and 1995 are presented as if the Lessee leased and
operated all Hotels owned by the Partnership at December 31, 1996, from January
1, 1995.
F-109
<PAGE> 210
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Pro Forma Statement of Operations does not purport to present what
actual results of operations would have been if the 43 hotels were operated by
the Lessee pursuant to the Percentage Leases from the beginning of the periods
presented or to project results for any future period.
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Suite revenue.................................. $280,844 $266,834
Food and beverage rent......................... 2,742 2,967
Food and beverage revenue...................... 23,313 26,160
Other revenue.................................. 20,142 19,463
-------- --------
Total revenues....................... 327,041 315,424
Property operating costs and expenses.......... 78,653 74,894
Other operating costs.......................... 101,227 96,731
Management and franchise fees.................. 17,261 16,225
Taxes, insurance and other..................... 5,050 6,830
Percentage lease expenses...................... 128,183 119,566
Lessee overhead expenses....................... 1,540 1,446
-------- --------
Net income (loss).................... $ (4,873) $ (268)
======== ========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Lessee reports the carrying amount of cash and cash
equivalents, accounts payable and accrued expenses at cost which approximate
fair value due to the short maturity of these instruments.
7. SUBSEQUENT EVENTS
On February 3, 1997, DJONT entered into 10-year operating leases with
partnerships owning eight hotel properties, of which the Partnership
concurrently acquired a 50% joint venture partnership interest. These properties
are located in Atlanta, Georgia (241 suites); Austin, Texas (261 suites);
Covina, California (264 suites); Kansas City -- Overland Park, Kansas (199
suites); Kansas City -- Plaza, Missouri (266 suites); Raleigh, North Carolina
(255 suites); San Antonio, Texas (217 suites); and Secaucus -- Meadowlands, New
Jersey (261 suites). On February 3, 1997 the Lessee also entered into 10-year
operating leases with the Partnership with respect to hotels located in Omaha,
Nebraska and Bloomington, Minnesota. On February 19, 1997 the Lessee and the
Partnership entered into a ten year operating lease on the 215 suite Embassy
Suite -- Los Angeles Airport (LAX) North. On February 21, 1997 the Lessee and
the Partnership entered into a ten year operating lease on a 198 suite hotel in
Dana Point, California. The leases are substantially similar to the leases with
the Partnership for the other hotels owned by the Partnership, with a 10-year
term and rental payments according to a formula based on restaurant rents, food
and beverage and suite revenues of the hotels.
F-110
<PAGE> 211
================================================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DELIVERED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS
FOR ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER
OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL,
HAND DELIVERY OR OVERNIGHT COURIER:
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30302
Attention: David M. Kaye
or
SunTrust Bank, Atlanta
c/o First Chicago Trust Company
14 Wall Street, 8th Floor
New York, New York 10005
or
BY FACSIMILE:
(404) 332-3966 (GA)
or
(212) 240-8938 (NY)
ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE
SHOULD BE SENT PROMPTLY BY HAND, OVERNIGHT
COURIER, OR REGISTERED OR CERTIFIED MAIL.
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
================================================================================
================================================================================
OFFER TO EXCHANGE ALL OUTSTANDING
7 3/8% SENIOR NOTES DUE 2004
AND
7 5/8% SENIOR NOTES DUE 2007
FOR
7 3/8% SENIOR NOTES DUE 2004
AND
7 5/8% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
FELCOR SUITES LIMITED PARTNERSHIP
----------------------
PROSPECTUS
----------------------
NOVEMBER __, 1997
================================================================================
<PAGE> 212
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.7 of the Amended and Restated Agreement of Limited
Partnership of FelCor Suites Limited Partnership (the "Partnership"), as
amended (the "Partnership Agreement"), provides that, to the fullest extent
permitted by law, but subject to the limitations expressly provided in the
Partnership Agreement, FelCor Suite Hotels, Inc., or its successor or assigns
(the "General Partner"), and any person who is or was an officer or director of
the General Partner shall be indemnified and held harmless by the Partnership
from and against any and all losses, claims, damages, liabilities (joint or
several), expenses (including, without limitation, legal fees and expenses),
judgments, fines, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any such party may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
(i) the General Partner, or any of its affiliates, (ii) an officer, director,
employee, partner, agent or trustee of the General Partner, or any of its
affiliates or (iii) a person serving at the request of the Partnership in
another entity in a similar capacity; provided, that in each case such party
acted in good faith, in a manner which such party believed to be in, or not
opposed to, the best interests of the Partnership and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. Any indemnification pursuant to Section 6.7 shall be made only out
of the Partnership assets.
The Charter of the General Partner, generally, limits the liability of
the General Partner's directors and officers to the General Partner and the
shareholders for money damages to the fullest extent permitted from time to
time by the laws of the State of Maryland. The Charter also provides,
generally, for the indemnification of directors and officers, among others,
against judgments, settlements, penalties, fines, and reasonable expenses
actually incurred by them in connection with any proceeding to which they may
be made a party by reason of their service in those or other capacities except
in connection with a proceeding by or in the right of the General Partner in
which the director was adjudged liable to the General Partner or in connection
with any other proceeding, whether or not involving action in his official
capacity, in which he was adjudged liable on the basis that personal benefit
was improperly received by him. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 ("Securities Act") may be permitted to
directors and officers of the General Partner pursuant to the foregoing
provisions or otherwise, the General Partner has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
The General Partner may purchase director and officer liability
insurance for the purpose of providing a source of funds to pay any
indemnification described above.
ITEM 21. EXHIBITS
3.1 - Certificate of Limited Partnership of the Partnership dated
May 20, 1994, as filed with the Secretary of State of
Delaware.
3.2 - Amended and Restated Agreement of Limited Partnership of the
Partnership (filed as Exhibit 10.1 to the General Partner's
Annual Report on Form 10-K/A Amendment No. 1 for the fiscal
year ended December 31, 1994 (the "1994 10-K/A") and
incorporated herein by reference).
3.2.1 - First Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of November 17, 1995
by and among the General Partner, Promus Hotels, Inc. and all
of the persons or entities who are or shall in the future
become of the limited partners of the Partnership (filed as
Exhibit 10.1.1 to the General Partner's Annual Report on Form
10-K, as amended, for the fiscal year ended December 31, 1995
(the "1995 10-K") and incorporated herein by reference)
II-1
<PAGE> 213
3.2.2 - Second Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of January 9, 1996
between the General Partner and all of the persons or entities
who are or shall in the future become limited partners of the
Partnership (filed as Exhibit 10.1.2 to the 1995 10-K and
incorporated herein by reference).
3.2.3 - Third Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of January 10, 1996 by
and among the General Partner, MarRay-LexGreen, Inc. and all
of the persons and entities who are or shall in the future
become limited partners of the Partnership (filed as Exhibit
10.1.3 to the 1995 10-K and incorporated herein by reference).
3.2.4 - Fourth Amendment to the Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of January 10,
1996 by and among the General Partner, Piscataway-Centennial
Associates Limited Partnership and all of the persons or
entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.4 to the
1995 10-K and incorporated herein by reference).
3.2.5 - Fifth Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of May 2, 1996,
between the Registrant and all of the persons or entities who
are or shall in the future become limited partners of the
Partnership, adopting Addendum No. 2 to Amended and Restated
Agreement of Limited Partnership of the Partnership dated as
of May 2, 1996 (filed as Exhibit 10.1.5 to the General
Partner's Form 10-Q for the quarter ended June 30, 1996 (the
"1996 Second Quarter 10-Q") and incorporated herein by
reference).
3.2.6 - Sixth Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of September 16, 1996,
by and among the Registrant, John B. Urbahns, II and all of
the persons or entities who are or shall in the future become
limited partners of the Partnership (filed as Exhibit 10.1.6
to the General Partner's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "1996 10-K") and
incorporated herein by reference).
4.1 - Indenture dated as of October 1, 1997 by and among the
Partnership, the General Partner, the Subsidiary Guarantors
named therein and SunTrust Bank, Atlanta, Georgia, as Trustee.
5.1 - Opinion of Jenkens & Gilchrist, P.C.
10.2.1 - Form of Lease Agreement between the Partnership as Lessor and
DJONT Operations, L.L.C. ("DJONT") as Lessee (filed as Exhibit
10.2.1 to the 1995 10-K and incorporated herein by reference).
10.2.2 - Schedule of executed Lease Agreements identifying material
variations from the form of Lease Agreement with respect to
hotels acquired by the Partnership through September 30, 1997.
10.3 - Amended and Restated Loan Agreement dated as of September 26,
1996, among the General Partner and the Partnership, as
Borrowers, Boatmen's National Bank of Oklahoma, as Agent and
Lender, and First Tennessee Bank National Association, Liberty
Bank and Trust Company of Tulsa, National Association, Bank
One, Texas, N.A., First National Bank of Commerce, and AmSouth
Bank of Alabama, as Lenders (filed as Exhibit 10.3.4 to the
General Partner's Form 10-Q for the quarter ended September
30, 1996 (the "1996 Third Quarter 10-Q") and incorporated
herein by reference).
10.4 - Agreement to Assign Incentive Management Fee dated as of May
19, 1994 between the General Partner and Embassy Suites, Inc.
(filed as Exhibit 10.14 to the General Partner's Registration
Statement on Form S- 11 (File No. 33-79214) (the "IPO
Registration Statement") and incorporated herein by
reference).
II-2
<PAGE> 214
10.5 - Employment Agreement dated as of July 28, 1994 between the
General Partner and Hervey A. Feldman (filed as Exhibit 10.7
to the 1994 10-K/A and incorporated herein by reference).
10.6 - Employment Agreement dated as of July 28, 1994 between the
General Partner and Thomas J. Corcoran, Jr. (filed as Exhibit
10.8 to the 1994 10-K/A and incorporated herein by reference).
10.7.1 - Restricted Stock and Stock Option Plan of the General Partner
(filed as Exhibit 10.9 to the 1994 10-K/A and incorporated
herein by reference).
10.7.2 - 1995 Restricted Stock and Stock Option Plan of the General
Partner (filed as Exhibit 10.9.2 to the 1995 10-K and
incorporated herein by reference).
10.8 - Savings and Investment Plan of the General Partner (filed as
Exhibit 10.10 to the 1994 10-K/A and incorporated herein by
reference).
10.9 - Registration Rights Agreement dated as of July 21, 1994
between the General Partner and the parties named therein
(filed as Exhibit 10.11 to the 1994 10-K/A and incorporated
herein by reference).
10.10 - Agreement dated as of April 15, 1995 among the General
Partner, the Partnership, FelCor, Inc., Thomas J. Corcoran,
Jr. and Hervey A. Feldman relating to purchase of securities
(filed as Exhibit 10.15 to the Registration Statement on Form
S-11 (File No. 33-91870) (the "May 1995 Registration
Statement") and incorporated herein by reference).
10.11.1 - Subscription Agreement dated as of May 3, 1995 among the
General Partner, the Partnership and Embassy Suites, Inc.
(filed as Exhibit 10.16 to the May 1995 Registration Statement
and incorporated hereby by reference).
10.11.2 - Subscription Agreement dated as of October 17, 1995 among the
General Partner, the Partnership and Promus Hotels, Inc.
(filed as Exhibit 10.27.1 to the December 1995 Registration
Statement and incorporated herein by reference).
10.11.3 - First Amendment to Subscription Agreements dated as of
November 16, 1995 among the General Partner, the Partnership
and Promus Hotels, Inc. (filed as Exhibit 10.27.2 to the
December 1995 Registration Statement and incorporated herein
by reference).
10.11.4 - Second Amendment to Subscription Agreements dated as of
December 12, 1995 among the General Partner, the Partnership
and Promus Hotels, Inc. (filed as Exhibit 10.27.3 to the
December 1995 Registration Statement and incorporated herein
by reference).
10.12.1 - Master Agreement with respect to the purchase of the CSS
Hotels between Minnesota Hotel Company, Inc. ("MHCI") and
FelCor/CSS Holdings, L.P. ("Holdings") dated as of September
19, 1995 (filed as Exhibit 10.20.1 to the General Partner's
Form 10-Q for the quarter ended September 30, 1995 (the "1995
Third Quarter 10-Q") and incorporated herein by reference).
10.12.2 - Letter agreement with respect to amendments to Master
Agreement between MHCI and Holdings dated as of November 6,
1995 (filed as Exhibit 10.20.2 to the 1995 Third Quarter 10-Q
and incorporated herein by reference).
II-3
<PAGE> 215
10.12.3 - Letter agreement dated January 3, 1996, among MHCI, Crown
Sterling Management, Inc. ("CSM"), Crown Sterling Incorporated
("CSI"), Holdings, and PFS Ventures, Inc. ("PFS") relating to
amendments to Master Agreement dated as of September 19, 1995
between MHCI and Holdings ("Master Agreement") and Asset
Purchase Agreement dated as of September 19, 1995 among CSM,
CSI and PFS ("Asset Purchase Agreement") (filed as Exhibit
10.20.3 to the 1996 Form 8-K and incorporated herein by
reference).
10.12.4 - Letter agreement dated March 26, 1996, among MHCI, Napa Wine
Country Hotel, a California Limited Partnership, Mandalay
Beach, California Hotel Associates, a California Limited
Partnership ("MBC"), CSM, CSI, Holdings and PFS relating to
amendments to Master Agreement, Asset Purchase Agreement and
Partnership Interests Purchase Agreement dated as of September
19, 1995 among MHCI, MBC, Robert E. Woolley and Holdings
("Partnership Interests Purchase Agreement") (filed as Exhibit
10.20.4 to the 1996 Form 8-K and incorporated herein by
reference).
10.13 - Partnership Interests Purchase Agreement with respect to the
LAX Airport and Mandalay Beach hotels among MHCI, MBC, Robert
E. Woolley and Holdings dated as of September 19, 1995 (filed
as Exhibit 10.21 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.13.1 - Letter agreement dated March 27, 1996 among MHCI, MBC,
Holdings and PFS relating to amendments to Partnership
Interests Purchase Agreement (filed as Exhibit 10.21.1 to the
1996 Form 8-K and incorporated herein by reference).
10.13.2 - Letter agreement dated March 27, 1996, among MHCI, MBC, CSM,
CSI, Holdings and PFS relating to amendments to Partnership
Interests Purchase Agreement and Asset Purchase Agreement
(filed as Exhibit 10.21.2 to the 1996 Form 8-K and
incorporated herein by reference).
10.14.1 - Asset Purchase Agreement with respect to the CSS Hotels among
CSM, CSI and PFS dated as of September 19, 1995 (filed as
Exhibit 10.22.1 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.14.2 - Letter agreement with respect to amendments to Asset Purchase
Agreement among CSM, CSI and PFS dated as of November 6, 1995
(filed as Exhibit 10.22.2 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.15 - Escrow Agreement among MHCI, CSM, CSI, Robert E. Woolley,
Charles M. Sweeney, Holdings and PFS dated as of September
19, 1995 (filed as Exhibit 10.23 to the 1995 Third Quarter
10-Q and incorporated herein by reference).
10.16 - Purchase Agreement relating to the purchase of all of the
limited partner interest in Holdings between the Partnership
and DJONT/CSS Holdings, Inc. dated as of September 19, 1995
(filed as Exhibit 10.24 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.17 - Purchase Agreement related to the purchase of all of the
general partner interest in Holdings between the Partnership
and PFS dated as of September 19, 1995 (filed as Exhibit 10.25
to the 1995 Third Quarter 10-Q and incorporated herein by
reference).
10.18 - Letter agreement among the General Partner, the Partnership,
Holdings, and Smith Barney Mortgage Capital Group, Inc.
("SBMCG") dated as of September 28, 1995 with respect to the
commitment of SBMCG to provide up to $220 million principal
amount of interim recourse secured financing to Holdings
(filed as Exhibit 10.26 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
II-4
<PAGE> 216
10.19 - Registration Rights Agreement dated as of November 17, 1995
between the General Partner and Cleveland Finance Associates
Limited Partnership (filed as Exhibit 10.27 to the 1995 10-K
and incorporated herein by reference).
10.20 - Registration Rights Agreement dated as of January 3, 1996
between the General Partner and Robert E. Woolley and Charles
M. Sweeney (filed as Exhibit 10.28 to the 1995 10-K and
incorporated herein by reference).
10.21 - Credit Agreement dated as of January 31, 1996, by and among
Holdings, as borrower, the Partnership, the General Partner
and The Bank of Nova Scotia, New York Agency (filed as Exhibit
10.29 to the 1995 10-K and incorporated herein by reference).
10.22 - Credit Agreement dated as of February 6, 1996, by and among
the Partnership, as borrower, Holdings and the General
Partner, as guarantors, and Canadian Imperial Bank of
Commerce, as agent (filed as Exhibit 10.30 to the 1996 Form
8-K and incorporated herein by reference).
10.23 - Third Amended and Restated Revolving Credit Agreement dated as
of August 14, 1997 among the General Partner and the
Partnership, as Borrower, the Lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent, and Wells Fargo Bank,
National Association, as Documentation Agent.
10.24 - Contract for Purchase and Sale of Hotels, dated as of June 5,
1997, by and among ITT Sheraton Corporation, Sheraton Savannah
Corp., Sheraton Peachtree Corp., Sheraton Crescent Corp.,
Sheraton Dallas Corp., Sheraton Gateway Suites O'Hare
Investment Partnership and the Partnership (filed as Exhibit
10.24 to the General Partner's Form 8-K dated July 11, 1997
and incorporated herein by reference).
10.25 - Registration Rights Agreement dated as of September 26, 1997
among the General Partner, the Partnership, Morgan Stanley &
Co. Incorporated, NationsBank Capital Markets, Inc. and
Salomon Brothers Inc.
12.1 - Statement re Computation of Ratios.
21.1 - List of Subsidiaries of the Registrant.
23.1 - Consent of Jenkens & Gilchrist, P.C. (included in Exhibit
5.1).
23.2 - Consent of Coopers & Lybrand L.L.P.
23.3 - Consent of Arthur Andersen, LLP
23.4 - Consent of Ernst & Young LLP
23.5 - Consent of Deloitte & Touche LLP
24.1 - Power of Attorney (set forth on signature page).
25.1 - Statement of Eligibility of Sun Trust Bank - Atlanta, as
Trustee (bound separately).
27.1 - Financial Data Schedule.
99.1 - Form of Letter of Transmittal.
II-5
<PAGE> 217
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers, and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this Exchange Offer
Registration Statement through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Exchange Offer Registration Statement when it became
effective.
II-6
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR SUITES LIMITED PARTNERSHIP
a Delaware limited partnership (Co-Registrant)
By: FelCor Suite Hotels, Inc.,
Its General Partner
By:/s/ THOMAS J. CORCORAN, JR.,
-----------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HERVEY A. FELDMAN Chairman of the Board and November 3, 1997
----------------------------- Director
Hervey A. Feldman
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Director
Thomas J. Corcoran, Jr.
/s/ RANDY L. CHURCHEY Senior Vice President, Chief November 3, 1997
----------------------------- Financial Officer and Treasurer
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ CHARLES N. MATHEWSON
----------------------------- Director November 3, 1997
Charles N. Mathewson
----------------------------- Director November ___, 1997
Donald J. McNamara
/s/ RICHARD S. ELLWOOD
----------------------------- Director November 3, 1997
Richard S. Ellwood
/s/ RICHARD O. JACOBSON
----------------------------- Director November 3, 1997
Richard O. Jacobson
----------------------------- Director November ___, 1997
Thomas A. McChristy
</TABLE>
<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR SUITE HOTELS, INC., a Maryland
corporation (Co-Registrant)
By: /s/ THOMAS J. CORCORAN, JR.,
------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HERVEY A. FELDMAN Chairman of the Board and November 3, 1997
---------------------------- Director
Hervey A. Feldman
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Director
Thomas J. Corcoran, Jr.
/s/ RANDY L. CHURCHEY Senior Vice President, Chief November 3, 1997
----------------------------- Financial Officer and Treasurer
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ CHARLES N. MATHEWSON
----------------------------- Director November 3, 1997
Charles N. Mathewson
----------------------------- Director November ___, 1997
Donald J. McNamara
/s/ RICHARD S. ELLWOOD
----------------------------- Director November 3, 1997
Richard S. Ellwood
/s/ RICHARD O. JACOBSON
----------------------------- Director November 3, 1997
Richard O. Jacobson
----------------------------- Director November ___, 1997
Thomas A. McChristy
</TABLE>
<PAGE> 220
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR/CSS HOTELS, L.L.C.
a Delaware limited liability company (Co-Registrant)
By:/s/ THOMAS J. CORCORAN, JR.,
----------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Manager
Thomas J. Corcoran, Jr.
Senior Vice President, Chief November 3, 1997
/s/ RANDY L. CHURCHEY Financial Officer, Treasurer and
----------------------------- Manager
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ LAWRENCE D. ROBINSON
----------------------------- Manager November 3, 1997
Lawrence D. Robinson
</TABLE>
<PAGE> 221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR/CSS HOLDINGS, L.P. a Delaware
limited partnership
(Co-Registrant)
By: FelCor/CSS Hotels, L.L.C., Its
General Partner
By: /s/ THOMAS J. CORCORAN, JR.,
-------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Manager
Thomas J. Corcoran, Jr.
Senior Vice President, Chief November 3, 1997
/s/ RANDY L. CHURCHEY Financial Officer, Treasurer and
----------------------------- Manager
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ LAWRENCE D. ROBINSON
----------------------------- Manager November 3, 1997
Lawrence D. Robinson
</TABLE>
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR/ST. PAUL HOLDINGS, L.P. a Delaware limited
partnership (Co-Registrant)
By: FelCor/CSS Hotels, L.L.C.,
Its General Partner
By: /s/ THOMAS J. CORCORAN, JR.,
------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Manager
Thomas J. Corcoran, Jr.
Senior Vice President, Chief November 3, 1997
/s/ RANDY L. CHURCHEY Financial Officer, Treasurer and
----------------------------- Manager
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ LAWRENCE D. ROBINSON
----------------------------- Manager November 3, 1997
Lawrence D. Robinson
</TABLE>
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR/LAX HOTELS, L.L.C. a Delaware limited
liability company (Co-Registrant)
By: THOMAS J. CORCORAN, JR.,
-------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Manager
Thomas J. Corcoran, Jr.
Senior Vice President, Chief November 3, 1997
/s/ RANDY L. CHURCHEY Financial Officer, Treasurer and
----------------------------- Manager
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ LAWRENCE D. ROBINSON
----------------------------- Manager November 3, 1997
Lawrence D. Robinson
</TABLE>
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR/LAX HOLDINGS, L.P. a Delaware limited
partnership (Co-Registrant)
By: FelCor/LAX Hotels, L.L.C.,
Its General Partner
By: /s/ THOMAS J. CORCORAN, JR.,
------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Manager
Thomas J. Corcoran, Jr.
Senior Vice President, Chief November 3, 1997
/s/ RANDY L. CHURCHEY Financial Officer, Treasurer and
----------------------------- Manager
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ Lawrence D. Robinson
----------------------------- Manager November 3, 1997
Lawrence D. Robinson
</TABLE>
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 3rd day of November, 1997.
FELCOR EIGHT HOTELS, L.L.C. a Delaware limited
liability company (Co-Registrant)
By:/s/ THOMAS J. CORCORAN, JR.,
-------------------------------
Thomas J. Corcoran, Jr.,
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Thomas J. Corcoran, Jr. and Lawrence D. Robinson, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, to file the same, together with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
to sign any and all applications, registration statements, notices and other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with all other documents in connection
therewith, with the appropriate state securities authorities, granting unto
said attorneys-in-fact and agents or any of them, or their or his substitutes
or substitute, full power and authority to perform and do each and every act
and thing necessary and advisable as fully to all intents and purposes as he
might or could perform and do in person, thereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. CORCORAN, JR. President and Chief Executive November 3, 1997
----------------------------- Officer and Manager
Thomas J. Corcoran, Jr.
Senior Vice President, Chief November 3, 1997
/s/ RANDY L. CHURCHEY Financial Officer, Treasurer and
----------------------------- Manager
Randy L. Churchey
/s/ LESTER C. JOHNSON Vice President and Controller November 3, 1997
----------------------------- (Principal Accounting Officer)
Lester C. Johnson
/s/ LAWRENCE D. ROBINSON
----------------------------- Manager November 3, 1997
Lawrence D. Robinson
</TABLE>
<PAGE> 226
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 - Certificate of Limited Partnership of the Partnership dated
May 20, 1994, as filed with the Secretary of State of
Delaware.
3.2 - Amended and Restated Agreement of Limited Partnership of the
Partnership (filed as Exhibit 10.1 to the General Partner's
Annual Report on Form 10-K/A Amendment No. 1 for the fiscal
year ended December 31, 1994 (the "1994 10-K/A") and
incorporated herein by reference).
3.2.1 - First Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of November 17, 1995
by and among the General Partner, Promus Hotels, Inc. and all
of the persons or entities who are or shall in the future
become of the limited partners of the Partnership (filed as
Exhibit 10.1.1 to the General Partner's Annual Report on Form
10-K, as amended, for the fiscal year ended December 31, 1995
(the "1995 10-K") and incorporated herein by reference)
3.2.2 - Second Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of January 9, 1996
between the General Partner and all of the persons or entities
who are or shall in the future become limited partners of the
Partnership (filed as Exhibit 10.1.2 to the 1995 10-K and
incorporated herein by reference).
3.2.3 - Third Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of January 10, 1996 by
and among the General Partner, MarRay-LexGreen, Inc. and all
of the persons and entities who are or shall in the future
become limited partners of the Partnership (filed as Exhibit
10.1.3 to the 1995 10-K and incorporated herein by reference).
3.2.4 Fourth Amendment to the Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of January 10,
1996 by and among the General Partner, Piscataway-Centennial
Associates Limited Partnership and all of the persons or
entities who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.4 to the
1995 10-K and incorporated herein by reference).
3.2.5 - Fifth Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of May 2, 1996,
between the Registrant and all of the persons or entities who
are or shall in the future become limited partners of the
Partnership, adopting Addendum No. 2 to Amended and Restated
Agreement of Limited Partnership of the Partnership dated as
of May 2, 1996 (filed as Exhibit 10.1.5 to the General
Partner's Form 10-Q for the quarter ended June 30, 1996 (the
"1996 Second Quarter 10-Q") and incorporated herein by
reference).
3.2.6 - Sixth Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of September 16, 1996,
by and among the Registrant, John B. Urbahns, II and all of
the persons or entities who are or shall in the future become
limited partners of the Partnership (filed as Exhibit 10.1.6
to the General Partner's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "1996 10-K") and
incorporated herein by reference).
4.1 - Indenture dated as of October 1, 1997 by and among the
Partnership, the General Partner, the Subsidiary Guarantors
named therein and SunTrust Bank, Atlanta, Georgia, as Trustee.
5.1 - Opinion of Jenkens & Gilchrist, P.C.
10.2.1 - Form of Lease Agreement between the Partnership as Lessor and
DJONT Operations, L.L.C. ("DJONT") as Lessee (filed as Exhibit
10.2.1 to the 1995 10-K and incorporated herein by reference).
10.2.2 - Schedule of executed Lease Agreements identifying material
variations from the form of Lease Agreement with respect to
hotels acquired by the Partnership through September 30, 1997.
10.3 - Amended and Restated Loan Agreement dated as of September 26,
1996, among the General Partner and the Partnership, as
Borrowers, Boatmen's National Bank of Oklahoma, as Agent and
Lender, and First Tennessee Bank National Association, Liberty
Bank and Trust Company of Tulsa, National Association, Bank
One, Texas, N.A., First National Bank of Commerce, and AmSouth
Bank of Alabama, as Lenders (filed as Exhibit 10.3.4 to the
General Partner's Form 10-Q for the quarter ended September
30, 1996 (the "1996 Third Quarter 10-Q") and incorporated
herein by reference).
10.4 - Agreement to Assign Incentive Management Fee dated as of May
19, 1994 between the General Partner and Embassy Suites, Inc.
(filed as Exhibit 10.14 to the General Partner's Registration
Statement on Form S- 11 (File No. 33-79214) (the "IPO
Registration Statement") and incorporated herein by
reference).
</TABLE>
<PAGE> 227
<TABLE>
<S> <C>
10.5 - Employment Agreement dated as of July 28, 1994 between the
General Partner and Hervey A. Feldman (filed as Exhibit 10.7
to the 1994 10-K/A and incorporated herein by reference).
10.6 - Employment Agreement dated as of July 28, 1994 between the
General Partner and Thomas J. Corcoran, Jr. (filed as Exhibit
10.8 to the 1994 10-K/A and incorporated herein by reference).
10.7.1 - Restricted Stock and Stock Option Plan of the General Partner
(filed as Exhibit 10.9 to the 1994 10-K/A and incorporated
herein by reference).
10.7.2 - 1995 Restricted Stock and Stock Option Plan of the General
Partner (filed as Exhibit 10.9.2 to the 1995 10-K and
incorporated herein by reference).
10.8 - Savings and Investment Plan of the General Partner (filed as
Exhibit 10.10 to the 1994 10-K/A and incorporated herein by
reference).
10.9 - Registration Rights Agreement dated as of July 21, 1994
between the General Partner and the parties named therein
(filed as Exhibit 10.11 to the 1994 10-K/A and incorporated
herein by reference).
10.10 - Agreement dated as of April 15, 1995 among the General
Partner, the Partnership, FelCor, Inc., Thomas J. Corcoran,
Jr. and Hervey A. Feldman relating to purchase of securities
(filed as Exhibit 10.15 to the Registration Statement on Form
S-11 (File No. 33-91870) (the "May 1995 Registration
Statement") and incorporated herein by reference).
10.11.1 - Subscription Agreement dated as of May 3, 1995 among the
General Partner, the Partnership and Embassy Suites, Inc.
(filed as Exhibit 10.16 to the May 1995 Registration Statement
and incorporated hereby by reference).
10.11.2 - Subscription Agreement dated as of October 17, 1995 among the
General Partner, the Partnership and Promus Hotels, Inc.
(filed as Exhibit 10.27.1 to the December 1995 Registration
Statement and incorporated herein by reference).
10.11.3 - First Amendment to Subscription Agreements dated as of
November 16, 1995 among the General Partner, the Partnership
and Promus Hotels, Inc. (filed as Exhibit 10.27.2 to the
December 1995 Registration Statement and incorporated herein
by reference).
10.11.4 - Second Amendment to Subscription Agreements dated as of
December 12, 1995 among the General Partner, the Partnership
and Promus Hotels, Inc. (filed as Exhibit 10.27.3 to the
December 1995 Registration Statement and incorporated herein
by reference).
10.12.1 - Master Agreement with respect to the purchase of the CSS
Hotels between Minnesota Hotel Company, Inc. ("MHCI") and
FelCor/CSS Holdings, L.P. ("Holdings") dated as of September
19, 1995 (filed as Exhibit 10.20.1 to the General Partner's
Form 10-Q for the quarter ended September 30, 1995 (the "1995
Third Quarter 10-Q") and incorporated herein by reference).
10.12.2 - Letter agreement with respect to amendments to Master
Agreement between MHCI and Holdings dated as of November 6,
1995 (filed as Exhibit 10.20.2 to the 1995 Third Quarter 10-Q
and incorporated herein by reference).
</TABLE>
<PAGE> 228
<TABLE>
<S> <C>
10.12.3 - Letter agreement dated January 3, 1996, among MHCI, Crown
Sterling Management, Inc. ("CSM"), Crown Sterling Incorporated
("CSI"), Holdings, and PFS Ventures, Inc. ("PFS") relating to
amendments to Master Agreement dated as of September 19, 1995
between MHCI and Holdings ("Master Agreement") and Asset
Purchase Agreement dated as of September 19, 1995 among CSM,
CSI and PFS ("Asset Purchase Agreement") (filed as Exhibit
10.20.3 to the 1996 Form 8-K and incorporated herein by
reference).
10.12.4 - Letter agreement dated March 26, 1996, among MHCI, Napa Wine
Country Hotel, a California Limited Partnership, Mandalay
Beach, California Hotel Associates, a California Limited
Partnership ("MBC"), CSM, CSI, Holdings and PFS relating to
amendments to Master Agreement, Asset Purchase Agreement and
Partnership Interests Purchase Agreement dated as of September
19, 1995 among MHCI, MBC, Robert E. Woolley and Holdings
("Partnership Interests Purchase Agreement") (filed as Exhibit
10.20.4 to the 1996 Form 8-K and incorporated herein by
reference).
10.13 - Partnership Interests Purchase Agreement with respect to the
LAX Airport and Mandalay Beach hotels among MHCI, MBC, Robert
E. Woolley and Holdings dated as of September 19, 1995 (filed
as Exhibit 10.21 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.13.1 - Letter agreement dated March 27, 1996 among MHCI, MBC,
Holdings and PFS relating to amendments to Partnership
Interests Purchase Agreement (filed as Exhibit 10.21.1 to the
1996 Form 8-K and incorporated herein by reference).
10.13.2 - Letter agreement dated March 27, 1996, among MHCI, MBC, CSM,
CSI, Holdings and PFS relating to amendments to Partnership
Interests Purchase Agreement and Asset Purchase Agreement
(filed as Exhibit 10.21.2 to the 1996 Form 8-K and
incorporated herein by reference).
10.14.1 - Asset Purchase Agreement with respect to the CSS Hotels among
CSM, CSI and PFS dated as of September 19, 1995 (filed as
Exhibit 10.22.1 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.14.2 - Letter agreement with respect to amendments to Asset Purchase
Agreement among CSM, CSI and PFS dated as of November 6, 1995
(filed as Exhibit 10.22.2 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.15 - Escrow Agreement among MHCI, CSM, CSI, Robert E. Woolley,
Charles M. Sweeney, Holdings and PFS dated as of September
19, 1995 (filed as Exhibit 10.23 to the 1995 Third Quarter
10-Q and incorporated herein by reference).
10.16 - Purchase Agreement relating to the purchase of all of the
limited partner interest in Holdings between the Partnership
and DJONT/CSS Holdings, Inc. dated as of September 19, 1995
(filed as Exhibit 10.24 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
10.17 - Purchase Agreement related to the purchase of all of the
general partner interest in Holdings between the Partnership
and PFS dated as of September 19, 1995 (filed as Exhibit 10.25
to the 1995 Third Quarter 10-Q and incorporated herein by
reference).
10.18 - Letter agreement among the General Partner, the Partnership,
Holdings, and Smith Barney Mortgage Capital Group, Inc.
("SBMCG") dated as of September 28, 1995 with respect to the
commitment of SBMCG to provide up to $220 million principal
amount of interim recourse secured financing to Holdings
(filed as Exhibit 10.26 to the 1995 Third Quarter 10-Q and
incorporated herein by reference).
</TABLE>
<PAGE> 229
<TABLE>
<S> <C>
10.19 - Registration Rights Agreement dated as of November 17, 1995
between the General Partner and Cleveland Finance Associates
Limited Partnership (filed as Exhibit 10.27 to the 1995 10-K
and incorporated herein by reference).
10.20 - Registration Rights Agreement dated as of January 3, 1996
between the General Partner and Robert E. Woolley and Charles
M. Sweeney (filed as Exhibit 10.28 to the 1995 10-K and
incorporated herein by reference).
10.21 - Credit Agreement dated as of January 31, 1996, by and among
Holdings, as borrower, the Partnership, the General Partner
and The Bank of Nova Scotia, New York Agency (filed as Exhibit
10.29 to the 1995 10-K and incorporated herein by reference).
10.22 - Credit Agreement dated as of February 6, 1996, by and among
the Partnership, as borrower, Holdings and the General
Partner, as guarantors, and Canadian Imperial Bank of
Commerce, as agent (filed as Exhibit 10.30 to the 1996 Form
8-K and incorporated herein by reference).
10.23 - Third Amended and Restated Revolving Credit Agreement dated as
of August 14, 1997 among the General Partner and the
Partnership, as Borrower, the Lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent, and Wells Fargo Bank,
National Association, as Documentation Agent.
10.24 - Contract for Purchase and Sale of Hotels, dated as of June 5,
1997, by and among ITT Sheraton Corporation, Sheraton Savannah
Corp., Sheraton Peachtree Corp., Sheraton Crescent Corp.,
Sheraton Dallas Corp., Sheraton Gateway Suites O'Hare
Investment Partnership and the Partnership (filed as Exhibit
10.24 to the General Partner's Form 8-K dated July 11, 1997
and incorporated herein by reference).
10.25 - Registration Rights Agreement dated as of September 26, 1997
among the General Partner, the Partnership, Morgan Stanley &
Co. Incorporated, NationsBank Capital Markets, Inc. and
Salomon Brothers Inc.
12.1 - Statement re Computation of Ratios.
21.1 - List of Subsidiaries of the Registrant.
23.1 - Consent of Jenkens & Gilchrist, P.C. (included in Exhibit
5.1).
23.2 - Consent of Coopers & Lybrand L.L.P.
23.3 - Consent of Arthur Andersen, LLP
23.4 - Consent of Ernst & Young LLP
23.5 - Consent of Deloitte & Touche LLP
24.1 - Power of Attorney (set forth on signature page).
25.1 - Statement of Eligibility of Sun Trust Bank - Atlanta, as
Trustee (bound separately).
27.1 - Financial Data Schedule.
99.1 - Form of Letter of Transmittal.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
State of Delaware
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
PARTNERSHIP OF "FELCOR A SUITES LIMITED PARTNERSHIP", FILED IN THIS OFFICE ON
THE TWENTY-THIRD DAY OF MAY, A.D. 1994, AT 10 O'CLOCK A.M.
[SEAL] /s/ WILLIAM T. QUILLEN
----------------------
WILLIAM T. QUILLEN,
SECRETARY OF STATE
2404748 8100 AUTHENTICATION: 7127212
944091178 DATE: 05-23-94
<PAGE> 2
CERTIFICATE OF LIMITED PARTNERSHIP
OF
FELCOR SUITES LIMITED PARTNERSHIP
This Certificate of Limited Partnership of FelCor Suites Limited
Partnership (the "Partnership") is being executed by the undersigned for the
purpose of forming a limited partnership pursuant to the Delaware Revised
Uniform Limited Partnership Act.
1. The name of the Partnership is FelCor Suites Limited Partnership.
2. The address of the registered office of the Partnership in Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801. The Partnership's registered agent at that address is
The Corporation Trust Company.
3. The name and business address of the general partner is:
FelCor Suite Hotels, Inc.
5215 N. O'Connor Blvd., Suite 330
Irving, Texas 75039
IN WITNESS WHEREOF, the undersigned, constituting all of the general
partners of the Partnership, have caused this Certificate of Limited Partnership
to be duly executed as of the 20th day of May, 1994.
FELCOR SUITE HOTELS, INC.
General Partner
By: /s/ THOMAS J. CORCORAN, JR.
-----------------------------
Thomas J. Corcoran, Jr.
President
<PAGE> 1
EXHIBIT 4.1
FELCOR SUITES LIMITED PARTNERSHIP,
as Issuer
FELCOR SUITE HOTELS, INC.,
FELCOR/CSS HOTELS, L.L.C.,
FELCOR/LAX HOTELS, L.L.C.,
FELCOR/CSS HOLDINGS, L.P.,
FELCOR/ST. PAUL HOLDINGS, L.P.,
FELCOR/LAX HOLDINGS, L.P.,
FELCOR EIGHT HOTELS, L.L.C.,
as Guarantors,
and
SUNTRUST BANK, ATLANTA
as Trustee
Indenture
Dated as of October 1, 1997
7 3/8% Senior Notes Due 2004
7 5/8% Senior Notes Due 2007
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
------------ ------------------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08
Section 313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 10.02
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17; 10.02
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16; 10.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
Section 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 10.02
Section 316(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be
a part of the Indenture.
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. . . . . . . . . . . . . . . . 20
SECTION 1.03 RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 2
NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.01 FORM AND DATING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.02 RESTRICTIVE LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.03 EXECUTION, AUTHENTICATION AND DENOMINATIONS. . . . . . . . . . . . . . . . . . . 25
SECTION 2.04 REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.05 PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.06 TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.07 BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.08 SPECIAL TRANSFER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.09 REPLACEMENT NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.10 OUTSTANDING NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.11 TEMPORARY NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.12 CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.13 CUSIP NUMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.14 DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.15 ISSUANCE OF ADDITIONAL NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 3
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.01 OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.02 NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.03 SELECTION OF NOTES TO BE REDEEMED . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.04 NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.05 EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.06 DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.07 PAYMENT OF NOTES CALLED FOR REDEMPTION . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.08 NOTES REDEEMED IN PART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.01 PAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.03 LIMITATION ON INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.04 LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 4.05 LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.06 LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 4.07 LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES . . . . . . . . . 44
SECTION 4.08 LIMITATION ON TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.09 LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.10 LIMITATION ON ASSET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.11 REPURCHASE OF NOTES UPON A CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . 46
SECTION 4.12 EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.13 PAYMENT OF TAXES AND OTHER CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.14 MAINTENANCE OF PROPERTIES AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.15 NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.16 COMPLIANCE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.17 COMMISSION REPORTS AND REPORTS TO HOLDERS . . . . . . . . . . . . . . . . . . . . . 48
SECTION 4.18 WAIVER OF STAY, EXTENSION OR USURY LAWS . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.19 LIMITATION ON SALE-LEASEBACK TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.20 MAINTENANCE OF TOTAL UNENCUMBERED ASSETS . . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.21 INVESTMENT GRADE RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 5
SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.01 WHEN FELCOR OR FELCOR LP MAY MERGE, ETC. . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.02 SUCCESSOR SUBSTITUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 6
DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.01 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.02 ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 6.03 OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.04 WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.05 CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.06 LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.08 COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.10 PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.11 UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.13 RIGHTS AND REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 6.14 DELAY OR OMISSION NOT WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 7
TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.01 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.02 CERTAIN RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.04 TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.05 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.07 COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.08 REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.10 ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.11 MONEY HELD IN TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.12 WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 8
DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.01 TERMINATION OF COMPANY'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.02 DEFEASANCE AND DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 8.03 DEFEASANCE OF CERTAIN OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 8.04 APPLICATION OF TRUST MONEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.05 REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.06 REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 9.01 WITHOUT CONSENT OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.02 WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.03 REVOCATION AND EFFECT OF CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.04 NOTATION ON OR EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.05 TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.06 CONFORMITY WITH TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 10
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.01 TRUST INDENTURE ACT OF 1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 10.02 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 10.03 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . 71
SECTION 10.04 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . . . . . . . . . . . . . 71
SECTION 10.05 RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.06 PAYMENT DATE OTHER THAN A BUSINESS DAY . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.07 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.08 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . 72
SECTION 10.09 NO RECOURSE AGAINST OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.10 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.11 DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.12 SEPARABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.13 TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE 11
GUARANTEE OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.01 GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.02 OBLIGATIONS OF GUARANTOR UNCONDITIONAL. . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.03 NOTICE TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.04 THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . 74
SECTION 11.05 TRUSTEE'S COMPENSATION NOT PREJUDICED. . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.06 PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION. . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.07 SUSPENSION OF GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
v
<PAGE> 7
INDENTURE, dated as of October 1, 1997, among FelCor Suites Limited
Partnership ("FelCor LP"), a Delaware limited partnership, FelCor Suite Hotels,
Inc. ("FelCor"), a Maryland corporation, FelCor/CSS Hotels, L.L.C., a Delaware
limited liability company, FelCor/LAX Hotels, L.L.C., a Delaware limited
liability company, FelCor/CSS Holdings, L.P., FelCor/St. Paul Holdings, L.P.,
FelCor/LAX Holdings, L.P., FelCor Eight Hotels, L.L.C. and SunTrust Bank,
Atlanta, a Georgia banking corporation (the "Trustee").
RECITALS OF COMPANY
FelCor LP has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $175,000,000 aggregate
principal amount at maturity of FelCor LP's 7 3/8% Senior Notes Due 2004 (the
"7 3/8 Notes") and $125,000,000 aggregate principal amount at maturity of
FelCor LP's 7 5/8% Senior Notes Due 2007 ("the "7 5/8 Notes"; and, together
with the 7 3/8 Notes, the "Notes") issuable as provided in this Indenture.
Each Guarantor has duly authorized the execution and delivery of this Indenture
to provide for a guarantee of the Notes and of certain of FelCor LP's
obligations hereunder. All things necessary to make this Indenture a valid
agreement of FelCor LP and the Guarantors in accordance with its terms, have
been done, and FelCor LP and the Guarantors have done all things necessary to
make the Notes, when executed by FelCor LP and authenticated and delivered by
the Trustee hereunder and duly issued by FelCor LP, the valid obligations of
FelCor LP and the Guarantors as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition from such Person by a Restricted Subsidiary and not
incurred by such Person in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of the transactions by
which such
<PAGE> 8
Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be
Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of FelCor, FelCor LP and their respective
Restricted Subsidiaries for such period determined on a consolidated basis in
conformity with GAAP plus the minority interest in FelCor LP, if applicable;
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any Person
(other than FelCor LP, FelCor or a Restricted Subsidiary), except to the extent
of the amount of dividends or other distributions actually paid to FelCor LP,
FelCor or any of their respective Restricted Subsidiaries by such Person during
such period; (ii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iii) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (iv) for so long as the Notes are not rated
Investment Grade, any amount paid or accrued as dividends on Preferred Stock of
FelCor LP, FelCor or any Restricted Subsidiary owned by Persons other than
FelCor or FelCor LP and any of their respective Restricted Subsidiaries; and
(v) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of FelCor LP, FelCor and their respective Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves), except to
the extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of FelCor LP, FelCor and their
respective Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of FelCor LP or FelCor and their
respective Restricted Subsidiaries, prepared in conformity with GAAP and filed
with the Commission or provided to the Trustee pursuant to Section 4.17.
"Adjusted Total Assets" means, for any Person, the sum of (i) Total
Assets for such Person as of the end of the calendar quarter preceding the
Transaction Date as set forth on the most recent quarterly or annual
consolidated balance sheet of FelCor LP or FelCor and their respective
Restricted Subsidiaries, prepared in conformity with GAAP and filed with the
Commission or provided to the Trustee pursuant to Section 4.17 and (ii) any
increase in Total Assets following the end of such quarter including, without
limitation, any increase in Total Assets resulting from the application of the
proceeds of any additional Indebtedness.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person,
2
<PAGE> 9
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.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an investment by FelCor LP or FelCor or
any of their respective Restricted Subsidiaries in any other Person pursuant to
which such Person shall become a Restricted Subsidiary or shall be merged into
or consolidated with FelCor LP or FelCor or any of their respective Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary, incidental or complementary to the businesses of FelCor LP or FelCor
or any of their respective Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by FelCor LP or FelCor or any of their
respective Restricted Subsidiaries from any other Person that constitutes
substantially all of a division or line of business, or one or more hotel
properties, of such Person; provided that the property and assets acquired are
related, ancillary, incidental or complementary to the businesses of FelCor LP
or FelCor or any of their respective Restricted Subsidiaries on the date of
such acquisition.
"Asset Disposition" means the sale or other disposition by FelCor LP
or FelCor or any of their respective Restricted Subsidiaries (other than to
FelCor LP, FelCor or another Restricted Subsidiary) of (i) all or substantially
all of the Capital Stock of any Restricted Subsidiary or (ii) all or
substantially all of the assets that constitute a division or line of business,
or one or more hotel properties, of FelCor LP or FelCor or any of their
respective Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by FelCor LP or FelCor or any
of their Restricted Subsidiaries to any Person other than FelCor LP or FelCor
or any of their respective Restricted Subsidiaries of (i) all or any of the
Capital Stock of any Restricted Subsidiary other than sales permitted under
clause (iv) of Section 4.06, (ii) all or substantially all of the property and
assets of an operating unit or business of FelCor LP or FelCor or any of their
respective Restricted Subsidiaries or (iii) any other property and assets of
FelCor LP or FelCor or any of their respective Restricted Subsidiaries outside
the ordinary course of business of FelCor LP or FelCor or such Restricted
Subsidiary and, in each case, that is not governed by the provisions of the
Indenture applicable to mergers, consolidations and sales of assets of FelCor
LP and FelCor; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets, (b) sales,
transfers or other dispositions of assets with a fair market value not in
excess of $1 million in any transaction or series of related transactions or
(c) sales or other dispositions of assets for consideration at least equal to
the fair market value of the assets sold or disposed of, to the extent that the
consideration received would satisfy clause (i)(B) of the second sentence of
Section 4.10.
3
<PAGE> 10
"Average Life" means at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means (i) with respect to FelCor the Board of
Directors of FelCor, (ii) with respect to FelCor LP, the Board of Directors of
its general partner, and (iii) with respect to the Subsidiary Guarantors, the
board of directors of its general partner or manager, as the case may be, or,
in each case, any committee of such Board of Directors duly authorized to act
under this Indenture.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of such Person to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), including partnership interests, whether general or
limited, in the equity of such Person, whether outstanding on the Closing Date
or issued thereafter, including, without limitation, all Common Stock,
Preferred Stock and Units.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease as reflected on the balance
sheet of such Person in accordance with GAAP.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the Voting Stock of
FelCor or, other than by FelCor, of FelCor LP on a fully diluted basis; or (ii)
individuals who on the Closing Date constitute the Board of Directors (together
with any new or replacement directors whose election by the Board of Directors
or whose nomination by the Board of Directors for election by FelCor's
shareholders was approved by a vote of at least a majority of the members of
the Board of Directors then still in office who either were members
4
<PAGE> 11
of the Board of Directors on the Closing Date or whose election or nomination
for election was so approved) cease for any reason to constitute a majority of
the members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting), which have no preference on liquidation or with respect
to distributions over any other class of Capital Stock, including partnership
interests, whether general or limited, of such Person's equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of common stock.
"Company Order" means a written request or order signed in the name of
a Person (i) by its Chairman, a Vice Chairman, its President, a Vice President,
manager or similar officer of its general partner and (ii) by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, manager or
similar officer of its general partner and delivered to the Trustee; provided,
however, that such written request or order may be signed by any two of the
officers or directors listed in clause (i) above in lieu of being signed by one
of such officers or directors listed in such clause (i) and one of the officers
listed in clause (ii) above.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Note to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Note.
"Comparable Treasury Price" means, with respect to any Redemption
Date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such Business Day, the average
of the Reference Treasury Dealer Quotations actually obtained by the Trustee
for such Redemption Date.
5
<PAGE> 12
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is,
or is required by GAAP to be, made), less all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis for
FelCor LP, FelCor and their respective Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on the last day of such period by FelCor
LP or FelCor or any of their respective Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, without
duplication, the aggregate amount of interest expense in respect of
Indebtedness (including, without limitation, amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with GAAP; all commissions, discounts and
other fees and expenses owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements
and Indebtedness that is Guaranteed or secured by assets of FelCor LP, FelCor
or any of their respective Restricted Subsidiaries and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by FelCor LP, FelCor and their
respective Restricted Subsidiaries) during such period, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP; excluding (i) the amount of such interest expense of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (ii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (ii) of the definition
thereof) and (ii) any premiums, fees and expenses (and any amortization
thereof) payable in connection with the offering of the Notes or paid in
connection with any other Indebtedness outstanding on August 31, 1997, all as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
6
<PAGE> 13
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 58 Edgewood Avenue, Room 400 Annex, Atlanta, Georgia 30303,
Attention: Corporate Trust Administration.
"Depositary" shall mean The Depository Trust Company, its nominees,
and their respective successors.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock, other than Units, at any time prior
to the Stated Maturity of the Notes or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness
having a scheduled maturity prior to the Stated Maturity of the Notes; provided
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in Sections
4.10 and 4.11 and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to FelCor LP's repurchase of such Notes as are required to be repurchased
pursuant to Sections 4.10 and 4.11.
"DJONT" means DJONT Operations, L.L.C., a Delaware limited liability
company.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means any securities of FelCor LP containing terms
identical to a series of Notes (except that such Exchange Notes shall be
registered under the Securities Act) that are issued and exchanged for such
Notes pursuant to the Registration Rights Agreement and this Indenture.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to
buy, as determined in good faith by the Board of Directors, whose determination
shall be conclusive if evidenced by a Board Resolution.
"Funds From Operations" for any period means the consolidated net
income of FelCor LP, FelCor and their respective Restricted Subsidiaries for
such period in conformity with GAAP
7
<PAGE> 14
excluding gains or losses from debt restructurings and sales of property, plus
depreciation of real property (including furniture and equipment) and after
adjustments for unconsolidated partnerships and joint ventures plus the
minority interest in FelCor LP, if applicable; provided that for purposes of
the payment of any dividend or distribution by FelCor LP or FelCor, "Funds From
Operations" shall be equal to $80 million plus the amount thereof computed for
the period commencing with the first day of the fiscal quarter in which the
Closing Date occurs and ending on the last day of the last fiscal quarter
preceding the payment of such dividend or distribution.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
contained or referred to in the Indenture shall be computed in conformity with
GAAP applied on a consistent basis, except that calculations made for purposes
of determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to (i) the
amortization of any expenses incurred in connection with the offering of the
Notes and (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Government Securities" means direct obligations of, obligations
guaranteed by, or participations in pools consisting solely of obligations of
or obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option of
the issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and, without limiting the generality of the foregoing, any obligation, direct
or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
8
<PAGE> 15
"Guarantors" means FelCor and the Subsidiary Guarantors, collectively,
so long as they remain obligors on any Indebtedness of FelCor or FelCor LP
which is pari passu with or subordinated to the Notes.
"Holder" or "Noteholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) the face amount of
letters of credit or other similar instruments (excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
unconditional obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except Trade
Payables, (v) all Capitalized Lease Obligations, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not
otherwise included in this definition or the definition of Consolidated
Interest Expense, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations of the type
described above and, with respect to obligations under any Guarantee, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation; provided that (A) the amount outstanding at any time of any
Indebtedness issued with original issue discount shall be deemed to be the face
amount with respect to such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at the date of
determination in conformity with GAAP, and (B) Indebtedness shall not include
any liability for federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or as it may
be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
9
<PAGE> 16
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with FelCor LP.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have been
filed with the Commission or provided to the Trustee pursuant to Section 4.17
("Four Quarter Period") to (ii) the aggregate Consolidated Interest Expense
during such Four Quarter Period. In making the foregoing calculation, (A) pro
forma effect shall be given to any Indebtedness Incurred or repaid (other than
in connection with an Asset Acquisition or Asset Disposition) during the period
("Reference Period") commencing on the first day of the Four Quarter Period and
ending on the Transaction Date (other than Indebtedness Incurred or repaid
under a revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement)
in effect on the last day of such Four Quarter Period unless any portion of
such Indebtedness is projected, in the reasonable judgment of the senior
management of FelCor LP or FelCor (as evidenced by an Officer's Certificate),
to remain outstanding for a period in excess of 12 months from the date of the
Incurrence thereof), in each case as if such Indebtedness had been Incurred or
repaid on the first day of such Reference Period; (B) Consolidated Interest
Expense attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months or, if
shorter, at least equal to the remaining term of such Indebtedness) had been
the applicable rate for the entire period; (C) pro forma effect shall be given
to Asset Dispositions and Asset Acquisitions (including giving pro forma effect
to the application of proceeds of any Asset Disposition and any Indebtedness
Incurred or repaid in connection with any such Asset Acquisitions or Asset
Dispositions) that occur during such Reference Period but subsequent to the end
of the related Four Quarter Period as if they had occurred and such proceeds
had been applied on the first day of such Reference Period; and (D) pro forma
effect shall be given to asset dispositions and asset acquisitions (including
giving pro forma effect to the application of proceeds of any asset disposition
and any Indebtedness Incurred or repaid in connection with any such asset
acquisitions or asset dispositions) that have been made by any Person that has
become a Restricted Subsidiary or has been merged with or into FelCor LP or
FelCor or any of their respective Restricted Subsidiaries during such Reference
Period but subsequent to the end of the related Four Quarter Period and that
would have constituted Asset Dispositions or Asset Acquisitions during such
Reference Period but subsequent to the end of the related Four Quarter Period
had such transactions occurred when such Person was a Restricted Subsidiary as
if such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions and had occurred on the first day of such Reference Period;
provided that to the extent that clause (C) or (D) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset
10
<PAGE> 17
Disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business, or one or more hotel properties, of the Person
that is acquired or disposed of to the extent that such financial information
is available.
"Interest Payment Date" means each semiannual interest payment date on
April 1 and October 1, of each year, commencing April 1, 1998.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement with respect to interest rates.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including without limitation by way of Guarantee
or similar arrangement, but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the consolidated balance sheet of FelCor LP, FelCor and their
respective Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property (tangible or intangible) to others or any
payment for property or services solely for the account or use of others, or
otherwise), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries of (or in) any Person that has ceased to be a Restricted
Subsidiary, including without limitation, by reason of any transaction
permitted by clause (iii) of Section 4.06; provided that the fair market value
of the Investment remaining in any Person that has ceased to be a Subsidiary
shall be deemed not to exceed the aggregate amount of Investments previously
made in such Person valued at the time such Investments were made, less the net
reduction of such Investments. For purposes of the definition of "Unrestricted
Subsidiary" and Section 4.04, (i) "Investment" shall include the fair market
value of the assets (net of liabilities (other than liabilities to FelCor LP or
FelCor or any of their respective Restricted Subsidiaries)) of any Restricted
Subsidiary at the time such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Investment Grade" means a rating of the Notes by both S&P and
Moody's, each such rating being in one of such agency's four highest generic
rating categories that signifies investment grade (i.e. BBB- (or the
equivalent) or higher by S&P and Baa3 (or the equivalent) or higher by
Moody's); provided, in each case, such ratings are publicly available;
provided, further,
11
<PAGE> 18
that in the event Moody's or S&P is no longer in existence for purposes of
determining whether the Notes are rated "Investment Grade," such organization
may be replaced by a nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) designated by FelCor LP and
FelCor, notice of which shall be given to a Responsible Officer of the Trustee.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Line of Credit" means the credit facility established pursuant to the
Third Amended and Restated Revolving Credit Agreement dated as of August 14,
1997 among FelCor LP, FelCor, the lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Wells Fargo Bank, National Association, as
Documentation Agent, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith, in
each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time; provided that, with respect to an agreement providing for the refinancing
of Indebtedness under the Line of Credit, such agreement shall be the Line of
Credit under the Indenture only if a notice to that effect is delivered by
FelCor LP and FelCor to a Responsible Officer of the Trustee and there shall be
at any time only one instrument that is (together with the aforementioned
related agreements, instruments and documents) the Line of Credit under the
Indenture.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to FelCor LP or FelCor or any of
their respective Restricted Subsidiaries) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes actually paid or payable as a result of such Asset Sale by FelCor
LP, FelCor and their respective Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either (A) is secured by a Lien on the
property or assets sold or (B) is required to be paid as a result of such sale
and (iv) amounts reserved by FelCor LP, FelCor and their respective Restricted
Subsidiaries against any liabilities associated with such Asset Sale, including
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
on a consolidated basis in conformity with GAAP and (b) with respect to any
issuance or sale of Capital Stock, the proceeds of such issuance or sale in the
form of cash or
12
<PAGE> 19
cash equivalents, including payments in respect of deferred payment obligations
(to the extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents (except to the
extent such obligations are financed or sold with recourse to FelCor LP or
FelCor or any of their respective Restricted Subsidiaries) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants's fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of tax
paid or payable as a result thereof.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Note Register" has the meaning provided in Section 2.04.
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
the Notes initially issued on the Closing Date, any Exchange Notes to be issued
and exchanged for any Notes pursuant to the Registration Rights Agreement and
this Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as
one series of Notes under this Indenture.
"Offer to Purchase" means an offer to purchase Notes by FelCor LP,
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) ("Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless FelCor LP defaults in
the payment of the purchase price, any Note accepted for payment pursuant to
the Offer to Purchase shall cease to accrue interest on and after the Payment
Date; (v) that Holders electing to have a Note purchased pursuant to the Offer
to Purchase will be required to surrender the Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Payment Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal
amount of $1,000 or integral multiples thereof. On the Payment Date, FelCor LP
shall (i) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to an Offer to Purchase; and (ii) deposit with the Paying
Agent money
13
<PAGE> 20
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and shall promptly thereafter deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an
Officers' Certificate specifying the Notes or portions thereof accepted for
payment by FelCor LP. The Paying Agent shall promptly mail to the Holders of
Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal
in principal amount to any unpurchased portion of any Note surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof. FelCor LP will
publicly announce the results of an Offer to Purchase as soon as practicable
after the Payment Date. FelCor LP will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that FelCor LP is
required to repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to any Person, (i) the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, and (ii)
the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary or Person holding a similar position at the general partner or
manager of such Person.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof. Each Officers' Certificate (other than
certificates provided pursuant to TIA Section 314(a)(4)) shall include the
statements provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Offshore Notes Exchange Date" has the meaning provided in Section
2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel
who may be an employee of or counsel to FelCor or FelCor LP. Each such Opinion
of Counsel shall include the statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be FelCor LP, a
Subsidiary of FelCor LP, any Guarantor or an Affiliate of any of them. The
term "Paying Agent" includes any additional Paying Agent.
"Permanent Offshore Global Note" has the meaning provided in Section
2.01.
"Permitted Investment" means (i) an Investment in FelCor LP or FelCor
or any of their Restricted Subsidiaries or a Person which will, upon the making
of such Investment, become a Restricted Subsidiary or be merged or consolidated
with or into or transfer or convey all or substantially all its assets to,
FelCor LP or FelCor or any of their Restricted Subsidiaries;
14
<PAGE> 21
provided that such person's primary business is related, ancillary, incidental
or complementary to the businesses of FelCor LP or FelCor or any of their
respective Restricted Subsidiaries on the date of such Investment; (ii)
Temporary Cash Investments; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordances with GAAP; and (iv) stock, obligations or securities
received in satisfaction of judgments.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participation or other equivalents (however designated,
whether voting or non-voting), which have a preference on liquidation or with
respect to distributions over any other class of Capital Stock, including
preferred partnership interests, whether general or limited, or such Person's
preferred or preference stock, whether outstanding on the Closing Date or
issued thereafter, including, without limitation, all series and classes of
such preferred or preference stock.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which such Note is to be redeemed pursuant to this
Indenture.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc and
their respective successors; provided, that if any of the foregoing shall cease
to be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), FelCor LP shall substitute therefor another Primary Treasury
Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.
"Registrar" has the meaning provided in Section 2.04.
"Registration" has the meaning provided in Section 4.17.
15
<PAGE> 22
"Registration Rights Agreement" means the Registration Rights
Agreement, dated September 26, 1997, among FelCor LP, FelCor, Morgan Stanley &
Co. Incorporated, NationsBank Capital Markets, Inc. and Salomon Brothers Inc
and certain permitted assigns specified therein.
"Registration Statement" means the Registration Statement as defined
and described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the March 15 or September 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice chairman of the board of directors, the chairman or
any vice chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of FelCor LP or FelCor
other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Secured Indebtedness" means any Indebtedness secured by a Lien upon
the property of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries.
"Senior Indebtedness" means the following obligations of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries, whether outstanding
on the Closing Date or thereafter Incurred: (i) all Indebtedness and all other
monetary obligations (including expenses fees and other monetary obligations)
of FelCor LP and FelCor under the Line of Credit; (ii) all Indebtedness and all
other monetary obligations of FelCor LP or FelCor or any of their respective
Restricted Subsidiaries (other than the Notes), including principal and
interest on such Indebtedness, unless such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued is expressly subordinated in right of payment to the Notes; and (iii)
Subsidiary Debt. Senior Indebtedness will also include interest
16
<PAGE> 23
accruing subsequent to events of bankruptcy of FelCor LP and FelCor and their
respective Restricted Subsidiaries at the rate provided for the document
governing such Senior Indebtedness, whether or not such interest is an allowed
claim enforceable against the debtor in a bankruptcy case under bankruptcy law.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of FelCor LP and FelCor, accounted for more than 10% of the
consolidated revenues of FelCor LP, FelCor and their respective Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of FelCor LP, FelCor and their respective
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements thereof for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Specified Date" means any Redemption Date, Change of Control Payment
Date, Excess Proceeds Payment Date or any date on which the Notes first become
due and payable after an Event of Default.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such
Person and one or more other Subsidiaries of such Person and the accounts of
which would be consolidated with those of such Person in its consolidated
financial statements in accordance with GAAP, if such statements were prepared
as of such date.
"Subsidiary Debt" means all unsecured Indebtedness of which a
Restricted Subsidiary is the primary obligor.
"Subsidiary Guarantee" means a Guarantee by each Subsidiary Guarantor
for payment of the Notes by such Subsidiary Guarantor. The Subsidiary Guarantee
will be an unsecured senior obligation of each Subsidiary Guarantor and will be
unconditional regardless of the enforceability of the Notes and the Indenture.
Notwithstanding the foregoing, each Subsidiary Guarantee by a Subsidiary
Guarantor shall provide by its terms that it shall remain in effect only so
long as such Subsidiary Guarantor remains an obligor on other Indebtedness of
FelCor or
17
<PAGE> 24
FelCor LP which is pari passu with or subordinated to the Notes and that it
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of FelCor LP or
FelCor, of all of the Capital Stock owned by FelCor LP, FelCor and their
respective Restricted Subsidiaries in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not then
prohibited by the Indenture).
"Subsidiary Guarantor" means each of (i) FelCor/CSS Hotels, L.L.C., a
Delaware limited liability company, (ii) FelCor/LAX Hotels, L.L.C., a Delaware
limited liability company, (iii) FelCor/CSS Holdings, L.P., a Delaware limited
partnership, (iv) FelCor/St. Paul Holdings, L.P., a Delaware limited
partnership, (v) FelCor/LAX Holdings, L.P., a Delaware limited partnership and
(vi) FelCor Eight Hotels, L.L.C., a Delaware limited liability company and each
other Restricted Subsidiary that executes a Subsidiary Guarantee in compliance
with Section 4.07.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposits accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof, and which bank or
trust company has capital, surplus and undivided profits aggregating in excess
of $50 million and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of FelCor LP or
FelCor) organized and in existence under the laws of the United States of
America, any state thereof with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, and (v) securities with maturities of six months or less from
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
S&P or Moody's.
"Temporary Offshore Global Note" has the meaning provided in Section
2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended (15 U.S. Code Section 77aaa- 77bbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06.
18
<PAGE> 25
"Total Assets" means the sum of (i) Undepreciated Real Estate Assets
and (ii) all other assets of FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis determined in conformity with GAAP (but
excluding intangibles and accounts receivables).
"Total Unencumbered Assets" as of any date means the sum of (i) those
Undepreciated Real Estate Assets not securing any portion of Secured
Indebtedness and (ii) all other assets (but excluding intangibles and accounts
receivable) of FelCor LP, FelCor and their respective Restricted Subsidiaries
not securing any portion of Secured Indebtedness determined on a consolidated
basis in accordance with GAAP.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries
arising in the ordinary course of business in connection with the acquisition
of goods or services.
"Transaction Date" means, with the respect to the Incurrence of any
Indebtedness by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to
any Restricted Payment, the date such Restricted Payment is to be made.
"Treasury Rate" means, with respect to any Redemption Date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"Undepreciated Real Estate Assets" means, as of any date, the cost
(being the original cost to FelCor LP or FelCor or any of their respective
Restricted Subsidiaries plus capital improvements) of real estate assets of
FelCor LP, FelCor and their Restricted Subsidiaries on such date, before
depreciation and amortization of such real estate assets, determined on a
consolidated basis in conformity with GAAP.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
19
<PAGE> 26
"Units" means the limited partnership units of FelCor LP, that by
their terms are redeemable at the option of the holder thereof and that, if so
redeemed, at the election of FelCor are redeemable for cash or Common Stock of
FelCor.
"Unrestricted Subsidiary" means (i) any Subsidiary of FelCor LP or
FelCor that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below; and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary (including any newly acquired or newly formed
Subsidiary of FelCor LP or FelCor) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, FelCor LP or FelCor or any of their respective Restricted Subsidiaries;
provided that (A) any Guarantee by FelCor LP or FelCor or any of their
respective Restricted Subsidiaries of any Indebtedness of the Subsidiary being
so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by FelCor LP or FelCor or such Restricted Subsidiary (or all, if
applicable) at the time of such designation, (B) either (I) the Subsidiary to
be so designated has total assets of $1,000 or less or (II) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under
Section 4.04 and (C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) of this proviso would be permitted under
Sections 4.03 and 4.04. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that (i) no Default or Event
of Default shall have occurred and be continuing at the time of or after giving
effect to such designation; and (ii) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately after such designation would,
if Incurred at such time, have been permitted to be Incurred (and shall be
deemed to have been Incurred) for all purposes of the Indenture. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Unsecured Indebtedness" means any Indebtedness of FelCor LP or FelCor
or any of their respective Restricted Subsidiaries that is not Secured
Indebtedness.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by individuals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made
20
<PAGE> 27
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"indenture notes" means the Notes;
"indenture note holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means FelCor LP, the Guarantors
or any other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03 RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words
in the plural include the singular;
(v) provisions apply to successive events and
transactions;
(vi) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(vii) all ratios and computations based on GAAP contained
in this Indenture shall be computed in accordance with the definition
of GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
21
<PAGE> 28
ARTICLE 2
NOTES
SECTION 2.01 FORM AND DATING. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Notes may
have notations, legends or endorsements required by law, stock exchange
agreements to which FelCor LP or the Guarantors are subject or usage. FelCor LP
shall approve the form of the Notes and any notation, legend or endorsement on
the Notes. Each Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, FelCor LP, the Guarantors and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Notes in
registered form, substantially in the form set forth in Exhibit A
(collectively, the "U.S. Global Notes"), deposited with the Trustee, as
custodian for the Depositary, duly executed by FelCor LP and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the
U.S. Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit
A (the "Temporary Offshore Global Notes") deposited with the Trustee, as
custodian for the Depositary, duly executed by FelCor LP and authenticated by
the Trustee as hereinafter provided. At any time following 40 days from the
initial issuance of a series of notes (the "Offshore Notes Exchange Date"),
upon receipt by the Trustee and FelCor LP of a certificate substantially in the
form of Exhibit B hereto, one or more permanent global Notes in registered form
substantially in the form set forth in Exhibit A (the "Permanent Offshore
Global Notes"; and together with the Temporary Offshore Global Notes, the
"Offshore Global Notes") duly executed by FelCor LP and authenticated by the
Trustee as hereinafter provided shall be deposited with the Trustee, as
custodian for the Depositary, and the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the Temporary
Offshore Global Notes in an amount equal to the principal amount of the
beneficial interest in the Temporary Offshore Global Notes transferred.
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Note shall be in the form of permanent
certificated
22
<PAGE> 29
Notes in registered form substantially in the form set forth in Exhibit A (the
"Offshore Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are
sometimes collectively herein referred to as the "Physical Notes". The U.S.
Global Notes and the Offshore Global Notes are sometimes referred to herein as
the "Global Notes".
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.02 RESTRICTIVE LEGENDS. Unless and until a Note is
exchanged for an Exchange Note or sold in connection with an effective
Registration pursuant to the Registration Rights Agreement, the U.S. Global
Notes, Temporary Offshore Global Notes and each U.S. Physical Note shall bear
the following legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), (2) AGREES THAT IT WILL NOT, WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THE NOTES, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
FELCOR OR FELCOR LP OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF
LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO FELCOR AND FELCOR LP
23
<PAGE> 30
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTES, THE HOLDER
MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND FELCOR AND FELCOR LP SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, TO FELCOR LP OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT
IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
24
<PAGE> 31
SECTION 2.03 EXECUTION, AUTHENTICATION AND DENOMINATIONS. The
Notes shall be executed by two Officers of FelCor, as general partner of FelCor
LP. The signature of any of these Officers on the Notes may be by facsimile or
manual signature in the name and on behalf of FelCor or FelCor LP, as the case
may be.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the
Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; provided that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of
FelCor LP in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with FelCor LP or an Affiliate of FelCor LP.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount at maturity and any
integral multiple of $1,000 in excess thereof.
SECTION 2.04 REGISTRAR AND PAYING AGENT. FelCor LP shall maintain
an office or agency where Notes may be presented for registration of transfer
or for exchange (the "Registrar"), an office or agency where Notes may be
presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon FelCor LP in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City
of New York. FelCor LP shall cause the Registrar to keep a register of the
Notes and of their transfer and exchange (the "Note Register"). FelCor LP may
have one or more co-Registrars and one or more additional Paying Agents.
FelCor LP shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. FelCor LP shall give
prompt written notice to the Trustee of the name and address of any
25
<PAGE> 32
such Agent and any change in the address of such Agent. If FelCor LP fails to
maintain a Registrar, Paying Agent and/or agent for service of notices and
demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for
service of notices and demands. FelCor LP may remove any Agent upon written
notice to such Agent and the Trustee; provided that no such removal shall
become effective until (i) the acceptance of an appointment by a successor
Agent to such Agent as evidenced by an appropriate agency agreement entered
into by FelCor LP and such successor Agent and delivered to the Trustee or (ii)
notification to the Trustee that the Trustee shall serve as such Agent until
the appointment of a successor Agent in accordance with clause (i) of this
proviso. Except with respect to Article 8, FelCor, FelCor LP, any Subsidiary
of FelCor or FelCor LP, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
FelCor LP initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. If, at any
time, the Trustee is not the Registrar, the Registrar shall make available to
the Trustee on or before each Interest Payment Date and at such other times as
the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Note Register.
SECTION 2.05 PAYING AGENT TO HOLD MONEY IN TRUST. Not later than
each due date of the principal, premium, if any, and interest on any Notes,
FelCor LP shall deposit with the Paying Agent money in immediately available
funds sufficient to pay such principal, premium, if any, and interest so
becoming due; provided that if the Trustee is then serving as Paying Agent,
FelCor LP agrees to use its best efforts to deposit or otherwise transfer such
funds to the Trustee by no later than 11:00 a.m., Atlanta, Georgia time on the
applicable due date. FelCor LP shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest on the Notes
(whether such money has been paid to it by FelCor LP or any other obligor on
the Notes), and such Paying Agent shall promptly notify the Trustee of any
default by FelCor LP (or any other obligor on the Notes) in making any such
payment. FelCor LP at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed, and the Trustee
may at any time during the continuance of any payment default, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by
it to the Trustee and to account for any funds disbursed. Upon doing so, the
Paying Agent shall have no further liability for the money so paid over to the
Trustee. If FelCor, FelCor LP or any Subsidiary of FelCor or FelCor LP or any
Affiliate of any of them acts as Paying Agent, it will, on or before each due
date of any principal of, premium, if any, or interest on the Notes, segregate
and hold in a separate trust fund for the benefit of the Holders a sum of money
sufficient to pay such principal, premium, if any, or interest so becoming due
until such sum of money shall be paid to such Holders or otherwise disposed of
as provided in this Indenture, and will promptly notify the Trustee of its
action or failure to act.
26
<PAGE> 33
SECTION 2.06 TRANSFER AND EXCHANGE. The Notes are issuable only
in registered form. A Holder may transfer a Note only by written application
to the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar in the Note
Register. Prior to the registration of any transfer by a Holder as provided
herein, FelCor LP, the Guarantors, the Trustee, and any agent of FelCor LP
shall treat the person in whose name the Note is registered as the owner
thereof for all purposes whether or not the Note shall be overdue, and neither
FelCor LP, the Guarantors, the Trustee, nor any such agent shall be affected by
notice to the contrary. Furthermore, any Holder of a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Note may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent) and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry. When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Notes of other authorized denominations (including an exchange of
Notes for Exchange Notes), the Registrar shall register the transfer or make
the exchange as requested if its requirements for such transactions are met;
provided that no exchanges of Notes for Exchange Notes shall occur until a
Registration Statement shall have been declared effective by the Commission and
that any Notes that are exchanged for Exchange Notes shall be cancelled by the
Trustee. To permit registrations of transfers and exchanges, FelCor LP shall
execute and the Trustee shall authenticate Notes at the Registrar's request.
No service charge shall be made for any registration of transfer or exchange or
redemption of the Notes, but FelCor LP may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other similar governmental
charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 2.07 BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (a) The U.S.
Global Note and Offshore Global Note initially shall (i) be registered in the
name of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii)
bear legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by FelCor LP, the Guarantors,
the Trustee and any agent of FelCor LP, the Guarantors, or the Trustee as the
absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding
27
<PAGE> 34
the foregoing, nothing herein shall prevent FelCor LP, the Guarantors, the
Trustee or any agent of FelCor LP, the Guarantors, or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
holder of any Note.
(b) Transfers of a Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Note may be transferred in accordance with the rules and procedures of
the Depositary and the provisions of Section 2.08. In addition, U.S. Physical
Notes and Offshore Physical Notes shall be transferred to all beneficial owners
in exchange for their beneficial interests in the U.S. Global Note or the
Offshore Global Note, respectively, if (i) the Depositary notifies FelCor LP
that it is unwilling or unable to continue as Depositary for the U.S. Global
Note or the Offshore Global Note, as the case may be, and a successor depositary
is not appointed by FelCor LP within 90 days of such notice, (ii) an Event of
Default has occurred and is continuing and the Registrar has received a request
therefor from the Depositary or (iii) in accordance with the rules and
procedures of the Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes
that is transferred to a person who takes delivery in the form of an interest in
the other Global Note will, upon transfer, cease to be an interest in such
Global Note and become an interest in the other Global Note and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) In connection with any transfer of a portion of the
beneficial interests in the U.S. Global Note or Permanent Offshore Global Note
to beneficial owners pursuant to paragraph (b) of this Section, the Registrar
shall reflect on its books and records the date and a decrease in the principal
amount of the U.S. Global Note or Permanent Offshore Global Note in an amount
equal to the principal amount of the beneficial interest in the U.S. Global Note
or Permanent Offshore Global Note to be transferred, and FelCor LP shall
execute, and the Trustee shall authenticate and deliver, one or more U.S.
Physical Notes or Offshore Physical Notes, as the case may be, of like tenor and
amount.
(e) In connection with the transfer of the entire U.S.
Global Note or Offshore Global Note to beneficial owners pursuant to paragraph
(b) of this Section, the U.S. Global Note or Offshore Global Note, as the case
may be, shall be deemed to be surrendered to the Trustee for cancellation, and
FelCor LP shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note or Offshore Global Note, as the case may be, an
equal aggregate principal amount of U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of authorized denominations.
28
<PAGE> 35
(f) Any U.S. Physical Note delivered in exchange for an
interest in the U.S. Global Note pursuant to paragraph (b), (d) or (e) of this
Section shall, except as otherwise provided by paragraph (f) of Section 2.08,
bear the legend regarding transfer restrictions applicable to the U.S. Physical
Note set forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for
an interest in the Temporary Offshore Global Note pursuant to paragraph (b), (d)
or (e) of this Section shall, except as otherwise provided by paragraph (f) of
Section 2.08, bear the legend regarding transfer restrictions applicable to the
Offshore Physical Note set forth in Section 2.02.
(h) The registered holder of a Global Note may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Notes.
SECTION 2.08 SPECIAL TRANSFER PROVISIONS. Unless and until a Note
is exchanged for an Exchange Note or sold in connection with an effective
Registration Statement pursuant to the Registration Rights Agreement, the
following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited
Investors. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note to any Institutional Accredited
Investor which is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is two years after the original issuance of the
Notes or (y) the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit C hereto.
(ii) If the proposed transferor is an Agent Member holding
a beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and
(y) instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount at maturity of
the U.S. Global Note in an amount equal to the principal amount at
maturity of the beneficial interest in the U.S. Global Note to be
transferred, and FelCor LP shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Certificates of
like tenor and amount.
(b) Transfers to QIBs. The following provisions shall
apply with respect to the registration of any proposed transfer of a U.S.
Physical Note or an interest in the U.S. Global Note to a QIB (excluding
Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S.
Physical Notes, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor
29
<PAGE> 36
who has checked the box provided for on the form of Note stating, or
has otherwise advised FelCor LP and the Registrar in writing, that the
sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Note stating, or has otherwise advised FelCor LP and the Registrar in
writing, that it is purchasing the Note for its own account or an
account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information
regarding FelCor LP and the Guarantors as it has requested pursuant to
Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A or (y) an interest in the U.S. Global Note, the
transfer of such interest may be effected only through the book entry
system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and
the Note to be transferred consists of U.S. Physical Notes, upon
receipt by the Registrar of the documents referred to in clause (i) and
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount at maturity of
the U.S. Global Note in an amount equal to the principal amount at
maturity of the U.S. Physical Notes, to be transferred, and the Trustee
shall cancel the U.S. Physical Note so transferred.
(c) Transfers of Interests in the Temporary Offshore
Global Note. The following provisions shall apply with respect to registration
of any proposed transfer of interests in the Temporary Offshore Global Note:
(i) The Registrar shall register the transfer of any Note
(x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit D hereto or (y) if the proposed transferee is a
QIB and the proposed transferor has checked the box provided for on the
form of Note stating, or has otherwise advised FelCor LP and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has
otherwise advised FelCor LP and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding FelCor LP and the Guarantors
as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
30
<PAGE> 37
(ii) If the proposed transferee is an Agent Member, upon
receipt by the Registrar of the documents referred to in clause (i)(y)
above and instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount at
maturity of the U.S. Global Note, in an amount equal to the principal
amount at maturity of the Temporary Offshore Global Note to be
transferred, and the Trustee shall decrease the amount of the Temporary
Offshore Global Note in such an amount.
(d) Transfers of Interests in the Permanent Offshore
Global Note or Unlegended Offshore Physical Notes. The following provisions
shall apply with respect to any transfer of interests in the Permanent Offshore
Global Note or unlegended Offshore Physical Notes. The Registrar shall register
the transfer of any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The
following provisions shall apply with respect to any transfer of a Note to a
Non-U.S. Person:
(i) Prior to 40 days from the initial issuance of a series
of notes, the Registrar shall register any proposed transfer of a Note
to a Non-U.S. Person upon receipt of a certificate substantially in the
form of Exhibit D hereto from the proposed transferor. (ii) On and
after 40 days from the initial issuance of a series of notes, the
Registrar shall register any proposed transfer to any Non-U.S. Person
if the Note to be transferred is a U.S. Physical Note or an interest in
the U.S. Global Note, upon receipt of a certificate substantially in
the form of Exhibit D from the proposed transferor.
(ii) (a) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Note, upon receipt by
the Registrar of (x) the documents, if any, required by paragraph (ii)
and (y) instructions in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount at maturity of
the U.S. Global Note in an amount equal to the principal amount at
maturity of the beneficial interest in the U.S. Global Note to be
transferred, and (b) if the proposed transferee is an Agent Member,
upon receipt by the Registrar of instructions given in accordance with
the Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount at maturity of the Offshore Global Note in an amount
equal to the principal amount at maturity of the U.S. Physical Notes or
the U.S. Global Note, as the case may be, to be transferred, and the
Trustee shall cancel the U.S. Physical Note, if any, so transferred or
decrease the amount of the U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange
or replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private
31
<PAGE> 38
Placement Legend unless either (i) the circumstances contemplated by the second
sentence of the fourth paragraph of Section 2.01 or paragraphs (a)(i)(x) or
(e)(ii) of this Section 2.08 exist or (ii) there is delivered to the Registrar
an Opinion of Counsel reasonably satisfactory to FelCor and FelCor LP and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of
the Securities Act.
(g) General. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture. The Registrar shall not register a transfer of any
Note unless such transfer complies with the restrictions on transfer of such
Note set forth in this Indenture. In connection with any transfer of Notes,
each Holder agrees by its acceptance of the Notes to furnish the Registrar or
FelCor LP such certifications, legal opinions or other information as either of
them may reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or a transaction not subject to, the
registration requirements of the Securities Act; provided that the Registrar
shall not be required to determine (but may rely on a determination made by
FelCor LP with respect to) the sufficiency of any such certifications, legal
opinions or other information.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.07 or this Section
2.08. FelCor LP shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
SECTION 2.09 REPLACEMENT NOTES. If a mutilated Note is
surrendered to the Trustee or if the Holder claims that the Note has been lost,
destroyed or wrongfully taken, FelCor LP shall issue and the Trustee shall
authenticate a replacement Note of like tenor and amount and bearing a number
not contemporaneously outstanding; provided that the requirements of this
Section 2.09 are met. If required by the Trustee or FelCor LP, an indemnity
bond must be furnished that is sufficient in the judgment of both the Trustee
and FelCor LP to protect FelCor LP, the Guarantors, the Trustee or any Agent
from any loss that any of them may suffer if a Note is replaced. FelCor LP may
charge such Holder for its expenses and the expenses of the Trustee in
replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, FelCor LP in its
discretion may pay such Note instead of issuing a new Note in replacement
thereof.
Every replacement Note is an additional obligation of FelCor
LP and shall be entitled to the benefits of this Indenture.
SECTION 2.10 OUTSTANDING NOTES. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.10 as not outstanding.
32
<PAGE> 39
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and FelCor LP receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than FelCor, FelCor LP or an Affiliate of
FelCor or FelCor LP) holds on the maturity date money sufficient to pay Notes
payable on that date, then on and after that date such Notes cease to be
outstanding and interest on them shall cease to accrue.
A Note does not cease to be outstanding because FelCor or FelCor LP or
one of their Affiliates holds such Note; provided that, in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by FelCor, FelCor LP, the Guarantors or any other
obligor upon the Notes or any Affiliate of FelCor LP or the Guarantors or of
such other obligor shall be disregarded and deemed not to be outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not FelCor LP or the Guarantors or any other obligor upon the Notes
or any Affiliate of FelCor LP or the Guarantors or of such other obligor.
SECTION 2.11 TEMPORARY NOTES. Until definitive Notes are ready
for delivery, FelCor LP may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, FelCor LP will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the
temporary Notes at the office or agency of FelCor LP designated for such
purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Notes FelCor LP shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall be entitled to the same benefits under
this Indenture as definitive Notes.
SECTION 2.12 CANCELLATION. FelCor LP at any time may deliver to
the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which FelCor LP may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which FelCor LP has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation in accordance with its normal
procedure.
33
<PAGE> 40
SECTION 2.13 CUSIP NUMBERS. FelCor LP in issuing the Notes may
use "CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the
Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices
of redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes.
SECTION 2.14 DEFAULTED INTEREST. If FelCor LP or the Guarantors
default in a payment of interest on the Notes, FelCor LP or the Guarantors
shall pay, or shall deposit with the Paying Agent money in immediately
available funds sufficient to pay the defaulted interest, plus (to the extent
lawful) any interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date. A special record date, as used in
this Section 2.14 with respect to the payment of any defaulted interest, shall
mean the 15th day next preceding the date fixed by FelCor LP for the payment of
defaulted interest, whether or not such day is a Business Day. At least 15 days
before the subsequent special record date, FelCor LP shall mail to each Holder
and to the Trustee a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.15 ISSUANCE OF ADDITIONAL NOTES. FelCor LP may, subject
to Article Four of this Indenture, issue additional Notes under this Indenture.
The Notes issued on the Closing Date and any additional Notes subsequently
issued shall be treated as a single class for all purposes under this
Indenture.
ARTICLE 3
REDEMPTION
SECTION 3.01 OPTIONAL REDEMPTION. The Notes will be redeemable in
whole at any time or in part from time to time, at the option of FelCor LP, at
a price equal to the greater of (i) 100% of the principal amount of such Notes
and (ii) the sum of the present values of the remaining payments of principal
and interest thereon from the Redemption Date to the applicable maturity date
discounted, in each case, to the Redemption Date on a semiannual basis
(assuming a 360- day year consisting of twelve 30-day months) at the Treasury
Rate plus 25 basis points (the "Redemption Price"), plus, in each case, accrued
interest thereon to the Redemption Date.
SECTION 3.02 NOTICES TO TRUSTEE. If FelCor elects to redeem Notes
pursuant to Section 3.01, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed in an
Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
34
<PAGE> 41
SECTION 3.03 SELECTION OF NOTES TO BE REDEEMED. If less than all
of the Notes are to be redeemed at any time, the Trustee shall select the Notes
to be redeemed in compliance with the requirements, as certified to it by
FelCor LP, of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate; provided that no Notes of $1,000 in principal
amount at maturity shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of $1,000 in
principal amount at maturity may only be redeemed in whole. The Trustee may
select for redemption portions (equal to $1,000 in principal amount at maturity
or any integral multiple thereof) of Notes that have denominations larger than
$1,000 in principal amount at maturity. Provisions of this Indenture that
apply to Notes called for redemption also apply to portions of Notes called for
redemption. The Trustee shall notify FelCor LP and the Registrar promptly in
writing of the Notes or portions of Notes to be called for redemption.
SECTION 3.04 NOTICE OF REDEMPTION. With respect to any redemption
of Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, FelCor LP shall mail a notice of redemption by first
class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered
to the Paying Agent in order to collect the Redemption Price;
(v) that, unless FelCor LP defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right
of the Holders is to receive payment of the Redemption Price plus
accrued interest to the Redemption Date upon surrender of the Notes to
the Paying Agent;
(vi) that, if any Note is being redeemed in part, the
portion of the principal amount (equal to $1,000 in principal amount
at maturity or any integral multiple thereof) of such Note to be
redeemed and that, on and after the Redemption Date, upon surrender of
such Note, a new Note or Notes in principal amount at maturity equal
to the unredeemed portion thereof will be reissued; and
35
<PAGE> 42
(vii) that, if any Note contains a CUSIP, CINS or ISIN
number as provided in Section 2.13, no representation is being made as
to the correctness of the CUSIP, CINS or ISIN number either as printed
on the Notes or as contained in the notice of redemption and that
reliance may be placed only on the other identification numbers
printed on the Notes.
At FelCor LP's request (which request may be revoked by FelCor LP at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee at least 30 days (or such shorter
period as shall be satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption in the name and at the expense of
FelCor LP. If, however, FelCor LP gives such notice to the Holders, FelCor LP
shall concurrently deliver to the Trustee an Officers' Certificate stating that
such notice has been given.
SECTION 3.05 EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Notes held by Holders to whom such notice was properly
given.
SECTION 3.06 DEPOSIT OF REDEMPTION PRICE. On or prior to any
Redemption Date, FelCor LP shall deposit with the Paying Agent (or, if FelCor
LP is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
FelCor LP to the Trustee for cancellation.
SECTION 3.07 PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless
FelCor LP shall default in the payment of such Notes at the Redemption Price
and accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in
the Notes), such Notes shall cease to accrue interest. Upon surrender of any
Note for redemption in accordance with a notice of redemption, such Note shall
be paid and redeemed by FelCor LP at the Redemption Price, together with
accrued interest, if any, to the Redemption Date; provided that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders registered as such at the close of business on the
relevant Regular Record Date.
36
<PAGE> 43
SECTION 3.08 NOTES REDEEMED IN PART. Upon surrender of any Note
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF NOTES. FelCor LP shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than FelCor LP, a Subsidiary of FelCor LP, a Guarantor or
any Affiliate of any of them) holds on that date money designated for and
sufficient to pay the installment. If FelCor LP, any Subsidiary of FelCor LP,
a Guarantor or any Affiliate of any of them, acts as Paying Agent, an
installment of principal, premium, if any, or interest shall be considered paid
on the due date if the entity acting as Paying Agent complies with the last
sentence of Section 2.05. As provided in Section 6.09, upon any bankruptcy or
reorganization procedure relative to FelCor LP or any Guarantor, the Trustee
shall serve as the Paying Agent and conversion agent, if any, for the Notes.
FelCor LP shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY. FelCor LP will
maintain in the Borough of Manhattan, The City of New York an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon FelCor LP in
respect of the Notes and this Indenture may be served. FelCor LP will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time FelCor LP shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in
Section 10.02.
FelCor LP may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve FelCor LP of
its obligation to maintain an office or agency in the Borough of Manhattan, The
City of New York for such purposes. FelCor LP will give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
37
<PAGE> 44
FelCor LP hereby initially designates First Chicago Trust Company of
New York, 14 Wall Street, Suite 4607, New York, New York 10005, as agent for
FelCor LP, located in the Borough of Manhattan, The City of New York as such
office of FelCor LP in accordance with Section 2.04.
SECTION 4.03 LIMITATION ON INDEBTEDNESS. (a)(i) Neither FelCor LP
nor FelCor will, and neither FelCor LP nor FelCor will permit any of their
respective Restricted Subsidiaries to, Incur any Indebtedness if, immediately
after giving effect to the Incurrence of such additional Indebtedness, the
aggregate principal amount of all outstanding Indebtedness of FelCor LP, FelCor
and their respective Restricted Subsidiaries on a consolidated basis determined
in accordance with GAAP is greater than 60% of Adjusted Total Assets.
(ii) In addition to the foregoing limitations on the
Incurrence of Indebtedness, neither FelCor LP nor FelCor will, and neither
FelCor LP nor FelCor will permit any of their respective Restricted
Subsidiaries to, Incur any Subsidiary Debt or any Secured Indebtedness if,
immediately after giving effect to the Incurrence of such additional Subsidiary
Debt or Secured Indebtedness, the aggregate principal amount of all outstanding
Subsidiary Debt and Secured Indebtedness of FelCor LP, FelCor and their
respective Restricted Subsidiaries on a consolidated basis is greater than 40%
of Adjusted Total Assets.
(b) In addition to the covenants specified in (a) above, neither
FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will permit any of
their respective Restricted Subsidiaries to, Incur any Indebtedness (other than
the Notes, the Subsidiary Guarantees and other Indebtedness existing on the
Closing Date); provided that FelCor LP or FelCor or any of their respective
Restricted Subsidiaries may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Interest Coverage Ratio of FelCor LP, FelCor and their
respective Restricted Subsidiaries on a consolidated basis would be greater
than 2.0 to 1.
(c) Notwithstanding paragraphs (a) or (b) of this Section 4.03,
FelCor LP or FelCor or any of their respective Restricted Subsidiaries (except
as specified below) may Incur each and all of the following: (i) Indebtedness
outstanding under the Line of Credit at any time in an aggregate principal
amount not to exceed $550 million less any amount of such Indebtedness
permanently repaid as provided under Section 4.10; (ii) Indebtedness owed (A)
to FelCor LP or FelCor evidenced by an unsubordinated promissory note or (B) to
any Restricted Subsidiary; provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to FelCor LP or FelCor or any other
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, outstanding Indebtedness (other than Indebtedness Incurred
under clause (i), (ii), (iv) or (vi) of this paragraph) and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness
that is pari passu with or subordinated in right of payment to, the Notes shall
only be permitted under this clause (iii) if (A) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu with the
Notes, such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is pari
passu with or is expressly made subordinate in right of
38
<PAGE> 45
payment to the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes at least to the extent that the Indebtedness to
be refinanced is subordinated to the Notes and (C) such new indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such New Indebtedness is at least equal to
the remaining Average Life of the Indebtedness to be refinanced or refunded;
and provided further that in no event may Indebtedness of FelCor LP or FelCor
that is pari passu with or subordinated in right of payment to the Notes be
refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant
to this clause (iii); (iv) Indebtedness (A) in respect of performance, surety
or appeal bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a) are
designed solely to protect FelCor LP or FelCor or any of their respective
Restricted Subsidiaries against fluctuations in foreign currency exchange rates
or interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder, and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary (other
than Guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis in connection with such disposition; (v)
Indebtedness of FelCor LP or FelCor, to the extent the net proceeds thereof are
promptly (A) used to purchase Notes tendered in an Offer to Purchase made as a
result of a Change in Control or (B) deposited to defease the Notes in
accordance with Section 8.02 or 8.03; or (vi) Guarantees of the Notes and
Guarantees of Indebtedness of FelCor LP or FelCor by any of their respective
Restricted Subsidiaries provided the guarantee of such Indebtedness is
permitted by and made in accordance with Section 4.07.
(d) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that FelCor LP or FelCor or any of their
respective Restricted Subsidiaries may Incur pursuant to this Section 4.03
shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(e) For purposes of determining any particular amount of
Indebtedness under this Section 4.03, (1) Indebtedness Incurred under the Line
of Credit on or prior to the Closing Date shall be treated as Incurred pursuant
to clause (i) of paragraph (c) of this Section 4.03, (2) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
39
<PAGE> 46
otherwise included in the determination of such particular amount shall not be
included and (3) any Liens granted pursuant to the equal and ratable provisions
referred to in Section 4.09 shall not be treated as Indebtedness. For purposes
of determining compliance with Section 4.03, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses (other than Indebtedness referred to in clause
(2) of the preceding sentence), each of FelCor LP and FelCor, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses;
provided that FelCor LP and FelCor must classify such item of Indebtedness in
an identical fashion.
SECTION 4.04 LIMITATION ON RESTRICTED PAYMENTS. Neither FelCor LP
nor FelCor will, and neither FelCor LP nor FelCor will permit any of their
respective Restricted Subsidiaries to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on or with respect to its Capital
Stock (other than (x) dividends or distributions payable solely in shares of
its Capital Stock (other than Disqualified Stock) or in options, warrants or
other rights to acquire shares of such Capital Stock and (y) pro rata dividends
or distributions on Common Stock of FelCor LP or any Restricted Subsidiary held
by minority stockholders) held by Persons other than FelCor LP or FelCor or any
of their respective Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of (A) FelCor LP,
FelCor or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person other than
FelCor LP or FelCor or any of their respective Restricted Subsidiaries unless
in connection with such purchase the Unrestricted Subsidiary is designated as a
Restricted Subsidiary or (B) a Restricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by an
Affiliate of FelCor LP or FelCor (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of
the Capital Stock of FelCor LP or FelCor, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of FelCor LP or
FelCor that is subordinated in right of payment to the Notes or (iv) make an
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) above being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) FelCor LP or FelCor could not Incur at
least $1.00 of Indebtedness under paragraphs (a) and (b) of Section 4.03 or (C)
the aggregate amount of all Restricted Payments (the amount, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of (1) 95% of the aggregate amount
of the Funds From Operations (or, if the Funds From Operations is a loss, minus
100% of the amount of such loss) (determined by excluding income resulting from
transfers of assets by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on the first
day of the fiscal quarter in which the Closing Date occurs and ending on the
last day of the last fiscal quarter preceding the Transaction Date for which
reports have been filed with the Commission or provided to the Trustee pursuant
to
40
<PAGE> 47
Section 4.17 plus (2) the aggregate Net Cash Proceeds received by FelCor LP or
FelCor after the Closing Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Disqualified Stock) to a Person who
is not a Subsidiary of FelCor LP or FelCor, including an issuance or sale
permitted by the Indenture of Indebtedness of FelCor LP or FelCor for cash
subsequent to the Closing Date upon the conversion of such Indebtedness into
Capital Stock (other than Disqualified Stock) of FelCor LP or FelCor, or from
the issuance to a Person who is not a Subsidiary of FelCor LP or FelCor of any
options, warrants or other rights to acquire Capital Stock of FelCor LP or
FelCor (in each case, exclusive of any Disqualified Stock or any options,
warrants or other rights that are redeemable at the option of the holder, or
are required to be redeemed, prior to the Stated Maturity of the Notes), plus
(3) an amount equal to the net reduction in Investments (other than reductions
in Permitted Investments) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to FelCor LP or FelCor or any of their respective
Restricted Subsidiaries or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds
are included in the calculation of Funds From Operations) or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments") not to exceed, in
each case, the amount of Investments previously made by FelCor LP, FelCor and
their respective Restricted Subsidiaries in such Person or Unrestricted
Subsidiary, plus (4) the purchase price of noncash tangible assets acquired in
exchange for an issuance of Capital Stock (other than Disqualified Stock) of
FelCor LP or FelCor; provided that in any event FelCor LP or FelCor may declare
or pay any dividend or make any distribution that is necessary to maintain
FelCor's status as a REIT under the Code if (1) the aggregate principal amount
of all outstanding Indebtedness of FelCor LP or FelCor on a consolidated basis
at such time is less than 60% of Adjusted Total Assets and (2) no Default or
Event of Default shall have occurred and be continuing.
The provisions of the foregoing paragraph shall not be violated by
reason of: (i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would comply
with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or
other acquisition or retirement for value of Indebtedness that is subordinated
in right of payment to the Notes including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (iii) of paragraph (c) of Section 4.03; (iii) the
repurchase, redemption or other acquisition of Capital Stock of FelCor LP or
FelCor or an Unrestricted Subsidiary (or options, warrants or other rights to
acquire such Capital Stock) in exchange for, or out of the proceeds of a
substantially
41
<PAGE> 48
concurrent issuance of, shares of Capital Stock (other than Disqualified Stock)
of FelCor LP or FelCor (or options, warrants or other rights to acquire such
Capital Stock); (iv) the making of any principal payment on, or the repurchase,
redemption, retirement, defeasance or other acquisition for value of,
Indebtedness of FelCor LP or FelCor which is subordinated in right of payment
to the Notes in exchange for, or out of the proceeds of, a substantially
concurrent issuance of, shares of the Capital Stock (other than Disqualified
Stock) of FelCor LP or FelCor (or options, warrants or other rights to acquire
such Capital Stock); (v) payments or distributions, to dissenting stockholders
pursuant to applicable law pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
of the property and assets of FelCor LP or FelCor; (vi) Investments in any
Person or Persons in an aggregate amount not to exceed $150 million; or (vii)
the payment of any dividend or distribution on the Capital Stock of FelCor LP
or FelCor declared prior to the Closing Date, provided that, except in the case
of clauses (i), (iii) and (vii), no Default or Event of Default shall have
occurred and be continuing or occur as a direct consequence of the actions or
payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof, an Investment referred to in clause (vi) thereof
or the dividends or distributions referred to in clause (vii) thereof), and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clauses
(iii) and (iv), shall be included in calculating whether the conditions of
clause (C) of the first paragraph of this Section 4.04 have been met with
respect to any subsequent Restricted Payments.
SECTION 4.05 LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. Neither FelCor LP nor FelCor will, and
neither FelCor LP nor FelCor will permit any of their respective Restricted
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries, (ii) pay any Indebtedness owed to FelCor LP, FelCor or
any other Restricted Subsidiary, (iii) make loans or advances to FelCor LP,
FelCor or any other Restricted Subsidiary or (iv) transfer its property or
assets to FelCor LP, FelCor or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or in the Line
of Credit, and any extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced, renewed or
replaced; (ii) existing under or by reason of applicable law; (iii) existing
with respect to any Person or the property or assets of such Person acquired by
FelCor LP, FelCor or any Restricted Subsidiary, existing at the time of
42
<PAGE> 49
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
Section 4.05, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of FelCor LP, FelCor or any Restricted
Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed
to in the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value of
property or assets of FelCor LP, FelCor or any Restricted Subsidiary in any
manner material to FelCor LP, FelCor and their respective Restricted
Subsidiaries taken as a whole; (v) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or property
and assets of, such Restricted Subsidiary; or (vi) contained in the terms of
any Indebtedness or any agreement pursuant to which such Indebtedness was
issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Notes than is customary
in comparable financings (as determined by FelCor LP and FelCor) and (C) each
of FelCor LP and FelCor determines that any such encumbrance or restriction
will not materially affect such Persons' ability to make principal or interest
payments on the Notes. Nothing contained in this Section 4.05 shall prevent
FelCor LP, FelCor or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in Section 4.09 or
(2) restricting the sale or other disposition of property or assets of FelCor
LP or FelCor or any of their respective Restricted Subsidiaries that secure
Indebtedness of FelCor LP, FelCor or any of their respective Restricted
Subsidiaries.
SECTION 4.06 LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK
OF RESTRICTED SUBSIDIARIES. Neither FelCor LP nor FelCor will sell, and
neither FelCor LP nor FelCor will permit any of their respective Restricted
Subsidiaries, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights
to purchase shares of such Capital Stock) except (i) to FelCor LP, FelCor or a
Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to individuals of shares of Restricted Subsidiaries, to the
extent required by applicable law or to the extent necessary to obtain local
liquor licenses; (iii) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Subsidiary and
any Investment in such Person remaining after giving effect to such issuance or
sale would have been permitted to be made under Section 4.04 if made on the
date of such issuance or sale or (iv) sales of not greater than 20% of the
Capital Stock of a newly-created Restricted Subsidiary made in connection with,
or in contemplation of, the acquisition or development by such Restricted
Subsidiary of one or more properties to any Person that is, or is an Affiliate
of,
43
<PAGE> 50
the entity that provides, franchise, management or other services, as the case
may be, to one or more properties owned by such Restricted Subsidiary.
SECTION 4.07 LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED
SUBSIDIARIES. Neither FelCor LP nor FelCor will permit any of their respective
Restricted Subsidiaries, directly or indirectly, to Guarantee any Indebtedness
of FelCor LP or FelCor which is pari passu with or subordinate in right of
payment to the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Subsidiary Guarantee by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against FelCor LP,
FelCor or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
Incurred in connection with, or in contemplation of, such person becoming a
Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with
the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari
passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to
the Notes, then the Guarantee of such Guarantee Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of FelCor LP or FelCor, of all of
Capital Stock held by FelCor LP, FelCor and their respective Restricted
Subsidiaries in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee which resulted in
the creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
SECTION 4.08 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither
FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will permit any of
their respective Restricted Subsidiaries to, directly or indirectly, enter
into, renew or extend any transaction (including, without limitations, the
purchase, sale, lease or exchange of property or assets, or the rendering of
any service) with any holder (or any Affiliate of such holder) of 5% or more of
any class of Capital Stock of FelCor LP or FelCor or with any Affiliate of
FelCor LP or FelCor or any of their respective Restricted Subsidiaries, except
upon fair and reasonable terms no less favorable to FelCor LP, FelCor or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
44
<PAGE> 51
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the independent directors of FelCor
or (B) for which FelCor LP, FelCor or any Restricted Subsidiary delivers to the
Trustee a written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to FelCor LP, FelCor or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely between
FelCor LP or FelCor and any of their respective Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii) the
payment of reasonable and customary fees and expenses to directors of FelCor
who are not employees of FelCor; (iv) any payments or other transactions
pursuant to any tax-sharing agreement between FelCor LP or FelCor and any other
Person with which FelCor LP or FelCor files a consolidated tax return or with
which FelCor LP or FelCor is part of a consolidated group for tax purposes; or
(v) any Restricted Payments not prohibited by Section 4.04. Notwithstanding
the foregoing, any transaction or series of related transactions covered by the
first paragraph of Section 4.08 and not covered by clauses (ii) through (v) of
this paragraph, (a) the aggregate amount of which exceeds $2 million in value
or relates to the leasing of one or more hotel properties to DJONT, must be
approved or determined to be fair in the manner provided for in clause (i)(A)
or (B) above and (b) the aggregate amount of which exceeds $5 million in value,
must be determined to be fair in the manner provided for in clause (i)(B)
above.
SECTION 4.09 LIMITATION ON LIENS. Neither FelCor LP nor FelCor
shall secure any Indebtedness under the Line of Credit by a Lien unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with the Indebtedness under the Line of Credit for so long
as the Indebtedness under the Line of Credit is secured by a Lien.
SECTION 4.10 LIMITATION ON ASSET SALES. Neither FelCor LP nor
FelCor will, and neither FelCor LP or FelCor will permit any of their
respective Restricted Subsidiaries to, consummate any Asset Sale, unless (i)
the consideration received by FelCor LP, FelCor or such Restricted Subsidiary
is at least equal to the fair market value of the assets sold or disposed of
and (ii) at least 75% of the consideration received consists of cash or
Temporary Cash Investments; provided, with respect to the sale of one or more
hotel properties that up to 75% of the consideration may consist of
indebtedness of the purchaser of such hotel properties; provided, further, that
such indebtedness is secured by a first priority Lien on the hotel property or
properties sold. In the event and to the extent that the Net Cash Proceeds
received by FelCor LP, FelCor or such Restricted Subsidiary from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of FelCor LP, FelCor and their
respective Restricted Subsidiaries has been filed with the Commission or
provided to the Trustee pursuant to Section 4.17), then FelCor LP or FelCor
shall or shall cause the relevant Restricted Subsidiary to (i) within twelve
months after the date Net Cash Proceeds so received exceed 10% of Adjusted
Consolidated Net Tangible Assets (A) apply an amount equal to such excess Net
Cash Proceeds to permanently reduce Senior Indebtedness of FelCor LP, FelCor,
or any Restricted Subsidiary or Indebtedness of any other Restricted
Subsidiary, in each case
45
<PAGE> 52
owing to a Person other than FelCor LP, FelCor or any of their respective
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within 12 months after the date of such agreement), in property or
assets (other than current assets) of a nature or type or that are used in a
business (or in a Restricted Subsidiary having property and assets of a nature
or type, or engaged in a business) similar or related to the nature or type of
the property and assets of, or the business of, FelCor LP or FelCor or any of
their respective Restricted Subsidiaries existing on the date of such
investment and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section 4.10. The amount of such excess Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 12-month period as set
forth in clause (i) of the preceding sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not previously subject to an Offer to Purchase pursuant to this
Section 4.10 totals at least $10 million, FelCor LP must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes, plus, in each case, accrued interest
(if any) to the Payment Date.
SECTION 4.11 REPURCHASE OF NOTES UPON A CHANGE OF CONTROL. FelCor
LP must commence, within 30 days of the occurrence of a Change of Control, and
consummate an Offer to Purchase for all Notes then outstanding, at a purchase
price equal to 101% of the principal amount thereof, plus accrued interest (if
any) to the Payment Date.
SECTION 4.12 EXISTENCE. Subject to Articles Four and Five of this
Indenture, FelCor LP and the Guarantors will do or cause to be done all things
necessary to preserve and keep in full force and effect their existence and the
existence of each Restricted Subsidiary in accordance with the respective
organizational documents of FelCor LP, the Guarantors and each Restricted
Subsidiary and the rights (whether pursuant to charter, partnership
certificate, agreement, statute or otherwise), material licenses and franchises
of FelCor LP, the Guarantors and each Restricted Subsidiary; provided that
neither FelCor nor FelCor LP shall be required to preserve any such right,
license or franchise, or the existence of any Restricted Subsidiary or
Subsidiary Guarantor, if the maintenance or preservation thereof is no longer
desirable in the conduct of the business of FelCor LP, the Guarantors and their
Restricted Subsidiaries taken as a whole.
SECTION 4.13 PAYMENT OF TAXES AND OTHER CLAIMS. FelCor and FelCor
LP will pay or discharge and shall cause each of their respective Restricted
Subsidiaries to pay or discharge, or cause to be paid or discharged, before the
same shall become delinquent (i) all material taxes, assessments and
governmental charges levied or imposed upon (a) FelCor and FelCor LP or any
such Restricted Subsidiary, (b) the income or profits of any such Restricted
Subsidiary which is a
46
<PAGE> 53
corporation or (c) the property of FelCor, FelCor LP or any such Restricted
Subsidiaries and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a lien upon the property of
FelCor, FelCor LP or any such Restricted Subsidiary; provided that FelCor and
FelCor LP shall not be required to pay or discharge, or cause to be paid or
discharged, any such tax, assessment, charge or claim the amount, applicability
or validity of which is being contested in good faith by appropriate
proceedings and for which adequate reserves have been established.
SECTION 4.14 MAINTENANCE OF PROPERTIES AND INSURANCE. FelCor and
FelCor LP will cause all properties used or useful in the conduct of their
business or the business of any of their Restricted Subsidiaries, to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of FelCor or FelCor LP may be necessary so that the business carried
on in connection therewith may be properly conducted at all times; provided
that nothing in this Section 4.14 shall prevent FelCor, FelCor LP or any such
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties or disposing of any of them, if such discontinuance or
disposal is, in the judgment of FelCor, FelCor LP, desirable in the conduct of
the business of FelCor, FelCor LP or such Restricted Subsidiary.
Each of FelCor and FelCor LP will provide or cause to be provided, for
itself and its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, with reputable
insurers or with the government of the United States of America, or an agency
or instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which FelCor, FelCor LP or such Restricted Subsidiary, as the case
may be, is then conducting business.
SECTION 4.15 NOTICE OF DEFAULTS. In the event that FelCor LP
becomes aware of any Default or Event of Default, FelCor LP, promptly after it
becomes aware thereof, will give written notice thereof to the Trustee.
SECTION 4.16 COMPLIANCE CERTIFICATES. (a) FelCor and FelCor LP
shall deliver to the Trustee, within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), an
Officers' Certificate stating whether or not the signers know of any Default or
Event of Default that occurred during such fiscal quarter. In the case of the
Officers' Certificate delivered within 90 days of the end of FelCor's and
FelCor LP's fiscal year, such certificate shall contain a certification from
the principal executive officer, principal financial officer or principal
accounting officer that a review has been conducted of the activities of FelCor
and FelCor LP and their Restricted Subsidiaries and FelCor's and FelCor LP's
and their Restricted Subsidiaries' performance under this Indenture and that,
to the knowledge of such Officers, FelCor and FelCor LP have complied with all
conditions and covenants under this Indenture. For purposes of this Section
4.16, such compliance shall be determined without
47
<PAGE> 54
regard to any period of grace or requirement of notice provided under this
Indenture. If they do know of such a Default or Event of Default, the
certificate shall describe any such Default or Event of Default and its status.
The first certificate to be delivered pursuant to this Section 4.16(a) shall be
for the first fiscal quarter beginning after the execution of this Indenture.
(a) So long as (and to the extent) not prohibited by the
then current recommendations of the American Institute of Certified Public
Accountants, FelCor and FelCor LP shall deliver to the Trustee, within 90 days
after the end of FelCor's and FelCor LP's fiscal year, a certificate signed by
FelCor's and FelCor LP's independent certified public accountants stating (i)
that their audit examination has included a review of the terms of this
Indenture and the Notes as they relate to accounting matters, (ii) that they
have read the most recent Officers' Certificate delivered to the Trustee
pursuant to paragraph (a) of this Section 4.16 and (iii) whether, in connection
with their audit examination, anything came to their attention that caused them
to believe that FelCor and FelCor LP were not in compliance with any of the
terms, covenants, provisions or conditions of Article Four and Section 5.01 of
this Indenture as they pertain to accounting matters and, if any Default or
Event of Default has come to their attention, specifying the nature and period
of existence thereof; provided that such independent certified public
accountants shall not be liable in respect of such statement by reason of any
failure to obtain knowledge of any such Default or Event of Default that would
not be disclosed in the course of an audit examination conducted in accordance
with generally accepted auditing standards in effect at the date of such
examination.
(b) Within 90 days of the end of each of FelCor and
FelCor LP's fiscal years, FelCor and FelCor LP shall deliver to the Trustee a
list of all Significant Subsidiaries. The Trustee shall have no duty with
respect to any such list except to keep it on file and available for inspection
by the Holders.
SECTION 4.17 COMMISSION REPORTS AND REPORTS TO HOLDERS. At all
times from and after the earlier of (i) the date of the commencement of a
registered exchange offer for the Notes by FelCor LP or the effectiveness of
the Shelf Registration Statement pursuant to and in accordance with the terms
of the Registration Rights Agreement (the "Registration") and (ii) April 1,
1998, in either case, whether or not FelCor or FelCor LP is then required to
file reports with the Commission, FelCor and FelCor LP shall file with the
Commission all such reports and other information as they would be required to
file with the Commission by Sections 13(a) or 15(d) under the Securities
Exchange Act of 1934 if they were subject thereto; provided that, if filing
such documents by FelCor LP or FelCor with the Commission is not permitted
under Exchange Act, FelCor LP or FelCor shall provide such documents to the
Trustee and upon written request supply copies of such documents to any
prospective Holder; provided, further, that if the rules and regulations of the
Commission permit FelCor LP and FelCor to file combined reports or information
pursuant to the Securities Exchange Act of 1934, FelCor LP and FelCor may file
combined reports and information. FelCor LP and FelCor shall supply the
Trustee and each Holder or shall supply to the Trustee for forwarding to each
such Holder, without cost to such Holder, copies of such reports and other
information. Delivery of such
48
<PAGE> 55
reports, information and documents to the Trustee is for informational purposes
only and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein or determinable from information contained
therein, including FelCor or FelCor LP's compliance with any of their covenants
hereunder (as to which the Trustee is entitled to rely exclusively on Officers'
Certificates). In addition, at all times prior to the earlier of the date of
the Registration and April 1, 1998, FelCor LP shall, at its cost, deliver to
each Holder of the Notes quarterly and annual reports substantially equivalent
to those which would be required by the Exchange Act. In addition, at all
times prior to the Registration, upon the request of any Holder or any
prospective purchaser of the Notes designated by a Holder, FelCor LP shall
supply to such Holder or such prospective purchaser the information required
under Rule 144A under the Securities Act. FelCor LP also shall comply with the
other provisions of TIA Section 314(a).
SECTION 4.18 WAIVER OF STAY, EXTENSION OR USURY LAWS. FelCor LP
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive FelCor LP from paying all or any portion of
the principal of, premium, if any, or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) FelCor LP hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 4.19 LIMITATION ON SALE-LEASEBACK TRANSACTIONS. Neither
FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will permit any of
their respective Restricted Subsidiaries to, enter into any sale-leaseback
transaction involving any of its assets or properties whether now owned or
hereafter acquired, whereby any of them sells or transfers such assets or
properties and then or thereafter leases such assets or properties or any
substantial part thereof.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between
FelCor LP or FelCor and any Wholly Owned Restricted Subsidiary or solely
between Wholly Owned Restricted Subsidiaries; or (iv) FelCor LP or FelCor or
any of their respective Restricted Subsidiaries, within 12 months after the
sale or transfer of any assets or properties is completed, applies an amount
not less than the net proceeds received from such sale in accordance with
clause (A) or (B) of the first paragraph of Section 4.10.
SECTION 4.20 MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. FelCor LP,
FelCor and their respective Restricted Subsidiaries will maintain Total
Unencumbered Assets of not less than 150% of the aggregate outstanding
principal amount of the Unsecured Indebtedness of FelCor LP, FelCor and their
respective Restricted Subsidiaries on a consolidated basis.
49
<PAGE> 56
SECTION 4.21 INVESTMENT GRADE RATING. Notwithstanding anything to
the contrary in this Indenture, Sections 4.04, 4.05, 4.06, 4.07, 4.08, 4.09 and
4.19 will not be applicable in the event, and only for so long as, the Notes
are rated Investment Grade.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01 WHEN FELCOR OR FELCOR LP MAY MERGE, ETC. Neither
FelCor LP nor FelCor will merge with or into, or sell, convey, transfer, lease
or otherwise dispose of all or substantially all of its property and assets (as
an entirety or substantially an entirety in one transaction or a series of
related transactions) to, any Person or permit any Person to merge with or into
FelCor LP or FelCor unless: (i) FelCor LP or FelCor shall be the continuing
Person, or the Person (if other than FelCor LP or FelCor) formed by such
consolidation or into which FelCor LP or FelCor is merged or that acquired or
leased such property and assets of FelCor LP or FelCor shall be an entity
organized and validly existing under the laws of the United States of America
or any state or jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of FelCor LP or FelCor on the Notes and under the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis FelCor LP or FelCor, or any
Person becoming the successor obligor of the Notes, as the case may be, could
Incur at least $1.00 of Indebtedness under paragraphs (a) and (b) of Section
4.03; provided that this clause (iii) shall not apply to a consolidation or
merger with or into a Wholly Owned Restricted Subsidiary with a positive net
worth; provided that, in connection with any such merger or consolidation, no
consideration (other than Capital Stock (other than Disqualified Stock) in the
surviving Person or FelCor LP or FelCor) shall be issued or distributed to the
holders of Capital Stock of FelCor LP or FelCor; and (iv) FelCor LP or FelCor
delivers to the Trustee an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clause (iii)) and an Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this provision and that all
conditions precedent provided for herein relating to such transaction have been
complied with; provided that clause (iii) above does not apply if, in the good
faith determination of the Board of Directors of FelCor LP or FelCor, whose
determination shall be evidenced by a Board Resolution, the principal purpose
of such transaction is to change the state of domicile of FelCor LP or FelCor;
and provided, further, that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
SECTION 5.02 SUCCESSOR SUBSTITUTED. Upon any consolidation or
merger, or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and
50
<PAGE> 57
assets of FelCor LP in accordance with Section 5.01 of this Indenture, the
successor Person formed by such consolidation or into which FelCor LP is
merged or to which such sale, conveyance, transfer, lease or other disposition
is made shall succeed to, and be substituted for, and may exercise every right
and power of, FelCor LP under this Indenture with the same effect as if such
successor Person had been named as FelCor LP herein and thereafter the
predecessor corporation shall be relieved of all obligations and covenants
under this Indenture and the Notes; provided that FelCor LP shall not be
released from its obligation to pay the principal of, premium, if any, or
interest on the Notes in the case of a lease of all or substantially all of its
property and assets.
ARTICLE 6
DEFAULT AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT. An "Event of Default" shall occur
with respect to the Notes if:
(a) default in the payment of principal of (or premium, if any,
on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
(c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of FelCor LP and FelCor or the failure by
FelCor LP to make or consummate an Offer to Purchase in accordance with Section
4.10 or Section 4.11;
(d) FelCor LP or FelCor defaults in the performance of or breaches
any other covenant or agreement of FelCor LP or FelCor in the Indenture or
under the Notes (other than a default specified in clause (a), (b) or (c)
above) and such default or breach continues for a period of 30 consecutive days
after written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of FelCor LP or FelCor or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default;
51
<PAGE> 58
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not covered by insurance) shall be rendered
against FelCor LP or FelCor or any Significant Subsidiary and shall not be paid
or discharged, and there shall be any period of 60 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of FelCor LP or FelCor or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
FelCor LP or FelCor or any Significant Subsidiary or for all or substantially
all of the property and assets of FelCor LP or FelCor or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of FelCor LP or
FelCor or any Significant Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or
(h) FelCor LP or FelCor or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order
for relief in an involuntary case under such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of FelCor LP or FelCor or
Significant Subsidiary or for all or substantially all of the property and
assets of FelCor LP or FelCor or any Significant Subsidiary or (C) effects any
general assignment for the benefit of its creditors.
SECTION 6.02 ACCELERATION. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) above that occurs with respect
to FelCor LP or FelCor) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes, then outstanding, by written notice to FelCor LP and FelCor (and to the
Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the principal of, premium, if any, and
accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by FelCor
LP, FelCor or the relevant Significant Subsidiary or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event or Default specified in clause (g) or (h)
above occurs with respect to FelCor LP or FelCor, the principal of, premium, if
any, and accrued interest on the Notes then outstanding shall ipso facto become
and be immediately due and payable without
52
<PAGE> 59
any declaration or other act on the part of the Trustee or any Holder. The
Holders of at least a majority in principal amount of the outstanding Notes by
written notice to FelCor LP, FelCor and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment
of the principal of, premium, if any, and interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction.
SECTION 6.03 OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04 WAIVER OF PAST DEFAULTS. Subject to Sections 6.02,
6.07 and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 6.05 CONTROL BY MAJORITY. The Holders of at least a
majority in aggregate principal amount at maturity of the outstanding Notes may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture, that may involve the Trustee in personal liability,
or that the Trustee determines in good faith may be unduly prejudicial to the
rights of Holders of Notes not joining in the giving of such direction and may
take any other action it deems proper that is not inconsistent with any such
direction received from Holders of Notes.
SECTION 6.06 LIMITATION ON SUITS. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder unless:
(i) such Holder has previously given the Trustee written
notice of a continuing Event of Default;
53
<PAGE> 60
(ii) the Holders of at least 25% in aggregate principal
amount at maturity of outstanding Notes shall have made a written
request to the Trustee institute proceedings in respect of such Event
of Default in its own name as Trustee hereunder;
(iii) such Holder or Holders have offered the Trustee
indemnity reasonably satisfactory to the Trustee against any costs,
liabilities or expenses to be incurred in compliance with such
request;
(iv) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of indemnity and
has failed to institute any such proceeding; and
(v) during such 60-day period, the Holders of a majority
in aggregate principal amount at maturity of the outstanding Notes do
not give the Trustee a direction that is inconsistent with such
written request.
For purposes of Section 6.05 and this Section 6.06, the Trustee shall
comply with TIA Section 316(a) in making any determination of whether the
Holders of the required aggregate principal amount of outstanding Notes have
concurred in any request or direction of the Trustee to pursue any remedy
available to the Trustee or the Holders with respect to this Indenture or the
Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Note to receive payment of the principal of, premium, if any, or interest
on, such Note or to bring suit for the enforcement of any such payment, on or
after the due date expressed in the Notes, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE. If an Event of Default
in payment of principal, premium or interest specified in clause (a), (b) or
(c) of Section 6.01 occurs and is continuing, the Trustee may recover judgment
in its own name and as trustee of an express trust against FelCor LP, the
Guarantors or any other obligor of the Notes for the whole amount of principal,
premium, if any, and accrued interest remaining unpaid, together with interest
on overdue principal, premium, if any, and, to the extent that payment of such
interest is lawful, interest on overdue installments of interest, in each case
at the rate specified in the Notes, and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
54
<PAGE> 61
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may
file such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
FelCor LP (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 PRIORITIES. If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following
order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Notes for principal, premium, if any, and interest, respectively; and
Third: to FelCor LP or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to FelCor LP, may fix a
record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court may
require any party litigant in such suit to file an undertaking to pay the costs
of the suit, and the court may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 of this Indenture, or a suit by Holders of more than
10% in principal amount of the outstanding Notes.
55
<PAGE> 62
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES. If the Trustee
or any Holder has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or to such Holder,
then, and in every such case, subject to any determination in such proceeding,
FelCor LP, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of FelCor LP, the Guarantors, Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 6.13 RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
SECTION 6.14 DELAY OR OMISSION NOT WAIVER. No delay or omission
of the Trustee or of any Holder to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right
and remedy given by this Article Six or by law to the Trustee or to the Holders
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Holders, as the case may be.
ARTICLE 7
TRUSTEE
SECTION 7.01 GENERAL. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. The Trustee shall not be
required to give any bond or surety with respect to the performance of its
duties or the exercise of its powers under this Indenture. Whether or not
therein expressly so provided, every provision of this Indenture relating to
the conduct or affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this Article Seven.
56
<PAGE> 63
SECTION 7.02 CERTAIN RIGHTS OF TRUSTEE. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper person. The Trustee need not investigate
any fact or matter stated in the document;
(ii) before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel, which
shall conform to Section 10.04. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(iii) the Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any
agent appointed with due care;
(iv) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(v) the Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes to be authorized
or within its rights or powers or for any action it takes or omits to
take in accordance with the direction of the Holders of a majority in
principal amount at maturity of the outstanding Notes relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; provided that the Trustee's
conduct does not constitute gross negligence or bad faith;
(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a making be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officer's
Certificate; and
(vii) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of FelCor LP
personally or by agent or attorney.
57
<PAGE> 64
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with FelCor LP, the Guarantors, or their Affiliates with the
same rights it would have if it were not the Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to TIA Sections 310(b)
and 311.
SECTION 7.04 TRUSTEE'S DISCLAIMER. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for FelCor LP's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05 NOTICE OF DEFAULT. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to a Responsible Officer of the Trustee, the Trustee shall mail to each
Holder in the manner and to the extent provided in TIA Section 313(c) notice of
the Default or Event of Default within 45 days after it occurs, unless such
Default or Event of Default has been cured; provided, however, that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the
Holders.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after
each May 15, beginning with May 15, 1998, the Trustee shall mail to each Holder
as provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
SECTION 7.07 COMPENSATION AND INDEMNITY. FelCor LP shall pay to
the Trustee such compensation as shall be agreed upon in writing for its
services. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. FelCor LP shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses and advances
incurred or made by the Trustee. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
FelCor LP shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense, including taxes (other than taxes
based upon, measured by or determined by the income of the Trustee) incurred by
it without negligence or bad faith on its part in connection with the
acceptance or administration of this Indenture and its duties under this
Indenture and the Notes, including the costs and expenses of defending itself
against any claim or liability and of complying with any process served upon it
or any of its officers in connection with the exercise or performance of any of
its powers or duties under this Indenture and the Notes.
To secure FelCor LP's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as
58
<PAGE> 65
Trustee, except money or property held in trust to pay principal of, premium,
if any, and interest on particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 7.08 REPLACEMENT OF TRUSTEE. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign at any time by so notifying FelCor LP in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of FelCor LP. FelCor LP may at any time remove the
Trustee, by Company Order given at least 30 days prior to the date of the
proposed removal.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, FelCor LP shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by FelCor LP. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, FelCor LP or the
Holders of a majority in principal amount of the outstanding Notes may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to FelCor LP. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as
Trustee to the successor Trustee, (ii) the resignation or removal of the
retiring Trustee shall become effective and (iii) the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
59
<PAGE> 66
FelCor LP shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, FelCor LP's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10 ELIGIBILITY. This Indenture shall always have a
Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee
shall have a combined capital and surplus of at least $25,000,000 as set forth
in its most recent published annual report of condition.
SECTION 7.11 MONEY HELD IN TRUST. The Trustee shall not be liable
for interest on any money received by it except as the Trustee may agree with
FelCor LP. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law and except for money held in
trust under Article Eight of this Indenture.
SECTION 7.12 WITHHOLDING TAXES. The Trustee, as agent for FelCor
LP, shall exclude and withhold from each payment of principal and interest and
other amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any
amounts payable in respect of the Notes, to withhold such amounts and timely
pay the same to the appropriate authority in the name of and on behalf of the
holders of the Notes, that it will file any necessary withholding tax returns
or statements when due. FelCor LP or the Trustee shall, as promptly as possible
after the payment of the taxes described above, deliver to each holder of a
Note appropriate documentation showing the payment thereof, together with such
additional documentary evidence as such holders may reasonably request from
time to time.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01 TERMINATION OF COMPANY'S OBLIGATIONS. Except as
otherwise provided in this Section 8.01, FelCor LP may terminate its
obligations under the Notes and this Indenture if:
60
<PAGE> 67
(i) all Notes previously authenticated and delivered
(other than destroyed, lost or stolen Notes that have been replaced or
Notes that are paid pursuant to Section 4.01 or Notes for whose
payment money or securities have theretofore been held in trust and
thereafter repaid to FelCor LP, as provided in Section 8.05) have been
delivered to the Trustee for cancellation and FelCor LP has paid all
sums payable by it hereunder; or
(ii) (A) the Notes mature within one year or all of them
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B)
the Company irrevocably deposits in trust with the Trustee during such
one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely
for the benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee), without
consideration of any reinvestment of any interest thereon, to pay
principal, premium, if, any, and interest on the Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by
it hereunder, (C) no Default or Event of Default with respect to the
Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement
or instrument to which FelCor or FelCor LP is a party or by which they
are bound and (E) FelCor and FelCor LP have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, in each case
stating that all conditions precedent provided for herein relating to
the satisfaction and discharge of this Indenture have been complied
with.
With respect to the foregoing clause (i), FelCor LP's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii),
FelCor LP's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only FelCor LP's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
FelCor LP's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02 DEFEASANCE AND DISCHARGE OF INDENTURE. FelCor LP and
the Guarantors will be deemed to have paid and will be discharged from any and
all obligations in respect of the Notes or any Guarantee pursuant to Article 11
on the 123rd day after the date of the deposit referred to in clause (A) of
this Section 8.02, and the provisions of this Indenture will no longer be in
effect with respect to the Notes, and the Trustee, at the expense of FelCor LP,
shall execute proper instruments acknowledging the same; provided that the
following conditions shall have been satisfied:
(A) with reference to this Section 8.02, FelCor LP has
irrevocably deposited or caused to be irrevocably deposited with the
61
<PAGE> 68
Trustee (or another trustee satisfying the requirements of Section
7.10 of this Indenture) and conveyed all right, title and interest for
the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Notes, and dedicated solely to, the
benefit of the Holders, in and to (1) money in an amount, (2) U.S.
Government Obligations that, through the payment of interest, premium,
if any, and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of any
payment referred to in this clause (A), money in an amount or (3) a
combination thereof in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay
and discharge, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or
other charges and assessments in respect thereof payable by the
Trustee, the principal of, premium, if any, and accrued interest on
the outstanding Notes at the Stated Maturity of such principal or
interest; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to the payment of such principal, premium, if any, and
interest with respect to the Notes;
(B) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which FelCor LP, FelCor or any of their
respective Restricted Subsidiaries is a party or by which FelCor LP,
FelCor or any of their respective Restricted Subsidiaries is a party
or by which FelCor LP is bound;
(C) immediately after giving effect to such deposit on a
pro forma basis, no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or during the period
ending on the 123rd day after such date of deposit;
(D) FelCor LP shall have delivered to the Trustee (1)
either (x) a ruling directed to the Trustee received from the Internal
Revenue Service to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of
FelCor LP's exercise of its option under this Section 8.02 and will be
subject to federal income tax on the same amount and in the same
62
<PAGE> 69
manner and at the same times as would have been the case if such
option had not been exercised or (y) an Opinion of Counsel to the same
effect as the ruling described in clause (x) above accompanied by a
ruling to that effect published by the Internal Revenue Service,
unless there has been a change in the applicable federal income tax
law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (2) an Opinion of
Counsel to the effect that (x) the creation of the defeasance trust
does not violate the Investment Company Act of 1940 and (y) after the
passage of 123 days following the deposit (except, with respect to any
trust funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to
the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law in a case commenced
by or against FelCor LP or a Guarantor under either such statute, and
either (I) the trust funds will no longer remain the property of
FelCor LP or a Guarantor (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (II) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of FelCor LP or a Guarantor, (a)
assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and
perfected security interest in such trust funds that is not avoidable
in bankruptcy or otherwise except for the effect of Section 552(b) of
the United States Bankruptcy Code on interest on the trust funds
accruing after the commencement of a case under such statute and (b)
the Holders will be entitled to receive adequate protection of their
interests in such trust funds if such trust funds are used in such
case or proceeding;
(E) if the Notes are then listed on a national securities
exchange, FelCor LP shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit defeasance and discharge will
not cause the Notes to be delisted; and
(F) FelCor LP has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
63
<PAGE> 70
Notwithstanding the foregoing, prior to the end of the 123-day
(or one year) period referred to in clause (D)(2)(y) of this Section 8.02, none
of FelCor LP's obligations under this Indenture shall be discharged.
Subsequent to the end of such 123-day (or one year) period with respect to this
Section 8.02, FelCor LP's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06,
2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive
until the Notes are no longer outstanding. Thereafter, only FelCor LP's
obligations in Sections 7.07, 8.05 and 8.06 shall survive. If and when a
ruling from the Internal Revenue Service or an Opinion of Counsel referred to
in clause (D)(1) of this Section 8.02 is able to be provided specifically
without regard to, and not in reliance upon, the continuance of FelCor LP's
obligations under Section 4.01, then FelCor LP's obligations under such Section
4.01 shall cease upon delivery to the Trustee of such ruling or Opinion of
Counsel and compliance with the other conditions precedent provided for herein
relating to the defeasance contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of FelCor LP's obligations under the Notes
and this Indenture except for those surviving obligations in the immediately
preceding paragraph.
SECTION 8.03 DEFEASANCE OF CERTAIN OBLIGATIONS. FelCor LP may
omit to comply with any term, provision or condition set forth in clause (iii)
under Section 5.01 and Sections 4.03 through 4.17 and Sections 4.19 and 4.20,
clauses (c) and (d) under Section 6.01 with respect to such clause (iii) under
Section 5.01 and Sections 4.03 through 4.17 and Sections 4.19 and 4.20, and
clauses (e) and (f) under Section 6.01 shall be deemed not to be Events of
Default, in each case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, FelCor LP has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for
the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Notes, and dedicated solely to, the
benefit of the Holders, in and to (A) money in an amount, (B) U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount or (C) a
combination thereof in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay
and discharge, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or
other charges and assessments in respect thereof payable by the
Trustee, the principal of, premium, if any, and interest on the
outstanding Notes on the Stated Maturity of such principal or
interest; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of
64
<PAGE> 71
such U.S. Government Obligations to the payment of such principal,
premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which FelCor LP, FelCor or any of their
Restricted Subsidiaries is a party or by which FelCor LP, FelCor or
any of their Restricted Subsidiaries is bound;
(iii) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit;
(iv) FelCor LP has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Company Act of 1940, (B) the Holders
have a valid first-priority security interest in the trust funds, (C)
the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain
obligations and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred and (D) after
the passage of 123 days following the deposit (except, with respect to
any trust funds for the account of any Holder who may be deemed to be
an "insider" for purposes of the United States Bankruptcy Code, after
one year following the deposit), the trust funds will not be subject
to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law in a case commenced
by or against FelCor LP under either such statute, and either (1) the
trust funds will no longer remain the property of FelCor LP or a
Guarantor (and therefore will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (2) if a court were to rule
under any such law in any case or proceeding that the trust funds
remained property of FelCor LP or a Guarantor, (x) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold,
for the benefit of the Holders, a valid and perfected security
interest in such trust funds that is not avoidable in bankruptcy or
otherwise (except for the effect of Section 552(b) of the United
States Bankruptcy Code on interest on the trust funds accruing after
the commencement of a case under such statute), (y) the Holders will
be entitled to receive adequate protection of their interests in such
trust funds if such trust funds are used in such case or proceeding
and (z) no property, rights in property or other interests granted to
the Trustee or the Holders in exchange for, or with respect to, such
trust funds will be subject to any prior rights of holders of other
Indebtedness of FelCor LP, FelCor or any of their Subsidiaries;
(v) if the Notes are then listed on a national securities
exchange, FelCor LP shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit defeasance and discharge will
not cause the Notes to be delisted; and
65
<PAGE> 72
(vi) FelCor LP has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04 APPLICATION OF TRUST MONEY. Subject to Section 8.06,
the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.05 REPAYMENT TO COMPANY. Subject to Sections 7.07,
8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to
FelCor LP upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability
with respect to such money. The Trustee and the Paying Agent shall pay to
FelCor LP upon request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years; provided
that the Trustee or such Paying Agent before being required to make any payment
may cause to be published at the expense of FelCor LP once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money at such Holder's address (as set forth in the Note Register) notice
that such money remains unclaimed and that after a date specified therein
(which shall be at least 30 days from the date of such publication or mailing)
any unclaimed balance of such money then remaining will be repaid to FelCor LP.
After payment to FelCor LP, Holders entitled to such money must look to FelCor
LP for payment as general creditors unless an applicable law designates another
Person, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
SECTION 8.06 REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
FelCor LP's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or
8.03, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if FelCor
LP has made any payment of principal of, premium, if any, or interest on any
Notes because of the reinstatement of its obligations, FelCor LP shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
66
<PAGE> 73
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01 WITHOUT CONSENT OF HOLDERS. FelCor, FelCor LP and
the Subsidiary Guarantors when authorized by a resolution of their Board of
Directors, and the Trustee may amend or supplement this Indenture or the Notes
without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in
this Indenture; provided that such amendments or supplements shall not
adversely affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of
the Board of Directors as evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02 WITH CONSENT OF HOLDERS. Subject to Sections 6.04
and 6.07 and without prior notice to the Holders, FelCor, FelCor LP and the
Subsidiary Guarantors, when authorized by their Board of Directors (as
evidenced by a Board Resolution), and the Trustee may amend this Indenture and
the Notes with the written consent of the Holders of a majority in aggregate
principal amount at maturity of the Notes then outstanding, and the Holders of
a majority in aggregate principal amount at maturity of the Notes then
outstanding by written notice to the Trustee may waive future compliance by
FelCor or FelCor LP with any provision of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note,
(ii) reduce the principal amount of, or premium, if any,
or interest on, any Note,
(iii) change the place of payment of principal of, or
premium, if any, or interest on, any Note or adversely affect any
right of repayment at the option of any Holder of any Note,
67
<PAGE> 74
(iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the
case of a redemption, on or after the Redemption Date) of any Note,
(v) reduce the above-stated percentage of outstanding
Notes, the consent of whose Holders is necessary to modify or amend
this Indenture,
(vi) waive a Default in the payment of principal of,
premium, if any, or interest on the Notes,
(vii) voluntarily release a Guarantor of the Notes,
(viii) modify any of the provisions of this Section 9.02,
except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each outstanding Note affected
thereby, or
(ix) reduce the percentage or aggregate principal amount
at maturity of outstanding Notes the consent of whose Holders is
necessary for waiver of compliance with certain provisions of this
Indenture or for waiver of certain defaults.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, FelCor LP shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. FelCor LP will
mail supplemental indentures to Holders upon request. Any failure of FelCor LP
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03 REVOCATION AND EFFECT OF CONSENT. Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing
consent by the Holder and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the Note of the consenting Holder, even if
notation of the consent is not made on any Note. However, any such Holder or
subsequent Holder may revoke the consent as to its Note or portion of its Note.
Such revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
FelCor LP may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record
68
<PAGE> 75
date is fixed, then, notwithstanding the last two sentences of the immediately
preceding paragraph, those persons who were Holders at such record date (or
their duly designated proxies) and only those persons shall be entitled to
consent to such amendment, supplement or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (ix) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (ix) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04 NOTATION ON OR EXCHANGE OF NOTES. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and
the Trustee may place an appropriate notation on any Note thereafter
authenticated. Alternatively, if FelCor LP or the Trustee so determines,
FelCor LP in exchange for the Note shall issue and the Trustee shall
authenticate a new Note that reflects the changed terms.
SECTION 9.05 TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall
be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article Nine is authorized or permitted by
this Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the
rights of the Trustee. The Trustee may, but shall not be obligated to, execute
any such amendment, supplement or waiver that affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
SECTION 9.06 CONFORMITY WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01 TRUST INDENTURE ACT OF 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of
and to govern indentures qualified under the TIA. After the effectiveness of
the Registration Statement, this Indenture shall be subject to the provisions
of
69
<PAGE> 76
the TIA that are required to be a part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 10.02 NOTICES. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
if to FelCor, FelCor LP or any Subsidiary Guarantor:
c/o FelCor Suite Hotels, Inc.
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
Attention: General Counsel
if to the Trustee:
SunTrust Bank, Atlanta
58 Edgewood Avenue
Room 400 Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Department
FelCor, FelCor LP or a Subsidiary Guarantor or the Trustee by notice
to the other may designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Holder shall be mailed to him
at his address as it appears on the Note Register by first class mail and shall
be sufficiently given to him if so mailed within the time prescribed. Copies
of any such communication or notice to a Holder shall also be mailed to the
Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for
a notice to the Trustee, which is deemed given only when received, and except
as otherwise provided in this Indenture, if a notice or communication is mailed
in the manner provided in this Section 10.02, it is duly given, whether or not
the addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken
in reliance upon such waiver.
70
<PAGE> 77
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 10.03 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by FelCor LP to the Trustee to take any action
under this Indenture, FelCor LP shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such Counsel, all such conditions precedent have been complied with.
SECTION 10.04 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of
each such person, such condition or covenant has been complied with;
provided, however, that, with respect to matters of fact, an Opinion
of Counsel may rely on an Officers' Certificate or certificates of
public officials.
SECTION 10.05 RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR. The
Trustee may make reasonable rules for action by or at a meeting of Holders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.06 PAYMENT DATE OTHER THAN A BUSINESS DAY. If an
Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date
of maturity of any Note shall not be a Business Day, then payment of principal
of, premium, if any, or interest on such Note, as the case may be, need not be
made on such date, but may be made on the next succeeding Business Day
71
<PAGE> 78
with the same force and effect as if made on the Interest Payment Date, Payment
Date, or Redemption Date, or at the Stated Maturity or date of maturity of such
Note; provided that no interest shall accrue for the period from and after such
Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or date
of maturity, as the case may be.
SECTION 10.07 GOVERNING LAW. The laws of the State of New York
shall govern this Indenture and the Notes. The Trustee, FelCor LP and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture
or the Notes.
SECTION 10.08 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of FelCor LP, the Guarantors or any Subsidiary of any such Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 10.09 NO RECOURSE AGAINST OTHERS. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of FelCor LP or the
Guarantors contained in this Indenture, or in any of the Notes, or because of
the creation of any Indebtedness represented thereby, shall be had against any
incorporator or against any past, present or future limited partner,
stockholder, other equity holder (other than a general partner), officer,
director, employee or controlling person, as such, of FelCor LP, FelCor or the
Subsidiary Guarantors or of any successor Person, either directly or through
FelCor LP or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Indenture and the issue of the Notes.
SECTION 10.10 SUCCESSORS. All agreements of FelCor LP, FelCor or
the Subsidiary Guarantors in this Indenture and the Notes shall bind its
successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 10.11 DUPLICATE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
SECTION 10.12 SEPARABILITY. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 10.13 TABLE OF CONTENTS, HEADINGS, ETC. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted
72
<PAGE> 79
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms and provisions hereof.
ARTICLE 11
GUARANTEE OF THE NOTES
SECTION 11.01 GUARANTEE. Subject to the provisions of this Article
Eleven, each Guarantor, jointly and severally, hereby unconditionally
guarantees to each Holder and to the Trustee on behalf of the Holders: (i) the
due and punctual payment of the principal of, premium if any, on and interest
on the Notes, when and as the same shall become due and payable, whether at
maturity, by acceleration, redemption or otherwise, the due and punctual
payment of interest on the overdue principal of and interest, if any, on the
Notes, to the extent lawful, and the due and punctual performance of all other
obligations of FelCor LP to the Holders or the Trustee, all in accordance with
the terms of such Note and this Indenture and (ii) in the case of any extension
of time of payment or renewal of any Notes or any of such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, at stated maturity, by
acceleration, redemption or otherwise. Each Guarantor hereby waives diligence,
presentment, filing of claims with a court in the event of merger or bankruptcy
of FelCor LP, any right to require a proceeding first against FelCor LP, the
benefit of discussion, protest or notice with respect to any such Note or the
debt evidenced thereby and all demands whatsoever (except as specified above),
and covenants that this Article Eleven will not be discharged as to any such
Note except by payment in full of the principal thereof and interest thereon
and as provided in Sections 8.01 and 8.02. The maturity of the obligations
guaranteed hereby may be accelerated as provided in Article Six for the
purposes of this Article Eleven. In the event of any declaration of
acceleration of such obligations as provided in Article Eleven, such
obligations (whether or not due and payable) shall become due and payable
immediately by the Guarantor for the purpose of this Article Eleven. In
addition, without limiting the foregoing provisions, upon the effectiveness of
an acceleration under Article Six, the Trustee shall promptly make a demand for
payment on the Notes under the Guarantees provided for in this Article Eleven.
Each Guarantor hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against performance or enforcement of
such Guarantor's obligations under this Indenture, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, any right to participate in any claim or remedy of the Holders
against FelCor LP, whether or not such claim, remedy or right arises in equity,
or under contract, statute or common law, including, without limitation, the
right to take or receive from FelCor LP, directly or indirectly, in cash or
other property or in any other manner, payment or security on account of such
claim or other rights. If any amount shall be paid to any Guarantor in
violation of the preceding sentence and the principal of, premium if any, and
accrued interest on the Notes shall not have been paid in full, such amount
shall be deemed to have been paid to such Guarantor for the benefit of, and
held in trust for the benefit of, the Holders, and shall immediately be paid to
the Trustee for the benefit of the Holders to be credited and applied upon
73
<PAGE> 80
the principal of, premium, if any, and accrued interest on the Notes. Each
Guarantor acknowledges that it will receive direct and indirect benefits from
the issuance of the Notes pursuant to this Indenture and that the waiver set
forth in this paragraph is knowingly made in contemplation of such benefits.
The Guarantee set forth in this Section 11.01 shall not be valid or
become obligatory for any purpose with respect to a Note until the certificate
of authentication on such Note shall have been signed by or on behalf of the
Trustee.
SECTION 11.02 OBLIGATIONS OF GUARANTOR UNCONDITIONAL. Except as
provided in Section 11.07, nothing contained in this Article Eleven or
elsewhere in this Indenture or in the Notes is intended to or shall impair, as
among each Guarantor and the holders of the Notes, the obligation of each
Guarantor, which is absolute and unconditional, upon failure by FelCor LP, to
pay to the holders of the Notes and principal of, premium, if any, and interest
on the Notes as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative rights of the
holders of the Notes and creditors of each Guarantor, nor shall anything herein
or therein prevent the holder of any Note or the Trustee on their behalf from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture.
Without limiting the generality of the foregoing, nothing contained in
this Article Eleven will restrict the right of the Trustee or the holders of
the Notes to take any action to declare the Guarantees to be due and payable
prior to the stated maturity of the Notes pursuant to Section 6.02 or to pursue
any rights or remedies hereunder.
SECTION 11.03 NOTICE TO TRUSTEE. Each Guarantor shall give prompt
written notice to the Trustee of any fact known to such Guarantor which would
prohibit the making of any payment to or by the Trustee in respect of the
Guarantee pursuant to the provisions of this Article Eleven.
SECTION 11.04 THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The
failure to make a payment on account of principal, of premium, if any, or
interest on the Notes by reason of any provision of this Article Eleven will
not be construed as preventing the occurrence of an Event of Default.
SECTION 11.05 TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in
this Article Eleven will apply to amounts due to the Trustee pursuant to other
sections in the Indenture.
SECTION 11.06 PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION. Nothing
contained in this Article Eleven or elsewhere in this Indenture shall prevent
(i) a Guarantor from making payments of principal of, premium if any, and
interest on the Notes, or from depositing with the Trustee any monies for such
payments or (ii) the application by the Trustee of any monies deposited with it
for the purpose of making such payments of principal of, premium, if any, and
interest on the Notes to the holders entitled thereto, each Guarantor shall
give prompt written notice to the Trustee of any dissolution, winding up,
liquidation or reorganization of such Guarantor.
74
<PAGE> 81
SECTION 11.07 SUSPENSION OF GUARANTEE. The Guarantee provided
pursuant to this Article 11 shall be suspended with respect to any Guarantor
for so long as such Guarantor is no longer an obligor (other than in the case
of FelCor, in its capacity as the general partner of FelCor LP) with respect to
other Indebtedness of FelCor or FelCor LP. The Guarantee provided pursuant to
this Article 11 by each Subsidiary Guarantor shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of FelCor LP or FelCor, of all of the Capital Stock
owned by FelCor LP, FelCor and their respective Restricted Subsidiaries in, or
all or substantially all the assets of such Subsidiary Guarantor; provided such
transfer is permitted by this Indenture. To the extent the Guarantee provided
pursuant to this Article 11 is suspended pursuant to this Section 11.07 with
respect to FelCor, the covenants contained in Article 4 and Article 5 governing
FelCor and its Restricted Subsidiaries shall be similarly suspended.
75
<PAGE> 82
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
FELCOR SUITES LIMITED PARTNERSHIP
By: FELCOR SUITE HOTELS, INC., as
general partner
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
SUNTRUST BANK, ATLANTA,
as Trustee
By: /s/ DAVID M. KAYE
----------------------------
Name: David M. Kaye
Title: Group Vice President
By: /s/ PHILLIP D. DEMOUEY
----------------------------
Name: Phillip D. DeMouey
Title: Assistant Vice President
FELCOR/CSS HOTELS, L.L.C.
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
FELCOR/LAX HOTELS, L.L.C.
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
<PAGE> 83
FELCOR/CSS HOLDINGS, L.P.
By: FELCOR/CSS HOTELS, L.L.C., as
general partner
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
FELCOR/ST. PAUL HOLDINGS, L.P.
By: FELCOR/CSS HOTELS, L.L.C., as
general partner
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
FELCOR/LAX HOLDINGS, LP.
By: FELCOR/LAX HOTELS, L.L.C.,
as general partner
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
FELCOR EIGHT HOTELS, L.L.C.
By: /s/ LAWRENCE D. ROBINSON
----------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
<PAGE> 84
EXHIBIT A
[FACE OF NOTE]
[7 3/8% Senior Note Due 2004]
[7 5/8% Senior Notes Due 2007]
[CUSIP] _______
No. $_______
FELCOR SUITES LIMITED PARTNERSHIP, a Delaware limited
partnership ("FelCor LP"), which term includes any successor under the
Indenture hereinafter referred to), for value received, promises to pay to
__________, or its registered assigns, the principal sum of ___________
($_________) on ____________, [2004][2007].
Interest Payment Dates: April 1 and October 1, commencing
April 1, 1998.
Regular Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, FelCor LP has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
FELCOR SUITES LIMITED PARTNERSHIP
BY: FELCOR SUITE HOTELS, INC., general
partner
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
A-1
<PAGE> 85
(Trustee's Certificate of Authentication)
This is one of the [7 3/8% Senior Notes Due 2004] [7 5/8%
Senior Notes Due 2007] described in the within-mentioned Indenture.
Date: SUNTRUST BANK, ATLANTA,
as Trustee
By:
----------------------------
Authorized Signatory
A-2
<PAGE> 86
[REVERSE SIDE OF NOTE]
FELCOR SUITES LIMITED PARTNERSHIP
[7 3/8% Senior Note Due 2004]
[7 5/8% Senior Note Due 2007]
1. Principal and Interest.
FelCor LP will pay the principal of this Note on October 1,
[2004][2007].
FelCor LP promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of
record of the Notes at the close of business on March 15 or September 15
immediately preceding the Interest Payment Date) on each Interest Payment Date,
commencing April 1, 1998.
If an exchange offer registered under the Securities Act is
not consummated and a shelf registration statement under the Securities Act
with respect to resales of the Notes is not declared effective by the
Commission, on or before April 1, 1998 in accordance with the terms of the
Registration Rights Agreement dated September 26, 1997 among FelCor LP, FelCor,
Morgan Stanley & Co. Incorporated, NationsBanc Capital Markets, Inc. and
Salomon Brothers, Inc the interest due on the Notes will accrue, at an annual
rate of .5% plus the interest rate specified on the face hereof, until the
exchange offer is consummated or the shelf registration statement is declared
effective. The Holder of this Note is entitled to the benefits of such
Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from October 1,
1997; provided that, if there is no existing default in the payment of interest
and this Note is authenticated between a Regular Record Date referred to on the
face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
FelCor LP shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum that is 2% in excess of the rate otherwise payable.
A-3
<PAGE> 87
2. Method of Payment.
FelCor LP will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each April 1 and October 1
to the persons who are Holders (as reflected in the Note Register at the close
of business on such March 15 and September 15 immediately preceding the
Interest Payment Date), in each case, even if the Note is canceled on
registration of transfer or registration of exchange after such record date;
provided that, with respect to the payment of principal, FelCor LP will make
payment to the Holder that surrenders this Note to a Paying Agent on or after
October 1, [2004][2007].
FelCor LP will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, FelCor LP may
pay principal, premium, if any, and interest by its check payable in such
money. It may mail an interest check to a Holder's registered address (as
reflected in the Note Register). If a payment date is a date other than a
Business Day at a place of payment, payment may be made at that place on the
next succeeding day that is a Business Day and no interest shall accrue for the
intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent,
Paying Agent and Registrar. FelCor LP may change any authenticating agent,
Paying Agent or Registrar without notice. FelCor LP, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
FelCor LP issued the Notes under an Indenture dated as of
October 1, 1997 (the "Indenture"), among FelCor LP, FelCor, the Subsidiary
Guarantors and SunTrust Bank, Atlanta (the "Trustee"). Capitalized terms
herein are used as defined in the Indenture unless otherwise indicated. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act. The Notes are subject
to all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this
Note and the terms of the Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of FelCor LP.
5. Redemption.
The Notes will be redeemable in whole at any time or in part
from time to time, at the option of FelCor LP, at a Redemption Price equal to
the greater of (i) 100% of the principal amount of such Notes and (ii) the sum
of the present values of the remaining payments of
A-4
<PAGE> 88
principal and interest thereon from the Redemption Date to the applicable
maturity date discounted, in each case, to the Redemption Date on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 25 basis points, plus, in each case, accrued interest
thereon to the date of redemption.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker as having a maturity
comparable to the remaining term of the Note to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Note.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third Business Day preceding such Redemption Date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such Business Day, the
average of the Reference Treasury Dealer Quotations actually obtained by the
Trustee for such Redemption Date.
"Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Trustee after consultation with FelCor LP.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc and
their respective successors; provided, that if any of the foregoing shall cease
to be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), FelCor LP shall substitute therefor another Primary Treasury
Dealer.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer and any Redemption Date, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m.
on the third Business Day preceding such Redemption Date.
"Treasury Rate" means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
Notice of any optional redemption will be mailed at least 30 but not
more than 60 days before the Redemption Date to each Holder of Notes to be
redeemed at its last address as it appears in the Note Register. Notes in
original principal amount greater than $1,000 may be
A-5
<PAGE> 89
redeemed in part. On and after the Redemption Date, interest ceases to accrue
on Notes or portions thereof called for redemption, unless FelCor LP defaults
in the payment of the amount due upon redemption.
6. Repurchase upon Change in Control.
Upon the occurrence of any Change of Control, each Holder
shall have the right to require the repurchase of its Notes by FelCor LP in
cash pursuant to the offer described in the Indenture at a purchase price equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed within 30
days after any Change of Control occurs to each Holder at his last address as
it appears in the Note Register. Notes in original denominations larger than
$1,000 may be sold to FelCor LP in part. On and after the Change of Control
Payment Date, interest ceases to accrue on Notes or portions of Notes
surrendered for purchase by FelCor LP, unless FelCor LP defaults in the payment
of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and multiples of $1,000
in excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected for
redemption. Also, it need not register the transfer or exchange of any Notes
for a period of 15 days before a selection of Notes to be redeemed is made.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to FelCor LP at its request. After that, Holders entitled
to the money must look to FelCor LP for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
A-6
<PAGE> 90
10. Discharge Prior to Redemption or Maturity.
If FelCor LP deposits with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, FelCor LP will be discharged from the Indenture and the Notes, except
in certain circumstances for certain sections thereof, and (b) to the Stated
Maturity, FelCor LP will be discharged from certain covenants set forth in the
Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not materially and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
FelCor, FelCor LP and their respective Restricted Subsidiaries, among other
things, to Incur additional Indebtedness, make Restricted Payments, use the
proceeds from Asset Sales, engage in transactions with Affiliates or merge,
consolidate or transfer substantially all of its assets. Within 45 days after
the end of each fiscal quarter (90 days after the end of the last fiscal
quarter of each year), FelCor and FelCor LP must report to the Trustee on
compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture:
(a) default in the payment of principal of (or premium, if any,
on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
A-7
<PAGE> 91
(c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of FelCor LP and FelCor or the failure by
FelCor LP to make or consummate an Offer to Purchase in accordance with Section
4.10 or Section 4.11;
(d) FelCor LP or FelCor defaults in the performance of or breaches
any other covenant or agreement of FelCor LP or FelCor in the Indenture or
under the Notes (other than a default specified in clause (a), (b) or (c)
above) and such default or breach continues for a period of 30 consecutive days
after written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of FelCor LP or FelCor or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not covered by insurance) shall be rendered
against FelCor LP or FelCor or any Significant Subsidiary and shall not be paid
or discharged, and there shall be any period of 60 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of FelCor LP or FelCor or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
FelCor LP or FelCor or any Significant Subsidiary or for all or substantially
all of the property and assets of FelCor LP or FelCor or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of FelCor LP or
FelCor or any Significant Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or
(h) FelCor LP or FelCor or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order
for relief in an involuntary case under such law, (B) consents
A-8
<PAGE> 92
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of FelCor LP or FelCor or
Significant Subsidiary or for all or substantially all of the property and
assets of FelCor LP or FelCor or any Significant Subsidiary or (C) effects any
general assignment for the benefit of its creditors.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the Notes may declare all the Notes to be due and payable. If a
bankruptcy or insolvency default with respect to FelCor LP occurs and is
continuing, the Notes automatically become due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from and perform services
for FelCor LP or its Affiliates and may otherwise deal with FelCor LP or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future limited
partner, shareholder, other equity holder, officer, director, employee or
controlling person as such, of FelCor LP or of any successor Person shall have
any liability for any obligations of FelCor LP under the Notes or the Indenture
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
17. Authentication.
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Note.
18. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
FelCor LP will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to FelCor Suites
Limited Partnership, 545 East
A-9
<PAGE> 93
John Carpenter Freeway, Suite 1300, Irving, Texas 75062 or at such other
address provided for in the Indenture.
19. Guarantee.
Repayment of principal and interest on the Notes is guaranteed on a
senior basis by the Guarantors pursuant to Article Eleven of the Indenture.
A-10
<PAGE> 94
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
__________________________________
_____________________________________________________ Please print or typewrite
name and address including zip code of assignee _______________________________
____________ ___________ the within Note and all rights thereunder, hereby
irrevocably constituting _______ ___________________________________ and
appointing _______________________ attorney to transfer said Note on the books
of FelCor LP with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the shelf registration statement with
respect to resales of the Notes is declared effective or (ii) two years after
the original issuance of the Notes, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933,
as amended, provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Note and the
Indenture.
A-11
<PAGE> 95
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
---------------- ---------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the within-mentioned instrument in
every particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
FelCor LP as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
---------------- ---------------------------------------------
NOTICE: To be executed by an executive officer
A-12
<PAGE> 96
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by FelCor LP pursuant
to Section 4.10 or Section 4.11 of the Indenture, check the Box: [_]
If you wish to have a portion of this Note purchased by FelCor
LP pursuant to Section 4.10 or Section 4.11 of the Indenture, state the amount
(in principal amount at maturity): $___________________.
Date:
-------------
Your Signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
----------------------------
A-13
<PAGE> 97
EXHIBIT B
Form of Certificate
,
----------- -----
FelCor Suites Limited Partnership
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
FelCor Suite Hotels, Inc.
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
SunTrust Bank, Atlanta
58 Edgewood Avenue
Room 400 Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Department
Re: FelCor Suites Limited Partnership ("FelCor LP")
[7 3/8% Senior Notes Due 2004] [7 5/8% Senior Notes Due 2007]
(the "Notes")
-------------------------------------------------------------
Dear Sirs:
This letter relates to U.S. $______ principal amount at maturity of
Notes represented by a Note (the "Legended Note") which bears a legend
outlining restrictions upon transfer of such Legended Note. Pursuant to
Section 2.01 of the Indenture (the "Indenture") dated as of October 1, 1997
relating to the Notes, we hereby certify that we are (or we will hold such
securities on behalf of) a person outside the United States to whom the Notes
could be transferred in accordance with Rule 904 of Regulation S promulgated
under the U.S. Securities Act of 1933, as amended. Accordingly, you are hereby
requested to exchange the legended certificate for an unlegended certificate
representing an identical principal amount at maturity of Notes, all in the
manner provided for in the Indenture.
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[NAME OF HOLDER]
By:
----------------------------
Authorized Signature
B-1
<PAGE> 98
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
,
------------- ----
FelCor Suites Limited Partnership
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
FelCor Suite Hotels, Inc.
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
SunTrust Bank, Atlanta
58 Edgewood Avenue
Room 400 Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Department
Re: FelCor Suites Limited Partnership ("FelCor LP")
[7 3/8% Senior Notes Due 2004] [7 5/8% Senior Notes Due 2007]
(the "Notes")
-------------------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $____________ aggregate
principal amount at maturity of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of October 1, 1997, relating to the Notes (the "Indenture") and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act").
C-1
<PAGE> 99
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to FelCor,
FelCor LP or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C)
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you a signed letter substantially in the form of this letter,
and, if this letter relates to a proposed transfer in respect of an aggregate
principal amount of Notes less than $100,000, an opinion of counsel acceptable
to FelCor and FelCor LP that such transfer is in compliance with the Securities
Act, (D) outside the United States in accordance with Rule 904 of Regulation S
under the Securities Act, (E) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (F) pursuant
to an effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing any of the Notes from us a notice
advising such purchaser that resales of the Notes are restricted as stated
herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you such certifications, legal opinions and
other information as you may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that the
Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[NAME OF TRANSFEREE]
By:
----------------------------
Authorized Signature
C-2
<PAGE> 100
EXHIBIT D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
,
----------- ----
FelCor Suites Limited Partnership
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
FelCor Suite Hotels, Inc.
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 75062
SunTrust Bank, Atlanta
58 Edgewood Avenue
Room 400 Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Department
Re: FelCor Suites Limited Partnership ("FelCor LP")
[7 3/8% Senior Notes Due 2004] [7 5/8% Senior Notes Due 2007]
(the "Notes")
-------------------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$________ aggregate
principal amount at maturity of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent
that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
D-1
<PAGE> 101
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[NAME OF TRANSFEROR]
By:
----------------------------
Authorized Signature
D-2
<PAGE> 1
Exhibit 5.1
November 5, 1997
FelCor Suites Limited Partnership
c/o FelCor Suite Hotels, Inc.
545 E. John Carpenter Frwy., Suite 1300
Irving, Texas 75062-3933
Re: Registration Statement on Form S-4;$175,000,000 Aggregate
Principal Amount of 7 3/8% Senior Notes Due 2004 and $125,000,000 Aggregate
Principal Amount of 7 5/8% Senior Notes Due 2007
Dear Ladies and Gentlemen:
In connection with the registration of $175,000,000 aggregate principal
amount of 7 3/8% Senior Notes due 2004 and $125,000,000 aggregate principal
amount of 7 5/8% Senior Notes Due 2007 (collectively, the "Exchange Notes") by
FelCor Suites Limited Partnership (the "Partnership") under the Securities Act
of 1933, as amended (the "Act"), on Form S-4 filed with the Securities and
Exchange Commission on November 5, 1997 (File No. 333-______), as amended (the
"Registration Statement"), and the concurrent registration of guarantees (the
"Guarantees") of the Exchange Notes by FelCor Suite Hotels, Inc., FelCor/CSS
Hotels, L.L.C., FelCor/LAX Hotels, L.L.C., FelCor Eight Hotels, L.L.C.,
FelCor/CSS Holdings, L.P., FelCor/St. Paul Holdings, L.P. and FelCor/LAX
Holdings, L.P. (collectively, the "Guarantors"), you have requested our opinion
with respect to the matters set forth below. The Exchange Notes will be
offered in exchange for like principal amounts of outstanding 7 3/8% Senior
Notes due 2004 and 7 5/8% Senior Notes Due 2007 (collectively, the "Old
Notes"). The Exchange Notes and Guarantees will be issued pursuant to an
indenture (the "Indenture") dated as of October 1, 1997 among the Partnership,
the Guarantors and SunTrust Bank, Atlanta, as Trustee (the "Trustee").
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Partnership and the Guarantors in connection with the
authorization and issuance of the Exchange Notes and Guarantees, and, for the
purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
<PAGE> 2
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of Texas and the Delaware Revised Uniform
Limited partnership Act, and we express no opinion with respect to the
applicability thereto, or the effect thereon of the laws of any other
jurisdiction or as to any matters of municipal law or the laws of any other
local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof, when (a) the Indenture under which
the Exchange Notes will be issued has been qualified under the Trust Indenture
Act of 1939, as amended, (b) the Exchange Notes have been executed by the
Partnership and authenticated by the Trustee in accordance with the terms of
the Indenture, and (c) the Exchange Notes have been delivered in exchange for
the Old Notes in the manner and for the consideration stated in the
Registration Statement and the Indenture, the Exchange Notes will constitute
valid and binding obligations of the Partnership and the Guarantees will
constitute valid and binding obligations of the Guarantors.
To the extent that the obligations of the Partnership and the
Guarantors under the Indenture may be dependent upon such matters, we assume
for purposes of this opinion that the Trustee is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; that the Trustee is duly qualified to engage in the activities
contemplated by the Indenture; that the Indenture has been duly authorized,
executed and delivered by the Trustee and constitutes the legally valid and
binding obligation of the Trustee, enforceable against the Trustee in
accordance with its terms; that the Trustee is in compliance, generally and
with respect to acting as a trustee under the Indenture, with all applicable
laws and regulations; and that the Trustee has the requisite organizational and
legal power and authority to perform its obligations under the Indenture.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required by Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
JENKENS & GILCHRIST,
A Professional Corporation
/s/ ROBERT W. DOCKERY
-------------------------------
By: Robert W. Dockery
RWD/ws
<PAGE> 1
EXHIBIT 10.2.2
SCHEDULE OF EXECUTED LEASE AGREEMENTS
SHOWING MATERIAL VARIATIONS FROM
FORM OF LEASE AGREEMENT
(AS OF SEPTEMBER 30, 1997)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Annual
Percentage Rent
Hotel Location/Franchise/ --------------- Suite
- ------------------------- Commencement Annual First Second Revenue
Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier (5) Tier (6) Breakpoint (4)
- ----------- ---------- ---------- ------------ ------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dallas (Park Central), TX -- 7/28/94 $1,477 17% 65% $3,590
Jacksonville, FL -- 7/28/94 882 17% 65% 3,490
Nashville, TN -- 7/28/94 1,667 17% 65% 4,290
Orlando (North), FL -- 7/28/94 1,571 19% 65% 2,650
Orlando (South), FL -- 7/28/94 1,413 17% 65% 4,580
Tulsa, OK -- 7/28/94 1,268 19% 65% 2,770
New Orleans, LA -- 12/1/94 1,960 19% 65% 4,290
Flagstaff, AZ -- 2/15/95 570 17% 65% 1,160
Dallas (Love Field), TX (7) -- 3/29/95 1,836 17% 65% 3,060
Boston-Marlborough, MA -- 6/30/95 720 19% 65% 940
Corpus Christi, TX -- 7/19/95 1,000 17% 65% 1,495
Brunswick, GA -- 7/19/95 370 17% 65% 1,350
Chicago-Lombard, IL (8) 8/1/95 1,900 17% 65% 3,270
Burlingame (SF Airport), CA (9) 11/6/95 3,147 17% 65% 3,174
Minneapolis (Airport) MN (9) 11/6/95 2,778 17% 65% 2,138
Minneapolis (Downtown), MN (9) 11/15/95 1,387 17% 65% 2,091
St. Paul, MN (10) 11/15/95 1,085 17% 65% 3,115
Boca Raton, FL (11) (9) 11/15/95 654 17% 65% 1,421
Tampa (Busch Gardens), FL (11) (9) 11/15/95 786 17% 65% 1,287
Cleveland, OH (9) 11/17/95 1,258 17% 65% 4,929
Anaheim, CA (9) 1/3/96 1,272 17% 65% 2,062
Baton Rouge, LA (9) 1/3/96 1,204 17% 65% 2,281
Birmingham, AL (9) 1/3/96 1,898 17% 65% 1,273
Deerfield Beach, FL (9) 1/3/96 2,163 17% 65% 2,568
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Annual
Percentage Rent
Hotel Location/Franchise/ --------------- Suite
- ------------------------- Commencement Annual First Second Revenue
Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier (5) Tier (6) Breakpoint (4)
- ----------- ---------- ---------- ------------ ------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ft. Lauderdale, FL (9) 1/3/96 3,228 17% 65% 1,969
Miami (Airport), FL (9) 1/3/96 2,222 17% 65% 2,882
Milpitas, CA (9) 1/3/96 2,143 17% 65% 1,402
Phoenix (Camelback), AZ (9) 1/3/96 2,812 17% 65% 1,428
South San Francisco (SF Airport), (9) 1/3/96 1,876 17% 65% 3,103
CA
Piscataway, NJ -- 1/10/96 1,355 17% 65% 3,574
Lexington, KY (12) -- 1/10/96 1,149 17% 65% 2,135
Beaver Creek, CO -- 2/20/96 375 17% 65% 2,284
Boca Raton, FL -- 2/28/96 1,368 17% 65% 3,670
Los Angeles (LAX), CA (13) 3/27/96 1,600 17% 65% 4,130
Mandalay Beach, CA (9) 5/8/96 1,927 17% 65% 2,909
Napa, CA (9) 5/8/96 1,215 17% 65% 3,145
Deerfield, IL (14) -- (15) 6/20/96 1,743 17% 65% 2,505
San Rafael, CA (17) (15) 7/18/96 2,107 17% 65% 2,917
Parsippany, NJ (18) (15) 7/31/96 2,440 17% 65% 3,930
Charlotte, NC (19) (15) 9/12/96 2,200 17% 65% 3,352
Indianapolis, IN (20) (15) 9/12/96 1,470 17% 65% 2,794
Atlanta (Buckhead), GA -- (15) 10/17/96 3,667 17% 65% 3,872
Myrtle Beach, SC -- (15) 12/5/96 1,963 17% 65% 6,236
San Antonio, TX (21) (16) 2/1/97 1,400 17% 65% 2,474
Raleigh, NC (22) (16) 2/1/97 2,100 17% 65% 2,711
Overland Park, KS (23) (16) 2/1/97 1,600 17% 65% 2,114
Secaucus, NJ (24) (16) 2/1/97 2,400 17% 65% 4,788
Kansas City, MO (25) (16) 2/1/97 2,100 17% 65% 2,976
Covina, CA (26) (16) 2/1/97 900 17% 65% 3,066
Austin, TX (27) (16) 2/1/97 2,200 17% 65% 2,378
Atlanta (Perimeter Center), GA (28) (16) 2/1/97 2,300 17% 65% 2,949
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Annual
Percentage Rent
Hotel Location/Franchise/ --------------- Suite
- ------------------------- Commencement Annual First Second Revenue
Manager (1) Lessor (2) Lessee (3) Date Base Rent (4) Tier (5) Tier (6) Breakpoint (4)
- ----------- ---------- ---------- ------------ ------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bloomington, MN (11) (16) 2/1/97 1,800 17% 65% 2,468
Omaha, NE (11) (16) 2/1/97 1,400 17% 65% 1,703
Los Angeles (LAX North), CA (16) 2/18/97 1,669 17% 65% 3,176
Dana Point, CA (11) (29) 2/20/97 992 17% 65% 2,211 (1997)
983 (1998)
Anne Arundel County (30) (29) 3/20/97 (32) 1,900 17% 65% 2,536
(BWI), MD (11)
Troy, MI (11) (31) (29) 3/20/97 (32) 2,100 17% 65% 1,935
Austin, TX (11) (31) (29) 3/20/97 (32) 1,900 17% 65% 1,961
San Antonio, TX (33) (16) 5/16/97 1,773 17% 65% 3,640
Nashville, TN (2) (34) 6/05/97 900 17% 65% 1,585
Dallas (Market Center), TX (2) (16) 6/30/97 2,300 17% 65% 2,896
Syracuse, NY (2) (16) 6/30/97 1,400 17% 65% 3,245
Atlanta (Galleria), GA (32) (2) (35) 6/30/97 2,155 17% 65% 3,777
College Park (Atlanta Airport), (2) (35) 6/30/97 2,426 17% 65% 5,033
GA (32)
Dallas (Park Central), TX (32) (2) (35) 6/30/97 2,284 17% 65% 6,490
(36)
Rosemont (O'Hare Airport), IL (2) (35) 6/30/97 3,522 17% 65% 2,760
(32)
Phoenix (Crescent), AZ (32) (2) (35) 6/30/97 2,908 17% 65% 6,218
Durham, NC (2) (34) 7/28/97 1,700 17% 65% 1,900
Lake Buena Vista, FL (2) (34) 7/28/97 2,900 17% 65% 2,272
Tampa (Rocky Point), FL (2) (34) 7/28/97 1,700 17% 65% 1,939
Philadelphia Society Hill, PA (32) (37) (35) 9/30/97 3,833 17% 65% 5,220
</TABLE>
- --------------------
(1) Unless otherwise noted, the hotels under each Lease Agreement
are operated as Embassy Suites(R) Hotels under a commitment
or license agreement with Promus Hotels, Inc., and the
Manager as defined in each Lease Agreement is Promus Hotels,
Inc. or an affiliate thereof.
(2) Unless otherwise noted, Lessor as defined in each Lease
Agreement is FelCor Suites Limited Partnership
("Partnership").
-3-
<PAGE> 4
(3) Unless otherwise noted, Lessee as defined in each Lease
Agreement is DJONT Operations, L.L.C., a Delaware limited
liability company.
(4) The amount shown represents the amount set forth in each
Lease Agreement as the annual Base Rent and the threshold
suite revenue amount. Both of these amounts are subject to
adjustment for changes in the consumer price index and may
not represent the actual amount currently required under each
Lease Agreement.
(5) Represents percentage of suite revenue payable as Percentage
Rent up to suite revenue breakpoint.
(6) Represents percentage of suite revenue payable as Percentage
Rent in excess of suite revenue breakpoint.
(7) The Manager as defined in this Lease Agreement is American
General Hospitality, Inc.
(8) The Lessor as defined in this Lease Agreement is Embassy/GACL
Lombard Venture, a joint venture between the Partnership and
Promus Hotels, Inc.
(9) The Lessor as defined in these Lease Agreements is FelCor/CSS
Holdings, L.P., of which the Partnership is a 99% limited
partner.
(10) The Lessor as defined in this Lease Agreement is FelCor/St.
Paul Holdings, L.P., of which the Partnership is a 99%
limited partner and another subsidiary of the Company is a 1%
general partner.
(11) The hotels under these Lease Agreements are operated as
Doubletree Guest Suites(R) Hotels; the Manager as defined in
these Lease Agreements is DT Management, Inc.
(12) The hotel under this Lease Agreement is operated as a Hilton
Suites(R) Hotel under a franchise or license agreement with
Hilton Inns, Inc., and the Manager as defined in this Lease
Agreement is American General Hospitality, Inc.
(13) The Lessor as defined in this Lease Agreement is Los Angeles
International Airport Hotel Associates, a limited partnership
of which the Partnership is the sole general partner and of
which the Partnership has an approximate 97% partnership
interest.
(14) The Manager as defined in this Lease Agreement is Coastal
Hotel Group, Inc.
(15) The Lessee as defined in the Lease Agreement for these hotels
is DJONT Leasing, L.L.C., a Delaware limited liability
company, pursuant to an assignment of the applicable Lease
Agreement from DJONT Operations, L.L.C.
(16) The Lessee as defined in the Lease Agreement for these hotels
is DJONT Leasing, L.L.C., a Delaware limited liability
company.
(17) The Lessor as defined in this Lease Agreement is MHV Joint
Venture, a joint venture between the Partnership and Promus
Hotels, Inc.
(18) The Lessor as defined in this Lease Agreement is Embassy/Shaw
Parsippany Venture, a joint venture between the Partnership
and Promus Hotels, Inc.
(19) The Lessor as defined in this Lease Agreement is E.S.
Charlotte, a Minnesota limited partnership, of which the
Partnership owns a 49% limited partner interest and
FelCor/CSS Hotels, L.L.C., a Delaware limited liability
company, owns a 1% general partner interest.
(20) The Lessor as defined in this Lease Agreement is E.S. North,
a Indiana Limited Partnership, an Indiana limited
partnership, of which the Partnership owns a 49% limited
partner interest and FelCor/CSS Hotels, L.L.C., a Delaware
limited liability company, owns a 1% general partner
interest.
(21) The Lessor as defined in this Lease Agreement is EPT San
Antonio Limited Partnership, of which the Partnership owns
49% and FelCor Eight Hotels, L.L.C. ("FelCor Eight") owns 1%.
(22) The Lessor as defined in this Lease Agreement is EPT Raleigh
Limited Partnership, of which the Partnership owns 49% and
FelCor Eight owns 1%.
-4-
<PAGE> 5
(23) The Lessor as defined in this Lease Agreement is EPT Overland
Park Limited Partnership, of which the Partnership owns 49%
and FelCor Eight owns 1%.
(24) The Lessor as defined in this Lease Agreement is EPT
Meadowlands Limited Partnership, of which the Partnership
owns 49% and FelCor Eight owns 1%.
(25) The Lessor as defined in this Lease Agreement is EPT Kansas
City Limited Partnership, of which the Partnership owns 49%
and FelCor Eight owns 1%.
(26) The Lessor as defined in this Lease Agreement is EPT Covina
Limited Partnership, of which the Partnership owns 49% and
FelCor Eight owns 1%.
(27) The Lessor as defined in this Lease Agreement is EPT Austin
Limited Partnership, of which the Partnership owns 49% and
FelCor Eight owns 1%.
(28) The Lessor as defined in this Lease Agreement is EPT
Atlanta-Perimeter Center Limited Partnership, of which the
Partnership owns 49% and FelCor Eight owns 1%.
(29) The Lessee as defined in the Lease Agreement for this hotel
is FCH/DT Leasing, L.L.C., a Delaware limited liability
company.
(30) The Lessor as defined in the Lease Agreement is FCH/DT BWI
Holdings, L.P., a Delaware limited partnership.
(31) The Lessor as defined in these Lease Agreements is FCH/DT
Holdings, L.P., a Delaware limited partnership.
(32) The Lease is for a term of 15 years and contains an automatic
renewal provision, pursuant to which the Lease shall be
extended for an additional five-year term if the
corresponding Management Agreement is extended pursuant to
the terms thereof for an additional five-year period.
(33) The Lessor is Promus/FelCor San Antonio Venture, a Texas
general partnership.
(34) The Lessee is FCH/DT Leasing II, L.L.C., a Delaware limited
liability company.
(35) The Lessee is FCH/SH Leasing, L.L.C., a Delaware limited
liability company.
(36) The hotel under this Lease Agrement is operated as a Sheraton
Suites Hotel.
(37) The Lessor is FCH/Society Hill, L.P., a Pennsylvania limited
partnership.
-5-
<PAGE> 1
EXHIBIT 10.23
U.S. $550,000,000
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Dated as of August 14, 1997
Among
FELCOR SUITE HOTELS, INC.
and FELCOR SUITES LIMITED PARTNERSHIP
as Borrower
and
THE LENDERS PARTY HERETO
and
THE CHASE MANHATTAN BANK
as Administrative Agent
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Documentation Agent
____________________________________________________________
THE CHASE MANHATTAN BANK
and WELLS FARGO BANK, NATIONAL ASSOCIATION
as Arrangers
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . 2
<S> <C> <C>
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1.3. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1.4. Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . 38
2.1. The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.2. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.3. Making the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.4. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.5. Reduction and Termination of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.6. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.7. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.8. Conversion/Continuation Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
2.9. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.10. Interest Rate Determination and Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.13. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.14. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
2.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
2.16. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.17. Swing Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
2.18. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE III
CONDITIONS TO EFFECTIVENESS
OF THIS AGREEMENT AND OF LENDING
AND OF ISSUANCE OF LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . 60
3.1. Conditions Precedent to Effectiveness of this Agreement, to Initial Loans and Letters of Credit . . . 60
3.2. Additional Conditions Precedent to Effectiveness of this Agreement, to Initial Loans and Letters
of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.3. Conditions Precedent to Each Loan and Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
4.1. Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.2. Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
4.4. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.5. Financial Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.6. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4.7. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4.8. Ownership of Borrower and DJONT; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
4.9. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4.10. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.11. Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.12. No Burdensome Restrictions; No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.13. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.14. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.15. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.16. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.17. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.18. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.19. Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.20. Contractual Obligations Concerning Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.21. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.22. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.23. Status as REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.24. Operator: Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.25. Operating Leases, Licenses and Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.26. FF&E Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.27. $100MM Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE V
FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 81
5.1. Gross Interest Expense Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.2. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.3. Maintenance of Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.4. Limitations on Total Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.5. Limitations on Total Secured Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5.6. Adjusted NOI and Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE VI
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 82
6.1. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
6.2. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
6.3. Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.4. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.5. Preservation of Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6.6. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6.7. Keeping of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6.8. Maintenance of Properties, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6.9. Performance and Compliance with Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6.10. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
6.11. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
6.12. Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
6.13. Leases and Operating Leases; Management Agreements and Licenses. . . . . . . . . . . . . . . . . . . 90
6.14. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.15. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.16. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.17. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.18. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.19. REIT Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.20. Maintenance of FF&E Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.21. Hotel Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.22. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6.23. Borrowing Base Determination/Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
ARTICLE VII
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 95
7.1. Restrictions on Creation of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.2. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.3. Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.4. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.5. Mergers, Stock Issuances, Asset Sales, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
7.6. Restrictions on Construction/Budget Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
7.7. Change in Nature of Business or in Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . 97
7.8. Modification of Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
7.9. Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
7.10. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.11. Adverse or Speculative Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.12. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.13. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.14. Management Continuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.15. ERISA Plan Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
ARTICLE VIII
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 99
8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
ARTICLE IX
THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . . . . 103
9.1. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
9.2. Administrative Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
9.3. Chase and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
9.4. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9.5. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9.6. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
ARTICLE X
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C> <C>
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 107
10.1. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
10.2. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
10.3. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
10.4. Costs; Expenses; Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
10.5. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
10.6. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
10.7. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
10.8. Governing Law; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
10.9. Submission to Jurisdiction; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
10.10. Section Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
10.11. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
10.12. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
10.13. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
10.14. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
10.15. Joint and Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
SCHEDULES
Schedule I - Commitments
Schedule II - Applicable Lending Offices and
Addresses for Notices
Schedule 4.8 - Subsidiaries and Unconsolidated Entities
Schedule 4.10 - Existing Indebtedness
Schedule 4.13 - Existing Investments
Schedule 4.19 - Environmental Protection
Schedule 4.22(a) - Owned Real Estate
Schedule 4.22(b) - Leased Real Estate
Schedule 6.23 - Initial Eligible Hotels
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Conversion or Continuation
Exhibit D - Form(s) of Opinion(s) of Counsel for the
Loan Parties
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Borrowing Base Certificate
Exhibit G - Form of Compliance Certificate
Exhibit H - Form of Operating Lease
Exhibit I - Form of Subsidiary Guaranty
Exhibit J - Crown Sterling Hotels
Exhibit K - Form of Letter of Credit Request
</TABLE>
<PAGE> 8
THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated
as of August 14, 1997, among FELCOR SUITE HOTELS, INC., a Maryland corporation
("FelCor") and FELCOR SUITES LIMITED PARTNERSHIP, a Delaware limited
partnership ("FelCor LP" and collectively with FelCor, the "Borrower"), the
financial institutions listed on the signature pages hereof (each individually
a "Lender" and collectively the "Lenders") and THE CHASE MANHATTAN BANK
("Chase"), as administrative agent for the Lenders (in such capacity, the
"Administrative Agent") and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells
Fargo") as documentation agent.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Revolving Credit Agreement
dated as of September 30, 1996, among the Borrower, the financial institutions
listed on the signature page thereof, the Administrative Agent and Wells Fargo
as documentation agent (the "Original Revolving Credit Agreement"), the
Original Lenders agreed to make to the Borrower revolving credit advances of up
to $250,000,000 (the "Loan Amount") in aggregate principal amount outstanding
at any one time, for the purposes and upon the terms and subject to the
conditions set forth therein;
WHEREAS, pursuant to that certain Amended and Restated
Revolving Credit Agreement dated as of October 18, 1996, among the Borrower,
the Lenders, the Administrative Agent and Wells Fargo as documentation agent
(the "Amended Revolving Credit Agreement") the terms and provisions of the
Original Revolving Credit Agreement were amended and restated as more
particularly set forth therein.
WHEREAS, pursuant to that certain Second Amended and Restated
Revolving Credit Agreement dated as of March 10, 1997, among the Borrower, the
Lenders, the Administrative Agent and Wells Fargo as documentation agent (the
"Second Amended Revolving Credit Agreement") the terms and provisions of the
Amended Revolving Credit Agreement were amended and restated as more
particularly set forth therein.
WHEREAS, as of the date hereof, Loans (hereinafter defined) in
the aggregate principal amount of Two Hundred Forty-Four Million Dollars
($244,000,000) have been advanced to the Borrower pursuant to the terms of the
Second Amended Revolving Credit Agreement; and
<PAGE> 9
WHEREAS, the Borrower has requested, and the Lenders have
agreed, to increase the Loan Amount and to amend certain terms and provisions
of the Second Amended Revolving Credit Agreement and to restate the same as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, the parties hereto hereby agree that
the aforementioned recitals are true and correct and hereby incorporated herein
and that the Second Amended Revolving Credit Agreement is hereby amended and
restated in its entirety so that all of the terms and conditions contained in
this Agreement shall supersede and control the terms and conditions of the
Second Amended Revolving Credit Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms. As used in this Agreement, the following
terms have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Adjusted EBITDA" means, for any Person for any period, EBITDA
of such Person for such period less the aggregate FF&E Reserves for such period
in respect of each Hotel owned or leased by such Person or its Subsidiaries.
"Adjusted Funds From Operations" means, for any Person, for
any period, Net Income (Loss) of such Person for such period plus (a) the sum
of the following amounts of such Person and its Subsidiaries for such period
determined on a consolidated basis in conformity with GAAP to the extent
included in the determination of such Net Income (Loss): (i) depreciation
expense, (ii) amortization expense and other non-cash charges of such Person
and its Subsidiaries with respect to their real estate assets for such period,
(iii) losses from Asset Sales of such Person and its Subsidiaries, losses
resulting from restructuring of Indebtedness of such Person and its
Subsidiaries and other extraordinary losses, and (iv) minority interests
attributable to FelCor LP's partnership units; less (b) the sum of the
following amounts of such Person and its Subsidiaries for such period
determined on a consolidated basis in conformity with GAAP to the extent
included in the determination of such Net Income (Loss): (i) gains from Asset
Sales of such Person and its Subsidiaries, gains
<PAGE> 10
resulting from restructuring of Indebtedness of such Person and its
Subsidiaries and other extraordinary gains, and (ii) the applicable share of
Net Income (Loss) of such Person's Unconsolidated Entities; plus (c) such
Person's Pro Rata Share of Adjusted Funds From Operations of such Person's
Unconsolidated Entities.
"Adjusted NOI" means, with respect to any Hotel owned or
leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures,
for any period, the Net Operating Income for such Hotel for such period less
the FF&E Reserve for such Hotel for such period.
"Affiliate" means, to any Person, any Subsidiary of such
Person and any other Person which, directly or indirectly, controls, is
controlled by or is under common control with such Person and includes each
executive officer, director, trustee, limited liability company manager or
general partner of such Person, and each Person who is the beneficial owner of
10% or more of any class of voting Stock of such Person. For the purposes of
this definition, "control" means the possession of the power to direct or cause
the direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Aggregate Value" means, with respect to the Eligible Hotels,
at any date, the aggregate value thereof to be calculated as follows:
(a) For Eligible Hotels owned or leased for four
(4) Fiscal Quarters or more, Adjusted NOI on a consolidated basis from such
Eligible Hotels for the preceding four (4) Fiscal Quarters divided by ten
percent (10%);
(b) For Eligible Hotels owned or leased for less
than four (4) Fiscal Quarters (including newly acquired Hotels and Hotels to be
immediately acquired using the proceeds of any Loans), the Borrower's
Investment in such Eligible Hotels; and
(c) Notwithstanding the foregoing subparagraphs, for
the Hotels set forth on Exhibit J, but only for the fiscal year ending December
31, 1997, the Borrower's Investment in such Hotels provided such Hotels are
Eligible Hotels;
<PAGE> 11
provided that in no event shall more than (i) 20% of the Aggregate Value be
attributable to Joint Venture Hotels which are not owned by an Eligible Entity,
or (ii) 15% of the Aggregate Value be attributable to Eligible Hotels leased
pursuant to Qualified Leases.
"Agreement" means the Second Amended Revolving Credit
Agreement, together with all Exhibits and Schedules thereto, as amended and
restated by this Third Amended and Restated Revolving Credit Agreement,
together with all Exhibits and Schedules hereto and as the same may be further
amended, supplemented or otherwise modified from time to time.
"Applicable Lending Office" means, with respect to each
Lender, its Domestic Lending Office in the case of a Base Rate Loan and its
Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"Applicable Margin" means, with respect to each Loan, the
applicable percentage per annum set forth below based upon (i) with respect to
Level I through IV Status, the Status then in effect and (ii) with respect to
Level V through VIII Status, the Status in effect on the most recent Applicable
Margin Reset Date, it being understood that the Applicable Margin for (i) Base
Rate Loans shall be the percentage set forth under the column "Base Rate
Loans", (ii) Eurodollar Rate Loans shall be the percentage set forth under the
column "Eurodollar Rate Loans", and (iii) the Commitment Fee shall be the
percentage set forth under the column "Commitment Fee":
<TABLE>
<CAPTION>
Base Rate Eurodollar Commitment
Loans Rate Loans Fee
--------- ---------- ----------
<S> <C> <C> <C>
Level I Status 0% 1.00% 0.125%
Level II Status 1.125% 0.15%
Level III Status 0% 1.25% 0.15%
Level IV Status 0% 1.375% 0.20%
Level V Status 0% 1.4% 0.20%
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
Base Rate Eurodollar Commitment
Loans Rate Loans Fee
--------- ---------- ----------
<S> <C> <C> <C>
Level VI Status 0% 1.5% 0.20%
Level VII Status 0.125% 1.625% 0.25%
Level VIII 0.25% 1.75% 0.30%
</TABLE>
"Applicable Margin Reset Date" shall mean the 45th day
following the end of the most recent Fiscal Quarter.
"Asset Sale" means any sale, conveyance, transfer, assignment,
lease or other disposition (including, without limitation, by merger or
consolidation, and by condemnation, eminent domain, loss, damage, or
destruction, and whether by operation of law or otherwise) by the Borrower or
any of its Subsidiaries to any Person (other than to Borrower or any of its
Subsidiaries) of any Stock of any of its Subsidiaries, any Stock Equivalents of
any of its Subsidiaries or any Hotel, but excluding Operating Leases.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit E.
"Available Credit" means, at any time, an amount equal to (a)
the lower of (i) the then effective Commitments of the Lenders and (ii) the
Borrowing Base at such time less the sum of any Indebtedness of the Borrower or
any of its Subsidiaries plus their respective Pro Rata Shares of Indebtedness
of their Eligible Joint Ventures (excluding (A) Indebtedness evidenced by the
Notes, (B) Indebtedness secured by first priority mortgages on Hotels provided
that with respect to each such secured Indebtedness the ratio of such
Indebtedness to the Borrower's Investment in such Hotel, is less than 65%, (C)
Non-Recourse Indebtedness, and (D) Borrower's Capitalized Lease Obligations in
connection with the St. Paul Lease), minus (b) the sum of (x) the aggregate of
the outstanding principal amount of the Loans at such time and (y) the Letter
of Credit Outstandings.
"Base Rate" means, for any period, a fluctuating interest rate
per annum as shall be in effect from time to time, which rate per annum shall
be equal at all times to the higher of:
<PAGE> 13
(a) the rate of interest announced publicly by Chase at its
principal office, from time to time, as Chase's base rate; and
(b) the sum (adjusted to the nearest 1/8 of one percent or, if
there is no nearest 1/8 of one percent, to the next higher 1/8 of one percent)
of (i) 1/2 of one percent per annum plus (ii) the Federal Funds Rate.
"Base Rate Loan" means any outstanding principal amount of the
Loans of any Lender that bears interest with reference to the Base Rate, other
than Swing Advances.
"Borrower's Investment" means, with respect to any Hotel, the
Borrower's or any of its Subsidiaries' investment in such Hotel (including all
investments constituting, evidencing or secured by an interest in property,
whether tangible or intangible and whether real, personal or mixed, that is
used or intended for use in, or in any manner connected with or relating to,
the ownership or leasing of such Hotel, specifically including, without
limitation, investments in Subsidiaries and Unconsolidated Entities owning or
leasing Hotels), at cost, on a consolidated basis, provided that in determining
the cost of such investments, there shall be included (i) the amount of all
cash paid and the value (as determined by the Board of Directors of FelCor for
purposes of such investment) of any other property transferred therefor by the
Borrower or its Subsidiary, (ii) the amount of all indebtedness and other
obligations assumed or incurred by the Borrower or its Subsidiary or to which
the Borrower or its Subsidiary takes subject, and (iii) the value (as
determined by the Board of Directors of FelCor for the purposes of such
investment) of all equity securities of which the issuer is an entity that is,
or upon such investment will be, included within the Borrower or its Subsidiary
and which are issued (otherwise than for cash) to, or retained by, any person
other than the Borrower or its Subsidiary in connection with such investment.
For purposes of this definition only "indebtedness" of the Borrower or its
Subsidiary shall mean the consolidated liabilities of the Borrower and its
Subsidiaries for borrowed money (including all notes payable and drafts
accepted representing extensions of credit) and all obligations evidenced by
bonds, debentures, notes or other similar instruments on which interest charges
are customarily paid, including obligations under Capitalized Leases.
<PAGE> 14
"Borrowing" means a borrowing consisting of Loans made on the
same day by the Lenders ratably according to their respective Commitments.
"Borrowing Base" means, at any time, the sum of 50% of the
Aggregate Value of Eligible Hotels.
"Borrowing Base Certificate" means a certificate of the
Borrower substantially in the form of Exhibit F.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and California and, if the
applicable Business Day relates to a Eurodollar Rate Loan, a day on which
dealings are also carried on in the London interbank market.
"Capital Expenditures" means, for any Person for any period,
the aggregate of all expenditures by such Person and its Subsidiaries, except
interest capitalized during construction, during such period for property,
plant or equipment, including, without limitation, renewals, improvements,
replacements and capitalized repairs, that would be reflected as additions to
property, plant or equipment on a consolidated balance sheet of such Person and
its Subsidiaries prepared in conformity with GAAP. For the purpose of this
definition, the purchase price of equipment which is acquired simultaneously
with the trade-in of existing equipment owned by such Person or any of its
Subsidiaries or with insurance proceeds shall be included in Capital
Expenditures only to the extent of the gross amount of such purchase price less
the credit granted by the seller of such equipment being traded in at such time
or the amount of such proceeds, as the case may be.
"Capitalized Lease" means, as to any Person, any lease of
property by such Person as lessee which would be capitalized on a balance sheet
of such Person prepared in conformity with GAAP.
"Capitalized Lease Obligations" means, as to any Person, the
capitalized amount of all obligations of such Person or any of its Subsidiaries
under Capitalized Leases, as determined on a consolidated basis in conformity
with GAAP.
"Cash" shall mean coin or currency of the United States of
America or immediately available federal funds.
<PAGE> 15
"Cash Equivalents" means (i) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed or insured
by the United States government or any agency thereof, (ii) certificates of
deposit, eurodollar time deposits, overnight bank deposits and bankers'
acceptances of any commercial bank organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$5,000,000,000 having maturities of one year or less from the date of
acquisition, and (iii) commercial paper of an issuer rated at least "A-1" by
S&P or "P-1" by Moody's, or carrying an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease
publishing ratings of investments.
"Closing Date" means September 30, 1996.
"Code" means the Internal Revenue Code of 1986 (or any
successor legislation thereto), as amended from time to time.
"Commitment" means, as to each Lender, the commitment of such
Lender to make Loans to the Borrower pursuant to Section 2.1 in the aggregate
principal amount outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule I under the caption "Commitment", as such amount may
be reduced or modified pursuant to this Agreement, and "Commitments" means the
aggregate Commitments of all Lenders.
"Commitment Fee" has the meaning specified in Section 2.4(a).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of such Person with
respect to any Indebtedness or Contractual Obligation of another Person, if the
purpose or intent of such Person in incurring the Contingent Obligation is to
provide assurance to the obligee of such Indebtedness or Contractual Obligation
that such Indebtedness or Contractual Obligation will be paid or discharged, or
that any agreement relating thereto will be complied with, or that any holder
of such Indebtedness or Contractual Obligation will be protected (in whole or
in part) against loss in respect thereof. Contingent Obligations of a Person
include, without limitation, (a) the direct or indirect guarantee, endorsement
(other than for collection or deposit in the ordinary course of business),
co-making, discounting with recourse or sale with recourse
<PAGE> 16
by such Person of an obligation of another Person (including, in the case of
any Guarantor, its obligations under its Subsidiary Guaranty), and (b) any
liability of such Person for an obligation of another Person through any
agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of a loan,
advance, stock purchase, capital contribution or otherwise), (ii) to maintain
the solvency or any balance sheet item, level of income or financial condition
of another Person, (iii) to make take-or-pay or similar payments, if required,
regardless of non-performance by any other party or parties to an agreement,
(iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to make
payment of such obligation or to assure the holder of such obligation against
loss, or (v) to supply funds to or in any other manner invest in such other
Person (including, without limitation, to pay for property or services
irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii), (iv) or (v) of this sentence the primary purpose or intent thereof is as
described in the preceding sentence. Anything herein to the contrary
notwithstanding, no agreement entered into by the Borrower or any of its
Subsidiaries or Unconsolidated Entities with respect to its acquisition of any
direct or indirect interest in any Hotel shall, prior to the satisfaction in
full of all conditions precedent to the obligations of such Person pursuant to
the agreement, be deemed or construed to constitute a "Contingent Obligation"
or "Indebtedness" of such Person hereunder, provided that pursuant to any such
agreement, the Borrower or its Subsidiary or Unconsolidated Entity is not
liable or responsible for, and does not assume any, development or construction
risks. The amount of any Contingent Obligation shall be equal to the amount of
the obligation so guaranteed or otherwise supported.
"Contractual Obligation" of any Person means any obligation,
agreement, undertaking or similar provision of any security issued by such
Person or of any agreement (including, without limitation, any management or
franchise agreement), undertaking, contract, lease, indenture, mortgage, deed
of trust or other instrument (excluding a Loan Document) to which such Person
is a party or by which it or any of its property is bound or to which any of
its properties is subject.
<PAGE> 17
"Default" means any event which with the passing of time or
the giving of notice or both would become an Event of Default.
"DJONT" means DJONT Operations, L.L.C., a Delaware limited
liability company.
"DOL" means the United States Department of Labor, or any
successor thereto.
"Dollars" and the sign "$" each mean the lawful money of the
United States of America.
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule II or such other office of such Lender as such Lender may
from time to time specify to the Borrower and the Administrative Agent.
"Drawing" shall have the meaning provided in Section 2.21(a).
"DT" shall mean DT Management, Inc. or any Person controlled
by Doubletree Hotels Corporation, that is a Manager.
"EBITDA" means, for any Person for any period, the Net Income
(Loss) of such Person for such period taken as a single accounting period, plus
(a) the sum of the following amounts of such Person and its Subsidiaries for
such period determined on a consolidated basis in conformity with GAAP to the
extent included in the determination of such Net Income (Loss): (i)
depreciation expense, (ii) amortization expense and other non-cash charges,
(iii) interest expense, (iv) income tax expense, (v) extraordinary losses (and
other losses on Asset Sales not otherwise included in extraordinary losses
determined on a consolidated basis in conformity with GAAP), and (vi) minority
interests attributable to FelCor LP's partnership units, less (b) the sum of
the following amounts of such Person and its Subsidiaries determined on a
consolidated basis in conformity with GAAP to the extent included in the
determination of such Net Income (Loss): (i) extraordinary gains (and in the
case of the Borrower, other gains on Asset Sales not otherwise included in
extraordinary gains determined on a consolidated basis in conformity with
GAAP), (ii) the applicable share of Net Income (Loss) of such Person's
Unconsolidated Entities; plus (c) such Person's Pro
<PAGE> 18
Rata Share of EBITDA of such Person's Unconsolidated Entities.
"Effective Date" has the meaning specified in Section 3.1.
"Eligible Assignee" means (i) a commercial bank organized
under the laws of the United States, or any State thereof, and having total
assets in excess of $5,000,000,000; (ii) a commercial bank organized under the
laws of any other country which is a member of the OECD, or a political
subdivision of any such country, and having total assets in excess of
$5,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is
also a member of the OECD or the Cayman Islands; (iii) the central bank of any
country which is a member of the OECD; corporation organized under the laws of
the United States, or any State thereof, and having total assets in excess of
$3,000,000,000; (iv) an insurance company organized under the laws of the
United States, or any State thereof, and having total assets in excess of
$5,000,000,000; (v) any Lender; (vi) any Affiliate of any Lender; and (vii) any
Person other than an Affiliate of a Loan Party, in each case acceptable (a) to
the Administrative Agent, and (b) provided no Default or Event of Default
exists, to the Borrower, which acceptance will not be unreasonably withheld,
conditioned or delayed.
"Eligible Entity" shall mean any Eligible Joint Venture in
which the Borrower owns, directly or indirectly, at least a 90% equity interest
and the remainder of such equity interest is owned by either (i) Promus, (ii)
DT, or (iii) Sheraton, provided, however, such Eligible Joint Venture shall
only be an Eligible Entity if (i) Borrower (x) is the sole general partner (or
equivalent) in such Eligible Joint Venture or (y) owns directly or indirectly
at least 90% of the Stock of the sole general partner (or equivalent) in such
Eligible Joint Venture and all other Stock of such sole general partner (or
equivalent) which is not owned by Borrower is owned by either Promus, DT or
Sheraton, (ii) such sole general partner (or equivalent) is the only Person who
can unilaterally authorize the sale or encumbrance of the assets of such
Eligible Joint Venture (iii) Borrower alone controls the sole general partner
(or equivalent) and (iv) such Eligible Joint Venture has no debt other than
unsecured trade debt incurred in the the ordinary course of business. For the
purposes of this definition, "control" means the possession of the power to
direct or cause the direction of
<PAGE> 19
management and policies of such Person (including without limitation the power
to authorize the sale or encumbrance of the assets of such Person), whether
through the ownership of voting securities, by contract or otherwise.
"Eligible Hotels" means, collectively, (a) such of the Hotels
owned or leased by the Borrower or any of its direct or indirect wholly-owned
Subsidiaries, and (b) such of the Joint Venture Hotels, as shall meet at any
time and from time to time, each of the following minimum criteria:
(a) such Hotel is Unencumbered;
(b) such Hotel is free of all material structural and
title defects and other material adverse matters;
(c) such Hotel is, as of the date upon which such Hotel
is included in the Aggregate Value and as of the end
of each succeeding Fiscal Quarter, (i) in compliance,
in all material respects, with all applicable
Environmental Laws, and (ii) not subject to any
material Environmental Liabilities and Costs, in each
case as initially verified by a written report of an
environmental consultant reasonably acceptable to the
Administrative Agent;
(d) such Hotel is fully-operating with less than 20% of
"keys" out of service due to casualty or condemnation
loss or as a consequence of a material structural
repair, alteration or addition;
(e) such Hotel is (i) leased to the Operating Lessee
pursuant to an Operating Lease, (ii) managed by a
Manager pursuant to a Management Agreement, and (iii)
operated pursuant to and has the benefit of, a
License; and no material defaults exist under such
Operating Lease, Management Agreement or License;
(f) such Hotel is (i) owned in fee simple or (ii) leased
pursuant to a Qualified Lease in favor of, the
Borrower or its direct or indirect wholly-owned
Subsidiary or an Eligible Joint Venture;
<PAGE> 20
provided that, if a Joint Venture Hotel is owned by an Eligible Joint Venture
which owns more than a single Hotel, such Joint Venture Hotel shall only be an
Eligible Hotel if it satisfies all of the requirements set forth in
subparagraphs (a) through (f) above and all other Hotels owned by such Eligible
Joint Venture satisfy the conditions set forth in subparagraphs (a) and (c)
above.
"Eligible Hotel Documents" means, with respect to any Eligible
Hotel, the following documents:
(i) A description of such Hotel, such description
to include the age, location and number of rooms or suites of
such Hotel;
(ii) Details of the Borrower's Investment in such
Hotel and, if such Hotel has been owned for more than four (4)
Fiscal Quarters or more, details of the Adjusted NOI of such
Hotel for the prior four (4) Fiscal Quarters;
(iii) A copy of the most recent ALTA Owner's Policy
of Title Insurance (or commitment to issue such a policy to
the Loan Party (or Eligible Joint Venture) owning or to own
such Hotel) relating to such Hotel showing the identity of the
fee titleholder thereto and all matters of record as of its
date;
(iv) Copies of each of the Operating Lease,
Management Agreement and License relating to such Hotel;
(v) Copies of all engineering, mechanical,
structural and maintenance studies performed by third party
consultants with respect to such Hotel;
(vi) A "Phase I" environmental assessment of such
Hotel prepared by an environmental engineering firm acceptable
to the Administrative Agent, and any additional environmental
studies or assessments available to the Borrower performed
with respect to such Hotel;
(vii) If such Hotel is owned pursuant to a Qualified Lease,
a copy of such Lease together with all and any amendments
thereto or modifications thereof;
<PAGE> 21
(viii) A Borrowing Base Certificate setting forth on
a pro forma basis the Available Credit assuming that such
Hotel is accepted as an Eligible Hotel for the purposes of the
Borrowing Base; and
(ix) Such other information as the Administrative
Agent may reasonably request in order to evaluate the Hotel.
"Eligible Joint Venture" means any joint venture, corporation,
partnership or other business entity in which the Borrower (i) owns directly or
indirectly a JV% of at least 50% and (ii) except in the case of Eligible
Entities, is (or owns directly or indirectly all of the voting Stock of) the
managing general partner or equivalent thereof for such entity.
"Environmental Claim" means any accusation, allegation, notice
of violation, action, claim, Environmental Lien, demand, abatement or other
Order or direction (conditional or otherwise) by any Governmental Authority or
any other Person for personal injury (including sickness, disease or death),
tangible or intangible property damage, damage to the environment, nuisance,
pollution, contamination or other adverse effects on the environment, or for
fines, penalties or restriction, resulting from or based upon (i) the
existence, or the continuation of the existence, of a Release (including,
without limitation, sudden or non-sudden accidental or non-accidental Releases)
of, or exposure to, any Hazardous Material or other nuisance (to the extent the
same relates to any Hazardous Materials), or other Release in, into or onto the
environment (including, without limitation, the air, soil, surface water or
groundwater) at, in, by, from or related to any property owned or leased by the
Borrower or any of its Subsidiaries or Eligible Joint Ventures or any
activities or operations thereof; (ii) the environmental aspects of the
transportation, storage, treatment or disposal of Hazardous Materials in
connection with any property owned or leased by the Borrower or any of its
Subsidiaries or Eligible Joint Ventures or their operations or facilities; or
(iii) the violation, or alleged violation, of any Environmental Laws, Orders or
Environmental Permits of or from any Governmental Authority relating to
environmental matters connected with any property owned or leased by the
Borrower or any of its Subsidiaries or Eligible Joint Ventures.
<PAGE> 22
"Environmental Laws" means any applicable federal, state,
local or foreign law (including common law), statute, code, ordinance, rule,
regulation or other requirement having the force or effect of law relating to
the environment, natural resources, or public or employee health and safety and
includes, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.,
the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136
et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section
6901 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act,
33 U.S.C. Section 1251 et seq., the Occupational Safety and Health Act,
29 U.S.C. Section 651 et seq. (to the extent the same relates to any Hazardous
Materials), and the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.,
as such laws have been amended or supplemented, and the regulations promulgated
pursuant thereto, and all analogous state and local statutes.
"Environmental Liabilities and Costs" means, as to any Person,
all liabilities, obligations, responsibilities, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all reasonable fees, disbursements and
expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand by any other Person, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute,
including, without limitation, any thereof arising under any Environmental Law,
Environmental Permit, order or agreement with any Governmental Authority or
other Person, and which relate to any environmental, health or safety
condition, or a Release or threatened Release, and result from the past,
present or future operations of, or ownership of property by, such Person or
any of its Subsidiaries or Eligible Joint Ventures.
"Environmental Lien" means any Lien in favor of any
Governmental Authority arising under any Environmental Law.
"Environmental Permit" means any Permit required under any
applicable Environmental Laws or Order and all supporting documents associated
therewith.
<PAGE> 23
"ERISA" means the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto), as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control or treated as a single employer with any
Loan Party within the meaning of Section 414 (b), (c), (m) or (o) of the Code.
"ERISA Event" means (i) an event described in Sections
4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a Pension
Plan; (ii) the withdrawal of any Loan Party or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii)
the complete or partial withdrawal of any Loan Party or any ERISA Affiliate
from any Multiemployer Plan or the insolvency of any Multiemployer Plan; (iv)
the filing of a notice of intent to terminate a Pension Plan or the treatment
of a plan amendment as a termination under Section 4041 of ERISA; (v) the
institution of proceedings by the PBGC to terminate or appoint a trustee to
administer a Pension Plan or Multiemployer Plan; (vi) the failure to make any
required contribution to a Pension Plan; (vii) any other event or condition
which might reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan or Multiemployer Plan; (viii) the imposition of any liability
under Title IV of ERISA, other than for PBGC premiums due but not delinquent
under Section 4007 of ERISA; (ix) a prohibited transaction (as described in
Code Section 4975 or ERISA Section 406) shall occur with respect to any Plan;
or (x) any Loan Party or ERISA Affiliate shall request a minimum funding waiver
from the IRS with respect to any Pension Plan.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office" below
its name on Schedule II (or, if no such office is specified, its Domestic
Lending Office) or such other office of such Lender as such Lender may from
time to time specify to the Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period, an interest
rate per annum equal to the rate per annum obtained by multiplying (a) a rate
per annum equal to the rate for U.S. dollar deposits with maturities comparable
to such Interest Period which appears on Telerate Page 3750 as
<PAGE> 24
of 11:00 a.m., London time, two (2) Business Days prior to the commencement of
such Interest Period, provided, however, that if such rate does not appear on
Telerate Page 3750, the "Eurodollar Rate" applicable to a particular Interest
Period shall mean a rate per annum equal to the rate at which U.S. dollar
deposits in an amount approximately equal to the Principal Balance (or the
portion thereof which will bear interest at a rate determined by reference to
the Eurodollar Rate during the Interest Period to which such Eurodollar Rate is
applicable in accordance with the provisions hereof), and with maturities
comparable to the last day of the Interest Period with respect to which such
Eurodollar Rate is applicable, are offered in immediately available funds in
the London Interbank Market to the London office of Chase by leading banks in
the Eurodollar market at 11:00 a.m., London time, two (2) Business Days prior
to the commencement of the Interest Period to which such Eurodollar Rate is
applicable, by (b) a fraction (expressed as a decimal) the numerator of which
shall be the number one and the denominator of which shall be the number one
minus the Eurodollar Rate Reserve Percentage for such Interest Period.
"Eurodollar Rate Loan" means any outstanding principal amount
of the Loans of any Lender that, for an Interest Period, bears interest at a
rate determined with reference to the Eurodollar Rate.
"Eurodollar Rate Reserve Percentage" for any Interest Period
means the aggregate reserve percentages (expressed as a decimal) from time to
time established by the Board of Governors of the Federal Reserve System of the
United States and any other banking authority to which any of the Lenders are
now or hereafter subject, including, but not limited to any reserve on
Eurocurrency Liabilities as defined in Regulation D of the Board of Governors
of the Federal Reserve System of the United States at the ratios provided in
such Regulation from time to time, it being agreed that any portion of the
Principal Balance bearing interest at a rate determined by reference to the
Eurodollar Rate shall be deemed to constitute Eurocurrency Liabilities, as
defined by such Regulation, and it being further agreed that such Eurocurrency
Liabilities shall be deemed to be subject to such reserve requirements without
benefit of or credit for prorations, exceptions or offsets that may be
available to any of the Lenders from time to time under such Regulation and
irrespective of whether such Lender actually maintains all or any portion of
such reserve.
<PAGE> 25
"Existing Guarantors" means (i) FelCor/CSS Hotels, L.L.C., a
Delaware limited liability company, (ii) FelCor/LAX Hotels, L.L.C., a Delaware
limited liability company, (iii) FelCor/CSS Holdings, L.P., a Delaware limited
partnership, (iv) FelCor/St. Paul Holdings, L.P., a Delaware limited
partnership, (v) FelCor/LAX Holdings, L.P., a Delaware limited partnership and
(vi) FelCor Eight Hotels L.L.C., a Delaware limited liability company.
"Existing Subsidiary Guaranty" means each Subsidiary Guaranty
dated as of the Closing Date and executed by each Existing Guarantor in favor
of the Lenders, as reaffirmed and ratified pursuant to that certain
Reaffirmation and Ratification of Subsidiary Guaranties dated as of the
Effective Date and executed by the Existing Guarantors in favor of the Lenders.
"Event of Default" has the meaning specified in Section 8.1.
"$100MM Facility" means that certain revolving credit facility
in the aggregate principal sum of $100,000,000 made by Boatmen's National Bank
of Oklahoma, as Agent for certain banks, as lenders, in favor of the Borrower,
as borrowers.
"Facing Fee" shall have the meaning provided in Section
2.4(c).
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it.
"FF&E Reserve" means, for any Person (or with respect to any
Hotel) for any period, a reserve equal to four percent (4%) of Suite Revenues
from any Hotel owned by such Person (or from such Hotel), for such Period,
plus, (a) for any Person, such Person's Pro Rata Share of any FF&E Reserve for
any Hotel owned by such Person's Unconsolidated Entities or, (b) with respect
to any Joint Venture Hotel,
<PAGE> 26
the FF&E Reserve for such Joint Venture Hotel multiplied by the applicable JV%.
"Final Maturity Date" means October 1, 2000.
"Fiscal Quarter" means each of the three month periods ending
on March 31, June 30, September 30 and December 31.
"Fiscal Year" means the twelve month period ending on December
31.
"Fixed Charges" means, for any Person for any period, (a)
Gross Interest Expense for such period plus (b) the aggregate amount of
scheduled principal payments on the Total Indebtedness of such Person
(excluding optional prepayments and scheduled principal payments in respect of
any such Total Indebtedness which is payable in a single installment at final
maturity) required to be made during such period plus (c) dividends required to
be paid by such Person in connection with preferred Stock issued by such
Person.
"Free Cash Flow" means, for any Person for any period, the
Adjusted Funds From Operations for such period less (a) the aggregate FF&E
Reserves for such Person and its Subsidiaries for such period, and (b) the
aggregate amount of scheduled principal payments on the Total Indebtedness of
such Person (excluding optional prepayments and scheduled principal payments in
respect of any such Indebtedness which is payable in a single installment at
final maturity) required to be made during such period.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board, or in such other statements by
such other entity as may be in general use by significant segments of the
accounting profession, which are applicable to the circumstances as of the date
of determination except that, for purposes of Articles V and VII, GAAP shall be
determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the audited financial
statements referred to in Section 4.5.
<PAGE> 27
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity duly exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Gross Interest Expense" means, for any Person for any period,
the sum of (a) the total interest expense in respect of all Indebtedness
(excluding all Contingent Obligations) of such Person and its Subsidiaries for
such period determined on a consolidated basis in conformity with GAAP, plus
capitalized interest of such Person and its Subsidiaries, plus (b) such
Person's Pro Rata Share of Gross Interest Expense of such Person's
Unconsolidated Entities.
"Guarantor" means each direct and indirect wholly owned
Subsidiary of the Borrower, comprising, as of the date hereof, the Existing
Guarantors.
"Hazardous Material" means any substance, material or waste
which is regulated by any Governmental Authority of the United States as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste,"
"toxic substance" or words of similar meaning or import under any provision of
Environmental Law, which includes, but is not limited to, petroleum, petroleum
products, asbestos, urea formaldehyde and polychlorinated biphenyls.
"Hotel" means any Real Estate or Lease comprising an operating
facility offering hotel or other lodging services.
"Improvements" has the meaning specified in Section 4.22(c).
"Indebtedness" of any Person means, without duplication, the
principal amount of (i) all indebtedness of such Person for borrowed money
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers' acceptances, whether or
not matured) or for the deferred purchase price of property or services, (ii)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments (including, in the case of the Borrower, the Loans outstanding),
(iii) all indebtedness of such Person created or arising under any conditional
sale or other title retention agreement with respect to property
<PAGE> 28
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (iv) all Capitalized Lease Obligations of such
Person, (v) all Contingent Obligations of such Person, (vi) all obligations of
such Person to purchase, redeem, retire, defease or otherwise acquire for value
(other than for other equity securities) any Stock or Stock Equivalents of such
Person, valued, in the case of mandatorily redeemable preferred stock, at the
greater of its voluntary or involuntary liquidation preference plus accrued and
unpaid dividends, (vii) all Indebtedness referred to in clause (i), (ii),
(iii), (iv), (v) or (vi) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
general intangibles) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (viii) all
liabilities of such Person under Title IV of ERISA.
"Indemnitees" has the meaning specified in Section 10.4.
"Interest Period" means, (a) in the case of any Eurodollar
Rate Loan, (i) initially, the period commencing on the date such Eurodollar
Rate Loan is made or on the date of conversion of a Base Rate Loan to such
Eurodollar Rate Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its Notice of Borrowing or Notice of Conversion or
Continuation given to the Administrative Agent pursuant to Section 2.3 or 2.8,
and (ii) thereafter, if such Loan is continued, in whole or in part, as a
Eurodollar Rate Loan pursuant to Section 2.8, a period commencing on the last
day of the immediately preceding Interest Period therefor and ending one, two,
three or six months thereafter, as selected by the Borrower in its Notice of
Conversion or Continuation given to the Administrative Agent pursuant to
Section 2.8; provided, however, that:
(A) if any Interest Period would otherwise end on a
day which is not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day, unless the
result of such extension would be to extend such Interest
Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding
Business Day;
<PAGE> 29
(B) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of a calendar month;
(C) the Borrower may not select any Interest Period
which ends after the Final Maturity Date;
(D) Intentionally Omitted.
(E) the Borrower may not select any Interest Period
in respect of Loans having an aggregate principal amount of
less than $5,000,000; and
(F) there shall be outstanding at any one time no
more than twelve (12) Interest Periods in the aggregate.
"Interest Rate Contracts" means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other agreements or arrangements designed to provide protection
against fluctuations in interest rates.
"Investment" means, with respect to any Person, (a) any loan
or advance to any other Person, (b) the ownership, purchase or other
acquisition of, any Stock, Stock Equivalents, other equity interest,
obligations or other securities of, (i) any other Person, (ii) or all or
substantially all of the assets of any other Person, or (iii) all or
substantially all of the assets constituting the business of a division, branch
or other unit operation of any other Person, or (c) any joint venture or
partnership with, or any capital contribution to, or other investment in, any
other Person or any real property.
"Issuing Lender" shall mean Chase.
"IRS" means the Internal Revenue Service, or any successor
thereto.
"Joint Venture Hotel" means any Hotel owned by an Eligible
Joint Venture
"JV%" means, with respect to any Eligible Joint Venture, the
percentage ownership interest of Borrower in such Eligible Joint Venture.
<PAGE> 30
"L/C Supportable Obligations" shall mean (i) obligations of
the Borrower, or any of its wholly-owned Subsidiaries incurred in the ordinary
course of business with respect to insurance obligations and workers'
compensation, surety bonds and other similar statutory obligations (ii) earnest
money or performance obligations in respect of acquisitions permitted pursuant
to the terms of this Agreement and (iii) such other obligations of the
Borrower, or any of its wholly-owned Subsidiaries as are permitted to exist
pursuant to the terms of this Agreement.
"Leases" means, with respect to the Borrower or any of its
Subsidiaries or Eligible Joint Ventures, all of those leasehold estates in real
property owned by the Borrower or such Subsidiary or Eligible Joint Venture, as
lessee, as such may be amended, supplemented or otherwise modified from time to
time to the extent permitted by this Agreement.
"Legal Proceedings" means any judicial, administrative or
arbitral actions, suits, proceedings (public or private) or governmental
proceedings.
"Letter of Credit" shall have the meaning provided in Section
2.18(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 2.4(b).
"Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.19(a).
"Leverage Ratio" shall mean, at any date, a fraction
(expressed as a percentage) the numerator of which is Total Indebtedness, on
such date, and the denominator of which is Total Value, on such date.
"License" means either (x) an agreement in favor of either the
Borrower or the Operating Lessee as licensee, permitting the use of hotel
system trademarks, trade names and any related rights in connection with the
ownership or operation of any Hotel or (y) a Management Agreement, provided the
Manager under such Management Agreement owns the rights to hotel system
trademarks, trade names and any
<PAGE> 31
related rights in connection with the ownership or operation of any Hotel.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), security interest or preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever intended to assure
payment of any Indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a Capitalized Lease Obligation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing,
under the Uniform Commercial Code or comparable law of any jurisdiction, of any
financing statement naming the owner of the asset to which such Lien relates as
debtor.
"Loan" or "Loans" means the revolving credit loan or loans
made or to be made by a Lender to the Borrower pursuant to Article II.
"Loan Documents" means, collectively, this Agreement, the
Notes, the Subsidiary Guaranties and each certificate, agreement or document
executed by a Loan Party and delivered to the Administrative Agent or any
Lender in connection with or pursuant to any of the foregoing.
"Loan Party" means each of the Borrower and each Guarantor.
"Majority Lenders" means, at any time, Lenders holding at
least 51% of the then aggregate unpaid principal amount of Loans (excluding
Loans held by Non-Funding Lenders) or, if no such Loans are then outstanding,
Lenders having at least 51% of the Commitments of all Lenders (excluding
Non-Funding Lenders).
"Management Agreement" means an agreement relating to the
operation and/or management of any Hotel between the Operating Lessee and the
Manager.
"Manager" means Promus, DT, Sheraton, American General
Hospitality, Inc., Coastal Hotel Group, Inc., or such other manager as shall be
reasonably approved by the Borrower and engaged by the Operating Lessee, as
manager under the Management Agreement.
<PAGE> 32
"Material Adverse Change" means a material adverse change in
any of (i) the condition (financial or otherwise), business, performance,
prospects, operations or properties of (A) any Borrower, (B) the Borrower and
its Subsidiaries taken as one enterprise or (C) DJONT (ii) the legality,
validity or enforceability of any Loan Document, or any material Operating
Lease or the Operating Leases taken as a whole, (iii) the ability of the
Borrower or its Significant Subsidiaries to repay the Obligations or to perform
its obligations under any Loan Document, (iv) the ability of DJONT to perform
its obligations under any material Operating Lease or the Operating Leases
taken as a whole, or (v) the rights and remedies of the Lenders or the
Administrative Agent under the Loan Documents.
"Material Adverse Effect" means an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing, a Material
Adverse Change.
"Minimum Tangible Net Worth" means, with respect to the
Borrower, at any time, the sum of (a) $825,000,000.00; plus (b) 50% of the
aggregate net proceeds received by the Borrower or any of its Subsidiaries
after June 30, 1997 in connection with any offering of Stock or Stock
Equivalents of the Borrower and its Subsidiaries taken as a whole.
"Moody's" means Moody's Investor Service Inc.
"Multiemployer Plan" means, as of any applicable date, a
multiemployer plan, as defined in Section 4001(a)(3) of ERISA, and to which any
Loan Party, any of its Subsidiaries or any ERISA Affiliate is making, is
obligated to make, or within the six-year period ending at such date, has made
or been obligated to make, contributions on behalf of participants who are or
were employed by any of them.
"Net Income (Loss)" means, for any Person for any period, the
aggregate of net income (or loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis in conformity with GAAP.
"Net Operating Income" means, with respect to any Hotel, for
any period, the sum of the following (without duplication) (a) all gross
income, revenues, receipts and all other consideration received by the lessor
under the Operating Lease for such Hotel, including, without limitation, base
rent, percentage and similar rentals, late charges and interest payments, but
excluding extraordinary
<PAGE> 33
income and, until earned, security deposits, prepaid rents and other refundable
receipts, minus (b) all expenses incurred by the owner of such Hotel during
such period pursuant to its obligations as lessor under the Operating Lease for
such Hotel, including, without limitation, real estate taxes, personal property
taxes, maintenance and repair costs of a non-capital nature for the structural
portions of such Hotel and premiums payable for insurance required to be
carried by the lessor on or with respect to such Hotels pursuant to the
Operating Lease therefor, but excluding extraordinary expenses; provided that,
with respect to any Joint Venture Hotel, "Net Operating Income" shall mean the
Net Operating Income from such Hotel multiplied by the applicable JV%.
"Non-Funding Lender" has the meaning specified in Section
2.14(f).
"Non-Recourse Indebtedness" of any Person means all
Indebtedness of such Person with respect to which recourse for payment is
limited to specific assets encumbered by a Lien securing such Indebtedness;
provided, however, that personal recourse of a holder of Indebtedness against
any obligor with respect thereto for fraud, misrepresentation, misapplication
of cash, waste and other circumstances customarily excluded from non-recourse
provisions in non-recourse financing of real estate shall not, by itself,
prevent any Indebtedness from being characterized as Non-Recourse Indebtedness,
provided further that if a personal recourse claim is made in connection
therewith, such claim shall not constitute Non-Recourse Indebtedness for the
purposes of this Agreement).
"Non-Suite Hotel" means a Hotel that is not a Suite Hotel.
"Note" means a promissory note of the Borrower payable to the
order of any Lender in a stated principal amount equal to the amount of such
Lender's Commitment as originally in effect, in substantially the form of
Exhibit A, evidencing the aggregate Indebtedness of the Borrower to such Lender
resulting from the Loans made by such Lender, and "Notes" means, collectively,
the Notes.
"Notice of Borrowing" has the meaning specified in Section
2.3(a).
"Obligations" means the Loans, the obligation to pay Unpaid
Drawings and all other advances, debts,
<PAGE> 34
liabilities, obligations, covenants and duties owing by the Borrower to the
Administrative Agent, any Lender, the Issuing Lender, any Affiliate of any of
them or any Indemnitee, of every type and description, present or future,
arising under this Agreement or under any other Loan Document, whether direct
or indirect (including, without limitation, those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired. The term "Obligations" includes, without limitation, all
interest, charges, expenses, fees, attorneys' fees and disbursements and any
other sum then payable by the Borrower under this Agreement or any other Loan
Document.
"OECD" means the Organization for Economic Cooperation and
Development.
"Operating Lease" means a lease or sublease relating to any
Hotel, between the Borrower or any of its Subsidiaries or Eligible Joint
Ventures, as lessor, and the Operating Lessee, as lessee, substantially in the
form of the lease annexed as Exhibit H hereto or such other form as shall be
approved by the Lender.
"Operating Lessee" means DJONT or its Subsidiary (provided
DJONT owns at least 50% of the voting Stock in such Subsidiary and maintains
voting control over such Subsidiary), as lessee under an Operating Lease.
"Operator" means the Operating Lessee and/or the Manager or
both (as the case may be) responsible for the operation and management of any
Hotel.
"Order" means any order, injunction, judgment, decree, ruling,
assessment or arbitration award.
"Other Taxes" has the meaning specified in Section 2.15(b).
"Participant" shall have the meaning provided in Section
2.20(a).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" means a plan, other than a Multiemployer Plan,
which is covered by Title IV of ERISA or Code Section 412 and which any Loan
Party, any of its Subsidiaries or any ERISA Affiliate maintains, contributes
<PAGE> 35
to or has an obligation to contribute to on behalf of participants who are or
were employed by any of them.
"Permit" means any permit, approval, authorization, license,
variance, registration, permission or consent required from a Governmental
Authority under an applicable Requirement of Law.
"Permitted Liens" means, collectively, (a) Liens arising by
operation of law in favor of materialmen, mechanics, warehousemen, carriers,
lessors or other similar Persons incurred by the Borrower or any of its
Subsidiaries or Eligible Joint Ventures in the ordinary course of business
which secure its obligations to such Person; provided, however, that (i) the
Borrower or such Subsidiary or Eligible Joint Venture is not in default with
respect to such payment obligation to such Person, or (ii) the Borrower or such
Subsidiary or Eligible Joint Venture is in good faith and by appropriate
proceedings diligently contesting such obligation and adequate provision is
made for the payment thereof; (b) Liens (excluding Environmental Liens)
securing taxes, assessments or governmental charges or levies; provided,
however, that neither the Borrower nor any of its Subsidiaries or Eligible
Joint Ventures is in default in respect of any payment obligation with respect
thereto unless the Borrower or such Subsidiary or Eligible Joint Venture is in
good faith and by appropriate proceedings diligently contesting such obligation
and adequate provision is made for the payment thereof; and (c) Zoning
restrictions, subleases, licenses or concessions for restaurants, bars, gift
shops, antennas, communications equipment and similar agreements entered into
in the ordinary course of such Person's business in connection with the
ownership and operation of a hotel; and easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto which do not in the aggregate materially detract from the value or use
of the property or assets of the Borrower or any of its Subsidiaries or
Eligible Joint Venture or impair, in any material manner, the use of such
property for the purposes for which such property is held by the Borrower or
any such Subsidiary or Eligible Joint Venture.
"Person" means an individual, partnership, corporation
(including, without limitation, a business trust), limited liability company,
joint stock company, trust, unincorporated association, joint venture or other
entity, or a Governmental Authority.
<PAGE> 36
"Plan" means an employee benefit plan, as defined in Section
3(3) of ERISA, which any Loan Party or any of its Subsidiaries maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Principal Balance" means, collectively, the outstanding
principal balances of the Notes from time to time.
"Projections" means those financial projections covering the
fiscal years ending in 1996 through 2000, inclusive, delivered to the Lenders
by the Borrower.
"Promus" means Promus Hotels, Inc., a Delaware corporation or
any Person controlled by Promus Hotel Corporation, that is a Manager.
"Pro Rata Share" means, for any Person, with respect to such
Person's Unconsolidated Entities (including, without limitation, any Eligible
Joint Ventures), the percentage ownership interest of such Person in such
Unconsolidated Entity, provided that, in the event that such Person is the
general partner of such Unconsolidated Entity, such Person's Pro Rata Share
with respect to such Unconsolidated Entity shall be the percentage of the
general partner interests owned by such Person in such Unconsolidated Entity
with respect to any Indebtedness for which recourse may be made against any
general partner of such Unconsolidated Entity.
"Qualified Lease" means any Lease (a) which is a direct ground
lease granted by the fee owner of real property, (b) which may be transferred
and/or assigned without the consent of the lessor (or as to which the Lease
expressly provides that (i) such Lease may be transferred and/or assigned with
the consent of the lessor and (ii) such consent shall not be unreasonably
withheld or delayed), (c) which has a remaining term (including any renewal
terms exercisable at the sole option of the lessee) of at least 40 years, (d)
under which no material default has occurred and is continuing, (e) with
respect to which a security interest may be granted without the consent of the
lessor, and (f) which contains lender protection provisions reasonably
acceptable to the Administrative Agent including, without limitation,
provisions to the effect that (i) the lessor shall notify any holder of a
security interest in such Lease of the occurrence of any default by the lessee
under such Lease and shall afford such holder the right to
<PAGE> 37
cure such default, and (ii) in the event that such Lease is terminated, such
holder shall have the option to enter into a new lease having terms
substantially identical to those contained in the terminated Lease. Upon the
submission to the Administrative Agent of a written request for approval of the
lender protection provisions and other terms of a proposed Qualified Lease, the
Administrative Agent shall respond by accepting or rejecting such proposal
within ten Business Days following receipt of such request.
"Ratable Portion" or "ratably" means, except as otherwise
specifically provided herein, with respect to any Lender, the quotient obtained
by dividing the Commitment of such Lender by the Commitments of all Lenders and
that payments of principal of the Loans and interest thereon shall be made pro
rata in accordance with the respective unpaid principal amounts of the Loans
held by the Lenders.
"Real Estate" means all of those plots, pieces or parcels of
land now owned or hereafter acquired by the Borrower or any of its Subsidiaries
or Eligible Joint Ventures (the "Land"), including, without limitation, those
listed on Schedule 4.22(a), together with the right, title and interest of the
Borrower or such Subsidiary or Eligible Joint Venture, if any, in and to the
streets, the land lying in the bed of any streets, roads or avenues, opened or
proposed, in front of, adjoining or abutting the Land to the center line
thereof, the air space and development rights pertaining to the Land and the
right to use such air space and development rights, all rights of way,
privileges, liberties, tenements, hereditaments and appurtenances belonging or
in any way appertaining thereto, all fixtures, all easements now or hereafter
benefiting the Land and all royalties and rights appertaining to the use and
enjoyment of the Land, including, without limitation, all alley, vault,
drainage, mineral, water, oil and gas rights, together with all of the
buildings and other improvements now or hereafter erected on the Land, and any
fixtures appurtenant thereto.
"Register" has the meaning specified in Section 10.7.
"Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration on or into the indoor or outdoor environment
or into or out of any property.
<PAGE> 38
"Remedial Action" means all actions, including without
limitation any Capital Expenditures, required or necessary to (i) clean up,
remove, treat or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment, (ii) prevent the Release or
threat of Release, or minimize the further Release, of any Hazardous Material
or other substance so it does not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment, (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care,
or (iv) bring facilities on any property owned or leased by the Borrower or any
of its Subsidiaries into compliance with all Environmental Laws and
Environmental Permits.
"Requirement of Law" means, as to any Person, the certificate
of incorporation and by-laws or other organizational or governing documents of
such Person, and all federal, state and local laws, rules and regulations,
including, without limitation, federal, state or local securities, antitrust
and licensing laws, all food, health and safety laws, and all applicable trade
laws and requirements, including, without limitation, all disclosure
requirements of Environmental Laws, ERISA and all orders, judgments, decrees or
other determinations of any Governmental Authority or arbitrator, applicable to
or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" means, with respect to any Person, any
of the principal executive officers or general partners of such Person.
"Restricted Payments" has the meaning specified in Section
7.4.
"S&P" means Standard & Poor's Ratings Group and its
successors.
"Sheraton" shall mean Sheraton Operating Corporation or any
Person controlled by ITT Sheraton Corporation that is a Manager.
"Significant Subsidiary" means, at any date of determination,
(i) any Subsidiary of the Borrower which, or (ii) any group of Subsidiaries of
the Borrower which when aggregated, at such date, directly or indirectly own(s)
or lease(s) one or more Hotels having an aggregate value
<PAGE> 39
(calculated on the basis of the Borrower's Investment therein) in excess of
$75,000,000.
"St. Paul Lease" means the Lease relating to the Hotel located
in St. Paul, Minnesota
"Solvent" means, with respect to any Person, that the value of
the assets of such Person (at fair value) is, on the date of determination,
greater than the total amount of liabilities (including, without limitation,
contingent and unliquidated liabilities) of such Person as of such date and
that, as of such date, such Person is able to pay all liabilities of such
Person as such liabilities mature and does not have unreasonably small capital.
In computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Stated Amount" of each Letter of Credit shall, at any time,
mean the maximum amount available to be drawn thereunder (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Status" means the existence of Level I Status, Level II
Status, Level III Status, Level IV Status, Level V Status, Level VI Status,
Level VII Status or Level VIII Status, as the case may be.
As used in this definition:
"Level I Status" exists on any date if, on such date,
either Borrower has a long-term senior unsecured actual or
implied debt rating of A- or better by S&P and A3 or better by
Moody's;
"Level II Status" exists on any date if, on such
date, either Borrower has a long-term senior unsecured actual
or implied debt rating of BBB+ by S&P and Baa1 by Moody's;
"Level III Status" exists on any date if, on such
date, either Borrower has a long-term senior unsecured actual
or implied debt rating of BBB by S&P and Baa2 by Moody's;
"Level IV Status" exists on any date if, on such
date, either Borrower has a long-term senior
<PAGE> 40
unsecured actual or implied debt rating of BBB- by S&P and
Baa3 by Moody's;
"Level V Status" exists on any date if, on such date
(y) none of Level I Status through Level IV Status exist and
(z) the Leverage Ratio is less than 25%;
"Level VI Status" exists on any date if, on such date
(y) none of Level I Status through Level IV Status exist and
(z) the Leverage Ratio is equal to or greater than 25% but
less than 35%;
"Level VII Status" exists on any date if, on such
date (y) none of Level I Status through Level IV Status exist
and (z) the Leverage Ratio is equal to or greater than 35% but
less than 40%;
"Level VIII Status" exists on any date if, on such
date (y) none of Level I Status through Level IV Status exist
and (z) the Leverage Ratio is equal to or greater than 40% but
less than or equal to 50%;
provided that (i) if S&P and/or Moody's shall cease to issue ratings of debt
securities of real estate investment trusts generally, then the Administrative
Agent and the Borrower shall negotiate in good faith to agree upon a substitute
rating agency or agencies (and to correlate the system of ratings of each
substitute rating agency with that of the rating agency for which it is
substituting) and (a) until such substitute rating agency or agencies are
agreed upon, Status shall be determined on the basis of the rating assigned by
the other rating agency (or, if both S&P and Moody's shall have so ceased to
issue such ratings, on the basis of the Status in effect immediately prior
thereto) and (b) after such substitute rating agency or agencies are agreed
upon, Status shall be determined on the basis of the rating assigned by the
other rating agency and such substitute rating agency or the two substitute
rating agencies, as the case may be; (ii) if the long term senior unsecured
actual or implied debt ratings of either Borrower by S&P and Moody's are not
equivalent, the higher rating will apply for the purposes of determining
Status; and (iii) if the long term senior unsecured actual or implied debt
ratings of either Borrower by S&P and Moody's are two or more Levels apart, the
rating one Level below the higher rating will apply for the purposes of
determining Status.
<PAGE> 41
"Stock" means shares of capital stock, beneficial or
partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation or equivalent entity, whether voting or
non-voting, and includes, without limitation, common stock and preferred stock.
"Stock Equivalents" means all securities (other than Stock)
convertible into or exchangeable for Stock and all warrants, options or other
rights to purchase or subscribe for any stock, whether or not presently
convertible, exchangeable or exercisable.
"Subsidiary" means, with respect to any Person (other than
FelCor LP with respect to FelCor), at any date, any corporation, partnership or
other business entity the accounts of which would be consolidated with those of
such Person in its consolidated financial statements in accordance with GAAP,
if such statements were prepared as of such date.
"Subsidiary Guaranty" means a guaranty, in substantially the
form of Exhibit I, executed by each Guarantor, as such guaranty may be amended,
supplemented or otherwise modified from time to time and includes the Existing
Subsidiary Guaranties.
"Suite Hotel" means a Hotel offering substantially all suite accommodations.
"Suite Revenues" has the meaning ascribed to such term in the
form of Operating Lease attached as Exhibit H hereto.
"Super Majority Lenders" means, at any time, Lenders holding
at least 66-2/3% of the then aggregate unpaid principal amount of Loans
(excluding Loans held by Non-Funding Lenders) or, if no such Loans are then
outstanding, Lenders having at least 66-2/3% of the Commitments of all Lenders
(excluding Non-Funding Lenders).
"Swing Advance" has the meaning set forth in Section 2.17.
"Swing Advance Bank" means Chase.
"Tangible Net Worth" means, with respect to the Borrower at
any date, (a) the sum of (i) the total shareholders' equity of FelCor, and (ii)
the value of all
<PAGE> 42
partnership interests in FelCor LP owned by Persons other than FelCor; minus
(b) the sum of all intangible assets of FelCor, each as shown on the
consolidated balance sheet of FelCor as of such date.
"Tax Affiliate" means, as to any Person, (i) any Subsidiary of
such Person, and (ii) any Affiliate of such Person with which such Person files
or is eligible to file consolidated, combined or unitary tax returns.
"Tax Return" has the meaning specified in Section 4.3.
"Taxes" has the meaning specified in Section 2.15(a).
"Telerate Page 3750" means the display designated as "Page
3750" on the Associated Press-Dow Jones Telerate Service (or such other page as
may replace Page 3750 on the Associated Press-Dow Jones Telerate Service or
such other service as may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Bankers'
Association interest settlement rates for U.S. Dollar deposits). Any
Eurodollar Rate determined on the basis of the rate displayed on Telerate Page
3750 in accordance with the provisions hereof shall be subject to corrections,
if any, made in such rate and displayed by the Associated Press-Dow Jones
Telerate Service within one hour of the time when such rate is first displayed
by such Service.
"Termination Date" means the earliest of (i) the Final
Maturity Date, and (ii) the date of termination in whole of the Commitments
pursuant to Section 2.5 or 8.2.
"Total Assets" of any Person means, at any date, the total assets
of such Person and its Subsidiaries at such date determined on a consolidated
basis in conformity with GAAP.
"Total Indebtedness" of any Person means the sum of the following
(without duplication): (a) all Indebtedness of such Person and its Subsidiaries
determined on a consolidated basis in conformity with GAAP, plus (b) such
Person's Pro Rata Share of Indebtedness (excluding Non-Recourse Indebtedness)
of such Person's Unconsolidated Entities.
<PAGE> 43
"Total Secured Indebtedness" of any Person means any Total
Indebtedness of such Person for which the obligations thereunder are secured by
a pledge of or other encumbrance on any assets of such Person or its
Subsidiaries or Unconsolidated Entities.
"Total Value" means the sum of:
(A) for Hotels owned or leased for four (4) Fiscal Quarters or
more, Adjusted NOI on a consolidated basis from such Hotels for the preceding
four (4) Fiscal Quarters divided by ten percent (10%); plus
(B) for Hotels (x) owned or leased for less than four (4)
Fiscal Quarters (including newly acquired Hotels and Hotels to be immediately
acquired using the proceeds of any Loans) and (y) set forth on Exhibit J, but
only for the fiscal year ending December 31, 1997, the Borrower's Investment in
such Hotels; plus
(C) the sum of $15,000,000, being the agreed aggregate sum of
the Borrower's investment at cost in (x) certain vacant land at the Kingston
Plantation Hotel in Myrtle Beach, South Carolina, and (y) the Myrtle Beach
Condo Management Company; plus
(D) the Borrower's Pro-Rata Share of unencumbered Cash or Cash
Equivalents held by the Borrower, the Borrower's Subsidiaries or an
Unconsolidated Entity;
provided, however, that in the case of (A) above, Net Operating Income with
respect to a Hotel shall only be included in the calculation of Total Value if
such Hotel is, as at the date of such calculation, owned or leased by Borrower,
its Subsidiary or an Unconsolidated Entity but only to the extent of the
Borrower's Pro-Rata Share of such Net Operating Income and, provided, further,
in the case of (B) above, the Borrower's Investment with respect to a Hotel
shall only be included in the calculation of Total Value if such Hotel is, as
of the date of such calculation, owned by Borrower, its Subsidiary or
Unconsolidated Entity.
"Unconsolidated Entity" means, with respect to any Person, at
any date, any other Person in whom such Person holds an Investment, which
Investment is accounted for in the financial statements of such Person on an
equity basis of accounting and whose financial results would not be
consolidated under GAAP with the financial results of such
<PAGE> 44
Person on the consolidated financial statements of such Person, if such
statements were prepared as of such date.
"Unencumbered" means, with respect to any Hotel, at any date
of determination, the circumstance that such Hotel on such date:
(a) is not subject to any Liens (including restrictions
on transferability or assignability) of any kind (including any such Lien or
restriction imposed by (i) any agreement governing Indebtedness, and (ii) the
organizational documents of the Borrower or any of its Subsidiaries or Eligible
Joint Ventures, but excluding Permitted Liens and, in the case of any Qualified
Lease (to the extent permitted by the definition thereof), restrictions on
transferability or assignability in respect of such Lease);
(b) is not subject to any agreement (including (i) any
agreement governing Indebtedness, and (ii) if applicable, the organizational
documents of the Borrower or any of its Subsidiaries or Eligible Joint
Ventures) which prohibits or limits the ability of the Borrower or any of its
Subsidiaries or Eligible Joint Ventures to create, incur, assume or suffer to
exist any Lien upon such Hotel, other than Permitted Liens (excluding any
agreement or organizational document (x) which limits generally the amount of
Indebtedness which may be incurred by the Borrower or its Subsidiaries or
Eligible Joint Ventures or (y) in the case of an Eligible Joint Venture which
is not an Eligible Entity, which requires the consent of partners (or the
equivalent) in such Eligible Joint Venture (other than the Borrower or its
wholly owned Subsidiaries) to create, incur, assume or suffer to exist any Lien
upon such Hotel); and
(c) is not subject to any agreement (including any
agreement governing Indebtedness) which entitles any Person to the benefit of
any Lien (other than Permitted Liens) on such Hotel, or would entitle any
Person to the benefit of any such Lien upon the occurrence of any contingency
(including, without limitation, pursuant to an "equal and ratable" clause).
For the purposes of this Agreement, any Joint Venture Hotel or Hotel owned by a
Subsidiary or Eligible Joint Venture of the Borrower shall not be deemed to be
Unencumbered unless both (i) such Hotel and (ii) all Stock owned directly or
indirectly by Borrower in such Eligible Joint Venture or Subsidiary, is
Unencumbered.
<PAGE> 45
"Unpaid Drawing" shall have the meaning set forth in Section
2.21(a).
1.2. Computation of Time Periods. In this Agreement, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding" and the word "through" means "to and including".
1.3. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.4. Certain Terms. (a) The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole, and not to any particular Article, Section, subsection or clause in this
Agreement. References herein to an Exhibit, Schedule, Article, Section,
subsection or clause refer to the appropriate Exhibit or Schedule to, or
Article, Section, subsection or clause in this Agreement.
(b) The terms "Lender" and "Administrative Agent" include
their respective successors and the term "Lender" includes each assignee of
such Lender who becomes a party hereto pursuant to Section 10.7.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS AND LETTERS OF CREDIT
2.1. The Loans. On the terms and subject to the conditions
contained in this Agreement, each Lender severally agrees to make loans (each a
"Loan") to the Borrower from time to time on any Business Day during the period
from the date hereof until the Termination Date in an aggregate amount not to
exceed at any time outstanding such Lender's Commitment; provided, however,
that at no time shall any Lender be obligated to make a Loan in excess of such
Lender's Ratable Portion of the Available Credit. Within the limits of each
Lender's Commitment, amounts prepaid pursuant to Section 2.7(b) may be
reborrowed under this Section 2.1. The Loans of each Lender shall be evidenced
by the Note to the order of such Lender.
<PAGE> 46
2.2. Intentionally Omitted.
2.3. Making the Loans. (a) Each Borrowing shall be made on
notice, given by the Borrower to the Administrative Agent not later than (i)
11:00 A.M. (New York City time) on the third (3rd) Business Day prior to the
date of the proposed Borrowing in the case of Eurodollar Rate Loans, and (ii)
11:00 A.M. (New York City time) on the Business Day prior to the date of the
proposed Borrowing in the case of Base Rate Loans. Each such notice (a "Notice
of Borrowing") shall be in substantially the form of Exhibit B, specifying
therein (i) the date of such proposed Borrowing, (ii) the aggregate amount of
such proposed Borrowing, (iii) the amount thereof, if any, requested to be
Eurodollar Rate Loans, and (iv) the initial Interest Period or Periods for any
such Eurodollar Rate Loans. The Loans shall be made as Base Rate Loans unless
(subject to Section 2.12) the Notice of Borrowing specifies that all or a pro
rata portion thereof shall be Eurodollar Rate Loans; provided, however, that
the aggregate of the Eurodollar Rate Loans for each Interest Period must be in
an amount of not less than $5,000,000 or an integral multiple of $500,000 in
excess thereof.
(b) The Administrative Agent shall give to each Lender
prompt notice of the Administrative Agent's receipt of a Notice of Borrowing
and, if Eurodollar Rate Loans are properly requested in such Notice of
Borrowing, the applicable interest rate under Section 2.9, and each Lender's
Ratable Portion of the proposed Borrowing. Each Lender shall, before 12:00
Noon (New York City time) on the date of the proposed Borrowing, make available
for the account of its Applicable Lending Office to the Administrative Agent at
its address referred to in Section 10.2, in immediately available funds, such
Lender's Ratable Portion of such proposed Borrowing. By 12:00 Noon (New York
City time) in the case of Eurodollar Rate Loans and Base Rate Loans, on the
date specified by the Borrower in the Notice of Borrowing, subject to
fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower at the
Administrative Agent's aforesaid address; provided that in the event that the
Administrative Agent shall have received notice from a Lender prior to the date
of any proposed Borrowing that such Lender will not make available to the
Administrative Agent such Lender's Ratable Portion of such Borrowing, the
Administrative Agent shall be under no obligation to fund such Lender's Ratable
Portion of such Borrowing.
<PAGE> 47
(c) Each Base Rate Loan shall be in an aggregate amount
of not less than $1,000,000 or an integral multiple of $100,000 in excess
thereof.
(d) Intentionally omitted.
(e) Each Notice of Borrowing shall be irrevocable and
binding on the Borrower. In the case of any proposed Borrowing which the
related Notice of Borrowing specifies is to be comprised of Eurodollar Rate
Loans, the Borrower shall indemnify each Lender against any loss, cost or
expense incurred by such Lender as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such proposed
Borrowing the applicable conditions set forth in Article III, including,
without limitation, any loss (including, without limitation, loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund any
Eurodollar Rate Loan to be made by such Lender as part of such proposed
Borrowing when such Eurodollar Rate Loan, as a result of such failure, is not
made on such date.
(f) Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any proposed Borrowing that such
Lender will not make available to the Administrative Agent such Lender's
Ratable Portion of such Borrowing, the Administrative Agent may assume that
such Lender has made such Ratable Portion available to the Administrative Agent
on the date of such Borrowing in accordance with this Section 2.3 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such Ratable Portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement. If the Borrower shall repay to the Administrative Agent such
corresponding amount, such payment shall not relieve such
<PAGE> 48
Lender of any obligation it may have to the Borrower hereunder.
(g) The failure of any Lender to make the Loan to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Loan on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Loan to be made by such other Lender on the date of any Borrowing.
2.4. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender, a commitment fee (the
"Commitment Fee") equal to the Applicable Margin times the average daily unused
portion of such Lender's Commitment, from the date hereof until the Termination
Date, payable in arrears with respect to each full calendar quarter on (i) the
last day of each calendar quarter during the term of such Lender's Commitment,
commencing December 31, 1996, (ii) on the date of any reduction of the
Commitments pursuant to Section 2.5 and (iii) on the Termination Date. For
purposes of this Section 2.4, Swing Advances shall be included as part of the
unused portion of the Commitments.
(b) The Borrower agrees to pay to the Administrative
Agent for distribution to each Lender (based on its respective Ratable Portion)
a fee in respect of each Letter of Credit issued hereunder (the "Letter of
Credit Fee"), for the period from and including the date of issuance of such
Letter of Credit to and including the termination of such Letter of Credit,
computed at a rate per annum equal to the Applicable Margin then in effect for
Loans maintained as Eurodollar Rate Loans on the daily average Stated Amount of
such Letter of Credit. Accrued Letter of Credit Fees shall be payable in
arrears with respect to each calendar quarter on (i) the last day of each
calendar quarter in which any Letter of Credit is outstanding, (ii) on the date
on which no Letters of Credit remain outstanding and (iii) on the Termination
Date.
(c) The Borrower agrees to pay to the Issuing Lender, for
its own account, a facing fee in respect of each Letter of Credit issued by it
hereunder (the "Facing Fee") for the period from and including the date of
issuance of such Letter of Credit to and including the termination of such
Letter of Credit, computed at a rate per annum equal to 0.125% of the daily
average Stated Amount of such Letter of Credit. Accrued Facing Fees shall be
payable in arrears
<PAGE> 49
with respect to each calendar quarter on (i) the last day of each calendar
quarter in which such Letter of Credit is outstanding, (ii) on the date upon
which such Letter of Credit has been terminated in accordance with its terms
and (iii) on the Termination Date.
(d) The Borrower shall pay, upon each Drawing under,
issuance of, or amendment to, any Letter of Credit, such amount as shall at the
time of such event be the administrative charge which the Issuing Lender is
generally imposing in connection with such occurrence with respect to letters
of credit.
(e) The Borrower has agreed to pay to Chase additional
fees, the amount and dates of payment of which are embodied in a separate
agreement between the Borrower and Chase.
2.5. Reduction and Termination of the Commitments. The
Borrower may, upon at least three Business Days' prior notice to the
Administrative Agent, terminate in whole or reduce ratably in part the unused
portions of the respective Commitments of the Lenders; provided, however, that
each partial reduction shall be in the aggregate amount of not less than
$5,000,000 or an integral multiple of $1,000,000 in excess thereof.
2.6. Repayment. The Borrower shall repay the entire unpaid
principal amount of the Loans on the Termination Date.
2.7. Prepayments. (a) The Borrower shall have no right to
prepay the principal amount of any Loan other than as provided in this Section
2.7.
(b) The Borrower may, upon at least two (2) Business
Days' prior notice to the Administrative Agent, stating the proposed date and
aggregate principal amount of the prepayment, prepay the outstanding principal
amount of the Loans in whole or ratably in part, together with accrued interest
to the date of such prepayment on the principal amount prepaid; provided,
however, that any prepayment of any Eurodollar Rate Loan made other than on the
last day of an Interest Period for such Loan shall be subject to payment by the
Borrower to the Administrative Agent of any costs, fees or expenses incurred by
any Lender in connection with such prepayment including without limitation any
costs to unwind any Eurodollar Rate contracts; and, provided, further, that
each partial prepayment shall be in an
<PAGE> 50
aggregate principal amount not less than $3,000,000 or integral multiples of
$100,000 in excess thereof. Upon the giving of such notice of prepayment, the
principal amount of the Loans specified to be prepaid shall become due and
payable on the date specified for such prepayment.
(c) If at any time the aggregate principal amount of
Loans outstanding plus the Letter of Credit Outstandings at such time exceeds
the lower of the Borrowing Base or the Commitments at such time (a "Borrowing
Base Imbalance"), the Borrower shall prepay the Loans then outstanding in an
amount equal to such excess, together with accrued interest as follows:
(i) in the event that the Borrowing Base Imbalance
is due to (A) any sale, conveyance, transfer, assignment or other
disposition of an Eligible Hotel, (B) a financing secured by an
Eligible Hotel or (C) a Drawing, the prepayment shall be made within
one (1) Business Day of such event occurring;
(ii) in the event that the Borrowing Base Imbalance
is due to any (A) condemnation or taking by eminent domain of an
Eligible Hotel, or (B) loss, damage or destruction by casualty to any
Eligible Hotel, the prepayment shall be made within one (1) Business
Day after receipt by the Borrower or its Subsidiary or Eligible Joint
Venture of the condemnation award or insurance proceeds relating to
such event;
(iii) in the event that the Borrowing Base Imbalance
is due to (A) a decrease in the value of any Eligible Hotels, or (B)
any of the Eligible Hotels ceasing, for whatever reason, to meet the
requirements for Eligible Hotels set forth herein, the prepayment
shall be made within 180 days of such event; or
(iv) in the event that the Borrowing Base Imbalance
is due to a determination by the Administrative Agent, after review of
the applicable Eligible Hotel Documents, that a Hotel, represented by
Borrower to be an Eligible Hotel pursuant to Section 6.23(b)(z), fails
to meet the requirements for Eligible Hotels set forth herein, the
prepayment shall be made within 5 Business Days of the Administrative
Agent notifying Borrower of such Hotel's failure to meet the Eligible
Hotel requirements.
<PAGE> 51
2.8. Conversion/Continuation Option. (a) Swing Advances
shall be automatically converted to Base Rate Loans on the Business Day
following the date of borrowing thereof.
(b) The Borrower may elect (i) at any time to convert
Base Rate Loans or any portion thereof to Eurodollar Rate Loans, (ii) at any
time to convert Swing Advances or any portion thereof to Base Rate Loans or
Eurodollar Rate Loans, or (iii) at the end of any Interest Period with respect
thereto, to convert Eurodollar Rate Loans or any portion thereof into Base Rate
Loans, or to continue such Eurodollar Rate Loans or any portion thereof for an
additional Interest Period; provided, however, that the aggregate of the
Eurodollar Rate Loans for each Interest Period therefor must be in the amount
of $5,000,000 or an integral multiple of $500,000 in excess thereof. Each
conversion or continuation shall be allocated among the Loans of all Lenders in
accordance with their Ratable Portion. Each such election shall be in
substantially the form of Exhibit C hereto (a "Notice of Conversion or
Continuation") and shall be made by giving the Administrative Agent at least
three (3) Business Days' prior written notice thereof specifying (A) the amount
and type of conversion or continuation, (B) in the case of a conversion to or a
continuation of Eurodollar Rate Loans, the Interest Period therefor, and (C) in
the case of a conversion, the date of conversion (which date shall be a
Business Day and, if a conversion from Eurodollar Rate Loans, shall also be the
last day of the Interest Period therefor). The Administrative Agent shall
promptly notify each Lender of its receipt of a Notice of Conversion or
Continuation and of the contents thereof and such Lender's Ratable Portion of
the Loans to be converted. Notwithstanding the foregoing, no conversion in
whole or in part of Base Rate Loans or Swing Advances to Eurodollar Rate Loans,
and no continuation in whole or in part of Eurodollar Rate Loans upon the
expiration of any Interest Period therefor, shall be permitted at any time at
which a Default or an Event of Default shall have occurred and be continuing.
If, within the time period required under the terms of this Section 2.8, the
Administrative Agent does not receive a Notice of Conversion or Continuation
from the Borrower containing a permitted election to continue any Eurodollar
Rate Loans for an additional Interest Period or to convert any such Loans,
then, upon the expiration of the Interest Period therefor, such Loans will be
automatically converted to Base Rate Loans. Each Notice of Conversion or
Continuation shall be irrevocable.
<PAGE> 52
2.9. Interest. (a) The Borrower shall pay interest on the
unpaid principal amount of each Loan from the date thereof until the principal
amount thereof shall be paid in full, at the following rates per annum:
(i) For Base Rate Loans, at a rate per annum equal
at all times to the Base Rate in effect from time to time plus the
Applicable Margin, payable monthly on the first day of each month, on
the Termination Date and on the date any Base Rate Loan is converted
or paid in full.
(ii) For Eurodollar Rate Loans, at a rate per annum
equal at all times during the applicable Interest Period for each
Eurodollar Rate Loan to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin in effect on the first day
of such Interest Period, payable on the last day of such Interest
Period, on the Termination Date and, if such Interest Period has a
duration of more than three months, on the last day of each calendar
quarter during such Interest Period commencing on December 31, 1996.
(b) If the principal indebtedness is declared immediately
due and payable by the Administrative Agent pursuant to the provisions of this
Agreement or any other Loan Document, or if the Loans are not paid in full on
the Termination Date, the Borrower shall thereafter, unless and until such
date, if any, as the Super Majority Lenders may elect, in their sole and
absolute discretion, to waive, in writing, all or any portion of such default
rate interest, pay interest on the principal sum then remaining unpaid from the
date of such declaration or the Termination Date, as the case may be, until the
date on which the principal sum then outstanding is paid in full (whether
before or after judgment), at a rate per annum (calculated for the actual
number of days elapsed on the basis of a 360-day year) equal to the greater, on
a daily basis, of (a) 13% or (b) 4% plus the Base Rate, provided, however, that
such interest rate shall in no event exceed the maximum interest rate which the
Borrower may by law pay.
2.10. Interest Rate Determination and Protection. (a) The
Eurodollar Rate for each Interest Period for Eurodollar Rate Loans shall be
determined by the Administrative Agent two Business Days before the first day
of such Interest Period.
<PAGE> 53
(b) The Administrative Agent shall give prompt notice to
the Borrower and the Lenders of the applicable interest rate determined by the
Administrative Agent for purposes of Section 2.9(a) or (b).
(c) If, with respect to Eurodollar Rate Loans, the
Majority Lenders in good faith notify the Administrative Agent that the
Eurodollar Rate for any Interest Period therefor will not adequately reflect
the cost to such Majority Lenders of making such Loans or funding or
maintaining their respective Eurodollar Rate Loans for such Interest Period,
the Administrative Agent shall forthwith so notify the Borrower and the
Lenders, whereupon
(i) each Eurodollar Rate Loan will automatically, on
the last day of the then existing Interest Period therefor, convert
into a Base Rate Loan; and
(ii) the obligations of the Lenders to make Eurodollar
Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans
shall be suspended until the Administrative Agent shall notify the
Borrower that such Lenders have determined that the circumstances
causing such suspension no longer exist.
2.11. Increased Costs. If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation (other than any change by way of imposition or increase of reserve
requirements included in determining the Eurodollar Rate Reserve Percentage) or
(ii) compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding
or maintaining any Eurodollar Rate Loans, then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost,
submitted to the Borrower and the Administrative Agent by such Lender, shall be
conclusive and binding for all purposes, absent manifest error. If the
Borrower so notifies the Administrative Agent within five Business Days after
any Lender notifies the Borrower of any increased cost pursuant to the
foregoing provisions of this Section 2.11, the Borrower may either (A) prepay
in full all Eurodollar Rate Loans of such Lender then outstanding in
<PAGE> 54
accordance with Section 2.7(b) and, additionally, reimburse such Lender for
such increased cost in accordance with this Section 2.11 or (B) convert all
Eurodollar Rate Loans of all Lenders then outstanding into Base Rate Loans in
accordance with Section 2.8 and, additionally, reimburse such Lender for such
increased cost in accordance with this Section 2.11.
2.12. Illegality. Notwithstanding any other provision of
this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any central
bank or other Governmental Authority shall assert that it is unlawful, for any
Lender or its Eurodollar Lending Office to make Eurodollar Rate Loans or to
continue to fund or maintain Eurodollar Rate Loans, then, on notice thereof and
demand therefor by such Lender to the Borrower through the Administrative
Agent, (i) the obligation of such Lender to make or to continue Eurodollar Rate
Loans and to convert Base Rate Loans into Eurodollar Rate Loans shall terminate
and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Loans
of such Lender then outstanding, together with interest accrued thereon, unless
the Borrower, within five Business Days of such notice and demand, converts all
Eurodollar Rate Loans of all Lenders then outstanding into Base Rate Loans.
2.13. Capital Adequacy. If (i) the introduction of or any
change in or in the interpretation of any law or regulation, (ii) compliance
with any law or regulation, or (iii) compliance with any guideline or request
from any central bank or other Governmental Authority (whether or not having
the force of law) affects or would affect the amount of capital required or
expected to be maintained by any Lender or any corporation controlling any
Lender and such Lender reasonably determines that such amount is based upon the
existence of such Lender's Commitments, Letters of Credit or Loans and its
other commitments, letters of credit or loans of this type, then, upon demand
by such Lender (with a copy of such demand to the Administrative Agent), the
Borrower shall pay to the Administrative Agent for the account of such Lender,
from time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender in the light of such circumstances, to the extent that
such Lender reasonably determines such increase in capital to be allocable to
the existence of such Lender's Commitments, Loans, Letter of Credit
Outstandings or commitments to issue Letters of Credit. A certificate as to
such amounts submitted to the Borrower and the
<PAGE> 55
Administrative Agent by such Lender shall be conclusive and binding for all
purposes absent manifest error.
2.14. Payments and Computations. (a) The Borrower shall
make each payment hereunder and under the Notes not later than 11:00 A.M. (New
York City time) on the day when due, in Dollars, to the Administrative Agent at
its address referred to in Section 10.2 in immediately available funds without
set-off or counterclaim. The Administrative Agent will promptly thereafter
cause to be distributed immediately available funds relating to the payment of
principal or interest or fees (other than amounts payable pursuant to Section
2.11, 2.12, 2.13, 2.15 or 2.17) to the Lenders, in accordance with their
respective Ratable Portions, for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
payable to any Lender to such Lender for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement. To the extent the foregoing payments are received by the
Administrative Agent prior to 11:00 A.M. (New York City time) and are not
distributed to the Lenders on the same day, the Administrative Agent shall pay
to each Lender in addition to the amount distributed to such Lender, interest
thereon, for each day from the date such amount is received by the
Administrative Agent until the date such amount is distributed to such Lender,
at the Federal Funds Rate. Payment received by the Administrative Agent after
11:00 A.M. (New York City time) shall be deemed to be received on the next
Business Day.
(b) The Borrower hereby authorizes each Lender, if and to
the extent payment owed to such Lender is not made when due hereunder or under
any Loan held by such Lender, to charge from time to time against any or all of
the Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Base Rate,
the Eurodollar Rate or the Federal Funds Rate and of fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest and fees are payable. Each
determination by the Administrative Agent of an interest rate hereunder shall
be conclusive and binding for all purposes, absent manifest error.
<PAGE> 56
(d) Whenever any payment hereunder or under the Notes
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest or
fee, as the case may be; provided, however, that if such extension would cause
payment of interest on or principal of any Eurodollar Rate Loan to be made in
the next calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due
hereunder to the Lenders that the Borrower will not make such payment in full,
the Administrative Agent may assume that the Borrower has made such payment in
full to the Administrative Agent on such date and the Administrative Agent may,
in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to
the extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
(f) If any Lender (a "Non-Funding Lender") has (x) failed
to make a Loan required to be made by it hereunder, and the Administrative
Agent has determined that such Lender is not likely to make such Loan, (y)
given notice to the Borrower or the Administrative Agent that it will not make,
or that it has disaffirmed or repudiated any obligation to make, Loans, in each
case by reason of the provisions of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 or otherwise or (z) failed to comply with its
obligations pursuant to Section 2.20(c), (i) such Non-Funding Lender shall lose
any and all voting rights hereunder, and (ii) any payment made on account of
the principal of the Loans outstanding or Unpaid Drawings shall be made as
follows:
(A) in the case of any such payment made on any
date when and to the extent that, in the determination of the
Administrative Agent, the Borrower would be able, under the terms and
conditions hereof, to reborrow the amount of such payment under the
<PAGE> 57
Commitments and to satisfy any applicable conditions precedent set
forth in Article III to such reborrowing, such payment shall be made
on account of the outstanding Loans or Unpaid Drawings held by the
Lenders other than the Non-Funding Lender pro rata according to the
respective outstanding principal amounts of the Loans or Unpaid
Drawings of such Lenders;
(B) otherwise, such payment shall be made on account
of the outstanding Loans or Unpaid Drawings held by the Lenders pro
rata according to the respective outstanding principal amounts of such
Loans or Unpaid Drawings; and
(C) any payment made on account of interest on the
Loans or Unpaid Drawings shall be made pro rata according to the
respective amounts of accrued and unpaid interest due and payable on
the Loans or Unpaid Drawings with respect to which such payment is
being made.
2.15. Taxes. (a) Any and all payments by the Borrower under
each Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Agent, taxes measured by its net income,
and franchise taxes imposed on it, by the jurisdiction under the laws of which
such Lender or the Administrative Agent (as the case may be) is organized or
any political subdivision thereof and, in the case of each Lender, taxes
measured by its net income, and franchise taxes imposed on it, by the
jurisdiction of such Lender's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities (excluding, in the case of such Lender or
the Administrative Agent, taxes imposed by reason of any failure of such Lender
or the Administrative Agent, if such Lender or the Administrative Agent is
entitled at such time to a total or partial exemption from withholding that is
required to be evidenced by a United States Internal Revenue Service Form 1001
or 4224 or any successor or additional form, to deliver to the Administrative
Agent or the Borrower, from time to time as required by the Administrative
Agent or the Borrower, such Form 1001 or 4224 (as applicable) or any successor
or additional form, completed in a manner reasonably satisfactory to the
Administrative Agent or the
<PAGE> 58
Borrower) being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Agent (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including, without limitation, deductions applicable to additional sums
payable under this Section 2.15) such Lender or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law, and (iv) the
Borrower shall deliver to the Administrative Agent evidence of such payment to
the relevant taxation or other authority.
(b) In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies of the United States or any political subdivision
thereof or any applicable foreign jurisdiction which arise from any payment
made under any Loan Document or from the execution, delivery or registration
of, or otherwise with respect to, any Loan Document (collectively, "Other
Taxes").
(c) The Borrower will indemnify each Lender and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.15) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including, without
limitation, for penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such Lender or the Administrative Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes
or Other Taxes, the Borrower will furnish to the Administrative Agent, at its
address referred to in Section 10.2, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.15 shall survive the payment in full of
the Obligations.
<PAGE> 59
(f) Prior to the Effective Date in the case of each
Lender that is a signatory hereto, and on the date of the Assignment and
Acceptance pursuant to which it becomes a Lender in the case of each other
Lender and from time to time thereafter if requested by the Borrower or the
Administrative Agent, each Lender organized under the laws of a jurisdiction
outside the United States that is entitled to an exemption from United States
withholding tax, or that is subject to such tax at a reduced rate under an
applicable tax treaty, shall provide the Administrative Agent and the Borrower
with an IRS Form 4224 or Form 1001 or other applicable form, certificate or
document prescribed by the IRS certifying as to such Lender's entitlement to
such exemption or reduced rate with respect to all payments to be made to such
Lender hereunder and under the Notes. Unless the Borrower and the
Administrative Agent have received forms or other documents satisfactory to
them indicating that payments hereunder or under any Note are not subject to
United States withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty, the Borrower or the Administrative Agent shall
withhold taxes from such payments at the applicable statutory rate in the case
of payments to or for any Lender organized under the laws of a jurisdiction
outside the United States.
(g) Any Lender claiming any additional amounts payable
pursuant to this Section 2.15 shall use its best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Applicable Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
which may thereafter accrue and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.
2.16. Sharing of Payments, Etc. If any Lender (other than
the Swing Advance Bank or the Issuing Lender) shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set off or
otherwise) on account of Loans made by it (other than pursuant to Section 2.13
or 2.15), and there is either (x) any Swing Advance outstanding in respect of
which the Swing Advance Bank has not received payment in full from the Lenders
pursuant to Section 2.17(d) or (e) or (y) any Unpaid Drawing in respect of
which the Issuing Lender has not received payment in full from the Lenders
pursuant to Section 2.20 or 2.21, such Lender (a "Purchasing Lender") shall
purchase a participation in all such Swing Advances or Unpaid Drawings, as
applicable, in an amount equal to the lesser of such
<PAGE> 60
payment and the amount of such Swing Advances or Unpaid Drawings, as
applicable, for which the Swing Advance Bank or Issuing Lender has not so
received payment in full. If, after giving effect to the foregoing, any Lender
shall obtain any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) on account of the Loans made by it
(other than pursuant to Sections 2.13 or 2.15) in excess of its Ratable Portion
of payments on account of the Loans obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in their
Loans as shall be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them.
2.17. Swing Advances. (a) The Swing Advance Bank, on the
terms and subject to the conditions contained in this Agreement, shall make
advances (each a "Swing Advance") to the Borrower from time to time on any
Business Day during the period from the date hereof until the day preceding the
Termination Date in an aggregate amount not to exceed at any time outstanding
the lesser of (i) $15,000,000, and (ii) the Available Credit; provided that the
Swing Advance Bank shall not be requested to make a Swing Advance to refinance
an outstanding Swing Advance. The Swing Advance Bank shall be entitled to rely
on the most recent Borrowing Base Certificate delivered to the Administrative
Agent. Within the limits set forth above, Swing Advances repaid may be
reborrowed under this Section 2.17.
(b) Each Swing Advance shall be made upon a Notice of
Borrowing for a Swing Advance being given by the Borrower to the Swing Advance
Bank by no later than 11:00 A.M. (New York City time) on the Business Day of
the proposed Swing Advance. Upon fulfillment of the applicable conditions set
forth in Article III, the Swing Advance Bank will make each Swing Advance
available on the same day to the Borrower at the Agent's address referred to in
Section 10.2. All Swing Advances shall bear interest at the same rate, and be
payable on the same basis, as Base Rate Loans and shall be converted to Base
Rate Loans pursuant to Section 2.8(a).
(c) Each Swing Advance shall be in an aggregate amount of
not less than $1,000,000.00 or an integral multiple of $100,000.00 in excess
thereof.
(d) The Administrative Agent shall give to each Lender
prompt notice of the Administrative Agent's receipt
<PAGE> 61
of a Notice of Borrowing for a Swing Advance and each Lender's Ratable Portion
thereof. Each Lender shall before 12:00 Noon (New York City time) on the next
Business Day (the "Settlement Date") make available to the Administrative
Agent, in immediately available funds, the amount of its Ratable Portion of the
principal amount of such Swing Advance. Upon such payment by a Lender, such
Lender shall be deemed to have made a Loan to the Borrower in the amount of
such payment. The Administrative Agent shall use such funds to repay the Swing
Advance to the Swing Advance Bank. To the extent that any Lender fails to make
such payment to the Swing Advance Bank, the Borrower shall repay such Swing
Advance on demand and in any event on the Termination Date.
(e) During the continuance of a Default under Section
8.1(e), each Lender shall acquire, without recourse or warranty, an undivided
participation in each Swing Advance otherwise required to be repaid by such
Lender pursuant to the preceding paragraph, which participation shall be in a
principal amount equal to such Lender's Ratable Portion of such Swing Advance,
by paying to the Swing Advance Bank on the date on which such Lender would
otherwise have been required to make a payment in respect of such Swing Advance
pursuant to the preceding paragraph, in immediately available funds, an amount
equal to such Lender's Ratable Portion of such Swing Advance. If such amount
is not in fact made available to the Swing Advance Bank on the date when the
Swing Advance would otherwise be required to be made pursuant to the preceding
paragraph, the Swing Advance Bank shall be entitled to recover such amount on
demand from that Lender together with interest accrued from such date at the
Federal Funds Rate. From and after the date on which any Lender purchases an
undivided participation interest in a Swing Advance pursuant to this paragraph
(e), the Swing Advance Bank shall promptly distribute to such Lender such
Lender's Ratable Portion of all payments of principal and of interest on such
Swing Advance, other than those received from a Lender pursuant to Section 2.16
or this or the preceding paragraph (d). If any payment made by or on behalf of
the Borrower and received by the Swing Advance Bank with respect to any Swing
Advance is rescinded or must otherwise be returned by the Swing Advance Bank
for any reason and the Swing Advance Bank has made a payment to the
Administrative Agent, on account thereof, each Lender shall, upon notice to the
Swing Advance Bank, forthwith pay over to the Swing Advance Bank an amount
equal to such Lender's pro rata share of the payment so rescinded or returned
based on the respective amounts paid in respect
<PAGE> 62
thereof to the Lenders pursuant to the preceding paragraph (d).
2.18. Letter of Credit. (a) Subject to and upon the terms
and conditions herein set forth, the Borrower may request that the Issuing
Lender issue, at any time and from time to time on and after the Closing Date
and prior to the Termination Date, for the account of the Borrower and for the
benefit of any holder (or any trustee, agent or other similar representative
for any such holders) of L/C Supportable Obligations of the Borrower, an
irrevocable standby letter of credit, in a form customarily used by the Issuing
Lender or in such other form as has been approved by the Issuing Lender in its
discretion (each such standby letter of credit, a "Letter of Credit") in
support of such L/C Supportable Obligations.
(b) Subject to the terms and conditions contained herein,
the Issuing Lender hereby agrees that it will, at any time and from time to
time on or after the Closing Date and prior to the Termination Date, following
its receipt of the respective Letter of Credit Request, issue for the account
of the Borrower one or more Letters of Credit in support of such L/C
Supportable Obligations of the Borrower as are permitted to remain outstanding
without giving rise to a Default or Event of Default hereunder, provided that
the Issuing Lender shall be under no obligation to issue any Letter of Credit
if at the time of such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain the Issuing Lender from issuing such Letter of Credit or any
requirement of law applicable to the Issuing Lender or any request or
directive (whether or not having the force of law) from any
governmental authority with jurisdiction over the Issuing Lender shall
prohibit, or request that the Issuing Lender refrain from, the
issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Lender with respect to
such Letter of Credit any restriction or reserve or capital
requirement (for which the Issuing Lender is not otherwise
compensated) not in effect on the date hereof, or any unreimbursed
loss, cost or expense which was not applicable, or known to the
Issuing Lender as of the date hereof and which the Issuing Lender in
good faith deems material to it; or
<PAGE> 63
(ii) the Issuing Lender shall have received notice from any
Lender prior to the issuance of such Letter of Credit of the type
described in the second sentence of Section 2.19(b).
(c) Notwithstanding the foregoing, (i) no Letter of
Credit shall be issued the Stated Amount of which, when added to the Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date
of, and prior to the issuance of, the respective Letter of Credit) and the
aggregate principal amount of all Loans then outstanding, would exceed the
lesser of (x) the Commitments at such time and (y) the Borrowing Base at such
time, (ii) each Letter of Credit shall be denominated in Dollars, (iii) each
Letter of Credit shall by its terms terminate on or before the earlier of (A)
the date which occurs 12 months after the date of the issuance thereof
(although any such Letter of Credit may be automatically extendable for
successive periods of up to 12 months, but not beyond the tenth Business Day
prior to the Termination Date, on terms acceptable to the Issuing Lender) and
(B) the tenth Business Day prior to the Termination Date, (iv) the Stated
Amount of each Letter of Credit upon issuance shall be not less than $100,000
or such lesser amount as is acceptable to the Issuing Lender and (v) no Letter
of Credit shall be issued the Stated Amount of which, when added to (y) the
Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on
the date of, and prior to the issuance of, the respective Letter of Credit) and
(z) any Loans made for working capital purposes would exceed 10% of the total
Commitments then in effect.
2.19 Letter of Credit Requests. (a) Whenever the Borrower
desires that a Letter of Credit be issued for its account, the Borrower shall
give the Administrative Agent and the Issuing Lender at least five Business
Days' (or such shorter period as is acceptable to the Issuing Lender) written
notice thereof. Each notice shall be in the form of Exhibit K (each a "Letter
of Credit Request").
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Borrower that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of, Section 2.18(c). Unless the Issuing Lender has received notice from any
Lender before it issues a Letter of Credit that one or more of the conditions
specified in Article III, are not then satisfied, or that the issuance of such
Letter of Credit would violate Section 2.18(c), then the Issuing Lender may
issue the requested Letter of Credit for the
<PAGE> 64
account of the Borrower in accordance with the Issuing Lender's usual and
customary practices. Upon the issuance of any Letter of Credit, the Issuing
Lender shall promptly notify each Lender of such issuance and such notice shall
be accompanied by a copy of the issued Letter of Credit.
2.20 Letter of Credit Participations. (a) Immediately upon
the issuance by the Issuing Lender of any Letter of Credit, the Issuing Lender
shall be deemed to have sold and transferred to each Lender, other than the
Issuing Lender (each such Lender, in its capacity under Section 2.20, a
"Participant"), and each such Participant shall be deemed irrevocably and
unconditionally to have purchased and received from the Issuing Lender, without
recourse or warranty, an undivided interest and participation, to the extent of
such Participant's Ratable Portion, in such Letter of Credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with
respect thereto (excluding the Facing Fee), and any security therefor or
guaranty pertaining thereto. Upon any change in the Commitments of the
Lenders, it is hereby agreed that, with respect to any outstanding Letters of
Credit and Unpaid Drawings, there shall be an automatic adjustment to the
participations pursuant to this Section 2.20 to reflect the new Ratable
Portions of the Lenders.
(b) In determining whether to pay under any Letter of
Credit, the Issuing Lender shall have no obligation relative to the other
Lenders other than to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and that they appear to
comply on their face with the requirements of such Letter of Credit. Any
action taken or omitted to be taken by the Issuing Lender under or in
connection with any Letter of Credit if taken or omitted in the absence of
gross negligence or willful misconduct, shall not create for the Issuing Lender
any resulting liability to the Borrower or any Lender.
(c) In the event that the Issuing Lender makes any
payment under any Letter of Credit and the Borrower shall not have reimbursed
such amount in full to the Issuing Lender pursuant to Section 2.21(a), the
Issuing Lender shall promptly notify the Administrative Agent, which shall
promptly notify each Participant, of such failure, and each Participant shall
promptly and unconditionally pay to the Issuing Lender the amount of such
Participant's Ratable Portion of such unreimbursed payment in Dollars and same
day funds. If the Administrative Agent so notifies any
<PAGE> 65
Participant prior to 11:00 A.M. (New York time) on any Business Day, such
Participant shall make available such funds to the Issuing Lender on such
Business Day. If and to the extent such Participant shall not have so made its
Ratable Portion of the amount of such payment available to the Issuing Lender,
such Participant agrees to pay to the Issuing Lender, forthwith on demand such
amount, together with interest thereon, for each day from such date until the
date such amount is paid to the Issuing Lender at the overnight Federal Funds
Rate. The failure of any Participant to make available to the Issuing Lender
its Ratable Portion of any payment under any Letter of Credit shall not relieve
any other Participant of its obligation hereunder to make available to the
Issuing Lender its Ratable Portion of any payment under Letter of Credit on the
date required, as specified above, but no Participant shall be responsible for
the failure of any other Participant to make available to the Issuing Lender
such other Participant's Ratable Portion of any such payment.
(d) Whenever the Issuing Lender receives a payment of a
reimbursement obligation as to which it has received any payments from the
Participants pursuant to clause (c) above, the Issuing Lender shall forward
such payment to the Administrative Agent, which in turn shall distribute such
funds to each Participant in accordance with the terms of Section 2.14.
(e) Upon the request of any Participant, the Issuing
Lender shall furnish to such Participant copies of any Letter of Credit issued
by it and such other documentation as may reasonably be requested by such
Participant.
(f) The obligations of the Participants to make payments
to the Issuing Lender with respect to Letters of Credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation any of the following
circumstances:
(i) any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense
or other right which the Borrower or any of its Subsidiaries may have
at any time against a beneficiary named in a Letter of Credit, any
transferee of any
<PAGE> 66
Letter of Credit (or any Person for whom any such transferee may be
acting), the Administrative Agent, the Issuing Lender, any
Participant, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein
or any unrelated transactions (including any underlying transaction
between the Borrower and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of any of the
Loan Documents; or
(v) the occurrence of any Default or Event of
Default.
2.21 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the Issuing Lender, by making payment to
the Administrative Agent in accordance with the terms of the first sentence of
Section 2.14, for any drawing (each, a "Drawing") made by it under any Letter
of Credit (each such Drawing until reimbursed, an "Unpaid Drawing"), no later
than five Business Days after the date of such Drawing, with interest on the
amount of such Drawing, to the extent not reimbursed prior to 11:00 A.M. (New
York time) on the date of such Drawing, from and including the date of such
Drawing to but excluding the date the Issuing Lender was reimbursed by the
Borrower therefor at a rate per annum which shall be the Base Rate in effect
from time to time plus the Applicable Margin for Loans maintained as Base Rate
Loans, provided, however, to the extent such amounts are not reimbursed prior
to 11:00 A.M. (New York time) on the sixth Business Day following such Drawing,
interest shall thereafter accrue on the amount (and until reimbursed by the
Borrower) at a rate per annum which shall be the Base Rate in effect from time
to time plus 4%, in each such case, with interest to be payable on demand. The
Issuing Lender shall give the Borrower prompt written notice of each Drawing
under any Letter of Credit, provided that the failure to give any such notice
shall in no way affect, impair or diminish the Borrower's obligations
hereunder.
<PAGE> 67
(b) The obligations of the Borrower under this Section
2.21 to reimburse the Issuing Lender with respect to Drawings (including
interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to
payment which the Borrower may have or have had against any Lender (including
in its capacity as the Issuing Lender or as a Participant), or any
nonapplication or misapplication by the beneficiary of the proceeds of such
Drawing, the Issuing Lender's only obligation to the Borrower being to confirm
that any documents required to be delivered under such Letter of Credit appear
to have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by the Issuing Lender under or in connection with any Letter of Credit if taken
or omitted in the absence of gross negligence or willful misconduct, shall not
create for the Issuing Lender any resulting liability to the Borrower.
ARTICLE III
CONDITIONS TO EFFECTIVENESS
OF THIS AGREEMENT AND OF LENDING
AND OF ISSUANCE OF LETTERS OF CREDIT
3.1. Conditions Precedent to Effectiveness of this Agreement,
to Initial Loans and Letters of Credit. The effectiveness of this Agreement
and the obligation of each Lender to make its initial Loan hereunder and the
obligation of the Issuing Lender to issue a Letter of Credit hereunder is
subject to satisfaction of the conditions precedent that the Administrative
Agent shall have received counterparts of this Agreement duly executed by each
Borrower, each Lender, the Administrative Agent and Wells Fargo, together with
the following, each dated the Effective Date (hereinafter defined) unless
otherwise indicated, in form and substance satisfactory to the Administrative
Agent and (except for the Notes) in sufficient copies for each Lender (the date
of satisfaction of the conditions precedent set forth in this Section 3.1 and
in Section 3.2 being the "Effective Date"):
(a) The Notes to the order of the Lenders, respectively.
(b) A certificate of the Secretary or an Assistant
Secretary of each Loan Party (or, as applicable, of such Loan Party's partners)
certifying (i) the resolutions of its Board of Trustees or Directors, as
<PAGE> 68
appropriate, approving each Loan Document to which it is a party, (ii) all
documents evidencing other necessary trust, partnership or corporate action, as
appropriate, and required governmental and third party approvals, licenses and
consents with respect to each Loan Document to which it is a party and the
transactions contemplated thereby, (iii) a copy of its and each of its
Subsidiaries' and Eligible Joint Ventures' declaration of trust, certificates
of incorporation, by-laws, partnership agreements and certificates of
partnership as appropriate, as of the Effective Date, and (iv) the names and
true signatures of each of its officers who has been authorized to execute and
deliver any Loan Document or other document required hereunder to be executed
and delivered by or on behalf of such Person.
(c) A copy of the declaration of trust or articles or
certificate of incorporation or partnership agreement or certificate of
partnership, as appropriate, of each Loan Party and of each of its Subsidiaries
and Eligible Joint Ventures which is not a Loan Party certified as of a recent
date by the Secretary of State of the state of formation of such Loan Party or
Subsidiary, together with certificates of such official attesting to the good
standing of each such Loan Party, Subsidiary and Eligible Joint Ventures.
(d) Favorable opinion(s) of counsel to the Loan Parties,
in substantially the form(s) of Exhibit D, and as to such other matters as any
Lender through the Administrative Agent may reasonably request.
(e) A certificate of the chief financial officer of the
Borrower, stating that the Borrower is Solvent after giving effect to the
initial Loans, the application of the proceeds thereof in accordance with
Section 6.10 and the payment of all estimated legal, accounting and other fees
related hereto and thereto.
(f) Evidence that the insurance required by Section 6.4
is in full force and effect.
(g) Such additional documents, information and materials
as any Lender, through the Administrative Agent, may reasonably request.
(h) A certificate, signed by a Responsible Officer of the
Borrower, stating that the following statements are true and correct on the
Effective Date:
<PAGE> 69
(i) The statements set forth in Section 3.3 are true
after giving effect to the Loans being made on the Effective Date.
(ii) All costs and accrued and unpaid fees and expenses
(including, without limitation, legal fees and expenses) required to
be paid to the Lenders on or before the Effective Date, including,
without limitation, those referred to in Sections 2.4 and 10.4, to the
extent then due and payable, have been paid.
(iii) All necessary governmental and third party approvals
required to be obtained by any Loan Party in connection with the
transactions contemplated hereby have been obtained and remain in
effect, and all applicable waiting periods have expired without any
action being taken by any competent authority which restrains,
prevents, impedes, delays or imposes materially adverse conditions
upon any of the transactions contemplated hereby.
(iv) There exists no judgment, order, injunction or other
restraint prohibiting or imposing materially adverse conditions upon
any of the transactions contemplated hereby.
(v) There exists no claim, action, suit, investigation or
proceeding (including, without limitation, shareholder or derivative
litigation) pending or, to the knowledge of the Borrower, threatened
in any court or before any arbitrator or Governmental Authority which
relates to the Loan Documents or the financing hereunder or which, if
adversely determined, would have a Material Adverse Effect.
(vi) There has been no Material Adverse Change since June
30, 1996 in the corporate, capital or legal structure of the Borrower
or any of its Subsidiaries without the consent of the Administrative
Agent.
(vii) The Borrower's Tangible Net Worth is not less than
the Minimum Tangible Net Worth.
(i) A Borrowing Base Certificate, executed by a
Responsible Officer of the Borrower, satisfactory to the Administrative Agent,
together with copies of the Eligible
<PAGE> 70
Hotel Documents in respect of each of the Eligible Hotels shown listed thereon.
(j) A Compliance Certificate, executed by the Chief
Financial Officer of the Borrower substantially in the form attached as Exhibit
G hereto.
(k) Each Subsidiary Guaranty, duly executed by the
Guarantor party thereto.
3.2. Additional Conditions Precedent to Effectiveness of this
Agreement, to Initial Loans and Letters of Credit. The effectiveness of this
Agreement, the obligation of each Lender to make its initial Loan hereunder and
the obligation of the Issuing Lender to issue Letters of Credit hereunder is
subject to the further conditions precedent that:
(a) No Lender or the Issuing Lender in its sole judgment
exercised reasonably shall have determined (i) that there has been any Material
Adverse Change since June 30, 1996 or (ii) that there has occurred any adverse
change which such Lender deems material in the financial markets generally,
since June 30, 1996 or (iii) that there is any claim, action, suit,
investigation, litigation or proceeding (including, without limitation,
shareholder or derivative litigation) pending or threatened in any court or
before any arbitrator or Governmental Authority which, if adversely determined,
would have a Material Adverse Effect; and nothing shall have occurred since
June 30, 1996 which, in the judgment of any Lender, has had a Material Adverse
Effect.
(b) Each Lender and the Issuing Lender shall be
satisfied, in its sole judgment, exercised reasonably, with the corporate,
capital, legal and management structure of the Borrower and its Subsidiaries,
and shall be satisfied, in its sole judgment exercised reasonably, with the
nature and status of all Contractual Obligations, securities, labor, tax,
ERISA, employee benefit, environmental, health and safety matters, in each
case, involving or affecting the Borrower or any of its Subsidiaries.
3.3. Conditions Precedent to Each Loan and Letter of Credit.
The obligation of each Lender to make any Loan (including the Loan being made
by such Lender on the Effective Date) and the obligation of the Issuing Lender
to issue a Letter of Credit shall be subject to the further conditions
precedent that:
<PAGE> 71
(a) The following statements shall be true on the date of
such Loan or issuance, before and after giving effect thereto and to the
application of the proceeds therefrom (and the acceptance by the Borrower of
the proceeds of such Loan or such Letter of Credit shall constitute a
representation and warranty by the Borrower that on the date of such Loan or
issuance such statements are true):
(i) The representations and warranties of the
Borrower contained in Article IV and of each Loan Party in the other
Loan Documents are correct on and as of such date as though made on
and as of such date (it being understood and agreed that any
representation or warranty which by its terms is made on a specified
date shall be required to be true and correct only as of such
specified date); and
(ii) No Default or Event of Default exists or will
result from the Loans being made or the Letters of Credit being issued
on such date.
(b) The making of the Loans or the issuance of the
Letters of Credit on such date does not violate any Requirement of Law and is
not enjoined, temporarily, preliminarily or permanently.
(c) The Administrative Agent shall have received a
Borrowing Base Certificate, executed by a Responsible Officer of the Borrower,
satisfactory to the Administrative Agent, together with (to the extent not
previously delivered) copies of the Eligible Hotel Documents in respect of each
of the Eligible Hotels shown listed thereon.
(d) The Administrative Agent shall have received such
additional documents, information and materials as any Lender, through the
Administrative Agent, may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lenders and the Administrative Agent to enter
into this Agreement, the Borrower represents and warrants to the Lenders and
the Administrative Agent that on and after the Effective Date:
<PAGE> 72
4.1. Existence; Compliance with Law. Each Loan Party and
each of its Subsidiaries and Eligible Joint Ventures (i) is a real estate
investment trust or a corporation, limited liability company or limited
partnership, as specified herein, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation; (ii) is duly
qualified as a foreign corporation, limited liability company or limited
partnership and in good standing under the laws of each jurisdiction where such
qualification is necessary, except for failures which in the aggregate have no
Material Adverse Effect; (iii) has all requisite corporate, limited liability
company or partnership power and authority and the legal right to own, pledge
and mortgage its properties, to lease (as lessee) the properties that it leases
as lessee, to lease or sublease (as lessor) the properties it owns and/or
leases (as lessee) and to conduct its business as now or currently proposed to
be conducted; (iv) is in compliance with its declaration of trust or
certificate of or formation and by-laws, regulations or partnership agreement,
as appropriate; (v) is in compliance with all other applicable Requirements of
Law except for such non-compliances as in the aggregate have no Material
Adverse Effect; and (vi) has all necessary licenses, permits, consents or
approvals from or by, has made all necessary filings with, and has given all
necessary notices to, each Governmental Authority having jurisdiction, to the
extent required for such ownership, leasing and conduct, except for licenses,
permits, consents or approvals which can be obtained by the taking of
ministerial action to secure the grant or transfer thereof or failures which in
the aggregate have no Material Adverse Effect.
4.2. Power; Authorization; Enforceable Obligations. (a) The
execution, delivery and performance by each Loan Party of the Loan Documents to
which it is a party and the consummation of the transactions related to the
financing contemplated hereby:
(i) are within such Loan Party's corporate,
partnership or trust powers, as appropriate;
(ii) have been duly authorized by all necessary
corporate, partnership or trust action, as appropriate, including,
without limitation, the consent of stockholders and general and/or
limited partners where required;
<PAGE> 73
(iii) do not and will not (A) contravene any Loan
Party's or any of its Subsidiaries' or Eligible Joint Ventures'
respective declaration of trust, certificate of incorporation or
formation or by-laws, regulations, partnership agreement or other
comparable governing documents, (B) violate any other applicable
Requirement of Law (including, without limitation, Regulations G, T, U
and X of the Board of Governors of the Federal Reserve System), or any
order or decree of any Governmental Authority or arbitrator, (C)
conflict with or result in the breach of, or constitute a default
under, or result in or permit the termination or acceleration of, any
material Contractual Obligation of any Loan Party or any of its
Subsidiaries or Eligible Joint Ventures, or (D) result in the creation
or imposition of any Lien upon any of the property of any Loan Party
or any of its Subsidiaries or Eligible Joint Ventures; and
(iv) do not require the consent of, authorization
by, approval of, notice to, or filing or registration with, any
Governmental Authority or any other Person, other than those which
have been obtained or made and copies of which have been or will be
delivered to the Administrative Agent pursuant to Section 3.1, and
each of which on the Effective Date will be in full force and effect.
(b) This Agreement has been, and each of the other Loan
Documents has been, or will have been upon delivery thereof pursuant to Section
3.1, duly executed and delivered by each Loan Party thereto. This Agreement
is, and the other Loan Documents are or will be, when delivered hereunder, the
legal, valid and binding obligation of each Loan Party thereto, enforceable
against it in accordance with its terms except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting the
enforcement of creditor's rights and remedies generally.
4.3. Taxes. All federal, state, local and foreign tax
returns, reports and statements (collectively, the "Tax Returns") required to
be filed by the Borrower or any of its Tax Affiliates have been filed with the
appropriate governmental agencies in all jurisdictions in which such Tax
Returns, are required to be filed, all such Tax Returns are true and correct in
all material respects, and all taxes, charges and other impositions due and
payable
<PAGE> 74
have been timely paid prior to the date on which any fine, penalty, interest,
late charge or loss may be added thereto for non-payment thereof, except where
contested in good faith and by appropriate proceedings if (i) adequate reserves
therefor have been established on the books of the Borrower or such Tax
Affiliate in conformity with GAAP and (ii) all such non-payments in the
aggregate have no Material Adverse Effect. Proper and accurate amounts have
been withheld by the Borrower and each of its respective Tax Affiliates from
their respective employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities. None of the Borrower or any
of its Tax Affiliates has (i) executed or filed with the IRS any agreement or
other document extending, or having the effect of extending, the period for
assessment or collection of any charges; (ii) agreed or been requested to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; or (iii) any obligation under any written tax
sharing agreement.
4.4. Full Disclosure. No written statement prepared or
furnished by or on behalf of any Loan Party or any of its Affiliates in
connection with any of the Loan Documents or the consummation of the
transactions contemplated thereby, and no financial statement delivered
pursuant hereto or thereto, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
4.5. Financial Matters. (a) The consolidated balance sheet
of the Borrower and its Subsidiaries as at December 31, 1995, and the related
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for the fiscal year then ended, certified by
Coopers & Lybrand, L.L.P. and the consolidated balance sheets of the Borrower
and its Subsidiaries as at June 30, 1996, and the related consolidated
statements of income, retained earnings and cash flows of the Borrower and its
Subsidiaries for the six months then ended, certified by the chief financial
officer of the Borrower, copies of which have been furnished to each Lender,
fairly present, subject, in the case of said balance sheets as at June 30,
1996, and said statements of income, retained earnings and cash flows for the
six months then ended, to year-end audit adjustments, the consolidated
financial condition of the
<PAGE> 75
Borrower and its Subsidiaries as at such dates and the consolidated results of
the operations of the Borrower and its Subsidiaries for the period ended on
such dates, all in conformity with GAAP.
(b) Since June 30, 1996, there has been no Material
Adverse Change and there have been no events or developments that in the
aggregate have had a Material Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries had
at June 30, 1996 any material obligation, contingent liability or liability for
taxes, long-term leases or unusual forward or long-term commitment which is not
reflected in the balance sheet at such date referred to in subsection (a) above
or in the notes thereto.
(d) The Projections that have been delivered to each
Lender, were prepared on the basis of the assumptions expressed therein, which
assumptions the Borrower believed to be reasonable based on the information
available to the Borrower at the time so furnished and on the Closing Date.
(e) The Borrower is, and on a consolidated basis the
Borrower and its Subsidiaries are, Solvent.
4.6. Litigation. There are no pending or, to the knowledge
of the Borrower, threatened actions, investigations or proceedings affecting
the Borrower, any of its Subsidiaries or Eligible Joint Ventures, or (to the
best knowledge of the Borrower) any Operating Lessee or any of their respective
properties or revenues before any court, Governmental Authority or arbitrator,
other than those that in the aggregate, if adversely determined, would have no
Material Adverse Effect. The performance of any action by (a) any Loan Party
required or contemplated by any of the Loan Documents or (b) any Operator
required or contemplated by any Operating Lease or Management Agreement is not,
to the best knowledge of the Borrower, restrained or enjoined (either
temporarily, preliminarily or permanently), and, to the best knowledge of the
Borrower, no material adverse condition has been imposed by any Governmental
Authority or arbitrator upon any of the foregoing transactions contemplated by
the aforementioned documents.
4.7. Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the Board of Governors of
the
<PAGE> 76
Federal Reserve System), and no proceeds of any Borrowing will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
4.8. Ownership of Borrower and DJONT; Subsidiaries. (a) The
authorized capital stock of FelCor consists of (i) 50,000,000 shares of common
stock, $.01 par value per share, of which 36,588,733 shares are issued and
outstanding as of the date hereof, and (ii) 10,000,000 shares of preferred
stock, $.01 par value per share, of which 6,050,000 shares, designated as $1.95
Series A Cumulative Convertible Preferred Stock, $25.00 per share liquidation
preference, are outstanding as of the date hereof. All of the outstanding
capital stock of FelCor has been validly issued, is fully paid and
non-assessable. At least 200,000 shares of FelCor common stock, and/or units
of limited partner interest in FelCor LP that are redeemable for common stock
of FelCor is owned, in the aggregate, beneficially by Hervey A. Feldman and
Thomas J. Corcoran, Jr., free and clear of all Liens.
(b) FelCor is the sole general partner of FelCor LP and,
as of the date hereof, owns beneficially and of record at least 90.6% of the
partnership interests of FelCor LP free and clear of all Liens.
(c) As of the date hereof (x) the outstanding membership
interests of DJONT consist of 50% voting Class A membership interests, 50%
non-voting Class B membership interests and (y) other than Class A and Class B
membership interests, there are no other outstanding classes of membership
interests of DJONT. Hervey A. Feldman and Thomas J. Corcoran, Jr. own,
beneficially, all of the voting Class A membership interests in DJONT, free and
clear of all Liens.
(d) Set forth on Schedule 4.8 hereto is a complete and
accurate list showing, as of the Effective Date, all Subsidiaries and
Unconsolidated Entities of the Borrower and, as to each such Subsidiary and
Unconsolidated Entity, the jurisdiction of its formation and the percentage of
the outstanding Stock of each class owned (directly or indirectly) by the
Borrower. No Stock of any Subsidiary or Unconsolidated Entity of the Borrower
is subject to any outstanding option, warrant, right of conversion or purchase
or any similar right other than certain rights of first refusal contained in
partnership agreements to which the Borrower or a Subsidiary is a party. All
of the outstanding
<PAGE> 77
capital Stock of each such Subsidiary and Unconsolidated Entity owned by the
Borrower has been validly issued, is fully paid and (except for partnership
interests) non-assessable, and all outstanding capital Stock of its
Subsidiaries and Unconsolidated Entities owned by the Borrower is free and
clear of all Liens. Neither the Borrower nor any such Subsidiary or
Unconsolidated Entity is a party to, or has knowledge of, any agreement
restricting the transfer or hypothecation of any shares of Stock of any such
Subsidiary or Unconsolidated Entity, other than those imposed by Requirements
of Law, or the Loan Documents.
4.9. ERISA. (a) There are no Multiemployer Plans.
(b) Each Plan and any related trust intended to qualify
under Code Section 401 or 501 has been determined by the IRS to be so qualified
and to the best knowledge of the Borrower nothing has occurred which would
cause the loss of such qualification.
(c) None of the Borrower, any of its Subsidiaries or any
ERISA Affiliate, with respect to any Pension Plan, has failed to make any
contribution or pay any amount due as required by Section 412 of the Code or
Section 302 of ERISA or the terms of any such plan, and all required
contributions and benefits have been paid in accordance with the provisions of
each such plan.
(d) There are no pending or, to the knowledge of the
Borrower, threatened claims, actions or proceedings (other than claims for
benefits in the normal course), relating to any Plan other than those that in
the aggregate, if adversely determined, would have no Material Adverse Effect.
(e) No Pension Plan has any unfunded accrued benefit
liabilities, as determined by using reasonable actuarial assumptions utilized
by such plan's actuary for funding purposes. Within the last five years none
of the Borrower, any of its Subsidiaries or any ERISA Affiliate has caused a
Pension Plan with any such liabilities to be transferred outside of its
"controlled group" (within the meaning of Section 4001(a)(14) of ERISA).
(f) No Plan provides for continuing health, disability,
accident or death benefits or coverage for any participant or his or her
beneficiary after such participant's termination of employment (except as may
be
<PAGE> 78
required by Section 4980B of the Code and at the sole expense of the
participant or the beneficiary) which would result in the aggregate under all
Plans in a liability in an amount which would have a Material Adverse Effect.
(g) None of the assets of any of the Loan Parties are
subject to Title I of ERISA because they consist of "plan assets" within the
meaning of DOL Regulation Section 2510.3-101 by reason of an equity investment
in any of the Loan Parties.
4.10. Indebtedness. Except as disclosed on Schedule 4.10, as
of the date hereof, none of the Borrower or any of its Subsidiaries or
Unconsolidated Entities has any Indebtedness.
4.11. Restricted Payments. From and after the Closing Date,
the Borrower has not declared or made any Restricted Payments (other than those
permitted pursuant to Section 7.4).
4.12. No Burdensome Restrictions; No Defaults. (a) No Loan
Party nor any of its Subsidiaries or Eligible Joint Ventures (i) is a party to
any Contractual Obligation the compliance with which would have a Material
Adverse Effect or the performance of which by any thereof, either
unconditionally or upon the happening of an event, will result in the creation
of a Lien on the property or assets of any such Loan Party or its Subsidiaries,
or (ii) is subject to any charter or corporate restriction which has a Material
Adverse Effect.
(b) No Loan Party or Subsidiary or Eligible Joint Venture
of any Loan Party is in default under or with respect to any Contractual
Obligation owed by it and, to the knowledge of the Borrower, no other party is
in default under or with respect to any Contractual Obligation owed to any Loan
Party or to any Subsidiary or Eligible Joint Venture of a Loan Party, other
than those defaults which in the aggregate have no Material Adverse Effect.
(c) No Event of Default or Default has occurred and is
continuing.
(d) There is no Requirement of Law the compliance with
which by any Loan Party would have a Material Adverse Effect.
<PAGE> 79
(e) As of the date hereof, no Subsidiary or Eligible
Joint Venture of the Borrower is subject to any Contractual Obligation (other
than as set forth in the governing documents thereof) restricting or limiting
its ability to transfer its assets to the Borrower or to declare or make any
dividend payment or other distribution on account of any shares of any class of
its Stock or its ability to purchase, redeem, or otherwise acquire for value or
make any payment in respect of any such shares or any shareholder rights.
4.13. Investments. Except as disclosed on Schedule 4.8 or
4.13, the Borrower and its Subsidiaries considered as a single enterprise, is
not engaged in any joint venture or partnership with any other Person nor does
it maintain any Investment, as of the date hereof.
4.14. Government Regulation. Neither the Borrower nor any of
its Subsidiaries or Eligible Joint Ventures is an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act
of 1940, as amended, or subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or any
other federal or state statute or regulation such that its ability to incur
Indebtedness is limited, or its ability to consummate the transactions
contemplated hereby or by any other Loan Document, or the exercise by the
Administrative Agent or any Lender of rights and remedies hereunder or
thereunder, is impaired. The making of the Loans by the Lenders, the
application of the proceeds and repayment thereof by the Borrower and the
consummation of the transactions contemplated by the Loan Documents will not
cause the Borrower or any of its Subsidiaries or Eligible Joint Ventures to
violate any provision of any of the foregoing or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder.
4.15. Insurance. All policies of insurance of any kind or
nature owned by or issued to or for the benefit of any Loan Party or any of its
Subsidiaries or Eligible Joint Ventures, or issued in respect of any real
property owned or leased by the Borrower or any of its Subsidiaries or Eligible
Joint Ventures including, without limitation, policies of life, fire, theft,
product liability, public liability, property damage, other casualty, employee
fidelity, workers' compensation and employee health and welfare insurance, are
in full force and effect and are of a
<PAGE> 80
nature and provide such coverage as is sufficient and as is customarily carried
by companies of the size and character of such Person. No Loan Party or any of
its Subsidiaries or Eligible Joint Ventures has been refused insurance for
which it applied or had any policy of insurance terminated (other than at its
request).
4.16. Labor Matters. (a) There are no strikes, work
stoppages, slowdowns or lockouts pending or threatened against or involving the
Borrower or its Subsidiaries or their respective Hotels, other than those which
in the aggregate have no Material Adverse Effect.
(b) There are no unfair labor practice charges,
arbitrations or grievances pending against or involving, or to the knowledge of
the Borrower threatened against or involving the Borrower or its Subsidiaries
or Eligible Joint Ventures, other than those which, in the aggregate, if
resolved adversely to the Borrower or such Subsidiary or Eligible Joint
Venture, would have no Material Adverse Effect.
(c) As of the Effective Date, neither the Borrower nor
any of its Subsidiaries or Eligible Joint Ventures are parties to, or have any
obligations under, any collective bargaining agreement.
(d) There is no organizing activity involving the
Borrower or any of its Subsidiaries or Eligible Joint Ventures pending or, to
the Borrower's knowledge, threatened by any labor union or group of employees,
other than those which in the aggregate have no Material Adverse Effect. There
are no representation proceedings pending or, to the Borrower's knowledge,
threatened with the National Labor Relations Board, and no labor organization
or group of employees of the Borrower or any of its Subsidiaries or Eligible
Joint Ventures have made a pending demand for recognition, other than those
which in the aggregate have no Material Adverse Effect.
4.17. Force Majeure. Neither the business nor the properties
of any Loan Party or any of their respective Subsidiaries or Eligible Joint
Ventures are currently suffering from the effects of any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), other than those which in the aggregate
have no Material Adverse Effect.
<PAGE> 81
4.18. Use of Proceeds. The proceeds of the Loans will be
used by the Borrower solely as follows: (a) subject to the limitations set
forth herein, to fund any direct or indirect investment in existing Hotels, in
Hotels and/or interests in Hotels which are to be acquired by the Borrower or
any of its Subsidiaries, and for the payment of related transaction costs, fees
and expenses, and (b) as to the sum of up to $55,000,000 only, for general
corporate or working capital purposes or for Letters of Credit.
4.19. Environmental Protection. Except as disclosed on
Schedule 4.19 (and the Borrower represents and warrants to the Lenders and the
Administrative Agent that the matters disclosed in the reports identified on
Schedule 4.19 would not reasonably be expected to have a Material Adverse
Effect):
(a) to the best knowledge of Borrower and its
Subsidiaries, all real property leased or owned by the Borrower or any of its
Subsidiaries or Eligible Joint Ventures is free from contamination by any
Hazardous Material which could reasonably be expected to subject the Borrower
or any of its Subsidiaries to Environmental Liabilities and Costs of $1,000,000
or more;
(b) the operations of the Borrower and each of its
Subsidiaries or Eligible Joint Ventures, and the operations at any real
property leased or owned by the Borrower or any of its Subsidiaries or Eligible
Joint Ventures are in material compliance in all respects with all applicable
Environmental Laws;
(c) neither the Borrower nor any of its Subsidiaries or
Eligible Joint Ventures have liabilities with respect to Hazardous Materials
and, to the best knowledge of the Borrower and its Subsidiaries, no facts or
circumstances exist which could give rise to liabilities with respect to
Hazardous Materials which could reasonably be expected to subject the Borrower
or any of its Subsidiaries to Environmental Liabilities and Costs of $1,000,000
or more;
(d) (i) the Borrower and its Subsidiaries and Eligible
Joint Ventures and all real property owned or leased by the Borrower or its
Subsidiaries and Eligible Joint Ventures have all Environmental Permits
necessary for the operations at such real property and are in material
compliance with such Environmental Permits, (ii) there are no Legal Proceedings
pending nor, to the best knowledge of
<PAGE> 82
the Borrower and its Subsidiaries, threatened to revoke, or alleging the
violation of, such Environmental Permits, and (iii) neither the Borrower nor
any of its Subsidiaries or Eligible Joint Ventures or to the best knowledge of
the Borrower and its Subsidiaries the Operators have received any notice from
any source to the effect that there is lacking any Environmental Permit
required in connection with the current use or operation of any property leased
or owned by the Borrower or any of its Subsidiaries or Eligible Joint Ventures;
(e) neither the Borrower's nor any of its Subsidiaries'
or Eligible Joint Ventures' current facilities and operations, nor, to the best
knowledge of the Borrower and its Subsidiaries, any Operator, any predecessor
of the Borrower or any of its Subsidiaries or Eligible Joint Ventures, nor any
of the Borrower's or its Subsidiaries' or Eligible Joint Ventures' past
facilities and operations, nor to the best knowledge of the Borrower and its
Subsidiaries, any owner of premises leased or operated by the Borrower and its
Subsidiaries and Eligible Joint Ventures, are subject to any outstanding
written Order or Contract, including Environmental Liens, with any Governmental
Authority or other Person, or to any federal, state, local, foreign or
territorial investigation respecting (i) Environmental Laws, (ii) Remedial
Action, (iii) any Environmental Claim, or (iv) the Release or threatened
Release of any Hazardous Material;
(f) neither the Borrower nor any of its Subsidiaries or
Eligible Joint Ventures or, to the best knowledge of the Borrower and its
Subsidiaries, Operators are subject to any pending Legal Proceeding alleging
the violation of any Environmental Law with respect to a Hotel nor, to the best
knowledge of the Borrower and its Subsidiaries, are any such proceedings
threatened;
(g) neither the Borrower nor any of its Subsidiaries or
Eligible Joint Ventures nor, to the best knowledge of the Borrower and its
Subsidiaries, any Operators or predecessor of the Borrower or any of its
Subsidiaries or Eligible Joint Ventures, nor to the best knowledge of the
Borrower and its Subsidiaries any owner of premises leased by the Borrower or
any of its Subsidiaries or Eligible Joint Ventures, have filed any notice under
federal, state or local, territorial or foreign law indicating past or present
treatment, storage, or disposal of or reporting a Release of Hazardous Material
into the environment;
<PAGE> 83
(h) none of the operations of the Borrower or any of its
Subsidiaries or Eligible Joint Ventures or, to the best knowledge of the
Borrower and its Subsidiaries, of any Operators or predecessor of the Borrower
or any of its Subsidiaries or Eligible Joint Ventures, or, to the best
knowledge of the Borrower and its Subsidiaries, of any owner of premises leased
by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, involve
or previously involved the generation, transportation, treatment, storage or
disposal of hazardous waste, as defined under 40 C.F.R. Part 261.3 (in effect
as of the date of this Agreement) or any state, local, territorial or foreign
equivalent; and
(i) there is not now, nor to the best knowledge of the
Borrower and its Subsidiaries, has there been in the past, on, in or under any
real property leased or owned by the Borrower or any of its Subsidiaries or
Eligible Joint Ventures, to the best knowledge of the Borrower and its
Subsidiaries or any of their predecessors (i) any underground storage tanks or
surface tanks, dikes or impoundments (other than for surface water), (ii) any
friable asbestos-containing materials, (iii) any polychlorinated biphenyls, or
(iv) any radioactive substances other than naturally-occurring radioactive
material.
4.20. Contractual Obligations Concerning Assets. As of the
date hereof, neither the Borrower nor any of its Subsidiaries owns or holds, or
is obligated under or a party to, any option, right of first refusal, or other
contractual right to purchase or acquire, or any Contractual Obligation to
effect an Asset Sale of, any Hotel owned or leased by the Borrower or any of
its Subsidiaries, except those that in the aggregate would not have a Material
Adverse Effect whether or not exercised.
4.21. Intellectual Property. The Loan Parties and its
Subsidiaries and Eligible Joint Ventures or the Operating Lessee own or license
or otherwise have the right to use all material licenses, permits, patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, copyright applications, franchises, authorizations and other
intellectual property rights that are necessary for the operations of their
respective businesses, without infringement upon or conflict with the rights of
any other Person with respect thereto, including, without limitation, the
Licenses and all trade names associated with any private label brands of any
Loan
<PAGE> 84
Party or any of its Subsidiaries or Eligible Joint Ventures. To the best
knowledge of the Borrower, no material slogan or other advertising device,
product, process, method, substance, part or component, or other material now
employed, or now contemplated to be employed, by any Loan Party or any of their
respective Subsidiaries or Eligible Joint Ventures or the Operating Lessee
infringes upon or conflicts with any rights owned by any other Person, and no
claim or litigation regarding any of the foregoing is pending or threatened.
4.22. Title. (a) Each Loan Party and their respective
Subsidiaries and Eligible Joint Ventures own good and marketable fee simple
absolute title to all of the Real Estate purported to be owned by them, which
Real Estate is at the date hereof described in Schedule 4.22(a), and good and
marketable title to, or valid leasehold interests in, all other properties and
assets purported to be leased by any Loan Party or any of their respective
Subsidiaries or Eligible Joint Ventures, including, without limitation, valid
leasehold interests pursuant to the Leases and all property reflected in the
balance sheet referred to in Section 4.5(a). Each Loan Party and its
respective Subsidiaries or Eligible Joint Ventures received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and have duly effected all
recordings, filings and other actions necessary to establish, protect and
perfect such Loan Party's and their respective Subsidiaries' or Eligible Joint
Ventures' right, title and interest in and to all such property except for such
documents or actions the failure to obtain or accomplish which would not have a
Material Adverse Effect.
(b) All material real property leased at the date hereof
by the Borrower or any of their respective Subsidiaries or Eligible Joint
Ventures is listed on Schedule 4.22(b). Each of such leases is valid and
enforceable in accordance with its terms and is in full force and effect. The
Borrower has delivered to the Administrative Agent true and complete copies of
each of such leases and all documents affecting the rights or obligations of
the Borrower or any of its Subsidiaries or Eligible Joint Ventures which is a
party thereto, including, without limitation, any non- disturbance and
recognition agreements, subordination agreements, attornment agreements and
agreements regarding the term or rental of any of the leases. None of the
Borrower or any of its respective Subsidiaries or Eligible Joint Ventures nor,
to the
<PAGE> 85
knowledge of the Borrower, any other party to any such lease is in default of
its obligations thereunder or has delivered or received any notice of default
under any such lease, nor has any event occurred which, with the giving of
notice, the passage of time or both, would constitute a default under any such
lease, except for defaults which in the aggregate have no Material Adverse
Effect.
(c) All components of all improvements included within
the Hotels owned or leased, as lessee, by any Loan Party or Eligible Joint
Venture (collectively, "Improvements"), including, without limitation, the
roofs and structural elements thereof and the heating, ventilation, air
conditioning, plumbing, electrical, mechanical, sewer, waste water, storm
water, paving and parking equipment, systems and facilities included therein,
are in good working order and repair, subject to such exceptions which are not
reasonably likely to have, in the aggregate, a Material Adverse Effect. All
water, gas, electrical, steam, compressed air, telecommunication, sanitary and
storm sewage lines and systems and other similar systems serving the Hotels
owned or leased by any Loan Party or any of their respective Subsidiaries or
Eligible Joint Ventures are installed and operating and are sufficient to
enable the real property owned or leased by any Loan Party and their respective
Subsidiaries or Eligible Joint Ventures to continue to be used and operated in
the manner currently being used and operated, and no Loan Party or any of its
Subsidiaries or Eligible Joint Ventures has any knowledge of any factor or
condition that reasonably could be expected to result in the termination or
material impairment of the furnishing thereof. No Improvement or portion
thereof is dependent for its access, operation or utility on any land, building
or other Improvement not included in the real property owned or leased by any
Loan Party or any of its Subsidiaries or Eligible Joint Ventures other than for
access provided pursuant to a recorded easement or other right of way
establishing the right of such access.
(d) All Permits required to have been issued or
appropriate to enable all real property owned or leased by any Loan Party or
any of its Subsidiaries or Eligible Joint Ventures to be lawfully occupied and
used for all of the purposes for which they are currently occupied and used
have been lawfully issued and are in full force and effect, other than those
which in the aggregate have no Material Adverse Effect.
<PAGE> 86
(e) No Loan Party or any of its Subsidiaries or Eligible
Joint Ventures has received any notice, or has any knowledge, of any pending,
threatened or contemplated condemnation proceeding affecting any real property
owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint
Ventures or any part thereof, or any proposed termination or impairment of any
parking at any such owned or leased real property or of any sale or other
disposition of any real property owned or leased by any Loan Party or any of
its Subsidiaries or Eligible Joint Ventures or any part thereof in lieu of
condemnation, which in the aggregate, are reasonably likely to have a Material
Adverse Effect.
(f) Except for events or conditions not reasonably likely
to have, in the aggregate, a Material Adverse Effect, (i) no portion of any
real property owned or leased by any Loan Party or any of its Subsidiaries or
Eligible Joint Ventures has suffered any material damage by fire or other
casualty loss which has not heretofore been completely repaired and restored to
its condition prior to such casualty, and (ii) no portion of any real property
owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint
Ventures is located in a special flood hazard area as designated by any Federal
Governmental Authorities.
4.23. Status as REIT. The Borrower is organized in
conformity with the requirements for qualification as an equity-oriented real
estate investment trust under the Code. Borrower has met all of the
requirements for qualification as an equity-oriented real estate investment
trust under the Code for its Fiscal Year ended December 31, 1996. The Borrower
is in a position to qualify for its current Fiscal Year as a real estate
investment trust under the Code and its proposed methods of operation will
enable it to so qualify.
4.24. Operator: Compliance with Law. To the best knowledge
of the Borrower and its Subsidiaries, each Operator (i) has full power and
authority and the legal right to own, lease (or sublease), manage and operate
(as applicable) the properties it operates and to conduct the business in which
it is currently engaged with respect to any real property owned or leased by
the Borrower or any of its Subsidiaries or Eligible Joint Ventures (ii) is duly
qualified or licensed and is in good standing under the laws of each
jurisdiction where its ownership, lease (or sublease), management or operation
of any real property
<PAGE> 87
owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint
Ventures requires such qualification, and (iii) is in compliance with all
Requirements of Law applicable to the real property owned or leased by the
Borrower or any of its Subsidiaries or Eligible Joint Ventures, or applicable
to the operation or management thereof except to the extent that the failure to
comply therewith is not reasonably likely to have, in the aggregate, a Material
Adverse Effect.
4.25. Operating Leases, Licenses and Management Agreement.
(a) Each of the Hotels (i) is leased to an Operating Lessee under an Operating
Lease (ii) is the subject of a License, and (iii) is managed and operated for
the Operating Lessee pursuant to a Management Agreement.
(b) Each of the Operating Leases, Licenses and Management
Agreements in respect of the Hotels (i) is in full force and effect, (ii) is a
legally valid and binding obligation of each of the parties thereto, subject to
such exceptions which are not reasonably likely to have, in the aggregate, a
Material Adverse Effect, and (iii) has not been modified, amended or
supplemented in any material or adverse way. Neither the Borrower nor any of
its Subsidiaries or Eligible Joint Ventures has collected any rents becoming
due under any Operating Lease more than 30 days in advance. All rent and other
sums and charges payable by any Operating Lessee under each Operating Lease to
which it is a party are current, no notice of default or termination under any
such Operating Lease is outstanding, no termination event or condition or
uncured default on the part of the Operating Lessee exists under any Operating
Lease, and no event of default has occurred which, with the giving of notice or
the lapse of time or both, would constitute such a default or termination event
or condition or uncured default on the part of the Borrower or its Subsidiaries
or Eligible Joint Ventures or the Operators (as the case may be), subject to
such exceptions which are not reasonably likely to have, in the aggregate, a
Material Adverse Effect. As to all of the Leases, Borrower and each of its
Subsidiaries or Eligible Joint Ventures has performed all of its repair and
maintenance obligations (if any) and, to the best knowledge and belief of
Borrower, each Operating Lessee under each Operating Lease to which it is a
party has performed all of its repair and maintenance obligations, subject to
such exceptions which are not reasonably likely to have, in the aggregate, a
Material Adverse Effect.
<PAGE> 88
4.26. FF&E Reserves. An FF&E Reserve has been established in
respect of each of the Hotels and the Borrower or its Subsidiaries or Eligible
Joint Ventures have made any contributions to such FF&E Reserve as required by
the terms of the Operating Lease and/or the Management Agreement relating
thereto.
4.27. $100MM Facility. The $100MM Facility has been
converted to a secured term loan in an aggregate principal sum which does not
exceed $85,000,000 and with a final maturity of September 30, 2000. All
material documentation evidencing such conversion has been delivered to the
Administrative Agent.
ARTICLE V
FINANCIAL COVENANTS
As long as any of the Obligations or Commitments remain
outstanding, unless the requisite Lenders specified in Section 10.1 otherwise
consent in writing, the Borrower agrees with the Lenders and the Administrative
Agent that:
5.1. Gross Interest Expense Coverage. The Borrower shall
maintain at the end of each Fiscal Quarter, commencing with the Fiscal Quarter
ending on June 30, 1997, a ratio of (a) Adjusted EBITDA to (b) Gross Interest
Expense, in each case determined on the basis of the four (4) Fiscal Quarters
ending on the date of determination, of not less than 2.5:1.0.
5.2. Fixed Charge Coverage Ratio. The Borrower shall
maintain at the end of each Fiscal Quarter commencing with the Fiscal Quarter
ending on June 30, 1997, a ratio of (a) Adjusted EBITDA to (b) Fixed Charges,
in each case determined on the basis of the four (4) Fiscal Quarters ending on
the date of determination, of not less than 2.0:1.0.
5.3. Maintenance of Tangible Net Worth. The Borrower shall
maintain during each Fiscal Quarter a Tangible Net Worth of not less than the
Minimum Tangible Net Worth.
5.4. Limitations on Total Indebtedness. The Borrower shall
not, during each Fiscal Quarter on a consolidated basis, permit the Total
Indebtedness (including, without limitation, the Obligations and all
<PAGE> 89
Capitalized Lease Obligations) of the Borrower for borrowed money to exceed 50%
of Total Value.
5.5. Limitations on Total Secured Indebtedness. The Borrower
shall not, during each Fiscal Quarter on a consolidated basis, permit the Total
Secured Indebtedness (including, without limitation, secured Obligations and
Capitalized Lease Obligations) of the Borrower, to exceed 20% of Total Value.
5.6. Adjusted NOI and Hotels. The Borrower shall ensure that
at the end of each Fiscal Quarter commencing with the Fiscal Quarter ending on
June 30, 1997 at least 50% of the aggregate Adjusted NOI generated by all
Hotels during the preceding four (4) Fiscal Quarters shall be generated by
Hotels wholly owned or leased by the Borrower or its wholly-owned Subsidiaries,
provided that, for Hotels owned or leased for less than four (4) Fiscal
Quarters only the Adjusted NOI generated by such Hotels since the date of
acquisition of such Hotel shall be included in calculating such aggregate
Adjusted NOI.
ARTICLE VI
AFFIRMATIVE COVENANTS
As long as any of the Obligations or the Commitments remain
outstanding, unless the Majority Lenders otherwise consent in writing, the
Borrower agrees with the Lenders and the Administrative Agent that:
6.1. Compliance with Laws, Etc. The Borrower shall comply,
and shall cause each of its Subsidiaries and Eligible Joint Ventures to comply,
in all material respects with all Requirements of Law, Contractual Obligations,
commitments, instruments, licenses, permits and franchises, including, without
limitation, all Permits; provided, however, that the Borrower shall not be
deemed in default of this Section 6.1 if all such non-compliances in the
aggregate have no Material Adverse Effect.
6.2. Conduct of Business. The Borrower shall (a) conduct,
and shall cause each of its Subsidiaries and Eligible Joint Ventures to
conduct, its business in the ordinary course and consistent with past practice;
(b) use, and cause each of its Subsidiaries and Eligible Joint Ventures to use,
its reasonable efforts, in the ordinary course and consistent with past
practice, to (i) preserve
<PAGE> 90
its business and the goodwill and business of the customers, advertisers,
suppliers and others having business relations with the Borrower or any of its
Subsidiaries or Eligible Joint Ventures, and (ii) keep available the services
and goodwill of its present employees; (c) preserve, and cause each of its
Subsidiaries and Eligible Joint Ventures to preserve, all registered patents,
trademarks, trade names, copyrights and service marks with respect to its
business; and (d) perform and observe, and cause each of its Subsidiaries and
Eligible Joint Ventures to perform and observe, all the terms, covenants and
conditions required to be performed and observed by it under its Contractual
Obligations (including, without limitation, to pay all rent and other charges
payable under any lease and all debts and other obligations as the same become
due), and do, and cause its Subsidiaries and Eligible Joint Ventures to do, all
things necessary to preserve and to keep unimpaired its rights under such
Contractual Obligations; provided, however, that, in the case of each of
clauses (a) through (d), the Borrower shall not be deemed in default of this
Section 6.2 if all such failures in the aggregate have no Material Adverse
Effect.
6.3. Payment of Taxes, Etc. The Borrower shall pay and
discharge, and shall cause each of its Subsidiaries and Eligible Joint
Ventures, as appropriate, to pay and discharge, before the same shall become
delinquent, all lawful governmental claims, taxes, assessments, charges and
levies, except where contested in good faith, by proper proceedings, if
adequate reserves therefor have been established on the books of the Borrower
or the appropriate Subsidiary or Eligible Joint Venture in conformity with
GAAP; provided, however, that the Borrower shall not be deemed in default of
this Section 6.3 if all such non-payments in the aggregate have no Material
Adverse Effect.
6.4. Maintenance of Insurance. The Borrower shall maintain,
and shall cause each of its Subsidiaries and Eligible Joint Ventures to
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks (including, without
limitation, fire, extended coverage, vandalism, malicious mischief, public
liability, product liability, and business interruption) as is usually carried
by companies engaged in similar businesses and owning similar properties in the
same general areas in which the Borrower or such Subsidiary or Eligible Joint
Venture. The Borrower will furnish to the Lenders from time to time such
information as may be requested as to such insurance.
<PAGE> 91
6.5. Preservation of Existence, Etc. The Borrower shall
preserve and maintain, and shall cause each of its Subsidiaries and Eligible
Joint Ventures to preserve and maintain, its corporate or partnership
existence, rights (charter and statutory) and franchises, except as permitted
under Section 7.5.
6.6. Access. The Borrower shall, at any reasonable time and
from time to time, permit the Administrative Agent or any of the Lenders, or
any agents or representatives thereof, at the expense of the Lenders (but such
expense to be reimbursed by the Borrower in the event that any of the following
reveal a material Default by the Borrower), to (a) examine and make copies of
and abstracts from the records and books of account of the Borrower and each of
its Subsidiaries and Eligible Joint Ventures, (b) visit the properties of the
Borrower and each of its Subsidiaries and Eligible Joint Ventures, (c) discuss
the affairs, finances and accounts of the Borrower and each of its Subsidiaries
and Eligible Joint Ventures with any of their respective officers or directors,
and (d) communicate directly with the Borrower's independent certified public
accountants.
6.7. Keeping of Books. The Borrower shall keep, and shall
cause each of its Subsidiaries and Eligible Joint Ventures to keep, proper
books of record and account, in which proper entries shall be made of all
financial transactions and the assets and business of the Borrower and each
such Subsidiary or Eligible Joint Venture.
6.8. Maintenance of Properties, Etc. The Borrower shall
maintain and preserve, and shall cause each of its Subsidiaries and Eligible
Joint Ventures to maintain and preserve, (i) all of its properties which are
used or useful or necessary in the conduct of its business in good working
order and condition, and (ii) all rights, permits, licenses, approvals and
privileges (including, without limitation, all Permits) which are used or
useful or necessary in the conduct of its business; provided, however, that the
Borrower shall not be deemed in default of this Section 6.8 if all such
failures in the aggregate have no Material Adverse Effect.
6.9. Performance and Compliance with Other Covenants. The
Borrower shall perform and comply with, and shall cause each of its
Subsidiaries and Eligible Joint Ventures to perform and comply with, each of
the covenants and agreements set forth in each Contractual Obligation to
<PAGE> 92
which it or any of its Subsidiaries or Eligible Joint Ventures is a party;
provided, however, that the Borrower shall not be deemed in default of this
Section 6.9 if all such failures in the aggregate have no Material Adverse
Effect.
6.10. Application of Proceeds. The Borrower shall use the
entire amount of the proceeds of the Loans as provided in Section 4.18.
6.11. Financial Statements. The Borrower shall furnish to
the Lenders:
(a) as soon as available and in any event within 45 days
after the end of each of the first three Fiscal Quarters of each Fiscal Year,
consolidated balance sheets of the Borrower and its Subsidiaries and DJONT as
of the end of such quarter and consolidated statements of income, retained
earnings and cash flow of the Borrower and its Subsidiaries and DJONT for the
period commencing at the end of the previous Fiscal Year and ending with the
end of such Fiscal Quarter, all prepared in conformity with GAAP and certified
by the chief financial officer of the Borrower or the chief financial officer
of DJONT, as appropriate, as fairly presenting the financial condition and
results of operations of the Borrower and its Subsidiaries and DJONT at such
date and for such period, together with (i) a certificate of said officer
stating that no Default or Event of Default has occurred and is continuing or,
if a Default or an Event of Default has occurred and is continuing, a statement
as to the nature thereof and the action which the Borrower or DJONT, as
appropriate, proposes to take with respect thereto, (ii) a schedule in form
satisfactory to the Administrative Agent of the computations used by the
Borrower or DJONT, as appropriate, in determining compliance with all financial
covenants contained herein, and (iii) a written discussion and analysis by the
management of the Borrower or DJONT, as appropriate, of the financial
statements furnished in respect of such Fiscal Quarter;
(b) as soon as available and in any event within 90 days
after the end of each Fiscal Year, consolidated balance sheets of the Borrower
and its Subsidiaries and DJONT as of the end of such year and consolidated
statements of income, retained earnings and cash flow of the Borrower and its
Subsidiaries and DJONT for such Fiscal Year, all prepared in conformity with
GAAP and certified, in the case of such consolidated financial statements, in a
manner reasonably acceptable to the Administrative Agent without
<PAGE> 93
qualification as to the scope of the audit by Coopers & Lybrand or other
independent public accountants of recognized national standing together with
(i) a schedule in form satisfactory to the Administrative Agent of the
computations used by the Borrower in determining, as of the end of such Fiscal
Year, the Borrower's or DJONT's, as appropriate, compliance with all financial
covenants contained herein, and (ii) a written discussion and analysis by the
management of the Borrower or DJONT, as appropriate, of the financial
statements furnished in respect of such Fiscal Year; and
(c) promptly after the same are received by the Borrower,
a copy of each management letter provided to the Borrower by its independent
certified public accountants which refers in whole or in part to any
inadequacy, defect, problem, qualification or other lack of fully satisfactory
accounting controls utilized by the Borrower or any of its Subsidiaries.
(d) within 45 days after the end of each Fiscal Quarter,
(i) a Borrowing Base Certificate as of the end of such Fiscal Quarter, executed
by a Responsible Officer of the Borrower, together with (to the extent not
previously delivered) copies of the Eligible Hotel Documents in respect of each
of the Eligible Hotels shown listed thereon, and (ii) a Compliance Certificate
as of the end of such Fiscal Quarter, executed by the Chief Financial Officer
of the Borrower.
6.12. Reporting Requirements. The Borrower shall furnish to
the Lenders:
(a) prior to any Asset Sale generating proceeds in excess
of 10% of the value of Total Assets of the Borrower, a notice (i) describing
the assets being sold, (ii) stating the estimated Asset Sales proceeds in
respect of such Asset Sale and (iii) accompanied by a Borrowing Base
Certificate and a certificate of the chief financial officer of the Borrower
stating that before and after giving effect to such Asset Sale, the Borrower
shall be in compliance with all of its covenants set forth in the Loan
Documents and that no Default or Event of Default will result from such Asset
Sale.
(b) as soon as available and in any event within 90 days
after the end of each Fiscal Year (or earlier if approved earlier by the Board
of Directors of the Borrower), an annual budget of the Borrower and its
Subsidiaries for
<PAGE> 94
the succeeding Fiscal Year, displaying on a monthly and quarterly basis
anticipated balance sheets, forecasted Capital Expenditures, working capital
requirements, revenues, net income, cash flow, EBITDA, all on a consolidated
basis;
(c) promptly and in any event within 30 days after the
Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason to
know that any ERISA Event has occurred, a written statement of the chief
financial officer or other appropriate officer of the Borrower describing such
ERISA Event or waiver request and the action, if any, which the Borrower, its
Subsidiaries and ERISA Affiliates propose to take with respect thereto and a
copy of any notice filed by or with the PBGC or the IRS pertaining thereto;
(d) promptly and in any event within 10 days after
receipt thereof, a copy of any adverse notice, determination letter, ruling or
opinion the Borrower, any of its Subsidiaries or any ERISA Affiliate receives
from the PBGC, DOL or IRS with respect to any Plan, other than those which, in
the aggregate, do not have any reasonable likelihood of resulting in a Material
Adverse Change;
(e) promptly after the commencement thereof, notice of
all actions, suits and proceedings before any domestic or foreign Governmental
Authority or arbitrator, affecting the Borrower or any of its Subsidiaries,
except those which in the aggregate, if adversely determined, would have no
Material Adverse Effect;
(f) promptly and in any event within two Business Days
after the Borrower becomes aware of the existence of (i) any Default or Event
of Default, (ii) any breach or non-performance of, or any default under, any
Operating Lease, Management Agreement or any Contractual Obligation which is
material to the business, prospects, operations or financial condition of the
Borrower and its Subsidiaries taken as one enterprise, or (iii) any Material
Adverse Change or any event, development or other circumstance which has any
reasonable likelihood of causing or resulting in a Material Adverse Change,
telephonic or telecopied notice in reasonable detail specifying the nature of
the Default, Event of Default, breach, non-performance, default, event,
development or circumstance, including, without limitation, the anticipated
effect thereof, which notice shall be promptly confirmed in writing within five
days;
<PAGE> 95
(g) promptly after the sending or filing thereof, copies
of all reports which the Borrower sends to its security holders generally, and
copies of all reports and registration statements which the Borrower or any of
its Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange or the National Association of Securities Dealers,
Inc.;
(h) promptly upon the request of any Lender, through the
Administrative Agent, copies of all federal tax returns and reports filed by
the Borrower or any of its Subsidiaries in respect of taxes measured by income
(excluding sales, use and like taxes);
(i) promptly and in any event within ten days of the
Borrower or any Subsidiary learning of any of the following, written notice to
the Administrative Agent of any of the following:
(i) the Release or threatened Release of any
Hazardous Material on or from any property owned or leased by the
Borrower of any of its Subsidiaries or Eligible Joint Ventures and any
written order, notice, permit, application or other written
communication or report received by the Borrower, any of its
Subsidiaries or Eligible Joint Ventures in connection with or relating
to any such Release or threatened Release, unless such Release or
threatened Release is not reasonably likely to subject the Borrower or
any of its Subsidiaries to Environmental Liabilities and Costs of
$500,000 or more;
(ii) any notice or claim to the effect that the
Borrower, any of its Subsidiaries or any Eligible Joint Ventures is or
may be liable to any Person as a result of the Release or threatened
Release of any Hazardous Material into the environment;
(iii) receipt by the Borrower, any of its
Subsidiaries or Eligible Joint Ventures or any Operator of
notification that any real or personal property of the Borrower or any
of its Subsidiaries is subject to an Environmental Lien;
(iv) any Remedial Action taken by the Borrower or
any of its Subsidiaries or Eligible Joint Ventures or any other Person
on their behalf in response to any Hazardous Material on, under or
about any real property owned or leased by the Borrower or
<PAGE> 96
any of its Subsidiaries or Eligible Joint Ventures, unless such
Remedial Action is not reasonably likely to subject the Borrower or
any of its Subsidiaries or Eligible Joint Ventures to Environmental
Liabilities and Costs of $500,000 or more;
(v) receipt by the Borrower or any of its
Subsidiaries or Eligible Joint Ventures of any notice of violation of,
or knowledge by the Borrower or any of its Subsidiaries or any
Eligible Joint Ventures that there exists a condition which may result
in a violation by the Borrower or any of its Subsidiaries or Eligible
Joint Ventures of, any Environmental Law, unless such violation is not
reasonably likely to subject the Borrower or any of its Subsidiaries
to Environmental Liabilities and Costs of $500,000 or more;
(vi) any proposed Capital Expenditure by the
Borrower or any of its Subsidiaries or Eligible Joint Ventures
intended or designed to implement any existing or additional Remedial
Action, unless such expenditures are not reasonably likely to exceed
$500,000;
(vii) the commencement of any judicial or
administrative proceeding or investigation alleging a violation of any
Environmental Law; or
(viii) any proposed acquisition of stock, assets or
real property, or any proposed leasing of property by the Borrower, or
any of its Subsidiaries or Eligible Joint Ventures, unless such action
is not reasonably likely to subject the Borrower and its Subsidiaries
to Environmental Liabilities and Costs to the Borrower in excess of
$500,000;
(j) promptly, such additional financial and other
information respecting the financial or other condition of the Borrower or any
of its Subsidiaries or Eligible Joint Ventures or the Operating Lessee or the
status or condition of any real property owned or leased by the Borrower or its
Subsidiaries or Eligible Joint Ventures, or the operation thereof which the
Borrower is entitled to or can otherwise reasonably obtain, as the
Administrative Agent from time to time reasonably requests; and
(k) upon written request by any Lender through the
Administrative Agent, a report providing an update of the status of any
Environmental Claim, Remedial Action or
<PAGE> 97
any other issue identified in any notice or report required pursuant to this
Section 6.12.
6.13. Leases and Operating Leases; Management Agreements and
Licenses. (a) The Borrower shall provide the Administrative Agent with a copy
of each Qualified Lease and each Operating Lease relating to an Eligible Hotel.
The Borrower shall, and shall cause each of its Subsidiaries and Eligible Joint
Ventures to, (i) comply in all material respects with all of their respective
obligations under all of their respective Leases and Operating Leases now or
hereafter held respectively by them with respect to real property, including,
without limitation, the Leases set forth in Schedule 4.22(b); (ii) not modify,
amend, cancel, extend or otherwise change in any materially adverse manner any
of the terms, covenants or conditions of any such Leases or Operating Leases;
(iii) not assign any Leases or sublet any portion of the premises if such
assignment or sublet would have a Material Adverse Effect; (iv) provide the
Administrative Agent with a copy of each notice of default under any Lease or
Operating Lease received by the Borrower or any Subsidiary or Eligible Joint
Venture of the Borrower immediately upon receipt thereof and deliver to the
Administrative Agent a copy of each notice of default sent by the Borrower or
any Subsidiary or Eligible Joint Venture of the Borrower under any Lease or
Operating Lease simultaneously with its delivery of such notice under such
Lease or Operating Lease except to the extent that such defaults, in the
aggregate, would not have a Material Adverse Effect; (v) notify the
Administrative Agent, not later than 30 days prior to the date of the
expiration of the term of any Qualified Lease, of the Borrower's or any
Subsidiary or Eligible Joint Venture of the Borrower's intention either to
renew or to not renew any such Qualified Lease, and, if the Borrower or any
Subsidiary or Eligible Joint Venture of the Borrower intends to renew such
Qualified Lease, the terms and conditions of such renewal; and (vi) maintain
each Operating Lease in full force and effect and enforce the obligations of
the Operating Lessee thereunder, in a timely manner except to the extent that
the failure to do so, in the aggregate, would not have a Material Adverse
Effect.
(b) The Borrower shall take all actions and do all things
within its power or control necessary or required to cause each Operating
Lessee to (i) keep, observe, comply with and perform all of the terms,
provisions, covenants and undertakings on its part required by each Operating
Lease, each License, each sublease and Management Agreement
<PAGE> 98
relating to any Hotel, and (ii) to enforce the provisions of each License and
each Management Agreement, if the failure to comply or enforce such agreements
would be reasonably likely, in the aggregate, to have a Material Adverse
Effect.
6.14. Intentionally Omitted.
6.15. Employee Plans. For each Plan and any related trust
hereafter adopted or maintained by a Loan Party or any of its ERISA Affiliates
intended to qualify under Code Section 125, 401 or 501, the Borrower shall (i)
seek, and cause such of its ERISA Affiliates to seek, and receive determination
letters from the IRS to the effect that such plan is so qualified; and (ii)
cause such plan to be so qualified.
6.16. Intentionally Omitted.
6.17. Fiscal Year. The Borrower shall maintain as its Fiscal
Year the twelve month period ending on December 31 of each year.
6.18. Environmental Matters. (a) The Borrower shall comply
and shall cause each of its Subsidiaries and Eligible Joint Ventures and each
property owned or leased by such parties to comply in all material respects
with all applicable Environmental Laws currently or hereafter in effect.
(b) If Administrative Agent or Lenders at any time have a
reasonable basis to believe that there may be a material violation of any
Environmental Law by the Borrower or any of its Subsidiaries and Eligible Joint
Ventures or any Operator related to any real property owned or leased by the
Borrower or any of its Subsidiaries and Eligible Joint Ventures, or real
property adjacent to such real property, then the Borrower agrees, upon request
from the Administrative Agent, to provide the Administrative Agent, at the
Borrower's expense, with such reports, certificates, engineering studies or
other written material or data as the Administrative Agent or Lenders may
reasonably require so as to reasonably satisfy the Administrative Agent and
Lenders that the Borrower or such Subsidiary, Eligible Joint Venture or real
property owned or leased by them is in material compliance with all applicable
Environmental Laws. Furthermore, Administrative Agent shall have the right to
inspect during normal business hours any real property owned or leased by the
Borrower or any of its Subsidiaries or Eligible Joint Ventures if at any time
Administrative Agent
<PAGE> 99
or Lenders have a reasonable basis to believe that there may be such a material
violation of Environmental Law.
(c) The Borrower shall, and shall cause each of its
Subsidiaries and Eligible Joint Ventures and each Operating Lessee to, take
such Remedial Action or other action as required by Environmental Laws, as any
Governmental Authority requires, except to the extent contested in good faith
and by proper proceedings, or as is appropriate and consistent with good
business practice.
6.19. REIT Requirements. The Borrower shall operate its
business at all times so as to satisfy all requirements necessary to qualify as
an equity-oriented real estate investment trust under Sections 856 through 860
of the Code. The Borrower will maintain adequate records so as to comply with
all record-keeping requirements relating to the qualification of the Borrower
as an equity-oriented real estate investment trust as required by the Code and
applicable regulations of the Department of the Treasury promulgated thereunder
and will properly prepare and timely file with the IRS all returns and reports
required thereby. The Borrower will request from its shareholders all
shareholder information required by the Code and applicable regulations of the
Department of Treasury promulgated thereunder.
6.20. Maintenance of FF&E Reserves. The Borrower shall cause
to be maintained the FF&E Reserves pursuant to the terms of the Operating
Leases.
6.21. Hotel Requirements. The Borrower shall cause:
(a) at least 60% of the "keys" to be maintained and
operated as Suite Hotels;
(b) at least 75% of the "keys" to be maintained and
operated under "Embassy Suites", "Doubletree" or "Sheraton" Licenses or to be
in the process of conversion to "Embassy Suites", "Doubletree" or "Sheraton"
Hotels;
(c) at least 70% of the "keys" to be managed by Promus,
DT, or Sheraton;
provided, that in no event shall less than 50% of the "suites" be maintained
and operated under "Embassy Suites" Licenses and managed by Promus.
<PAGE> 100
6.22. Further Assurances. At any time upon the request of
the Administrative Agent, the Borrower will, promptly and at its expense,
execute, acknowledge and deliver such further documents and do such other acts
and things as the Administrative Agent may reasonably request to evidence the
Loans made hereunder and interest thereon in accordance with the terms of this
Agreement;
6.23. Borrowing Base Determination/Requirements. (a) Subject
to compliance with the terms and conditions of Section 3.1, the Administrative
Agent has accepted the Hotels listed on Schedule 6.23 as Eligible Hotels for
the purposes of the Borrowing Base as of the Effective Date, provided that the
parties acknowledge and agree that (i) the Embassy Suites Hotel located at Los
Angeles Airport, CA is subject to a mortgage in favor of FelCor LP but the
Administrative Agent has agreed, as a one time waiver only, to accept such
Hotel as an Eligible Hotel provided that such Hotel shall cease to be an
Eligible Hotel, inter alia, in the event that FelCor LP assigns its mortgage to
any other Person, and (ii) the Administrative Agent's acceptance of the Hotels
listed on Schedule 6.23 is based on outdated title insurance policies for such
Hotels. To the extent not already delivered by the Borrower, the Borrower
covenants and agrees to deliver to the Administrative Agent, within 45 days of
the Effective Date, title updates with respect to each of the Hotels listed on
Schedule 6.23 and, to the extent that such title updates reveal that any of
such Hotels are not Unencumbered, such Hotels shall cease to qualify as
Eligible Hotels.
(b) If the Borrower desires that the Administrative Agent
accept an additional Hotel as an Eligible Hotel for the purposes of the
Borrowing Base, the Borrower shall so notify the Administrative Agent in
writing. The Administrative Agent's acceptance of such Hotel in the Borrowing
Base shall not be unreasonably withheld, conditioned or delayed, provided such
Hotel shall meet the requirements for Eligible Hotels specified herein and
unless and until the Borrower has delivered to the Administrative Agent either
(y) the Eligible Hotel Documents relating to such Hotel in form and substance
reasonably satisfactory to the Administrative Agent or (z) a Borrowing Base
Certificate containing a representation that the Eligible Hotel Documents to be
delivered to the Administrative Agent will demonstrate that such Hotel is an
Eligible Hotel. In the case of (z) within five Business Days of the
designation of a Hotel as eligible and delivery of the Borrowing Base
Certificate pursuant to this Section,
<PAGE> 101
the Borrower shall deliver the Eligible Hotel Documents relating to such Hotel
to the Administrative Agent; if the Administrative Agent determines that such
Hotel, based upon its review of the applicable Eligible Hotel Documents, is not
an Eligible Hotel, then Borrower shall repay any Borrowing Base Imbalance
pursuant to the terms of Section 2.7(c)(iv) and, if so repaid, the
representation regarding the Eligible Hotel Documents for such Hotel contained
in the Borrowing Base Certificate delivered pursuant to (z) shall be deemed
withdrawn. Notwithstanding the foregoing, a Hotel shall remain included in the
Borrowing Base so long as such Hotel shall meet the requirements for Eligible
Hotels specified herein.
(c) The Borrower shall promptly notify the Administrative
Agent in writing in the event that at any time the Borrower or any of its
Subsidiaries receives or otherwise gains knowledge that (i) any Hotel included
in a prior Borrowing Base Certificate as an Eligible Hotel, ceases, for any
reason whatsoever, to be an Eligible Hotel, or (ii) that the Aggregate Value of
the Eligible Hotel is less than 90% of the Aggregate Value reflected in the
most recent Borrowing Base Certificate delivered pursuant hereto, or (iii) the
Loans outstanding at such time exceed the Available Credit at such time as a
result of any decrease in the Borrowing Base, and the amount of such excess.
(d) The Administrative Agent, at the expense of the
Lenders, which expense shall not exceed $10,000 without the consent of the
Majority Lenders (but such expense to be reimbursed by the Borrower in the
event that a Hotel fails to meet requirements for an Eligible Hotel in any
material respect) may make physical and other verifications of any Hotels
included as Eligible Hotels in any reasonable manner and through any medium
that the Administrative Agent considers advisable, and the Borrower shall
furnish all such assistance and information as the Administrative Agent may
require in connection therewith.
(e) Notwithstanding anything to the contrary set forth
herein, a Hotel shall cease to be an Eligible Hotel if it shall cease to comply
with the requirements therefor set forth herein.
<PAGE> 102
ARTICLE VII
NEGATIVE COVENANTS
As long as any of the Obligations or Commitments remain
outstanding, without the written consent of the Administrative Agent, the
Borrower agrees with the Lenders and the Administrative Agent that:
7.1. Restrictions on Creation of Subsidiaries. The Borrower
shall not create or acquire any direct or indirect wholly-owned Subsidiary
after the Closing Date unless, concurrently with the creation or acquisition
thereof, such Subsidiary executes and delivers to the Administrative Agent a
Subsidiary Guaranty.
7.2. Intentionally Omitted.
7.3. Lease Obligations. (a) The Borrower shall not create
or suffer to exist, or permit any of its Subsidiaries or Eligible Joint
Ventures to create or suffer to exist, any obligations as lessee for the rental
or hire of real or personal property of any kind under other leases or
agreements to lease entered into otherwise than in the ordinary course of
business.
(b) The Borrower shall not, and shall not permit any of
its Subsidiaries or Eligible Joint Ventures to, become or remain liable as
lessee or guarantor or other surety with respect to any lease, whether an
operating lease or a Capitalized Lease, of any property (whether real or
personal or mixed), whether now owned or hereafter acquired, which (i) the
Borrower or any of its Subsidiaries or Eligible Joint Ventures has sold or
transferred or is to sell or transfer to any other Person, or (ii) the Borrower
or any of its Subsidiaries or Eligible Joint Ventures intends to use for
substantially the same purposes as any other property which has been or is to
be sold or transferred by that entity to any other Person in connection with
such lease.
7.4. Restricted Payments. The Borrower, unless otherwise
required in order to maintain FelCor's status as a real estate investment trust
in accordance with the written advice of independent counsel to the Borrower,
the Borrower shall not declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account or in respect of any of its Stock or Stock Equivalents (collectively,
"Restricted
<PAGE> 103
Payments"); provided, that, notwithstanding the foregoing, during any period of
four consecutive Fiscal Quarters, (i) the Borrower may make Restricted Payments
in an aggregate amount not to exceed 85% of the consolidated Adjusted Funds
From Operations of the Borrower for such period and (ii) the aggregate amount
of Restricted Payments made shall not exceed 100% of Free Cash Flow of the
Borrower for such period.
7.5. Mergers, Stock Issuances, Asset Sales, Etc. (a) The
Borrower shall not sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets or properties, and shall not, and shall not
permit any of its Subsidiaries or Eligible Joint Ventures to, (i) merge with
any Person, or (ii) consolidate with any Person, unless the Borrower or its
Subsidiary or Eligible Joint Venture is the surviving or resulting entity and,
following such merger or consolidation, no Default or Event of Default shall
have occurred.
(b) The Borrower shall not and shall not permit any of
its Subsidiaries or Eligible Joint Ventures to effect, enter into, consummate
or suffer to exist any Asset Sale(s) of any Hotel(s) generating proceeds
aggregating more than 25% of the value of the Hotels owned by the Borrower, its
Subsidiaries and Eligible Joint Ventures as at the Closing Date and shown
listed on Schedules 4.22(a) and (b) of the Original Revolving Credit Agreement.
(c) The Borrower shall not sell or otherwise dispose of,
or factor at maturity or collection, or permit any of its Subsidiaries or
Eligible Joint Ventures to sell or otherwise dispose of, or factor at maturity
or collection, any accounts receivables.
7.6. Restrictions on Construction/Budget Hotels. The
Borrower shall not, and shall not permit any of its Subsidiaries or Eligible
Joint Ventures to (a) engage in the construction of new hotels (provided that
nothing herein shall prohibit expansions to existing Hotels), (b) make
investments in any Non-Suite Hotels that will not be maintained as first class
full service hotels, (c) make Investments in any budget hotels, or (d) enter
into any commitments or agreements to purchase any Hotels under, or to be
under, original construction (provided that nothing herein shall limit
commitments or agreements for expansions to existing Hotels), pursuant to which
(i) such Persons' obligations, in the aggregate, exceed the lesser of (x) 15%
of the Total Assets of the Borrower as of the end of the
<PAGE> 104
Fiscal Quarter immediately preceding the date of any such commitment or
agreement and (y) $200,000,000, or (ii) any such Person is or may be liable
for, or otherwise assumes, any risks relating to the development or
construction (but not operation) of such Hotel, whether by way of providing any
guaranties of completion, payment of any construction loans, payment of
construction cost overruns, or otherwise.
7.7. Change in Nature of Business or in Capital Structure.
(a) The Borrower shall not make, and shall not permit any of its Subsidiaries
or Eligible Joint Ventures to make, any material change in the nature or
conduct of its business as carried on at the Closing Date.
(b) The Borrower shall not make, and shall not permit any
of its Subsidiaries or Eligible Joint Ventures to make, any change in its
capital structure (including, without limitation, in the terms of its
outstanding Stock) or amend its declaration of trust, certificate of
incorporation or by-laws or other equivalent documents other than for changes
or amendments which in the aggregate have no Material Adverse Effect.
7.8. Modification of Material Agreements. The Borrower shall
not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures
to, alter, amend, modify, rescind, terminate, supplement or waive any of their
respective rights under, or fail to comply in all material respects with, any
of its material Contractual Obligations unless approved by the Administrative
Agent, which approval shall not be unreasonably withheld, conditioned or
delayed; provided, however, that, with respect to any such failure to comply
with any Contractual Obligation, the Borrower shall not be deemed in default of
this Section 7.8 if all such failures in the aggregate would have no Material
Adverse Effect; and provided, further, that in the event of any breach or event
of default by a Person other than the Borrower or any of its Subsidiaries or
Eligible Joint Ventures, the Borrower shall promptly notify the Administrative
Agent of any such breach or event of default and take all such action as may be
reasonably necessary in order to endeavor to avoid having such breach or event
of default have a Material Adverse Effect.
7.9. Accounting Changes. The Borrower shall not make, nor
permit any of its Subsidiaries to make, any change in accounting treatment and
reporting practices or tax reporting treatment, except as required by GAAP or
law and disclosed to the Lenders and the Administrative Agent.
<PAGE> 105
7.10. Transactions with Affiliates. The Borrower shall not,
and shall not permit any of its Subsidiaries or Eligible Joint Ventures, to
enter into any transaction or series of related transactions, including,
without limitation, any Asset Sale or the rendering of any service, with any
Affiliate (other than among the Borrower and its wholly owned Subsidiaries)
unless (a) no Default or Event of Default would occur as a result thereof, and
(b) such transaction is (i) in the ordinary course of the Borrower's or such
Subsidiary's or Eligible Joint Venture's business, and (ii) upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary or
Eligible Joint Venture, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate.
7.11. Adverse or Speculative Transactions. The Borrower
shall not and shall not permit any of its Subsidiaries or Eligible Joint
Ventures to engage in any transaction involving contracts for commodity options
or futures contracts other than Interest Rate Contracts.
7.12. Environmental Matters. (a) The Borrower shall not,
and shall not permit any of its Subsidiaries or Eligible Joint Ventures or any
Operating Lessee, or, to the extent reasonably practicable, any other Person to
dispose of any Hazardous Material by placing it in or on the ground or waters
of any property owned or leased by the Borrower or any of its Subsidiaries or
Eligible Joint Ventures.
(b) The Borrower shall not, and shall not permit any of
its Subsidiaries or Eligible Joint Ventures, or, to the extent practicable,
authorize any other Person to, dispose or to arrange for the disposal of any
Hazardous Material on behalf of the Borrower or any of its Subsidiaries or
Eligible Joint Ventures except in material compliance with all applicable
Environmental Laws currently and hereinafter in effect.
7.13. Intentionally Omitted.
7.14. Management Continuity. The Borrower acknowledges that
the Lenders have made their determination to enter into this Agreement and the
transactions contemplated herein on the basis of reliance upon the experience,
expertise and reputations of Messrs. Hervey A. Feldman and Thomas J. Corcoran,
Jr. as experts in the ownership and asset management of Suite Hotels, and the
Borrower will not suffer or permit its business to be
<PAGE> 106
without the active management of at least one such Person, provided that, in
the event of death, incapacitation or dismissal of both Messrs. Hervey A.
Feldman and Thomas J. Corcoran, Jr. a replacement management team shall be
appointed for the Borrower, such team to be (i) proposed by the Borrower within
120 days of the event referred to above, and (ii) approved by the Majority
Lenders in their sole and absolute discretion.
7.15. ERISA Plan Assets. The Borrower shall not and shall
not permit any of its Subsidiaries to have any of their assets become subject
to Title I of ERISA because they constitute "plan assets" within the meaning of
the DOL Regulation Section 2510.3-101 and by reason of an investment in the
Borrower or any Subsidiary.
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Events of Default. Each of the following events shall
be an Event of Default:
(a) The Borrower shall fail to pay any principal
(including, without limitation, mandatory prepayments of principal)
of, or interest on, any Loan, any Unpaid Drawing, any fee, any other
amount due hereunder or under the other Loan Documents or other of the
Obligations when the same becomes due and payable; or
(b) Any representation or warranty made or deemed made by
any Loan Party in any Loan Document or by any Loan Party (or any of
its officers) in connection with any Loan Document shall prove to have
been incorrect in any material respect when made or deemed made; or
(c) Any Loan Party shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement or in
any other Loan Document if such failure shall remain unremedied for
thirty days after the earlier of the date on which (A) a Responsible
Officer of the Borrower becomes aware of such failure or (B) written
notice thereof shall have been given to the Borrower by the
Administrative Agent or any Lender; or
(d) Any Loan Party or any of its Subsidiaries shall fail
to pay any principal of or premium or
<PAGE> 107
interest on any Recourse Indebtedness of such Loan Party or Subsidiary
having a principal amount of $10,000,000 or more (excluding
Indebtedness evidenced by the Notes and any Non-Recourse
Indebtedness), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise); or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Indebtedness,
if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Indebtedness; or any
such Indebtedness shall become or be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled
required prepayment), or any Loan Party or any of its Subsidiaries
shall be required to repurchase or offer to repurchase such
Indebtedness, prior to the stated maturity thereof; or
(e) The Borrower or any of its Significant Subsidiaries
shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against the Borrower or any of
its Significant Subsidiaries seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or
its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for relief or the appointment of a custodian, receiver, trustee or
other similar official for it or for any substantial part of its
property and, in the case of any such proceedings instituted against
the Borrower or any of its Significant Subsidiaries (but not
instituted by it), either such proceedings shall remain undismissed or
unstayed for a period of 60 days or any of the actions sought in such
proceedings shall occur; or the Borrower or any of its Significant
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in
excess of $10,000,000 to the extent not fully covered by insurance
shall be rendered against any Loan Party or any of its Subsidiaries
and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order, or
<PAGE> 108
(ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(g) An ERISA Event shall occur which, in the reasonable
determination of the Majority Lenders, has a reasonable possibility of
a liability, deficiency or waiver request of the Borrower or any ERISA
Affiliate,whether or not assessed, exceeding $1,000,000; or
(h) The Borrower or any of its Subsidiaries shall have
entered into any consent or settlement decree or agreement or similar
arrangement with an Governmental Authority or any judgment, order,
decree or similar action shall have been entered against the Borrower
or any of its Subsidiaries, in each case based on or arising from the
violation of or pursuant to any Environmental Law, or the generation,
storage, transportation, treatment, disposal or Release of any
Hazardous Material and, in connection with all the foregoing, the
Borrower and its Subsidiaries are likely to incur Environmental
Liabilities and Costs in excess of $1,000,000; or
(i) There shall occur a Material Adverse Change or an
event which is reasonably likely to have a Material Adverse Effect; or
(j) FelCor shall cease, for any reason, to maintain its
status as an equity-oriented real estate investment trust under
Sections 856 through 860 of the Code; or
(k) FelCor shall cease at any time to be the sole general
partner of FelCor LP; or
(l) Hervey A. Feldman and Thomas J. Corcoran, Jr. (or (i)
members of their respective families, (ii) entities controlled by
them, or (iii) trusts for the benefit of any of the foregoing) shall
cease at any time to hold beneficially, in the aggregate, at least
200,000 of the issued and outstanding common shares of FelCor and/or
units of limited partner interests of FelCor LP redeemable for such
number of shares of stock (adjusted for any division, reclassification
or stock dividend in respect of common shares); or
<PAGE> 109
(m) Hervey A. Feldman or Thomas J. Corcoran, Jr. shall
sell, transfer or encumber (otherwise than to (i) members of their
respective families, (ii) entities controlled by them, or (iii) trusts
for the benefit of any of the foregoing) their voting Class A
membership interest in DJONT; or
(n) Hervey A. Feldman and Thomas J. Corcoran, Jr. shall
cease to be active in the management of the Borrower or, in the event
of death, in-capacitation or dismissal of both such Persons either (i)
the Borrower shall fail to propose a replacement senior management
team, or (ii) the Majority Lenders shall not approve any proposed
replacement senior management team, in each case pursuant to and in
accordance with Section 7.14 hereof; or
(o) Any provision of any Subsidiary Guaranty after
delivery thereof under Section 3.1 shall for any reason cease to be
valid and binding on any Significant Subsidiary party thereto, or any
Significant Subsidiary Party shall so state in writing.
8.2. Remedies. (a) If there shall occur and be continuing
any Event of Default, the Administrative Agent (i) shall at the request, or may
with the consent, of the Majority Lenders by notice to the Borrower, declare
the obligation of each Lender to make Loans and the Issuing Lender to issue a
Letter of Credit to be terminated, whereupon the same shall forthwith
terminate, and (ii) shall at the request, or may with the consent, of the
Majority Lenders by notice to the Borrower, declare the Loans, all interest
thereon and all other amounts and Obligations payable under this Agreement to
be forthwith due and payable, whereupon the Notes, all such interest and all
such amounts and Obligations shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrower; provided, however, that upon
the occurrence of the Event of Default specified in subparagraph 8.1(e) above,
(A) the obligation of each Lender to make Loans and of the Issuing Lender to
issue Letters of Credit shall automatically be terminated and (B) the Loans,
all such interest and all such amounts and Obligations shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
In addition to the remedies set forth above, the Administrative Agent may
exercise any remedies provided by applicable law.
<PAGE> 110
(b) If the Administrative Agent exercises any rights or
remedies pursuant to subparagraph 8.2(a), the Administrative Agent shall not,
without the consent of the Majority Lenders, rescind the exercise of said
rights or remedies.
ARTICLE IX
THE ADMINISTRATIVE AGENT
9.1. Authorization and Action. (a) Each Lender hereby
appoints and authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under this Agreement and the other
Loan Documents as are delegated to the Administrative Agent by the terms hereof
and thereof, together with such powers as are reasonably incidental thereto.
Without limitation of the foregoing, each Lender hereby authorizes the
Administrative Agent to execute and deliver, and to perform its obligations
under, each of the Loan Documents to which the Administrative Agent is a party,
and to exercise all rights, powers and remedies that the Administrative Agent
may have under such Loan Documents.
(b) As to any matters not expressly provided for by this
Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which the Administrative Agent in good faith believes exposes it to
personal liability or is contrary to this Agreement or applicable law. The
Administrative Agent agrees to give to each Lender prompt notice of (a) each
notice and, (b) to the extent the Administrative Agent grants any consents,
approvals, disapprovals or waivers to the Borrower pursuant to the directions
of the Majority Lenders or all of the Lenders as required hereunder, notice of
such consent, approval, disapproval or waiver, given to it by, or by it to, any
Loan Party pursuant to the terms of this Agreement or the other Loan Documents.
<PAGE> 111
9.2. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent, nor any of its Affiliates or any of the respective
directors, officers, agents or employees of the Administrative Agent or any
such Affiliate shall be liable for any action taken or omitted to be taken by
it, him, her or them under or in connection with this Agreement or the other
Loan Documents, except for its, his, her or their own gross negligence or
wilful misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent (i) may treat the payee of any Note as the holder thereof
until such note has been assigned in accordance with Section 10.7; (ii) may
rely on the Register to the extent set forth in Section 10.7(c); (iii) may
consult with legal counsel (including, without limitation, counsel to the
Borrower or any other Loan Party), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iv) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or any of the
other Loan Documents; (v) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions
of this Agreement or any of the other Loan Documents on the part of the
Borrower or any other Loan Party or to inspect the property (including, without
limitation, the books and records) of the Borrower or any other Loan Party;
(vi) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement
or any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (vii) shall incur no liability under
or in respect of this Agreement or any of the other Loan Documents by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telegram, cable, telex or facsimile transmission) believed by it to be
genuine and signed or sent by the proper party or parties.
9.3. Chase and Affiliates. With respect to its Commitment,
the Loans made by it and each Note issued to it, Chase shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Administrative Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Chase in its
individual capacity. Chase and its affiliates may accept deposits from, lend
money to,
<PAGE> 112
act as trustee under indentures of, and generally engage in any kind of
business with, the Borrower or any other Loan Party or any of their respective
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any other Loan Party or any of their respective Subsidiaries, all
as if Chase were not the Administrative Agent and without any duty to account
therefor to the Lenders.
9.4. Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon the Administrative Agent or any
other Lender and based on the financial statements referred to in Article IV
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and other
Loan Documents.
9.5. Indemnification. The Lenders agree to indemnify the
Issuing Lender, the Administrative Agent and their Affiliates, and their
respective directors, officers, employees, agents and advisors (to the extent
not reimbursed by the Borrower or other Loan Parties), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Notes are at the time outstanding, ratably according to the respective amounts
of the aggregate of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements (including, without limitation, fees
and disbursements of legal counsel) of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against, the Administrative Agent in
any way relating to or arising out of this Agreement or the other Loan
Documents or any action taken or omitted by the Administrative Agent under this
Agreement or the other Loan Documents; provided, however, that no Lender shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's or such Affiliate's gross negligence
or wilful misconduct. Without limitation of the foregoing, each Lender agrees
to reimburse the Administrative Agent promptly upon demand for its ratable
share of any out-of-pocket expenses (including,
<PAGE> 113
without limitation, fees and disbursements of legal counsel) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
its rights or responsibilities under, this Agreement or the other Loan
Documents, to the extent that the Administrative Agent is not reimbursed for
such expenses by the Borrower or another Loan Party.
9.6. Successor Agent. The Administrative Agent may resign at
any time by giving written notice thereof to the Lenders and the Borrower and
may be removed by the Super Majority Lenders in the event that the
Administrative Agent commits a willful breach of, or is grossly negligent in
the performance of, its material obligations hereunder. Furthermore, in the
event that at any time the Administrative Agent assigns its entire interest as
a Lender hereunder to an Eligible Assignee as permitted by Section 10.7 hereof,
which Eligible Assignee is not an Affiliate of the Administrative Agent, then
the Administrative Agent shall resign as Administrative Agent. Upon any such
resignation or removal (which shall be effective upon such date as a successor
Agent accepts its appointment), the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Lenders, and shall have accepted such appointment, within 30
days after the retiring Administrative Agent's giving of notice of resignation
or the Super Majority Lenders' removal of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof, having a combined capital
and surplus of at least $50,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article IX shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.
<PAGE> 114
ARTICLE X
MISCELLANEOUS
10.1. Amendments, Etc. (a) No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Majority Lenders, and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided that, subject to Sections 10.1(b) and (c) below, the
Administrative Agent shall have the right to make non-material waivers of
non-economic provisions of this Agreement or consent to non- material
departures therefrom. The parties hereto agree that any non-material waiver of
any provision of this Agreement or any other Loan Document shall be effective
upon the execution by the party so charged of a written agreement to such
effect.
(b) Notwithstanding anything set forth in subparagraph
(a) above, no amendment, waiver or consent shall, unless in writing and signed
by all the Lenders do any of the following: (i) waive any of the conditions
specified in Article III except as otherwise provided therein; (ii) increase
the Commitments of the Lenders or subject the Lenders to any additional
obligations; (iii) reduce the principal of, or interest on, the Loans or any
fees or other amounts payable hereunder; (iv) waive or postpone any date fixed
for any payment of principal of, or interest on, the Loans or any fees or other
amounts payable hereunder; (v) change the percentage of the Commitments, the
aggregate unpaid principal amount of the Loans, or the number of Lenders which
shall be required for the Lenders or any of them to take any action hereunder;
(vi) waive any of the financial covenants specified in Sections 5.1, 5.2 or
5.4; (vii) change the definitions of Available Credit, Borrowing Base or
Aggregate Value (provided that the foregoing shall not include changes in any
defined terms used in such definitions), (viii) release any Loan Party from its
obligations under any Note or any Subsidiary Guaranty, or (ix) amend this
Section 10.1; and provided, further, that no amendment, waiver or consent
shall, unless in writing and signed by the Administrative Agent in addition to
the Lenders required above to take such action, affect the rights or duties of
the Administrative Agent under this Agreement or the other Loan Documents.
<PAGE> 115
(c) Notwithstanding anything set forth in subparagraph
(a) above, no amendment, waiver or consent shall, unless in writing and signed
by the Super Majority Lenders do any of the following: (i) waive any of the
covenants specified in Sections 5.3 or 5.5, (ii) change the definitions of
Eligible Hotels, Eligible Joint Venture or Qualified Lease (provided that the
foregoing shall not include changes in any defined terms used in such
definitions), (iii) waive payment of any default rate interest pursuant to
Section 2.9(b), or (iv) remove the Administrative Agent for a willful breach
of, or gross negligence in the performance of, its material obligations
hereunder pursuant to Section 9.6.
(d) Each Lender shall reply promptly, but in any event
within ten (10) Business Days of receipt by such Lender of a request for
consent, approval, disapproval or waiver, from the Administrative Agent (the
"Lender Reply Period"). Unless a Lender shall give written notice to the
Administrative Agent that it objects to consenting, approving, disapproving or
waiving any matter as requested by the Administrative Agent (together with a
written explanation of the reasons behind such objection) within the Lender
Reply Period, such Lender shall be deemed to have consented, approved,
disapproved or waived such matters as specified in the Administrative Agent's
request.
10.2. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including, without limitation,
telegraphic, telex, telecopy or cable communication) and mailed, telegraphed,
telexed, telecopied, cabled or delivered by hand, if to the Borrower, at its
address at 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062
(telecopy number: 972-444-4949) (telephone number: 972-444-4900), Attention:
Chief Financial Officer, with a copy to Attention: General Counsel; if to any
Lender, at its Domestic Lending Office specified opposite its name on Schedule
II; and if to the Administrative Agent, at its address at 380 Madison Avenue,
10th Floor, New York, New York 10017 (telecopy number: 212-622-3395) (telephone
number: 212-622-3275), Attention Denise Durham Williams; or, as to the Borrower
or the Administrative Agent, at such other address as shall be designated by
such party in a written notice to the other parties and, as to each other
party, at such other address as shall be designated by such party in a written
notice to the Borrower and the Administrative Agent. All such notices and
communications shall, when mailed, telegraphed, telexed, telecopied, cabled or
delivered, be effective when deposited
<PAGE> 116
in the mails, delivered to the telegraph company, confirmed by telex
answerback, telecopied with confirmation of receipt, delivered to the cable
company or delivered by hand to the addressee or its agent, respectively,
except that notices and communications to the Administrative Agent pursuant to
Article II or IX shall not be effective until received by the Administrative
Agent.
10.3. No Waiver; Remedies. No failure on the part of any
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
10.4. Costs; Expenses; Indemnities. (a) The Borrower agrees
to pay on demand (i) all costs and expenses of the Administrative Agent and its
respective Affiliates in connection with the preparation, execution, delivery,
administration, syndication, modification and amendment of this Agreement, each
of the other Loan Documents and each of the other documents to be delivered
hereunder and thereunder, including, without limitation, the fees and
out-of-pocket expenses of counsel, accountants, appraisers, consultants or
industry experts retained by the Administrative Agent with respect thereto and,
as to the Administrative Agent, with respect to advising it as to its rights
and responsibilities under this Agreement and the other Loan Documents, and
(ii) all costs and expenses of the Administrative Agent or any of the Lenders
(including, without limitation, the fees and out-of-pocket expenses of counsel,
accountants, appraisers, consultants or industry experts retained by the
Administrative Agent or any Lender) in connection with the restructuring or
enforcement (whether through negotiation, legal proceedings or otherwise) of
this Agreement and the other Loan Documents.
(b) The Borrower agrees to indemnify and hold harmless
the Administrative Agent, each Lender and the Issuing Lender and their
respective Affiliates, and the directors, officers, employees, agents,
attorneys, consultants and advisors of or to any of the foregoing (including,
without limitation, those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in Article III) (each
of the foregoing being an "Indemnitee") from and against any and all claims,
damages, liabilities, obligations, losses,
<PAGE> 117
penalties, actions, judgments, suits, costs, disbursements and expenses of any
kind or nature (including, without limitation, fees and disbursements of
counsel to any such Indemnitee and experts, engineers and consultants and the
costs of investigation and feasibility studies) which may be imposed on,
incurred by or asserted against any such Indemnitee in connection with or
arising out of any investigation, litigation or proceeding, whether or not any
such Indemnitee is a party thereto, whether direct, indirect, or consequential
and whether based on any federal, state or local law or other statutory
regulation, securities or commercial law or regulation, or under common law or
in equity, or on contract, tort or otherwise, in any manner relating to or
arising out of or based upon or attributable to this Agreement, any other Loan
Document, any document delivered hereunder or thereunder, any Obligation, or
any act, event or transaction related or attendant to any thereof, including,
without limitation, (i) arising from any misrepresentation or breach of
warranty under Section 4.18 or any Environmental Claim or any Environmental
Lien or any Remedial Action arising out of or based upon anything relating to
real property owned or leased by the Borrower or any of its Subsidiaries
(collectively, the "Indemnified Matters"); provided, however, that the Borrower
shall not have any obligation under this Section 10.4(b) to an Indemnitee with
respect to any Indemnified Matter caused by or resulting from the gross
negligence or willful misconduct of that Indemnitee, as determined by a court
of competent jurisdiction in a final non-appealable judgment or order.
(c) If any Lender receives any payment of principal of,
or is subject to a conversion of, any Eurodollar Rate Loan other than on the
last day of an Interest Period relating to such Loan, as a result of any
payment or conversion made by the Borrower or acceleration of the maturity of
the Notes pursuant to Section 8.2 or for any other reason, the Borrower shall,
upon demand by such Lender (with a copy of such demand to the Administrative
Agent), to the extent not previously paid to such Lender pursuant to any other
provision hereof, pay to the Administrative Agent for the account of such
Lender all amounts required to compensate such Lender for any additional
losses, costs or expenses which it may reasonably incur as a result of such
payment or conversion, including, without limitation, any loss (including,
without limitation, loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund or maintain such Loan.
<PAGE> 118
(d) The Borrower shall indemnify the Administrative
Agent, the Lenders and the Issuing Lender for, and hold the Administrative
Agent, the Lenders and the Issuing Lender harmless from and against, any and
all claims for brokerage commissions, fees and other compensation made against
the Administrative Agent and the Lenders for any broker, finder or consultant
with respect to any agreement, arrangement or understanding made by or on
behalf of any Loan Party or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement.
(e) The Borrower agrees that any indemnification or other
protection provided to any Indemnitee pursuant to this Agreement (including,
without limitation, pursuant to this Section 10.4) or any other Loan Document
shall (i) survive payment of the Obligations and (ii) inure to the benefit of
any Person who was at any time an Indemnitee under this Agreement or any other
Loan Document.
10.5. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default each Lender and the Issuing Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any and all of the Obligations now or hereafter
existing whether or not such Lender shall have made any demand under this
Agreement or any Note or any other Loan Document and although such Obligations
may be unmatured. Each Lender agrees promptly to notify the Borrower after any
such set-off and application made by such Lender; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section are in addition to
the other rights and remedies (including, without limitation, other rights of
set-off) which such Lender may have.
10.6. Binding Effect. This Agreement shall become effective
as of the Effective Date and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Administrative Agent, each Lender and the Issuing
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lenders.
<PAGE> 119
10.7. Assignments and Participations. (a) Each Lender and
the Issuing Lender may sell, transfer, negotiate or assign to one or more other
Lenders or Eligible Assignees all or a portion of its Commitments, commitment
to issue Letters of Credit, the Loans and Letter of Credit Outstandings owing
to it and the Notes held by it and a commensurate portion of its rights and
obligations hereunder and under the other Loan Documents; provided, however,
that (i) the aggregate amount of the Commitments, Loans and Letter of Credit
Outstandings being assigned pursuant to each such assignment (determined as of
the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than the assignor's entire interest, except (x) with
the consent of the Borrower and the Administrative Agent, or (y) during the
continuance of an Event of Default, or (z) a Lender may assign a portion of its
Commitments, Loans and Letter of Credit Outstandings to another existing Lender
or Lenders only, provided that the aggregate amount of the Commitments, Loans
and Letter of Credit Outstandings retained by the assignor shall in no event be
less than $10,000,000, and (ii) each assignee hereunder shall also be an
Eligible Assignee. The parties to each assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording, an Assignment and
Acceptance, together with the Notes (or an Affidavit of Loss and Indemnity with
respect to such Notes satisfactory to the Administrative Agent) subject to such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (A) the
assignee thereunder shall become a party hereto and, to the extent that rights
and obligations under the Loan Documents have been assigned to such assignee
pursuant to such Assignment and Acceptance, have the rights and obligations of
a Lender hereunder and thereunder, and (B) the assignor thereunder shall, to
the extent that rights and obligations under this Agreement have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights (except
those which survive the payment in full of the Obligations) and be released
from its obligations under the Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under the Loan Documents, such Lender shall
cease to be a party hereto).
(b) By executing and delivering an Assignment and
Acceptance, the Lender assignor thereunder and the assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (i)
other than as provided
<PAGE> 120
in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any of
the statements, warranties or representations made in or in connection with
this Agreement or any other Loan Document furnished pursuant thereto or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; (ii) such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or the performance or observance by any
Loan Party of any of its obligations under this Agreement or any other Loan
Document or of any other instrument or document furnished pursuant hereto or
thereto; (iii) such assigning Lender confirms that it has delivered to the
assignee and the assignee confirms that it has received a copy of this
Agreement and each of the Loan Documents together with a copy of the most
recent financial statements delivered by the Borrower to the Lenders pursuant
to each of the clauses of Section 6.11 (or if no such statements have been
delivered, the financial statements referred to in Section 4.5 of this
Agreement) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is
an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Administrative Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations
which by the terms of this Agreement are required to be performed by it as a
Lender and if such assignor was the Issuing Lender, of the Issuing Lender.
(c) The Administrative Agent shall maintain at its
address referred to in Section 10.2 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of and
<PAGE> 121
principal amount of the Loans and Letters of Credit Outstandings owing to each
Lender from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the Loan
Parties, the Administrative Agent, the Issuing Lender and the Lenders may treat
each Person whose name is recorded in the Register as a Lender for all purposes
of this Agreement. The Register shall be available for inspection by the
Borrower, the Administrative Agent, the Issuing Lender or any Lender at any
reasonable time and from time to time upon reasonable prior notice. The
Administrative Agent shall supply to the Borrower promptly after any amendment
thereto, a copy of the amended Register.
(d) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender or Issuing Lender and an assignee representing
that it is an Eligible Assignee, together with the Notes subject to such
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the
Administrative Agent, in exchange for such surrendered Notes, new Notes to the
order of such Eligible Assignee in an amount equal to the Commitments assumed
by it pursuant to such Assignment and Acceptance and, if the assigning Lender
has retained Commitments hereunder, new Notes to the order of the assigning
Lender in an amount equal to the Commitments retained by it hereunder. Such
new Notes shall be dated the same date as the Surrendered Notes and be in
substantially the form of Exhibit A hereto.
(e) In addition to the other assignment rights provided
in this Section 10.7, each Lender may assign, as collateral or otherwise, any
of its rights under this Agreement (including, without limitation, rights to
payments of principal or interest on the Loans) to any Federal Reserve Bank
without notice to or consent of the Borrower or the Administrative Agent;
provided, however, that no such assignment shall release the assigning Lender
from any of its obligations hereunder. The terms and conditions of any such
assignment and the documentation evidencing such assignment shall be in form
and substance satisfactory to the assigning Lender and the assignee Federal
Reserve Bank.
<PAGE> 122
(f) Each Lender may sell participations to one or more
banks or other Persons in or to all or a portion of its rights and obligations
under the Loan Documents (including, without limitation, all or a portion of
its Commitments, the Loans and Letters of Credit Outstandings owing to it and
the Notes held by it). The terms of such participation shall not, in any
event, require the participant's consent to any amendments, waivers or other
modifications of any provision of any Loan Documents, the consent to any
departure by any Loan Party therefrom, or to the exercising or refraining from
exercising any powers or rights which such Lender may have under or in respect
of the Loan Documents (including, without limitation, the right to enforce the
obligations of the Loan Parties), except if any such amendment, waiver or other
modification or consent would reduce the amount, or postpone any date fixed
for, any amount (whether of principal, interest or fees) payable to such
participant under the Loan Documents, to which such participant would otherwise
be entitled under such participation. In the event of the sale of any
participation by any Lender, (i) such Lender's obligations under the Loan
Documents (including, without limitation, its Commitments) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender shall
remain the holder of such Notes and Obligations for all purposes of this
Agreement, and; (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement.
(g) Each participant shall be entitled to the benefits of
Sections 2.11, 2.13 and 2.15 as if it were a Lender; provided, however, that
anything herein to the contrary notwithstanding, the Borrower shall not, at any
time, be obligated to pay to any assignee or participant of any interest of any
Lender, under Section 2.11, 2.13 or 2.15, any sum in excess of the sum which if
the Borrower would not at the time of such assignment have been obligated to
pay to such assignor Lender any such amount in respect of such interest had
such assignment not been effected or had such participation not been sold.
(h) Notwithstanding the foregoing provisions of this
Section 10.7, (i) the aggregate Commitments and Loans of Chase shall not be
less than $20,000,000, and (ii) the aggregate Commitments and Loans of Wells
Fargo shall not be less than $20,000,000; provided that, if an Event of Default
<PAGE> 123
exists, either Chase or Wells Fargo may assign all or any portion of their
respective Commitments and Loans.
10.8. Governing Law; Severability. This Agreement and the
Notes and the rights and obligations of the parties hereto and thereto shall be
governed by, and construed and interpreted in accordance with, the law of the
State of New York. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
10.9. Submission to Jurisdiction; Service of Process. (a)
Any legal action or proceeding with respect to this Agreement or the Notes or
any document related thereto may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Borrower hereby accepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably
waive any objection, including, without limitation, any objection to the laying
of venue or based on the grounds of forum non conveniens, which any of them may
now or hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.
(b) The Borrower irrevocably consents to the service of
process of any of the aforesaid courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Borrower at its address provided herein.
(c) Nothing contained in this Section 10.9 shall affect
the right of the agent, any Lender or any holder of a Note to serve process in
any other manner permitted by law or commence legal proceedings or otherwise
proceed against the Borrower in any other jurisdiction.
10.10. Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
<PAGE> 124
10.11. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
10.12. Entire Agreement. This Agreement, together with all
of the other Loan Documents and all certificates and documents delivered
hereunder or thereunder, and the agreements referred to in Section 2.4(b)
embody the entire agreement of the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof.
10.13. Confidentiality. Each Lender and the Administrative
Agent agree to keep information obtained by it pursuant hereto and the other
Loan Documents confidential and agrees that it will only use such information
in connection with the transactions contemplated by this Agreement and not
disclose any of such information other than (i) to such Lender's or the
Administrative Agent's, as the case may be, employees, representatives and
agents who are or are expected to be involved in the evaluation of such
information in connection with the transactions contemplated by this Agreement
and who are advised of the confidential nature of such information, (ii) to the
extent such information presently is or hereafter becomes available to such
Lender or the Administrative Agent, as the case may be, on a non- confidential
basis from a source other than the Borrower, (iii) to the extent disclosure is
required by law, regulation or judicial order or requested or required by bank
regulators or auditors, or (iv) to assignees or participants or potential
assignees or participants who agree to be bound by the provisions of this
sentence.
10.14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR
WRITTEN STATEMENT OR ACTION OF ANY PARTY HERETO.
10.15. Joint and Several Obligations. Unless the context
clearly indicates otherwise each covenant, agreement, undertaking, condition or
other matter stated herein as a covenant, agreement, undertaking or matter
involving the Borrower shall be jointly and severally binding upon each of the
parties comprising Borrower.
<PAGE> 125
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
FELCOR SUITE HOTELS, INC.
<TABLE>
<S> <C>
By: /s/ LAWRENCE D. ROBINSON
------------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
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
THE CHASE MANHATTAN BANK
as Administrative Agent
By: /s/ DENISE D. WILLIAMS
------------------------------
Name: Denise D. Williams
Title: Vice President
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Documentation Agent
By: /s/ STEPHEN P. PRINZ
------------------------------
Name: Stephen P. Prinz
Title: Executive Vice
President
</TABLE>
<PAGE> 126
Lenders
<TABLE>
<S> <C>
THE CHASE MANHATTAN BANK
By: /s/ DENISE D. WILLIAMS
------------------------------
Name: Denise D. Williams
Title: Vice President
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ STEPHEN P. PRINZ
------------------------------
Name: Stephen P. Prinz
Title: Executive Vice
President
BANK ONE, TEXAS, N.A.
By: /s/ Eddie Hodges
------------------------------
Name: Eddie Hodges
Title: Assistant Vice
President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ S. SELBO
------------------------------
Name: Steven P. Selbo
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ THERON D. IMBRIE
------------------------------
Name: Theron D. Imbrie
Title: Vice President
</TABLE>
<PAGE> 127
<TABLE>
<S> <C>
NATIONSBANK OF TEXAS, N.A.
By: /s/ RICK BOWEN
------------------------------
Name: Rick Bowen
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ GREGORY A. GILBERT
------------------------------
Name: Gregory A. Gilbert
Title: Vice President
AMSOUTH BANK OF ALABAMA
By: /s/ LAWRENCE CLARK
------------------------------
Name: Lawrence Clark
Title: Vice President
SOCIETE GENERALE,
SOUTHWEST AGENCY
By: /s/ THOMAS K. DAY
------------------------------
Name: Thomas K. Day
Title: Vice President
CREDIT LYONNAIS, NEW YORK
BRANCH
By: /s/ LINDA D. TULLOCK
------------------------------
Name: Linda D. Tullock
Title: Assistant Vice
President
BANK OF MONTREAL
(CHICAGO BRANCH)
By: /s/ MAUREEN T. MILLS
------------------------------
Name: Maureen T. Mills
Title: Director
</TABLE>
<PAGE> 128
<TABLE>
<S> <C>
CIBC INC.
By: CIBC WOOD GUNDY
SECURITIES, CORP.,
AS AGENT
By: /s/ CHERYL L. ROOT
------------------------------
Name: Cheryl L. Root
Title: Director
THE SUMITOMO BANK, LIMITED
By: /s/ PETER F. SCHERER
------------------------------
Name: Peter F. Scherer
Title: Joint General
Manager
THE BANK OF NOVA SCOTIA
By: /s/ MELVIN MANDELBAUM
------------------------------
Name: Melvin Mandelbaum
Title: Unit Head
SIGNET BANK
By: /s/ ERIC A. LAWRENCE
------------------------------
Name: Eric A. Lawrence
Title: Senior Vice
President
BANKERS TRUST COMPANY
By: /s/ GARRETT W. THELANDER
------------------------------
Name: Garrett W. Thelander
Title: Vice President
</TABLE>
<PAGE> 129
<TABLE>
<S> <C>
FIRST NATIONAL BANK OF COMMERCE
By: /s/ HONORE ASCHAFFERINING
------------------------------
Name: Honore
Aschafferining
Title: Assistant Vice
President
THE LONG-TERM CREDIT
BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By: /s/ ISMAIL IBRAHIM
------------------------------
Name: Ismail Ibrahim
Title: Deputy General
Manager
</TABLE>
<PAGE> 130
SCHEDULE I
COMMITMENTS
<TABLE>
<CAPTION>
Commitment
----------
<S> <C>
Administrative Agent and Arranger
- ---------------------------------
The Chase Manhattan Bank $42,000,000
Documentation Agent and Arranger
- --------------------------------
Wells Fargo Bank $42,000,000
Co-Lead Agents
- --------------
Bank of Montreal (Chicago Branch) $40,000,000
The Bank of Nova Scotia $40,000,000
CIBC Inc. $40,000,000
The First National Bank of Chicago $40,000,000
NationsBank of Texas, N.A. $40,000,000
Societe Generale Southwest Agency $40,000,000
Co-Agents
- ---------
Credit Lyonnais, New York Branch $33,000,000
PNC Bank, National Association $33,000,000
Other Lenders
- -------------
AmSouth Bank of Alabama $30,000,000
The First National Bank of Boston $30,000,000
Bank One, Texas, N.A. $20,000,000
Bankers Trust Company $20,000,000
Signet Bank $20,000,000
The Sumitomo Bank, Limited $20,000,000
</TABLE>
<PAGE> 131
<TABLE>
<S> <C>
First National Bank of Commerce $10,000,000
The Long-Term Credit Bank $10,000,000
of Japan, Limited, New
York Branch
TOTAL: $550,000,000
============
</TABLE>
<PAGE> 132
SCHEDULE II
APPLICABLE LENDING OFFICES AND
ADDRESSES FOR NOTICES
<TABLE>
<CAPTION>
Domestic Lending
Office and Address Eurodollar
Lender for Notices Lending Office
- ------ ------------------ --------------
<S> <C> <C>
Chase 380 Madison Avenue 380 Madison Avenue
10th Floor 10th Floor
New York, NY 10017 New York, NY 10017
Attention: Linda Rodriguez Attention: Linda Rodriguez
Telecopy: (212) 622-3395 Telecopy: (212) 622-3395
Wells Fargo 2120 East Park Place 2120 East Park Place
Suite 100 Suite 100
El Segundo, CA 90245 El Segundo, CA 90245
Attention: Disbursements Attention: Match Fundings
Administrator Administrator
Telecopy: (310) 335-1014 Telecopy: (310) 335-1014
Bank One Bank One, Texas Bank One, Texas
Texas 1717 Main 1717 Main
Dallas, TX 75201 Dallas, TX 75201
Attention: Eddie Hodges Attention: Eddie Hodges
Telecopy: (214) 290-2275 Telecopy: (214) 290-2275
BankBoston, 115 Perimeter Ctr Place 115 Perimeter Ctr Place
N.A. Suite 500 Suite 500
Atlanta, GA 30346 Atlanta, GA 30346
Attention: Steven P. Attention: Jeanette
Selbo Streander
Telecopy: (770) 390-8434 Telecopy: (770) 390-8434
PNC Bank, One PNC Plaza, P1-POPP-19-2 One PNC Plaza, P1-POPP-19-2
National 249 Fifth Avenue 249 Fifth Avenue
Association Pittsburgh, PA 15222-2702 Pittsburgh, PA 15222-2707
Attention: Jan Dotchin Attention: Jan Dotchin
Telecopy: (412) 768-5754 Telecopy: (412) 768-5754
NationsBank 901 Main 901 Main
51st Floor 51st Floor
Dallas, TX 75224 Dallas, TX 75224
Attn: John Lamb Attn: Michael Green
Telecopy: (214) 508-0085 Telecopy: (214) 508-1571
</TABLE>
<PAGE> 133
<TABLE>
<S> <C> <C>
The First One First National Plaza One First National Plaza
National Suite 0151 Suite 0151
Bank of Chicago, IL 60607 Chicago, IL 60607
Chicago Attention: Rebecca Attention: Ernest M.
McCloskey Misioria
Telecopy: (312) 732-1117 Telecopy: (312) 732-1117
AmSouth Bank P.O. Box 11007 P.O. Box 11007
of Alabama Birmingham, AL 35288 Birmingham, AL 35288
Attention: Buddy Sharbel Attention: Buddy Sharbel
Telecopy: (205) 326-4075 Telecopy: (205) 326-4075
Societe 2001 Ross Avenue 2001 Ross Avenue
Generale Suite 4900 Suite 4900
Southwest Dallas, TX 75201 Dallas, TX 75201
Agency Attention: Carina Huynh Attention: Becky Aduddell
Telecopy: (214) 979-2727 Telecopy: (214) 979-2727
Credit 1301 Avenue of the Americas 1301 Avenue of the Americas
Lyonnais New York, NY 10019 New York, NY 10019
Attention: Mischa Zabotin Attention: Hotel Finance/
18th Floor
Telecopy: (212) 261-7540 Telecopy: (212) 261-7890
Bank of 115 South La Salle St. 115 South La Salle St.
Montreal Chicago, IL 60603 Chicago, IL 60603
(Chicago Attention: David Mazujian Attention: Debra Sandt
Branch) Telecopy: (312) 750-4352 Telecopy: (312) 750-4345
CIBC Inc. 2727 Paces Road 2727 Paces Road
Suite 1200 Suite 1200
Atlanta, GA 30339 Atlanta, GA 30339
Attention: Ken Auchter Attention: Ken Auchter
Telecopy: (770) 319-4950 Telecopy: (770) 319-4950
The Sumitomo Sears Tower Sears Tower
Bank Suite 4800 Suite 4800
Limited 233 South Wacker Drive 233 South Wacker Drive
Chicago, IL 60606 Chicago, IL 60606
Attention: Tom Batterham Attention: Tom Batterham
Telecopy: (312) 876-6436 Telecopy: (312) 876-6436
</TABLE>
<PAGE> 134
<TABLE>
<S> <C>
The Bank of Real Estate Banking 600 Peachtree St., N.E.
Nova Scotia One Liberty Plaza Suite 2700
New York, NY 10006 Atlanta, GA 30308
Attention: Attention: Craig Subryan
Telecopy: (212) 225-5166 Telecopy: (404) 888-8998
Signet Bank 7799 Leesburg Pike 7799 Leesburg Pike
3rd Floor 4th Floor
Falls Church, VA 22043 Falls Church, VA 22043
Attention: Eric Lawrence Attention: Nancy Richards
Telecopy: (703) 206-0284 Telecopy: (703) 206-0284
First National First NBC Center First NBC Center
Bank of 201 St. Charles Ave. 201 St. Charles Ave.
Commerce 28th Floor 28th Floor
New Orleans, LA 70170 New Orleans, LA 70170
Attention: Honore Kamala Hutchinson
Aschaffenburg Telecopy: (504) 623-1378
Telecopy: (504) 623-1738
Bankers Trust 130 Liberty Street,25th Flr. 103 Liberty Street
Company New York, NY 10006 New York, NY 10006
Attention: Caryl Mooney Attention: Wendy Williams
Telecopy: (212) 669-0732 Telecopy: (212) 250-7351
The Long-Term 165 Broadway 165 Broadway
Credit Bank New York, NY 10006 New York, NY 10006
of Japan, Attention: Nozomi Moue Attention: James Schiavone
Limited, New Telecopy: (212) 608-3058 Telecopy: (212) 608-3452
York Branch
</TABLE>
<PAGE> 1
EXHIBIT 10.25
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Dated September 26, 1997
AMONG
FELCOR SUITES LIMITED PARTNERSHIP,
FELCOR SUITE HOTELS, INC.
and
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into September 26, 1997, between FELCOR SUITES LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Operating Partnership"), FELCOR SUITE
HOTELS, INC., a Maryland corporation ("FelCor" and, together with the Operating
Partnership, the "Company"), and MORGAN STANLEY & CO. INCORPORATED, NATIONSBANC
CAPITAL MARKETS, INC. AND SALOMON BROTHERS INC (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated the
date hereof, between the Operating Partnership, FelCor and the Placement Agents
(the "Placement Agreement"), which provides for the sale by the Operating
Partnership to the Placement Agents of $175,000,000 aggregate principal amount
of 7 3/8% Senior Notes Due 2004 of the Operating Partnership and $125,000,000
aggregate principal amount of 7 5/8% Senior Notes Due 2007 of the Operating
Partnership (collectively, the "Notes") to be issued pursuant to the Indenture
(as defined below). The Notes will be guaranteed on a senior unsecured basis by
FelCor and the Subsidiary Guarantors (as defined herein) so long as they are
obligors on other indebtedness of FelCor and the Operating Partnership which is
pari passu with or subordinated to the Notes. In order to induce the Placement
Agents to enter into the Placement Agreement, the Company has agreed to provide
to the Placement Agents and their direct and indirect transferees the
registration rights with respect to the Notes set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Placement
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Closing Date" shall mean the Closing Date as defined in the Placement
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration
1
<PAGE> 3
statement on Form S-4 (or, if applicable, on another appropriate form) and all
amendments and supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchange Notes" shall mean Notes issued by Operating Partnership
under the Indenture containing terms identical to the Notes (except that (i)
interest thereon shall accrue from the last date on which interest was paid on
the Notes or, if no such interest has been paid, from October 1, 1997, (ii) the
Exchange Notes will not contain restrictions on transfer and (iii) certain
provisions relating to an increase in the stated rate of interest thereon shall
be eliminated) and to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as they own any
Registrable Notes, and each of their successors, assigns and direct and
indirect transferees who become registered owners of Registrable Notes under
the Indenture; provided that for purposes of Sections 4 and 5 of this
Agreement, the term "Holder" shall include Participating Broker-Dealers (as
defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Notes to be dated
as of October 1, 1997, between the Operating Partnership, FelCor, the
Subsidiary Guarantors and SunTrust Bank, Atlanta, as trustee, and as the same
may be amended from time to time in accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Company
or any of its affiliates (as such term is defined in Rule 405 under the 1933
Act) (other than the Placement Agents or subsequent holders of Registrable
Notes if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Notes) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage or amount.
"Notes" shall have the meaning set forth in the second paragraph of
this Agreement.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Placement Agents" shall have the meaning set forth in the preamble to
this Agreement.
"Placement Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any
2
<PAGE> 4
prospectus supplement, including a prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Notes covered by a
Shelf Registration Statement, and by all other amendments and supplements to
such prospectus, including post-effective amendments, and in each case
including all material incorporated by reference therein.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Notes or Registrable Notes), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi) the fees
and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and, in the case of a Shelf
Registration Statement, the reasonable fees and disbursements of one counsel
for the Holders (which counsel shall be selected by the Majority Holders and
which counsel may also be counsel for the Placement Agents) and (viii) the fees
and disbursements of the independent public accountants of the Company,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding fees and
expenses of counsel to the underwriters (other than reasonable fees and
expenses set forth in clause (ii) above) or the Holders and underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Notes by a Holder.
"Registrable Notes" shall mean the Notes other than the Exchanges
Notes; provided, however, that the Notes shall cease to be Registrable Notes
(i) when a Registration Statement with respect to such Notes shall have been
declared effective under the 1933 Act and such Notes shall have been disposed
of pursuant to such Registration Statement, (ii) when such Notes have been sold
to the public pursuant to Rule 144(k) (or any similar provision then in force,
but not Rule 144A) under the 1933 Act or (iii) when such Notes shall have
ceased to be outstanding.
"Registration Statement" shall mean any registration statement of
FelCor and the Operating Partnership that covers any of the Exchange Notes or
Registrable Notes pursuant to the provisions of this Agreement and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
3
<PAGE> 5
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes (but no other Notes unless
approved by the Holders whose Registrable Notes are covered by such Shelf
Registration Statement) on an appropriate form under Rule 415 under the 1933
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Subsidiary Guarantors" shall mean each of (i) FelCor/CSS Hotels,
L.L.C., a Delaware limited liability company, (ii) FelCor/LAX Hotels, L.L.C., a
Delaware limited liability company, (iii) FelCor/CSS Holdings, L.P., a Delaware
limited partnership, (iv) FelCor/St. Paul Holdings, L.P., a Delaware limited
partnership, (v) FelCor/LAX Holdings, L.P., a Delaware limited partnership and
(vi) FelCor Eight Hotels, L.L.C., a Delaware limited liability company and each
other entity that becomes a Subsidiary Guarantor in accordance with the terms
of the Indenture.
"Trustee" shall mean the trustee with respect to the Securities under
the Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Registrable Notes are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. Registration Under The 1933 Act. (a) To the extent not
prohibited by any applicable law or applicable interpretation of the Staff of
the SEC, the Company shall cause to be filed after the Closing Date an Exchange
Offer Registration Statement covering the offer by the Company to the Holders
to exchange all of the Registrable Notes for Exchange Notes, to have such
Registration Statement declared effective by the SEC, and to have such Exchange
Offer Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the
Exchange Offer Registration Statement has been declared effective by the SEC
and use its best efforts to have the Exchange Offer consummated not later than
six months after the Closing Date. The Company shall commence the Exchange
Offer by mailing the related exchange offer Prospectus and accompanying
documents to each Holder stating, in addition to such other disclosures as are
required by applicable law
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Notes validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "Exchange Dates");
(iii) that any Registrable Note not tendered will remain
outstanding and continue to accrue interest in accordance with the
terms of the Notes, but will not retain any rights under this
Registration Rights Agreement;
4
<PAGE> 6
(iv) that Holders electing to have a Registrable Note
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Note, together with the enclosed letters of
transmittal, to the institution and at the address located in the
Borough of Manhattan, The City of New York, specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their
election, not later than the close of business on the last Exchange
Date, by sending to the institution and at the address located in the
Borough of Manhattan, The City of New York, specified in the notice a
telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Notes
delivered for exchange and a statement that such Holder is withdrawing
his election to have such Notes exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Notes or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Note equal in
principal amount to the principal amount of the Registrable Notes
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents, if requested by the Placement Agents, of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Placement
Agents shall have the right, subject to applicable law, to contact such Holders
and otherwise facilitate the tender of Registrable Notes in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated on
or prior to April 1, 1998, or (iii) in the opinion of counsel for the Placement
Agents a Registration Statement must be filed and a Prospectus must be
delivered by the Placement Agents in connection with any offering or sale of
Registrable Notes, the Company shall cause to be filed as soon as practicable
after such determination, date or notice of such opinion of counsel is given to
the Company, a Shelf Registration Statement providing for the sale by the
5
<PAGE> 7
Holders of all of the Registrable Notes and to have such Shelf Registration
Statement declared effective by the SEC. In the event the Company is required
to file a Shelf Registration Statement solely as a result of the matters
referred to in clause (iii) of the preceding sentence, the Company shall file
and use its best efforts to have declared effective by the SEC both an Exchange
Offer Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a combined
Registration Statement with the Exchange Offer Registration Statement) with
respect to offers and sales of Registrable Notes held by such Placement Agent
after completion of the Exchange Offer. The Company agrees to use its best
efforts to keep the Shelf Registration Statement continuously effective until
the expiration of the period referred to in Rule 144(k) with respect to all
Registrable Notes covered by the Shelf Registration Statement or such shorter
period that will terminate when all of the Registrable Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, and to use its best efforts to
cause any such amendment to become effective and such Shelf Registration
Statement to become usable as soon as thereafter practicable. The Company
agrees to furnish to the Holders of Registrable Notes copies of any such
supplement or amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in connection with
the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall
pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Notes pursuant
to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Notes pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, in
the event that the Exchange Offer is not consummated, and if a Shelf
Registration Statement is required hereby, the Shelf Registration Statement is
not declared effective on or prior to April 1, 1998, the interest rate on the
Notes (and the Exchange Notes) will increase by 0.5% per annum until the
Exchange Offer is consummated or a Shelf Registration Statement is declared
effective.
(e) Without limiting the remedies available to the Placement Agents
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under
6
<PAGE> 8
Section 2(a) and Section 2(b) hereof may result in material irreparable injury
to the Placement Agents or the Holders for which there is no adequate remedy at
law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Placement Agents or
any Holder may obtain such relief as may be required to specifically enforce
the Company's obligations under Section 2(a) and Section 2(b) hereof.
3. Registration Procedures. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Section
2(a) and Section 2(b) hereof, the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by the
Company and (y) shall, in the case of a Shelf Registration, be available for
the sale of the Registrable Notes by the selling Holders thereof and (z) shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and use its best efforts to cause such Registration Statement
to become effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to keep each
Prospectus current during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by brokers or dealers
with respect to the Registrable Notes or Exchanges Notes;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, to counsel for the Placement Agents, to counsel for the
Holders and to each Underwriter of an Underwritten Offering of Registrable
Notes, if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or Underwriter may reasonably request, in order
to facilitate the public sale or other disposition of the Registrable Notes;
and the Company consents to the use of such Prospectus and any amendment or
supplement thereto in accordance with applicable law by each of the selling
Holders of Registrable Notes and any such Underwriters in connection with the
offering and sale of the Registrable Notes covered by and in the manner
described in such Prospectus or any amendment or supplement thereto in
accordance with applicable law;
(d) use its reasonable best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement shall reasonably request in writing by the time the applicable
Registration Statement is declared effective by the SEC, to cooperate with such
Holders in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. and do any and all other acts and
things which may be reasonably
7
<PAGE> 9
necessary or advisable to enable such Holder to consummate the disposition in
each such jurisdiction of such Registrable Notes owned by such Holder;
provided, however, that the Company shall not be required to (i) qualify as a
foreign corporation or as a broker or dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3(d),
(ii) file any general consent to service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes, counsel for the Holders and counsel for the Placement Agents
promptly and, if requested by any such Holder or counsel, confirm such advice
in writing (i) when such Registration Statement has become effective and when
any post-effective amendment thereto has been filed and becomes effective, (ii)
of any request by the SEC or any state Notes authority for amendments and
supplements to such Registration Statement and Prospectus or for additional
information after such Registration Statement has become effective, (iii) of
the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of such Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, between the effective date of
such Registration Statement and the closing of any sale of Registrable Notes
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects or if the Company receives any notification with respect to
the suspension of the qualification of the Registrable Notes for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
happening of any event during the period a Shelf Registration Statement is
effective such that such Registration Statement or the related Prospectus
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make statements therein not
misleading and (vi) of any determination by the Company that a post-effective
amendment to such Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the withdrawal
of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and delivery
of certificates representing Registrable Notes to be sold and not bearing any
restrictive legends and enable such Registrable Notes to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders may reasonably request at least one
business day prior to the closing of any sale of Registrable Notes;
8
<PAGE> 10
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) or (vi) hereof, use its best efforts to
prepare and file with the SEC a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Notes, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company agrees to notify the
Holders to suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use of the
Prospectus upon receipt of such notice until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus after
initial filing of a Registration Statement, provide copies of such document to
the Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such of the
representatives of the Company as shall be reasonably requested by the
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) available for discussion of such
document, and shall not at any time file or make any amendment to the
Registration Statement, any Prospectus or any amendment of or supplement to a
Registration Statement or a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus, of
which the Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall not have
previously been advised and furnished a copy or to which the Placement Agents
or their counsel (and, in the case of a Shelf Registration Statement, the
Holders or their counsel) shall reasonably object;
(k) obtain CUSIP numbers for all Exchanges Notes or Registrable Notes,
as the case may be, not later than the effective date of a Registration
Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchanges Notes or Registrable Notes, as the case may be, cooperate with the
Trustee and the Holders to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use its reasonable best efforts to cause the Trustee
to execute, all documents as may be required to effect such changes and all
other forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for inspection
by a representative of the Holders of the Registrable Notes, any Underwriter
participating in any disposition pursuant to such Shelf Registration Statement,
and attorneys and accountants designated by the Holders, at reasonable times
and in a reasonable manner, all financial and other records, pertinent
documents
9
<PAGE> 11
and properties of the Company, and cause the respective officers, directors and
employees of the Company to supply all information reasonably requested by any
such representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement;
(n) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Notes to be listed on any securities exchange or any
automated quotation system on which similar securities issued by FelCor or the
Operating Partnership are then listed if requested by the Majority Holders, to
the extent such Registrable Notes satisfy applicable listing requirements;
(o) use its best efforts to cause the Exchange Notes or
Registrable Notes, as the case may be, to be rated by two nationally recognized
statistical rating organizations (as such term is defined in Rule 436(g)(2)
under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable Notes covered
by a Registration Statement in order to accurately reflect information
regarding such Holder or such Holder's plan of distribution as required by such
Registration Statement, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment such required information with respect to such Holder
as such Holder reasonably requests to be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as the Company has received notification of the matters to be
incorporated in such filing; and
(q) in the case of a Shelf Registration, use its reasonable best
efforts to enter into such customary agreements and take all such other actions
in connection therewith (including those requested by the Holders of a majority
of the Registrable Notes being sold) in order to expedite or facilitate the
disposition of such Registrable Notes including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible, make
such representations and warranties to the Holders and any Underwriters of such
Registrable Notes with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents incorporated
by reference or deemed incorporated by reference, if any, in each case, in
form, substance and scope as are customarily made by issuers to underwriters in
Underwritten Offerings (but in no event more onerous to the Company than those
contained in the Placement Agreement), and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which counsel and
opinions, in form, scope and substance, shall be reasonably satisfactory to the
Holders and such Underwriters and their respective counsel) addressed to each
selling Holder and Underwriter of Registrable Notes covering the matters
customarily covered in opinions requested in Underwritten Offerings (but in no
event more onerous to the Company than those opinions required in the Placement
Agreement), (iii) obtain "cold comfort" letters from the independent certified
public accountants of FelCor and the Operating Partnership (and, if necessary,
any other certified public accountant of any subsidiary of the Company, or of
any business acquired by the Company for which financial statements and
financial data are or are required to be included in the Registration
Statement) addressed to each selling Holder and Underwriter of Registrable
Notes, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with Underwritten
10
<PAGE> 12
Offerings, and (iv) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority in principal amount of the
Registrable Notes being sold or the Underwriters, and which are customarily
delivered in Underwritten Offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause (i) above
and to evidence compliance with any customary conditions contained in an
underwriting agreement.
In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Notes to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Notes as the Company may from time to time reasonably request in
writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e)(v) or (vi) hereof, such Holder will
forthwith discontinue disposition of Registrable Notes pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Notes
current at the time of receipt of such notice. The Company may suspend the
availability of any Shelf Registration Statement for not more than two times
during any 365 day period and any such suspensions may not exceed 30 days for
each suspension. If the Company shall give any such notice to suspend the
disposition of Registrable Notes pursuant to a Registration Statement, the
Company shall extend the period during which the Registration Statement shall
be maintained effective pursuant to this Agreement by the number of days during
the period from and including the date of the giving of such notice to and
including the date when the Company shall have made available to the Holders
copies of the supplemented or amended Prospectus necessary to resume such
dispositions.
The Holders of Registrable Notes covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Notes in an
Underwritten Offering; provided that the Company shall be required to use its
best efforts to make an Underwritten Offering only upon the request of Holders
of at least 25% of the Registrable Notes outstanding at the time such request
is delivered to the Company. In the case of any Underwritten Offering, the
Company shall (x) provide written notice to the Holders of all Registrable
Notes of such Underwritten Offering at least 30 days prior to the filing of a
prospectus for such Underwritten Offering, (y) specify a date, which shall be
no earlier than 10 days following the date of such notice, by which each such
Holder must inform the Company of its intent to participate in such
Underwritten Offering and (z) include reasonable procedures that are customary
to underwritten offerings of the type contemplated herein that such Holder must
follow in order to participate in such Underwritten Offering. In any such
Underwritten Offering, the investment banker or investment bankers and manager
or managers (the "Underwriters") that will administer the offering will be
selected by the Majority Holders of the Registrable Notes included in such
offering and shall be approved by the Company, which approval shall not be
unreasonably withheld.
11
<PAGE> 13
4. Participation of Broker-Dealers In Exchange Offer. (a) The
Staff of the SEC has taken the position that any broker-dealer that receives
Exchange Notes for its own account in the Exchange Offer in exchange for Notes
that were acquired by such broker-dealer as a result of market-making or other
trading activities (a "Participating Broker- Dealer"), may be deemed to be an
"underwriter" within the meaning of the 1933 Act and must deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchanges Notes.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means
by which Participating Broker-Dealers may resell the Exchange Notes, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Notes owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Notes for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as
they relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Notes by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or
supplement the Prospectus contained in the Exchange Offer Registration
Statement, as would otherwise be contemplated by Section 3(i), for a
period exceeding 180 days after the last Exchange Date (as such period
may be extended pursuant to the penultimate paragraph of Section 3 of
this Agreement) and Participating Broker-Dealers shall not be
authorized by the Company to deliver and shall not deliver such
Prospectus after such period in connection with the resales
contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures
set forth in Section 3 of this Agreement to an Exchange Offer
Registration, to the extent not required by the positions of the Staff
of the SEC or the 1933 Act and the rules and regulations thereunder,
will be in conformity with the reasonable request to the Company by
the Placement Agents or with the reasonable request in writing to the
Company by one or more broker- dealers who certify to the Placement
Agents and the Company in writing that they anticipate that they will
be Participating Broker-Dealers; and provided further that, in
connection with such application of the Shelf Registration procedures
set forth in Section 3 to an Exchange Offer Registration, the Company
shall be obligated (x) to deal only with one entity representing the
Participating Broker-Dealers, which shall be Morgan Stanley & Co.
Incorporated unless it elects not to act as such representative, (y)
to pay the fees and
12
<PAGE> 14
expenses of only one counsel representing the Participating
Broker-Dealers, which shall be counsel to the Placement Agents unless
such counsel elects not to so act and (z) to cause to be delivered
only one, if any, "cold comfort" letter with respect to the Prospectus
in the form existing on the last Exchange Date and with respect to
each subsequent amendment or supplement, if any, effected during the
period specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section
4(b) above.
5. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Placement Agents, each Holder and each person,
if any, who controls any Placement Agent or any Holder within the meaning of
either Section 15 of the 1933 Act or Section 20 of the 1934 Act, or is under
common control with, or is controlled by, any Placement Agent or any Holder,
from and against all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred by any
Placement Agent, any Holder or any such controlling or affiliated person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto) pursuant to which
Exchange Notes or Registrable Notes were registered under the 1933 Act,
including all documents incorporated therein by reference, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they were made
not misleading, except insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission or alleged untrue statement
or omission based upon information relating to the Placement Agents or any
Holder furnished to the Company in writing by the Placement Agents or any
selling Holder expressly for use therein. In connection with any Underwritten
Offering permitted by Section 3, the Company will also indemnify the
Underwriters, if any, their officers and directors and each Person who controls
such Persons (within the meaning of the Securities Act and the Exchange Act) to
the same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Placement Agents and the other selling Holders,
and each of their respective directors, officers who sign the Registration
Statement and each person, if any, who controls the Company, any Placement
Agent and any other selling Holder within the meaning of either Section 15 of
the 1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing
indemnity from the Company to the Placement Agents and the Holders, but only
with reference to information relating to such Holder furnished to the Company
in writing by such Holder expressly for use in any Registration Statement (or
any amendment thereto) or any Prospectus
13
<PAGE> 15
(or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the reasonable fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the reasonable fees and expenses of more than one separate firm (in addition to
any local counsel) for the Placement Agents and all persons, if any, who
control any Placement Agent within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act, (b) the reasonable fees and expenses of more
than one separate firm (in addition to any local counsel) for the Company, its
directors and officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either such Section and (c)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Holders and all persons, if any, who control any Holders
within the meaning of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred. In such case involving the Placement
Agents and persons who control the Placement Agent, such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated. In such case
involving the Holders and such persons who control Holders, such firm shall be
designated in writing by the Majority Holders. In all other cases, such firm
shall be designated by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but,
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for reasonable fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party for such fees and
expenses of counsel in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is
14
<PAGE> 16
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph
(b) of this Section 4 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective number of Registrable Notes of such Holder that
were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Notes were sold by such Holder exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The remedies provided for in this Section 5
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, its officers or directors or
any person controlling the Company, (iii) acceptance of any of the Exchange
Notes and (iv)
15
<PAGE> 17
any sale of Registrable Notes pursuant to a Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into, and
on or after the date of this Agreement will not enter into, any agreement which
is inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or consent; provided, however, that no amendment, modification, supplement,
waiver or consents to any departure from the provisions of Section 5 hereof
shall be effective as against any Holder of Registrable Notes unless consented
to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions of
this Section 6(c), which address initially is, with respect to the Placement
Agents, the address set forth in the Placement Agreement; and (ii) if to the
Company, initially at the Company's address set forth in the Placement
Agreement and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Notes in
violation of the terms of the Placement Agreement. If any transferee of any
Holder shall acquire
16
<PAGE> 18
Registrable Notes, in any manner, whether by operation of law or otherwise,
such Registrable Notes shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Notes such person shall
be conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such person shall be entitled to
receive the benefits hereof. The Placement Agents (in their capacity as
Placement Agents) shall have no liability or obligation to the Company with
respect to any failure by a Holder to comply with, or any breach by any Holder
of, any of the obligations of such Holder under this Agreement.
(e) Purchases and Sales of Notes. The Company shall not, and shall use
its best efforts to cause its affiliates (as defined in Rule 405 under the 1933
Act) not to, purchase and then resell or otherwise transfer any Notes other
than Notes acquired and cancelled.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders
hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
17
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
-----------------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
FELCOR SUITES LIMITED PARTNERSHIP
By: /s/ LAWRENCE D. ROBINSON
-----------------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President
& General Counsel
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ THOMAS A. Grier
-----------------------------------
Name: Thomas A. Grier
Title: Principal
<PAGE> 1
EXHIBIT 12.1
FELCOR SUITES LIMITED PARTNERSHIP
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
THE RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED DISTRIBUTIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994
(INCEPTION OF YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
OPERATIONS) ----------------------------------- ----------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ---------------------- --------- ---------------------- ---------
1994 1995 1996 1996 1996 1997 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before extraordinary items $ 3,418 $ 15,322 $ 46,527 $ 69,000 $ 26,379 $ 30,257 $ 40,726
Adjustments:
Fixed charges, as below 109 2,004 11,133 34,159 4,780 13,428 19,455
Interest capitalized (1,330) (1,330) (267) (566)
--------- --------- --------- --------- --------- --------- ---------
Earnings as adjusted $ 3,527 $ 17,326 $ 56,330 $ 101,829 $ 30,892 $ 43,119 $ 59,615
========= ========= ========= ========= ========= ========= =========
Fixed Charges:
Interest expense $ 109 $ 2,004 $ 9,803 $ 32,829 $ 4,513 $ 12,862 $ 18,889
Interest capitalized 1,330 1,330 267 566 566
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 109 $ 2,004 $ 11,133 $ 34,159 $ 4,780 $ 13,428 $ 19,455
========= ========= ========= ========= ========= ========= =========
Preferred distribution $ $ $ 7,734 $ 11,798 $ 1,835 $ 5,899 $ 5,899
========= ========= ========= ========= ========= ========= =========
Fixed Charge Coverage Ratio (1) 32.4 x 8.6 x 5.1 x 3.0 x 6.5 x 3.2 x 3.1x
Fixed Charges and Preferred Distribution
Coverage Ratio (2) 32.4 x 8.6 x 3.0 x 2.2 x 4.7 x 2.2 x 2.4x
</TABLE>
- ----------
(1) Computed as Earnings divided by Fixed Charges
(2) Computed as Earnings divided by Fixed Charges and Preferred
Distributions
<PAGE> 2
FELCOR SUITE HOTELS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
THE RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994
(INCEPTION OF YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
OPERATIONS) ----------------------------------- ---------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, --------------------- --------- -------------------- ---------
1994 1995 1996 1996 1996 1997 1997
------- -------- -------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before extraordinary items $ 2,511 $ 12,191 $ 40,937 $ 63,880 $ 23,237 $27,315 $37,720
Adjustments:
Minority interest in Operating
Partnership 907 3,131 5,590 5,120 3,142 2,942 3,006
Fixed charges, as below 109 2,004 11,133 34,159 4,780 13,428 19,455
Interest capitalized (1,330) (1,330) (267) (566) (566)
------- -------- -------- --------- -------- ------- -------
Earnings as adjusted $ 3,527 $ 17,326 $ 56,330 $ 101,829 $ 30,892 $43,119 $59,615
======== ======== ========= ======== ======= =======
Fixed Charges:
Interest expense $ 109 $ 2,004 $ 9,803 $ 32,829 $ 4,513 $12,862 $18,889
Interest capitalized 1,330 1,330 267 566 566
------- -------- -------- --------- -------- ------- -------
Total fixed charges $ 109 $ 2,004 $ 11,133 $ 34,159 $ 4,780 $13,428 $19,455
======= ======== ======== ========= ======== ======= =======
Preferred stock dividend $ $ $ 7,734 $ 11,798 $ 1,835 $ 5,899 $ 5,899
======= ======== ======== ========= ======== ======= =======
Fixed Charge Coverage Ratio (1) 32.4 x 8.6 x 5.1 x 3.0 x 6.5 x 3.2 x 3.1x
Fixed Charges and Preferred Stock
Dividend Coverage Ratio (2) 32.4 x 8.6 x 3.0 x 2.2 x 4.7 x 2.2 x 2.4x
</TABLE>
- ---------
(1) Computed as Earnings divided by Fixed Charges
(2) Computed as Earnings divided by Fixed Charges and Preferred
Distributions
<PAGE> 1
EXHIBIT 21.1
THE FOLLOWING IS A TRUE AND CORRECT LIST OF THE SUBSIDIARIES (INCLUDING
UNCONSOLIDATED SUBSIDIARIES) OF THE FELCOR SUITE HOTELS, INC.
AS OF OCTOBER 31, 1997.
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST (1)
- ---- --------------------- ----------------------
<S> <C> <C>
FelCor Suites Limited Partnership Delaware; Limited 90.5% GP interest owned by
Partnership FelCor
FelCor/CSS Hotels, L.L.C. Delaware; Limited 100% owned by FelCor LP
("FelCor/CSS Hotels") Liability Company
FelCor/LAX Hotels, L.L.C. Delaware; Limited 100% owned by FelCor LP
("FelCor/LAX Hotels") Liability Company
FelCor/CSS Holdings, L.P. Delaware; 1% GP interest owned by
("FelCor/CSS Holdings") Limited Partnership FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor/St. Paul Holdings, L.P. Delaware; 1% GP interest owned by
("FelCor/St. Paul Holdings") Limited Partnership FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor/LAX Holdings, L.P. Delaware; 1% GP Interest owned by
("FelCor/LAX Holdings") Limited Partnership FelCor/LAX Hotels; 99% LP
interest owned by FelCor LP
Los Angeles International Airport Hotel Texas; 50% GP interest and
Associates Limited Partnership 47.2% LP interest owned by
FelCor/LAX Holdings
Promus/FelCor Lombard Venture Illinois; 50% GP interest owned by
General Partnership FelCor LP
MHV Joint Venture Texas; 50% GP interest owned by
General Partnership FelCor LP
Promus/FelCor Parsippany Joint Venture New Jersey; 50% GP interest owned by
General Partnership FelCor LP
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Charlotte Limited Partnership Minnesota; 1% GP interest owned by
Limited Partnership FelCor/CSS Hotels; 49% LP
interest owned by FelCor LP
E.S. North, an Indiana Limited Indiana; 1% GP interest owned by
Partnership Limited Partnership FelCor/CSS Hotels; 49% LP
interest owned by FelCor LP
Promus/FCH Development Company, L.L.C. Delaware; 50% owned by FelCor LP
Limited Liability
Company
Promus/FCH Condominium Company, L.L.C. Delaware; 50% owned by FelCor LP
Limited Liability
Company
FelCor Eight Hotels, L.L.C. Delaware; 100% owned by FelCor LP
("FelCor Eight Hotels") Limited Liability
Company
EPT Atlanta - Perimeter Center Limited Delaware; 1% GP interest owned by FelCor
Partnership Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT - Austin Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT - Covina Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT - Kansas City Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT - Meadowlands Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT - Overland Park Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
EPT - Raleigh Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT - San Antonio Limited Partnership Delaware; 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
FCH/DT Hotels, L.L.C. Delaware; Limited 90% owned by FelCor LP
Liability Company
FCH/DT Holdings, L.P. Delaware; 1% GP interest owned by FCH/DT
Limited Partnership Hotels, L.L.C.; 89.1% LP interest
owned by FelCor LP
FCH/DT BWI Holdings, L.P. Delaware; 1% GP interest owned by FCH/DT
Limited Partnership Hotels, L.L.C.; 99% LP interest
owned by FCH/DT Holdings, LP
Barshop-HII Joint Venture Texas; 50% GP interest owned by FelCor
General Partnership LP
Kingston Plantation Development Delaware; 97% non-voting Class B
Corporation Corporation interest owned by
FelCor LP
FCH/Society Hill, L.P.2 Pennsylvania; 1% GP interest owned by
Limited Partnership FelCor/CSS Hotels,
L.L.C.;99% LP
interest owned by FelCor LP
FelCor/Charlotte Hotel, L.L.C. Delaware; Limited 50% interest owned by
Liability Company FelCor/CSS Hotels, L.L.C.
</TABLE>
# # # #
(1) THE PERCENTAGE INTERESTS REFLECTED ABOVE REPRESENT THE PERCENTAGES OF
AGGREGATE EQUITY INTEREST IN THE RESPECTIVE ENTITIES. EACH OF THE GP INTERESTS
REFLECTED ABOVE REPRESENTS EITHER THE ENTIRE GENERAL PARTNER INTEREST IN SUCH
ENTITY OR AN INTEREST AS THE SOLE ADMINISTRATIVE GENERAL PARTNER OF SUCH ENTITY
WITH POWER TO CONTROL THE DAY-TO-DAY OPERATIONS THEREOF.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FelCor Suites Hotels, Inc.
We consent to the inclusion in this registration statement on Form S-4 (File
No. ___) of our report dated January 22, 1997, except as to the information
presented in the second paragraph of Note 5, the first paragraph of Note 6 and
Note 16 for which the date is March 10, 1997, on our audits of the consolidated
financial statements and financial statement schedule of FelCor Suites Limited
Partnership as of December 31, 1996 and 1995 and for the years ended December
31, 1996 and 1995 and the period from July 28, 1994 (inception of operations)
through December 31, 1994; our report dated January 22, 1997, except as to the
information presented in the second paragraph of Note 5, the first paragraph of
Note 6 and Note 17 for which the date is March 10, 1997, on our audits of the
consolidated financial statements and financial statement schedule of FelCor
Suite Hotels, Inc. as of December 31, 1996 and 1995 and for the years ended
December 31, 1996 and 1995 and the period from July 28, 1994 (inception of
operations) through December 31, 1994; and our report dated January 22, 1997,
except as to the information presented in Note 7 for which the date is February
21, 1997, on our audits of the financial statements of DJONT Operations, L.L.C.
as of December 31, 1996 and 1995 and for the years ended December 31, 1996 and
1995 and the period from July 28, 1994 (inception of operations) through
December 31, 1994.
We consent to the incorporation by reference in this registration statement on
Form S-4 (File No. ____) of our report dated June 2, 1997 on our audit of the
combined financial statements of the DS Hotels as of and for the year ended
December 31, 1996, which report is included in FelCor Suite Hotels, Inc.'s
Current Report on Form 8-K dated June 3, 1997; and our report dated July 25,
1997 on our audit of the combined financial statements of the Sheraton
Acquisition Hotels as of and for the year ended December 31, 1996, which report
is included in FelCor Suite Hotels, Inc.'s Current Report on Form 8-K/A dated
August 13, 1997.
We also consent to the references to our firm under the captions "Experts" and
"Selected Historical and Pro Forma Financial Information."
/s/ COOPERS & LYBRAND LLP
Memphis, Tennessee
October 31, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports with respect to the
audited financial statements of EPT Meadowlands Limited Partnership, Promus
Hotels, Inc. GE EPT Combined Limited Partnerships, and Barshop - HII Joint
Venture as of December 31, 1996 and 1995, and for the years then ended,
included in the Company's previously filed Form 8-K dated June 4, 1997.
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
November 3, 1997.
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of FelCor Suites Limited Partnership of our report dated February 7,
1997 (except Note 5, as to which the date is March 20, 1997), with respect to
the financial statements of AEW Doubletree Portfolio for the year ended December
31, 1996 included in the Current Report on Form 8-K of FelCor Suite Hotels,
Inc. dated June 5, 1997 filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Columbus, Ohio
November 3, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' REPORT
We consent to the incorporation by reference in this Registration Statement of
FelCor Suite Hotels, Inc. on Form S-4 of our report regarding PSH Master L.P.I.
dated February 14, 1997 (except for Note 12 as to which the date is May 30,
1997), which expresses an unqualified opinion on those financial statements and
includes an explanatory paragraph about the entity's ability to continue as a
going concern, appearing in Form 8-K of FelCor Suite Hotels, Inc.
/s/ DELOITTE/TOUCHE LLP
Columbus, Ohio
October 31, 1997
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) [ ]
-------------------
SUNTRUST BANK, ATLANTA
(Exact name of trustee as specified in its charter)
58-0466330
(I.R.S. employer identification no.)
25 PARK PLACE, N.E.
ATLANTA, GEORGIA 30303
(Address of principal executive offices) (Zip Code)
-------------------
DAVID M. KAYE
SUNTRUST BANK, ATLANTA
58 EDGEWOOD AVENUE, N.E.
ROOM 400A
ATLANTA, GEORGIA 30303
(404) 588-8060
(Name, address and telephone number of agent for service)
FELCOR SUITES LIMITED PARTNERSHIP
FELCOR SUITE HOTELS, INC.
FELCOR/CSS HOTELS, L.L.C.
FELCOR/LAX HOTELS, L.L.C.
FELCOR EIGHT HOTELS, L.L.C.
FELCOR/CSS HOLDINGS, L.P.
FELCOR/ST. PAUL HOLDINGS, L.P.
FELCOR/LAX HOLDINGS, L.P.
(Exact name of co-obligor as specified in its charter)
DELAWARE 75-2564994
MARYLAND 72-2541756
DELAWARE 75-2624290
DELAWARE 75-2647535
DELAWARE 75-2582006
DELAWARE 75-2620463
DELAWARE 75-2624292
DELAWARE 75-2624293
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
545 E. JOHN CARPENTER FRWY.
SUITE 1300
IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
-----------------
7 3/8% SENIOR NOTES DUE 2004
7 5/8% SENIOR NOTES DUE 2007
GUARANTEES OF SENIOR NOTES(1)
(Title of the indenture securities)
(1) FelCor Suite Hotels, Inc. and the following wholly-owned subsidiaries of
the Registrant: FelCor/CSS Hotels, L.L.C., Felcor/LAX Hotels, L.L.C.,
FelCor Eight Hotels, L.L.C., FelCor/CSS Holdings, L.P., FelCor/St. Paul
Holdings, L.P. and FelCor/LAX Holdings, L.P., have each guaranteed the
notes being registered pursuant hereto.
- --------------------------------------------------------------------------------
<PAGE> 2
1. General information.
(a) Name and address of each examining or supervising authority to which
it is subject.
DEPARTMENT OF BANKING AND FINANCE
STATE OF GEORGIA
ATLANTA, GEORGIA
FEDERAL RESERVE BANK OF ATLANTA
104 MARIETTA STREET, N.W.
ATLANTA, GEORGIA
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
YES.
2. Affiliations with obligor.
NONE.
3. Voting Securities of the Trustee.
NOT APPLICABLE.
4. Trusteeships under Other Indentures.
NOT APPLICABLE.
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
NOT APPLICABLE.
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
NOT APPLICABLE.
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
NOT APPLICABLE.
8. Securities of the Obligor Owned or Held by the Trustee.
NOT APPLICABLE.
<PAGE> 3
9. Securities of Underwriters Owned or held by the Trustee.
NOT APPLICABLE.
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
NOT APPLICABLE.
11. Ownership or Holdings by the Trustee of any Securities or a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
NOT APPLICABLE.
12. Indebtedness of the Obligor to the Trustee.
NOT APPLICABLE.
13. Defaults by the Obligor.
(a) Whether there is or has been a default with respect to the securities
under this indenture.
THERE IS NOT AND HAS NOT BEEN ANY SUCH DEFAULT.
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for
more than one outstanding series of securities under the indenture,
state whether there has been a default under any such indenture or
series.
THERE HAS NOT BEEN ANY SUCH DEFAULT.
14. Affiliations with the Underwriters.
NOT APPLICABLE.
15. Foreign Trustee.
NOT APPLICABLE.
-2-
<PAGE> 4
16. List of Exhibits.
The additional exhibits listed below are filed herwith; exhibits, if any,
identified in parentheses are on file with the Commission and are incorporated
herein by reference as exhibits hereto pursuant to Rule 7a-29 under the Trust
Indenture Act of 1939, as amended, and Rule 24 of the Commission's Rules of
Practice.
Exhibit
Number
1 A copy of the Articles of Amendment and Restated Articles of Incorporation
as now in effect. (Exhibit 1 to Form T-1, Registration No. 333-25463.)
2 A copy of the certificate of authority of the Trustee to commence business.
(Included in Exhibit 1.)
3 A copy of the authorization of the Trustee to exercise trust powers.
(Included in Exhibit 1.)
4 By-laws of the Trustee. (Included in Exhibit 4 to Form T-1, Registration
No. 333-25463.)
5 Not applicable.
6 Consent of the trustee required by Section 321(b) of the Trust Indenture
Act of 1939, as amended.
7 Latest report of condition of the Trustee published pursuant to law or the
requirements of its supervising or examining authority as of the close of
business on June 30, 1997.
8 Not applicable.
9 Not applicable.
-3-
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, SunTrust Bank, Atlanta, a banking corporation organized and existing
under the laws of the State of Georgia, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Atlanta and the State of Georgia,
on the 4th day of November, 1997
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
------------------------------
Group Vice President
-4-
<PAGE> 6
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939 in connection with the proposed issuance of FelCor Suites Limited
Partnership, et al, 7 3/8% Senior Notes Due 2004, 7 5/8% Senior Notes Due 2007
and Guarantees of Senior Notes to be issued under the Indenture, SunTrust Bank,
Atlanta hereby consents that reports of examinations by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
-------------------------------
Group Vice President
<PAGE> 7
EXHIBIT 7 FORM T-1
LATEST REPORT OF CONDITION
OF
SUNTRUST BANK, ATLANTA
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C> <C>
SUNTRUST BANK ATLANTA Call Date: 06/30/97 State #: 130330 FFIEC 031
P. O. BOX 4418 CENTER 63Z Vendor ID: D Cert #: 00867 RC-1
ATLANTA, GA 30302 Transit #: 6100D104
11
CONSOLIDATION REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the
last business day of the quarter.
SCHEDULE RC - BALANCE SHEET
C400<
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
----
a. Noninterest-bearing balances and currency and coin (1)...................................... 0061 1,107,326 1.a
b. Interest-bearing balances(2)................................................................ 0071 4,501 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A).................................. 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)................................ 1773 3,075,005 2.b
3. Federal funds sold and securities purchased under agreements to resell.......................... 1350 2,074,409 3
4. Loans and lease financing receivables: RCFD
----
a. Loans and leases, net of unearned income (from Schedule RC-C)............ 2122 10,146,000 4.a
b. LESS: Allowance for loan and lease losses............................... 3123 131,278 4.b
c. LESS: Allocated transfer risk reserve................................... 3128 0 RCFD 4.c
d. Loans and leases, net of unearned income, allowance, and reserve (item ----
4.a minus 4.b and 4.c)...................................................................... 2125 10,014,722 4.d
5. Trading assets (from Schedule RC-D)............................................................. 3545 21,092 5.
6. Premises and fixed assets (including capitalized leases)........................................ 2145 96,777 6.
7. Other real estate owned (from Schedule RC-M).................................................... 2150 1,831 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)........ 2130 12,664 8.
9. Customers' liability to this bank on acceptances outstanding.................................... 2155 449,863 9.
10. Intangible assets (from Schedule RC-M).......................................................... 2143 18,090 10.
11. Other assets (from Schedule RC-F)............................................................... 2160 171,594 11.
12. Total assets (sum of items 1 through 11)........................................................ 2170 17,047,874 12.
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
SUNTRUST BANK ATLANTA Call Date: 06/30/97 State #: 13033D FFIEC 031
P. O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 00867 RC-2
ATLANTA, GA 30302 Transit #: 610001D4
12
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, RCON
----
part I) ............................................................. RCON 2200 7,050,141 13.a
----
(1) Noninterest-bearing(1).......................................... 5631 2,919,686 13.a.1
(2) Interest-bearing................................................. 6536 4,130,455 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from RCFN
----
Schedule RC-E, part II).............................................. RCFN 2200 1,558,328 13.b
----
(1) Noninterest-bearing.............................................. 6631 0 13.b1
(2) Interest-bearing................................................. 5536 1,558,328 13.b2
14. Federal funds purchased and securities sold under agreements to RCFD
----
repurchase .............................................................................. 2800 3,666,404 14
RCON
----
15. a. Demand notes issued to the U.S. Treasury............................................. 2840 0 15.a
RCFD
----
b. Trading liabilities (from Schedule RC-D)............................................. 3548 1,685 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less........................................ 2332 748,160 16.a
b. With a remaining maturity of more than one year through three years.................. A547 0 16.b
c. With a remaining maturity of more than three years................................... A548 2,502 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding.................................. 2920 449,863 18
19. Subordinated notes and debentures(2)...................................................... 3200 250,000 19
20. Other liabilities (from Schedule RC-G).................................................... 2930 1,084,678 20
21. Total liabilities (sum of items 13 through 20)............................................ 2948 14,811,761 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus............................................. 3838 0 23
24. Common stock.............................................................................. 3230 21,601 24
25. Surplus (exclude all surplus related to preferred stock).................................. 3839 553,406 25
26. a. Undivided profits and capital reserves................................................ 3632 605,599 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities................. 3434 1,055,507 26.b
27. Cumulative foreign currency translation adjustments....................................... 3284 0 27
28. Total equity capital (sum of items 23 through 27)......................................... 3210 2,236,113 28
29. Total liabilities and equity capital (sum of items 21 and 28)............................. 3300 17,047,874 29
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1 Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank by RCFD NUMBER
----
independent external auditors as of any date during 1996.................................. 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a cert- external auditors (may be required by state chartering
ified public accounting firm which submits a report on authority)
the bank 5 = Review of the bank's financial statements by external
2 = Independent audit of the bank's parent holding company auditors
conducted in accordance with generally accepted audit- 6 = Compilation of the bank's financial statements by
ing standards by a certified public accounting firm external auditors
which submits a report on the consolidated holding 7 = Other audit procedures (excluding tax preparation work)
company (but not on the bank separately) 8 = No external audit work
3 = Directors' examination of the bank conducted in
accordance with generally accepted auditing standards
by a certified public accounting firm (may be
required by state chartering authority)
</TABLE>
- ------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001048789
<NAME> FELCOR SUITES LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,793
<SECURITIES> 0
<RECEIVABLES> 5,526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 936,409
<DEPRECIATION> 36,718
<TOTAL-ASSETS> 976,788
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
151,250
<COMMON> 468,249
<OTHER-SE> 98,542
<TOTAL-LIABILITY-AND-EQUITY> 978,789
<SALES> 0
<TOTAL-REVENUES> 100,944
<CGS> 0
<TOTAL-COSTS> 52,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,803
<INCOME-PRETAX> 48,881
<INCOME-TAX> 0
<INCOME-CONTINUING> 48,881
<DISCONTINUED> 0
<EXTRAORDINARY> 2,354
<CHANGES> 0
<NET-INCOME> 46,527
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER FOR ALL OUTSTANDING
PRIVATELY PLACED 7 3/8% SENIOR NOTES DUE 2004
AND 7 5/8% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
7 3/8% SENIOR SUBORDINATED NOTES DUE 2004
AND 7 5/8% SENIOR NOTES DUE 2007
OF
FELCOR SUITES LIMITED PARTNERSHIP
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _____ __, 1997 (AS SUCH DATE MAY BE EXTENDED, BUT SHALL NOT BE LATER
THAN ______ __, 1997)
THE EXCHANGE AGENT IS SUNTRUST BANK, ATLANTA, WHOSE MAILING ADDRESS,
FACSIMILE NUMBER AND TELEPHONE NUMBER ARE AS FOLLOWS:
BY REGISTERED OR CERTIFIED BY FACSIMILE:
MAIL, HAND DELIVERY OR OVERNIGHT DELIVERY: (404) 332-3966 (GA)
(212) 240-8938 (NY)
SUNTRUST BANK, ATLANTA
58 EDGEWOOD AVENUE, 4TH FLOOR ANNEX
ATLANTA, GA 30302
ATTENTION: DAVID M. KAYE
OR
SUNTRUST BANK, ATLANTA
C/O FIRST CHICAGO TRUST COMPANY
14 WALL STREET, 8TH FLOOR
NEW YORK, NEW YORK 10005
<PAGE> 2
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
7 3/8% SENIOR NOTES DUE 2004 PRINCIPAL
NAMES AND ADDRESS OF REGISTERED HOLDER CERTIFICATE NUMBER(S) AMOUNT OF
AS IT APPEARS ON THE PRIVATELY PLACED OF OLD 7 3/8% NOTES OLD 7 3/8% NOTES
7 3/8% SENIOR NOTES TRANSMITTED TRANSMITTED
DUE 2004 ("OLD 7 3/8% NOTES")
<S> <C> <C>
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
</TABLE>
<TABLE>
<CAPTION>
7 5/8% SENIOR NOTES DUE 2007 PRINCIPAL
NAMES AND ADDRESS OF REGISTERED HOLDER CERTIFICATE NUMBER(S) AMOUNT OF
AS IT APPEARS ON THE PRIVATELY PLACED OF OLD 7 5/8% NOTES OLD 7 5/8% NOTES
7 5/8% SENIOR NOTES TRANSMITTED TRANSMITTED
DUE 2007 ("OLD 7 5/8% NOTES")
<S> <C> <C>
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
- --------------------------------------- ---------------------- --------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE> 3
Ladies and Gentlemen:
1. The undersigned hereby agrees to exchange the aggregate
principal amount of privately placed 7 3/8% Senior Notes Due 2004 (the "Old 7
3/8% Notes"), and 7 5/8% Senior Notes Due 2007 (the "Old 7 5/8% Notes" and
together with the Old 7 3/8% Notes, the "Old Notes") for a like principal amount
of 7 3/8% Senior Notes Due 2004 (the "New 7 5/8% Notes") and 7 5/8% Senior Notes
Due 2007 (the "New 7 5/8% Notes" and, together with the New 7 3/8% Notes, the
"New Notes") of FelCor Suites Limited Partnership, a Delaware limited
partnership (the "Company"), upon the terms and subject to the conditions
contained in the Registration Statement on Form S-4 (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") and the accompanying Prospectus dated November __, 1997
included therein (the "Prospectus"), receipt of each of which is hereby
acknowledged.
2. The undersigned hereby acknowledges and agrees that the New
7 3/8% Notes will bear interest at a rate equal to 7 3/8% per annum and the New
7 5/8% Notes will bear interest at a rate equal to 7 5/8% per annum. Interest on
the New Notes is payable semiannually, commencing April 1, 1998, on April 1 and
October 1 of each year (each, an "Interest Payment Date") and shall accrue from
October 1, 1997 or from the most recent Interest Payment Date with respect to
the Old Notes to which interest was paid or duly provided for. The New 7 3/8%
Notes will mature on October 1, 2004, and the New 7 5/8% Notes will mature
October 1, 2007. Accordingly, the undersigned will forego accrued but unpaid
interest on his, her or its Old Notes that are exchanged for New Notes from and
including such date, but will receive such interest under the New Notes.
3. The undersigned hereby represents and warrants that he, she or
it has full authority to tender the Old Notes described above. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the exchange of the Old Notes.
4. The undersigned understands that the tender of the Old Notes
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
5. The undersigned hereby represents and warrants that the
undersigned is not an affiliate the Company of any of the Guarantors (as defined
in the Prospectus), that the undersigned is acquiring the New Notes in the
ordinary course of the business of the undersigned and that the undersigned is
not engaged in, and does not intend to engage in, a distribution of the New
Notes.
6. If the undersigned is a broker-dealer (i) it hereby represents
and warrants that it acquired the Old Notes for its own account as a result of
market-making activities or other trading activities, (ii) it hereby
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
any resale of the New Notes received hereby and (iii) such broker-dealer has not
entered into any arrangement or understanding with the Company or any affiliate
of the Company to distribute the New Notes. The acknowledgment contained in the
foregoing sentence shall not be deemed an admission that the undersigned is an
"underwriter" within the meaning of the Securities Act.
7. Any obligation of the undersigned hereunder shall be binding
upon the successors, assigns, executors, administrators, trustees in bankruptcy
and legal and personal representatives of the undersigned.
3
<PAGE> 4
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the New Notes are to be issued in the name of
someone other than the undersigned or are to be sent to someone other than the
undersigned or to the undersigned at an address other than that provided above.
Issue to:
Name
---------------------------------------
(Please Print)
Address
---------------------------------------
---------------------------------------
(Include Zip Code)
Mail to:
Name
---------------------------------------
(Please Print)
Address
---------------------------------------
---------------------------------------
---------------------------------------
(Include Zip Code)
SIGNATURE
-----------------------------------------------
(Name of Registered Holder)
By:
---------------------------------------
Name:
Title:
Date:
---------------------------------------
(Must be signed by registered holder exactly as name appears on the Old Notes.
If signature is by trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 3.)
Address:
---------------------------------------
Telephone No.
-----------------------------------
Taxpayer Identification No.:
--------------------------------------
Signature Guaranteed By:
--------------------------------------
(See Instruction 1)
Title:
Name of Institution:
Address:
Date:
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF
TRANSMITTAL.
4
<PAGE> 5
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office in the
United States which is a member of a recognized Medallion Signature Program
approved by the Securities Transfer Association, Inc. (an "Eligible
Institution") unless (i) the "Special Issuance and Delivery Instructions" above
have not been completed or (ii) the Old Notes described above are tendered for
the account of an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes,
together with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above.
The method of delivery of Old Notes and other documents is at the
election and risk of the respective holder. If delivery is by mail, registered
mail (with return receipt), properly insured, is suggested.
3. GUARANTEED DELIVERY PROCEDURES. Registered holders who wish to
tender their Old Notes and (i) whose Old Notes are not immediately available, or
(ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and
address of the registered holder of the Old Notes, the
certificate number or numbers of such Old Note(s) and the
principal amount of Old Notes tendered, stating that the tender
is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes and any other documents
required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal
(or facsimile thereof), as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer
and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to registered holders who wish to tender their Old Notes according
to the guaranteed delivery procedures set forth above.
4. SIGNATURES ON LETTER OF TRANSMITTAL, BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than a
registered holder of any Old Notes, such Old Notes must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered holder or holders appear on the Old Notes.
If this Letter of Transmittal or any Old Notes or bond power is signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company or their authority to so act must
be submitted.
5. EXCHANGE OF OLD NOTES ONLY. Only the above-described Old Notes
may be exchanged for New Notes pursuant to the Exchange Offer.
5
<PAGE> 6
6. MISCELLANEOUS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Old Notes will be resolved by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all tenders
that are not in proper form or the acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders or
consents must be cured within such time as the Company shall determine. Neither
the Company nor the Exchange Agent shall be under any duty to give notification
of defects in such tenders or shall incur liabilities for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering holder thereof.
IMPORTANT TAX INFORMATION
Under current Federal income tax law, a holder of Old Notes (an "Old
Noteholder"), whose tendered Old Notes are accepted for payment generally is
required to provide the Exchange Agent (as agent for the payer) with his or her
correct taxpayer identification number ("TIN") on Form W-9, attached hereto.
If such Old Noteholder is an individual, the TIN is his or her social security
number. If the Exchange Agent is not provided with the correct TIN, the Old
Noteholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such Old Noteholders with
respect to New Notes exchanged pursuant to the Offer may be subject to backup
withholding.
Certain Old Noteholders (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Old Noteholders should indicate their exempt
status on the Form W-9. In order for a foreign individual to qualify as an
exempt recipient, that Old Noteholder must submit a properly completed Internal
Revenue Service Form W-8, signed under penalties of perjury, attesting to his
or her exempt status. Such statements can be obtained from the Exchange Agent.
See the Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to
withhold 31 percent of any such payments made to the Old Noteholder. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
PURPOSE OF FORM W-9
To prevent backup withholding on payments that are made to an Old
Noteholder with respect to Old Notes exchanged pursuant to the Exchange Offer,
each Old Noteholder is required to notify the Exchange Agent of his, her or its
correct TIN by completing the Form W-9 below certifying the TIN provided on
such form is correct (or that such Old Noteholder is awaiting a TIN) and that
(1) the Old Noteholder has not been notified by the Internal Revenue Service
that he, she or it is subject to backup withholding as a result of a failure to
report all interest or dividends or (2) the Internal Revenue Service has
notified the Old Noteholder that he, she or it is no longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Old Noteholder is required to give the Exchange Agent the social
security number or employer identification number of the record owner of the
Old Notes. If the Old Notes are in more than one name or are not in the name
of the actual owner, consult the enclosed Form W-9 for additional guidelines on
which number to report.
6
<PAGE> 7
Please print or type
<TABLE>
<S> <C> <C>
Form W-9 GIVE THIS FORM TO
(Rev. March 1994) THE REQUESTER. DO
REQUEST FOR TAXPAYER NOT SEND TO IRS.
Department of the IDENTIFICATION NUMBER AND CERTIFICATION
Treasury
Internal Revenue
Service
- -------------------------------------------------------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part
1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME HAS CHANGED.)
----------------------------------------------------------------------------------------------------------------------------
Business name (Sole proprietors see instructions on page 2).
----------------------------------------------------------------------------------------------------------------------------
Please check appropriate box: [ ] Individual/Sole Proprietor [ ] Corporation [ ] Partnership
[ ] Other >.................................................................................................
----------------------------------------------------------------------------------------------------------------------------
Address (number and street) Requester's name and address (optional)
----------------------------------------------------------------------------------------------------------------------------
City, state, and ZIP code
- -------------------------------------------------------------------------------------------------------------------------------
PART I TAXPAYER IDENTIFICATION NUMBER (TIN) List account number(s) here (optional)
- -------------------------------------------------------
Enter your TIN in the appropriate box. For
individuals, this is your social security number
(SSN). For sole proprietors, see the instructions Social Security number
on page 2. For other entities, it is your employer
identification number (EIN). If you do not have a
number, see HOW TO GET A TIN below. - -
-------------------------------- --------------------------------------
NOTE: If the account is in more than one name, PART II
see the chart on page 2 for guidelines on whose OR
number to enter. For Payees Exempt From
Backup Withholding (See
Employer identification number Exempt Payees and
- Payments on page 2)
--------------------------------
--------------------------------------
>
--------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PART III CERTIFICATION
- --------------------------------------------------------------------------------
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS.-- You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return. For real estate
transactions, item 2 does not apply. For mortgage interest paid, the acquisition
or abandonment of secured property, contributions to an individual retirement
arrangement (IRA), and generally payments other than interest and dividends, you
are not required to sign the Certification, but you must provide your correct
TIN. (Also see SIGNING THE CERTIFICATION on page 2).
- --------------------------------------------------------------------------------
SIGN
HERE SIGNATURE > Date >
- --------------------------------------------------------------------------------
Section references are to the Internal Revenue Code.
PURPOSE OF FORM.-- A person who is required to file an information return with
the IRS must obtain your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, cancellation of debt, or contributions you made to an IRA. Use
Form W-9 to give your correct TIN to the requester (the person requesting your
TIN) and, when applicable, (1) to certify that the TIN you are giving is correct
(or that you are waiting for a number to be issued), (2) to certify that you are
not subject to backup withholding, or (3) to claim exemption from backup
withholding if you are an exempt payee. Giving your correct TIN and making the
appropriate certifications will prevent certain payments from being subject to
backup withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form if it substantially similar to this Form W-9.
WHAT IS BACKUP WITHHOLDING?-- Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called "backup withholding." Payments that could be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because you did
not report all your interest and dividends on your tax return (for reportable
interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN. See the Part III instructions for exceptions.
Certain payees and payments are exempt from backup withholding and information
reporting. See the Part II instructions and the separate INSTRUCTIONS FOR THE
REQUESTER OF FORM W-9.
HOW TO GET A TIN.-- If you do not have a TIN, apply for one immediately. To
apply, get FORM SS-5, Application for a Social Security Card (for individuals),
from your local office of the Social Security Administration, or FORM SS-4,
Application for Employer Identification Number (for businesses and all other
entities), from your local IRS office.
If you do not have a TIN, write "Applied for" in the space for the TIN in Part
1, sign and date the form, and give it to the requester. Generally, you will
then have 60 days to get a TIN and give it to the requester. If the requester
does not receive your TIN within 60 days, backup withholding, if applicable,
will begin and continue until you furnish your TIN.
- --------------------------------------------------------------------------------
4/4/94 Cat. No. 10231X Form W-9 (Rev. 3-94)
<PAGE> 8
Form W-9 (Rev. 1-93) Page 2
- --------------------------------------------------------------------------------
NOTE: Writing "Applied for" on the form means that you have already applied for
a TIN OR that you intend to apply for one soon.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.
PENALTIES
FAILURE TO FURNISH TIN.-- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.-- If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.-- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME.-- If you are an individual, you must generally provide the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
Sole proprietor.-- You must furnish your INDIVIDUAL name. (Enter either your
SSN or EIN in Part 1). You may also enter your business name or "doing business
as" name on the business name line. Enter your name as shown on your social
security card and business name as it was used to apply for your EIN on Form
SS-4.
PART 1 -- TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your SSN or EIN. Also see the chart on this page for further
classification of name and TIN combinations. If you do not have a TIN, follow
the instructions under HOW TO GET A TIN on page 1.
PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are NOT exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends. For a complete list of exempt payees, see the separate
Instructions for the Requester of Form W-9.
If you are exempt from backup withholding, you should still complete this form
to avoid possible erroneous backup withholding. Enter your correct TIN in Part
I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the requester a completed FORM W-8, Certificate of Foreign Status.
PART III -- CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out
item 2 of the certification.
4. OTHER PAYMENTS. You must give your correct TIN, but you do not have to sign
the certification unless you have been notified of an incorrect TIN. Other
payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise), medical
and health care services, payments to a nonemployee for services (including
attorney and accounting fees), and payments to certain fishing boat crew
members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. You must give your correct TIN, but you do not
have to sign the certification.
PRIVACY ACT NOTICE.-- Section 6109 requires you to give your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. You must provide
your TIN whether or not you are required to file a tax return. Payers must
generally withhold 31% of taxable interest, dividend, and certain other payments
to a payee who does not furnish a TIN to a payer. Certain penalties may also
apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<S> <C>
- ----------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
- ----------------------------------------------------
1. Individual The individual
2. Two or more The actual owner of the
individuals account or, if combined
(joint account) funds, the first
individual on the
account.(1)
3. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
4. a. The usual The grantor-trustee(1)
revocable savings
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is
not a legal or
valid trust under
state law
5. Sole proprietorship The owner(3)
- ----------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
- ----------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, Legal entity(4)
estate, or pension
trust
8. Corporate The corporation
9. Association, club, The organization
religious,
charitable,
educational, or
other tax-exempt
organization
10. Partnership The partnership
11. A broker or The broker or nominee
registered nominee
12. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
- -------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) You must show your individual name but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
W-9.2
